UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended February 29, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
Commission File Number 1-5742
RITE AID CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
30 Hunter Lane, Camp Hill, Pennsylvania
(Address of principal executive offices)
23-1614034
(I.R.S. Employer
Identification No.)
17011
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (717) 761-2633
Title of each class
Common Stock, $1.00 par value
Trading Symbol(s)
RAD
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “Large Accelerated Filer,” “Accelerated Filer,” “Smaller Reporting Company,” and
“Emerging Growth Company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐
Accelerated Filer ☒
Non-Accelerated Filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
The aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant based on the
closing price at which such stock was sold on the New York Stock Exchange on August 31, 2019 was approximately $349,426,555. For purposes of this
calculation, only executive officers and directors are deemed to be affiliates of the registrant.
As of April 16, 2020 the registrant had outstanding 54,704,579 shares of common stock, par value $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 or an
amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III of
this Annual Report on Form 10-K.
TABLE OF CONTENTS
Cautionary Statement Regarding Forward-Looking Statements
PART I
ITEM 1. Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Mine Safety Disclosures
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
ITEM 6. Selected Financial Data
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Continuing
Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accountant Fees and Services
PART IV
ITEM 15. Exhibits and Financial Statement Schedule
SIGNATURES
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report, as well as our other public filings or public statements, include forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often
identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,”
“could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions and include references to assumptions and
relate to our future prospects, developments and business strategies.
Factors that could cause actual results to differ materially from those expressed or implied in such
forward-looking statements include, but are not limited to:
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the impact of widespread health developments, including the global coronavirus (“COVID-19”) pandemic,
and the responses thereto (such as voluntary and in some cases, mandatory quarantines as well as shut
downs and other restrictions on travel and commercial, social and other activities) which could materially
and adversely affect, among other things, the economic and financial markets and labor resources of the
locations in which we operate, access to credit, our front-end and pharmaceutical operations, commercial
operations and sales force and executive and administrative personnel. These widespread health
developments could also materially and adversely affect our third-party service providers, including
suppliers and business partners, and customers and the demand for our products. These developments could
result in recessionary economic conditions which could negatively impact our front-end sales and e-
commerce business. Any of these developments could result in a material adverse effect on our business,
financial conditions and results of operations;
our ability to successfully implement our new business strategy (including any delays as a result of
COVID-19) and improve the operating performance of our stores;
our high level of indebtedness and our ability to satisfy our obligations and the other covenants contained
in our debt agreements;
general competitive, economic, industry, market, political (including healthcare reform), and regulatory
conditions, as well as factors specific to the markets in which we operate;
the impact of private and public third party payors’ continued reduction in prescription drug reimbursement
rates and efforts to encourage mail order;
our ability to achieve the benefits of our efforts to reduce the costs of our generic and other drugs;
the risk that we may experience shortages in our generic drug supply due to replenishment delays resulting
from COVID-19, which could result in the substitution of generic drugs with brand drugs, which generally
have a lower profit margin;
the risk that changes in federal or state laws or regulations, including the Health Care Education
Affordability Reconciliation Act, the repeal of all or part of the Patient Protection and the Affordable Care
Act (or "ACA") and any regulations enacted thereunder may occur;
the impact of the loss of one or more major third party payor contracts and the risk that providers and state
contract changes may occur;
the risk that we will not be able to meet our obligations under our Transition Services Agreement (“TSA”)
with Walgreens Boots Alliance, Inc. (“WBA”), which could expose us to significant financial penalties;
the risk that we cannot reduce our selling, general and administrative expenses enough to offset lost income
from the TSA as the amount of stores serviced under the agreement decreases;
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the risk that we may need to take further impairment charges if our future results do not meet our
expectations;
our ability to refinance our indebtedness on terms favorable to us;
our ability to sell our calendar 2020 Centers of Medicare and Medicaid Services (“CMS”) receivable,
which could negatively impact our leverage ratio;
our ability to grow prescription count and realize front-end sales growth;
the continued integration of our new senior management team and our ability to realize the benefits from
our organizational restructuring;
our ability to achieve cost savings through the organizational restructurings within our anticipated
timeframe, if at all;
decisions to close additional stores and distribution centers or undertake additional refinancing activities,
which could result in further charges;
our ability to manage expenses and our investments in working capital;
the continued impact of gross margin pressure in the pharmacy benefit management (“PBM”) industries
due to continued consolidation and client demand for lower prices while providing enhanced service
offerings;
risks related to compromises of our information or payment systems or unauthorized access to confidential
or personal information of our associates or customers;
our ability to maintain our current pharmacy services business and obtain new pharmacy services business,
including maintaining renewals of expiring contracts, avoiding contract termination rights that may permit
certain of our clients to terminate their contracts prior to their expiration, early price renegotiations prior to
contract expirations and the risk that we cannot meet client guarantees;
our ability to maintain our current Medicare Part D business and obtain new Medicare Part D business, as a
result of the annual Medicare Part D competitive bidding process and meet the financial obligations of our
bid;
the expiration or termination of our Medicare or Medicaid managed care contracts by federal or state
governments;
changes in future exchange or interest rates or credit ratings, changes in tax laws, regulations, rates and
policies;
the risk that we could experience deterioration in our current Star rating with the CMS or incur CMS
penalties and/or sanctions;
the nature, cost and outcome of pending and future litigation and other legal or regulatory proceedings, and
governmental investigations;
the inability to fully realize the benefits of our tax attributes; and
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other risks and uncertainties described from time to time in our filings with the Securities and Exchange
Commission (the “SEC”).
We undertake no obligation to update or revise the forward-looking statements included in this report, whether
as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or
achievements could differ materially from the results expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences are discussed in the sections entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations—Overview and
Factors Affecting Our Future Prospects” included in this Annual Report on Form 10-K. Additionally, the continued
impact of COVID-19 could heighten many of the risk factors described herein.
Item 1. Business
Overview
PART I
Rite Aid Corporation (“Rite Aid” or the “Company”) is on the front lines of delivering health care services and
retail products to over one million Americans daily. Our pharmacists are uniquely positioned to engage with customers
and improve their health outcomes. We provide an array of whole being health products and services for the entire
family through over 2,400 retail pharmacy locations across 18 states. Through EnvisionRxOptions, which is soon to be
rebranded Elixir, we provide pharmacy benefits and services to approximately four million members nationwide.
Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and our telephone number is
(717) 761-2633. Our common stock is listed on the New York Stock Exchange under the trading symbol of “RAD.” We
were incorporated in 1968 and are a Delaware corporation.
Fiscal 2020 was a year of significant change for Rite Aid. During fiscal 2020, Rite Aid undertook various
restructuring initiatives, appointed new members to its Board of Directors, and hired a new executive leadership team, in
order to support our objective to continue to operate as an independent, stand-alone organization. Rite Aid has the ability
to leverage the power of its assets and personnel, including its trusted pharmacists, to deliver a compelling,
comprehensive offering through all channels. These offerings will not only help our current and future consumers to get
healthy, it will help them to thrive. While our strategy will take some time to execute, we made significant progress
during fiscal 2020 that provides us with a strong foundation on which to build. Our accomplishments include, but are
not limited to, i) reduced our corporate expenses by approximately $55 million on an annualized basis, ii) extended 35%
of our calendar 2023 bond maturities to calendar 2025, iii) reduced our debt and improved our leverage ratio, and iv)
implemented LEAN initiatives, a method used by companies worldwide to build a culture of continuous improvement,
to reduce working capital tied to inventory and improve our pharmacist’s productivity. While these accomplishments
are important, they are simply the groundwork needed to allow Rite Aid to unlock its potential through the
implementation of our long-term initiatives, our RxEvolution.
RxEvolution – On March 16, 2020, we announced our new strategic plan and initiatives, named “RxEvolution”,
which include significant rebranding, merchandising, marketing, integration and operational initiatives, in both our
Retail Pharmacy and Pharmacy Services segments. The execution of these overarching initiatives will result in the
reintroduction of our trusted and iconic Rite Aid brand to a new generation of consumers, maintain relevance in an ever
changing marketplace, and thrive as a significant health care services company with a retail footprint. Our initiatives are
focused on three primary areas, i) to become the dominant mid-market pharmacy benefit manager (PBM), ii) to unlock
the value of our pharmacists, and iii) to renew our retail and digital experience.
Becoming the dominant mid-market PBM: Rite Aid’s pharmacy benefits and services company,
EnvisionRxOptions, includes multiple PBMs, technology and claims adjudication software, mail delivery and specialty
pharmacy services, network and rebate administration, as well as prescription discount programs and Medicare Part D
insurance for individuals and groups. With a stronger, integrated offering, this soon-to-be rebranded business will be
well positioned with mid-market employer groups and regional health plans looking for an alternative to the large, health
plan affiliated PBM’s. Additionally, given the affiliation with Rite Aid’s stores, EnvisionRxOptions has the opportunity
to improve its competitive positioning, deliver exceptional retail and mail order pharmacy service, and contribute to
positive clinical outcomes. EnvisionRxOptions is now the only payor agnostic PBM with a retail pharmacy footprint.
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We believe EnvisionRxOptions is poised for strong growth and improved profitability, and represents the largest
potential growth opportunity for Rite Aid.
Unlocking the value of Rite Aid’s pharmacists: Rite Aid is innovating across all of its retail and mail order
pharmacy channels, including its PBM and suite of pharmacy service solutions. These innovations go beyond just filling
prescriptions to offering an array of over-the-counter, clinical and holistic health and wellness solutions, focused on
helping customers thrive. Pharmacists are highly educated, knowledgeable, accessible, and one of the most trusted
healthcare providers; however, their full potential is not always being utilized or valued. Rite Aid’s 6,400 pharmacists
will be whole-being health advocates, allowing them to practice at the top of their license and education. Our
pharmacists will go beyond their traditional role to an expanded role, in which they are encouraging a holistic approach
to health. Rite Aid is leveraging our associates to engage with LEAN tools, developing new workflows and technologies
to free up our pharmacists’ time, and we are also launching our new Pharmacy of the Future, which moves our
pharmacists physically closer to the consumer. These new workflows, tools and new space will allow our pharmacists to
engage more personally with our consumers.
Renewing Rite Aid’s retail and digital experience: As consumers increasingly focus on self-care, they seek to
strike the perfect balance between traditional health and holistic wellness. Rite Aid’s goal is to be a whole-being health
destination that treats mind, body and spirit. To introduce new generations to our iconic brand, Rite Aid is elevating its
in-store experience, increasing personalized digital engagement, and refreshing merchandise to include a wide
assortment of products with ingredients that are meaningful to Millennial and Gen X shoppers. Rite Aid is re-branding
with a new logo to signal this bold change in pharmacy and retail. Later this year, Rite Aid is planning to introduce its
Store of the Future, which will be a trusted household wellness destination that helps consumers on the journey of care
for parents, children and pets.
We believe that the strategy inherent in our RxEvolution will enable us to unlock the incredible potential of our
trusted and iconic brand. By reinvigorating our integrated PBM offerings, enhancing the role of our 6,400 pharmacists
and revitalizing our retail and digital experience, Rite Aid will not only remain relevant to a new generation of
consumers, but can thrive as an independent healthcare company with a retail footprint.
As described in the following paragraphs, under prior leadership, during the past several years, Rite Aid had
been involved in certain activities designed to sell itself and portions of its business.
Termination of the Merger Agreement—On February 18, 2018, Rite Aid entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with Albertsons Companies, Inc. (“Albertsons”), Ranch Acquisition II LLC, a
Delaware limited liability company and a wholly-owned direct subsidiary of Albertsons (“Merger Sub II”) and Ranch
Acquisition Corp., a Delaware corporation and a wholly-owned direct subsidiary of Merger Sub II (together with Merger
Sub II, the “Merger Subs”). On August 8, 2018, Rite Aid, Albertsons and the Merger Subs entered into a Termination
Agreement (the “Merger Termination Agreement”) under which the parties mutually agreed to terminate the Merger
Agreement. Subject to limited customary exceptions, the Merger Termination Agreement mutually releases the parties
from any claims of liability to one another relating to the contemplated merger. Under the terms of the Merger
Agreement, neither Rite Aid nor Albertsons is responsible for any payments to the other party as a result of the
termination of the Merger Agreement and Rite Aid is no longer subject to the interim operating covenants and
restrictions contained in the Merger Agreement.
Asset Sale—On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement
(the “Amended and Restated Asset Purchase Agreement”) with WBA and Walgreen Co., an Illinois corporation and
wholly-owned direct subsidiary of WBA (“Buyer”), which amended and restated in its entirety the previously disclosed
Asset Purchase Agreement (the “Original Asset Purchase Agreement”), dated as of June 28, 2017, by and among Rite
Aid, WBA and Buyer. Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset
Purchase Agreement, Buyer agreed to purchase from Rite Aid 1,932 Acquired Stores, three distribution centers, related
inventory and other specified assets and liabilities related thereto for a purchase price of approximately $4.375 billion,
on a cash-free, debt-free basis (the “Asset Sale” or “Sale”). As of February 29, 2020, we have completed the transfer of
all 1,932 stores and related assets to WBA and received cash proceeds of $4.157 billion and two of the three distribution
centers and related assets for proceeds of $124.0 million. On April 1, 2020, we completed the inventory transfer at our
remaining distribution center to WBA for proceeds of $19.3 million.
The transfer of the remaining distribution center and related non-inventory assets remains subject to minimal
customary closing conditions applicable only to the distribution center being transferred at such distribution center
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closing, as specified in the Amended and Restated Asset Purchase Agreement. The transfer of the remaining distribution
center and related non-inventory assets is expected to occur in May 2020, and will constitute the final closing under the
Amended and Restated Asset Purchase Agreement. The term of the TSA continues after the final closing until October
17, 2020, unless earlier terminated.
Based on its magnitude and because we are exiting certain markets, the Sale represents a significant strategic
shift that has a material effect on our operations and financial results. Accordingly, we have applied discontinued
operations treatment for the Sale, as required by generally accepted accounting principles (“GAAP”).
In fiscal 2020, we continued reporting our business in two distinct segments. Our Retail Pharmacy Segment
consists of Rite Aid stores, RediClinic and Health Dialog. Our Pharmacy Services Segment consists of
EnvisionRxOptions, our PBM, which is soon to be rebranded as Elixir (“EnvisionRx” or “EnvisionRxOptions”).
Retail Pharmacy Segment— In our Rite Aid retail stores, our highly trained pharmacists dispense prescription
medication and educate our customers on non-prescription remedies that can supplement traditional options. We offer a
wide range of healthcare counseling services, including administering immunizations against the flu and shingles,
assisting our customers with high blood pressure, cholesterol and diabetes, providing guidance on combating obesity and
tobacco addiction, and educating our customers on managing medications and potential side effects. In addition, we
offer a wide assortment of other merchandise to complement our pharmaceutical services and to provide convenience of
our customers, which we call “front-end” products. In fiscal 2020, prescription drug sales accounted for 67.0% of our
total drugstore sales. We believe that our pharmacy operations will continue to represent a significant part of our
business due to a combination of our efforts to expand the role of our 6,400 pharmacists as whole-being health
advocates, to industry trends, such as an aging population, increased life expectancy, anticipated growth in the federally
funded Medicare Part D prescription program as “baby boomers” continue to enroll and the discovery of new and better
prescription drug and over-the-counter therapies. We carry a full assortment of front-end products, which accounted for
the remaining 33.0% of our total drug store sales in fiscal 2020. Front-end products include over-the-counter
medications, health and beauty aids, personal care items, cosmetics, household items, food and beverages, greeting
cards, seasonal merchandise and numerous other everyday and convenience products.
We differentiate our stores from other national chain drugstores, in part, through our wellness+ Rewards
loyalty program, our Wellness format stores, innovative merchandising, owned brands and our strategic partnership with
GNC, a leading retailer of vitamin and mineral supplements. We offer a wide variety of products through our portfolio of
owned brands, which contributed approximately 19% of our front-end sales in fiscal 2020.
The average size of each store in our chain is approximately 13,600 square feet, and average store size is larger
for our locations in the western United States. As of February 29, 2020, 58% of our stores were freestanding; 54% of our
stores included a drive-thru pharmacy; and 66% included a GNC store within a Rite Aid store.
RediClinic, based in Houston, is an operator of retail clinics. RediClinics are staffed by board-certified nurse
practitioners and physician assistants, who are trained and licensed to treat common conditions and provide preventative
services, in collaboration with local physicians who are affiliated with a leading health care system in each market.
Patients can be treated for more than 30 common medical conditions and RediClinic’s clinicians are able to write
prescriptions for these conditions when appropriate. Additionally, RediClinics provide a broad range of preventive
services, including screenings, medical tests, immunizations and basic physical exams. We operated a total of 67
RediClinics at the end of fiscal 2020. We have owned 100% of RediClinic since 2014.
Health Dialog, based in Boston, is a provider of healthcare coaching and disease management services to health
plans and employers. Health Dialog provides these services using a call in line staffed by nurse practitioners and through
an on-line platform. We have owned 100% of Health Dialog since 2014.
Pharmacy Services Segment—EnvisionRxOptions, our mid-market national pharmacy benefits manager
(“PBM”), provides a fully integrated suite of PBM offerings including technology solutions, mail delivery services,
specialty pharmacy, network and rebate administration, claims adjudication and pharmacy discount programs.
EnvisionRxOptions also provides prescription discount programs and Medicare Part D insurance offerings for
individuals and groups. EnvisionRxOptions provide services to various clients across its different lines of business,
including major health plans, commercial employers, labor groups and state and local governments, representing
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approximately 4 million covered lives. Additionally, our Medicare Part D insurance offerings represents 0.9 million
covered lives.
EnvisionRxOptions will continue to focus its efforts and offerings to its target market of small to mid-market
employers, labor unions and regional health plans, including provider led health plans, and government sponsored
Medicaid and Medicare plans.
We believe that EnvisionRxOptions is an integral component of our future success. We believe
EnvisionRxOptions has the opportunity to become a dominant mid-market PBM through its compelling healthcare
services offerings and outstanding digital engagement, and its connection to the 2,461 Rite Aid retail stores.
EnvisionRxOptions primary market differentiator is that it is the only payor-agnostic PBM with a retail pharmacy
footprint. We have owned 100% of EnvisionRxOptions since 2015.
Restructuring activities—In March 2019, the Board of Directors initiated certain restructuring programs to
realign Rite Aid’s executive management team to facilitate its goal of operating as a fully integrated stand-alone
healthcare company with a retail footprint. During fiscal 2020, Rite Aid implemented restructuring activities to
revitalize its turnaround efforts aimed at the continued streamlining of its operations, extending debt maturities, and
reducing its leverage ratio, which will help provide Rite Aid with the ability to execute its long-term strategy. We
expect to incur one-time restructuring charges of approximately $60 million during fiscal year 2021 as we continue to
implement our restructuring initiatives. These initiatives will include rebranding efforts related to our Retail and PBM
businesses and the transition of certain lines of merchandise.
Industry Trends
Despite an increase in prescription drug usage, the rate of pharmacy sales growth in the United States continues
to be negatively impacted by a decline in new blockbuster drugs, a longer FDA approval process, drug safety concerns,
higher copays and an increase in the use of generic (non-brand name) drugs, which are less expensive but generate
higher gross margins. New drug development in the next few years is expected to be concentrated in specialty
prescriptions, which are high cost drugs targeted toward complex or rare chronic conditions. We expect prescription
usage to continue to grow in the coming years due to the aging U.S. population, increased life expectancy, “baby
boomers” continuing to become eligible for the federally funded Medicare prescription program and new drug therapies.
Additionally, rising U.S. healthcare costs and the shortage of primary care physicians are creating opportunities for
pharmacists and drugstores to play a more active role in driving positive health outcomes for patients. Services such as
immunizations, medication therapy management, chronic condition management, clinics, medication compliance and
counseling. In the face of the current pandemic, pharmacists are on the front line of testing, and with
RediClinic@Home, telehealth will extend our efforts well beyond filling prescriptions. We believe that offerings such as
these will gain additional momentum in a rapidly changing healthcare environment.
In terms of our traditional drug dispensing business, generic prescription drugs continue to help lower overall
costs for customers and third party payors. We believe the utilization of existing generic pharmaceuticals will continue
to increase, although the pace of introduction of new generic drugs is expected to slow. The gross profit from a generic
drug prescription in the retail drugstore industry is generally greater than the gross profit from a brand drug prescription.
However, the sale amount can be substantially less and has impacted our overall revenues and same store sales.
The retail drugstore industry is highly competitive and consolidation has accelerated. We believe that the
competitive advantages from the increasing trend toward vertical integration resulting from the combination of retail
pharmacy companies with PBMs, such as CVS Health, and aggressive generic pricing programs at competitors such as
Wal-Mart and various supermarket chains will further increase competitive pressures in the industry. Front-end product
pricing has continued to be highly promotional in the retail drugstore business, which contributes to additional
competitive pressures.
The retail drugstore industry continues to rely significantly on third party payors. Over the past several years,
third party payors, including the Medicare Part D plans and the state-sponsored Medicaid and related managed care
Medicaid agencies, have changed the eligibility requirements of participants and have successfully reduced certain
reimbursement rates. This trend is expected to continue, which puts added pressure on our and our competitors’ results.
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Medicare Part D plans have also introduced plans that have restricted network options, under which a patient can elect a
plan with a lower copay in exchange for the choice to use a limited number of pharmacies to fill their prescriptions. In
order to participate in these restricted networks, retail pharmacies generally have to accept lower reimbursement rates.
We expect the usage of these restricted network plans to continue to increase. When third party payors, including the
Medicare Part D program and state-sponsored Medicaid agencies, reduce the number of participants and/or reduce their
reimbursement rates, sales and margins in the industry could be reduced, and profitability of the industry adversely
affected. These possible adverse effects can be partially offset by lowering our product cost, controlling expenses,
dispensing more higher margin generics, finding new revenue streams through pharmacy services and dispensing more
prescriptions overall.
The PBM industry has been historically concentrated across the three largest PBMs, although niche PBMs and
organizations seeking to carve-out specific PBM-related services continue to emerge. Plan sponsor buyers are seeking
new and innovative solutions to manage pharmacy benefit costs. Certain market segments, such as regional health plans
and union Taft-Hartley plans, are reacting to vertical consolidation by the big three PBMs and seeking viable alternative
PBM providers. Plan sponsors with covered populations in geographically concentrated areas, such as hospital/health
system clients and small to mid-sized employers, are seeking to leverage geographic opportunities to negotiate more
favorable pharmacy pricing and/or leverage community based clinical management resources.
Strategy
In fiscal 2020, we revitalized and redefined our long-term strategy aimed at operating as a fully integrated
stand-alone healthcare company with a retail footprint. We have made significant progress on our turnaround efforts
during fiscal 2020 toward our overall goals, which provides us with a strong foundation on which to build. Our
accomplishments include, but are not limited to, i) reduced our corporate expenses by approximately $55 million on an
annualized basis, ii) extended 35% of our calendar 2023 bond maturities to calendar 2025, iii) reduced our debt and
improved our leverage ratio, and iv) implemented LEAN initiatives to reduce working capital tied to inventory and
improve our pharmacist’s productivity. In addition to the significant milestones previously noted, we have been taking
steps to grow membership at our PBM and to stabilize our retail operations. In our Retail Pharmacy segment, we
engaged with our pharmaceutical suppliers to ensure that we have low drug acquisition costs for filling prescriptions and
engaged with our payor partners to gain better reimbursement rate predictability and access. We continued to expand the
clinical role of our pharmacists, including immunizations. In our Pharmacy Services segment, we focused on pharmacy
network management and the expansion of our Medicare Part D enrollment.
Following are descriptions of some of our key initiatives for fiscal 2021. Our initiatives are focused on three
primary areas, i) to become the dominant mid-market pharmacy benefit manager (PBM), ii) to unlock the value of our
pharmacists, and iii) to renew our retail and digital experience. While we have certain goals and targets as described
below, a prolonged impact of COVID-19 could result in certain delays in achieving such goals or require us to shift
priorities on a temporary basis.
Expanded Healthcare Services—In fiscal 2020, we continued to expand the role of our Rite Aid pharmacists in
delivering health and wellness services that go beyond filling prescriptions. We have accelerated these efforts over the
past year by focusing on a clinical pharmacy services strategy known as AIM, which stands for Adherence,
Immunizations and Medication Therapy Management (“MTM”). A key part of our AIM strategy is operating as
efficiently as possible so that our pharmacists have additional time to perform these increasingly valuable clinical
services.
Promoting medication adherence—or taking medications on time and as prescribed—is one of the best ways
our pharmacists can help drive positive health outcomes for patients while also lowering healthcare costs by avoiding
illnesses and hospital visits. In addition to patient counseling, we have a number of tools in place that make it easier for
patients to comply with their medication therapy while also providing a better customer experience, including text,
phone and email alerts when a prescription is ready for pick-up and our One Trip Refills program, which allows patients
to refill all of their monthly maintenance medications in a single trip to the pharmacy.
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A key area of focus has been our immunizations program, which has grown significantly in recent years. In
fiscal 2020, our pharmacists administered an all-time company record, based on historical performance of go-forward
Rite Aid stores, of 4.1 million immunizations, including more than 2.7 million flu shots. Pharmacists also increased the
number of non-flu or ancillary immunizations, which protect against conditions such as shingles, pneumonia and
whooping cough, by nearly 60% for a total of more than 1.4 million. Both flu and ancillary immunizations will continue
to be a key priority in fiscal 2021.
We continued to make progress in expanding our MTM services, in which pharmacists engage with patients
and focus on managing their entire medication regimen to drive positive health outcomes. Our results exceeded both last
year and our plan for fiscal 2020. We can also improve productivity by further increasing 90-day prescriptions and
leveraging our workload balancing program that enables pharmacists at lower-volume stores and in our central fill
facility to remotely support prescription dispensing at higher-volume stores.
For fiscal 2021, we will continue to focus on increasing pharmacy efficiencies, further empowering pharmacists
with tools and resources they need to proactively engage with consumers and be whole health advocates. Our 6,400
pharmacists are our greatest resource and are being repositioned as whole health advocates by enhancing their traditional
pharmacist role to encourage a holistic approach to health. Pharmacists are among the most trusted healthcare advisors,
engaging with customers, on average, upwards of twenty-five times per year, which uniquely positions them as we
continue to focus on bringing pharmacists front and center in the store and out from behind the counter, so that they can
have more personal interactions and engagement with consumers to support their health and wellness goals. We believe
our approach of repositioning our pharmacists will drive more growth by making our greatest resource more accessible
to the consumer while allowing our pharmacists to operate at the top of their license. Today's pharmacist is spending
about 70% to 80% of their time on non consumer-facing activities. Our goal is to reposition the pharmacist so that
they're spending 70% to 80% of their time proactively engaging with consumers in not only the pharmacies, but in the
aisles, in wellness rooms via telehealth and even connecting to consumers using our 24/7 chat. As our pharmacists
increase their personal interaction with customers, they will enhance our value proposition through customer advisement
on traditional therapeutics as well as natural and over-the-counter solutions included in our product offering.
Unique Healthcare Assets—An important part of our retail healthcare strategy continues to be finding ways to
integrate our expanded suite of healthcare assets with our base of conveniently located retail pharmacies to deliver a
higher level of care and service in our communities. This includes leveraging our store base, RediClinic and Health
Dialog. RediClinic is an important component of our efforts to expand Rite Aid’s retail healthcare offering through its
clinical services capabilities. As of February 29, 2020, we had 31 RediClinics operating in Rite Aid stores throughout the
Philadelphia and New Jersey markets. Including our locations in Texas, we operated a total of 67 RediClinics at the end
of fiscal 2020. Rite Aid also owns HealthDialog, a population management and analytics company that provides health
care coaching and disease management services to health plans and employers. Health Dialog provides these services
using a call center staffed by nurse practitioners and through an on-line platform. The capabilities of EnvisionRxOptions
are also integral to our healthcare strategy. EnvisionRxOptions can assist in our efforts to create cost-effective solutions
to employers and health plans; and drive growth.
Our Pharmacy Services Segment strategy centers on providing innovative pharmaceutical solutions and quality
client service in order to help improve clinical outcomes for our clients’ plan members while assisting our clients and
their plan members in better managing overall health care costs. Our clients are primarily employers, insurance
companies, unions, government employee groups, regional health plans, Managed Medicaid plans, Medicare plans, other
sponsors of health benefit plans, and individuals throughout the United States. Our goal is to produce superior results for
our clients and their members/employees by leveraging our expertise in core PBM services, including: plan design
offerings and administration, formulary management, Medicare Part D services, mail order, specialty pharmacy services,
retail pharmacy network management services, clinical services, disease management services, and other spend
management. We also plan to drive leading consumer engagement through digital and omni-channel tools. During fiscal
2020, EnvisionRxOptions made significant progress in continuing to grow its Medicare Part D business, with 39%
year-over-year membership growth and a total enrollment of approximately 868,000 as of February 29, 2020.
Front-end Merchandising—Our front-end offering remains a critical part of Rite Aid’s business. We focus on
providing outstanding customer experiences, leveraging our valuable brand, developing individualized and unique
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customer relationships and continuing to evolve the products and services we offer. In fiscal 2020, we continued to focus
on strengthening our core categories of health, beauty, vitamins and consumables.
In fiscal 2021, we intend to expand or shift to better-for-you products with an emphasis on products that
promote health and wellness, are better for the environment and create a point of differentiation and purpose in a way
that we haven't in the recent past. Our merchandising refresh will show a product assortment that is relevant with a
broad multigenerational consumer base, especially our growth target, clean and holistic skin care, healthy beverages, low
in sugar, healthy snack alternatives, fresh refrigerated products, vitamins and supplements, including CBD, aroma
therapy, natural bath brands, holistic sleep remedies and natural stress reducers. Rite Aid will continue reducing or
eliminating items that aren't relevant to today's consumer and are unproductive products that do not turn enough to
warrant placement on our shelves. Rite Aid is deemphasizing categories such as hardware, electronics and home
entertainment, which are less relevant as we move from convenience to destination.
In addition, we intend to accelerate our focus on growing own brand sales, as these items offer tremendous
value to customers while enhancing our profitability. We see a significant opportunity to drive margin with own brand
products with key attributes such as natural, organic, clean, cruelty free, fair trade and chemical free. Rite Aid has set a
goal to grow own brand percentage to 23% by the end of fiscal 2021. By investing in our expansion of a new assortment
focused on health, beauty and better-for-you products and enhancing our assortment with a focus on healthier product
attributes, we are building the foundation for executing our health and wellness strategy.
Omni-Channel Capabilities—In fiscal 2020, we signed an agreement to partner with Adobe to begin our
omni-channel transformation. In fiscal 2021, backed by additional capital investments, we will continue these efforts
while also aggressively testing new ways to engage with our customers in providing a seamlessly connected customer
experience that attracts new customers while increasing trip frequency and basket size for existing customers.
wellness+ Rewards—Since the launch of wellness+ Rewards in April 2010, our loyalty program has provided
customers with the opportunity to earn significant discounts and wellness rewards. Beyond exclusive sale pricing and
weekly savings for all cardholders, members earn wellness+ Rewards points based on the purchase of certain front-end
and pharmacy purchases. As an example, gold members receive a 20% discount off most non-pharmacy purchases for an
entire year.
Store Remodels—In fiscal 2020, we continued to strengthen Rite Aid as a healthcare destination by completing
additional store remodels. As a result, our total number of remodeled stores reached 1,826 by the end of the fiscal year,
which means that 74% of our total store base. We also opened two new stores and relocated five stores.
In fiscal 2021, we plan to introduce 75 Stores of the Future, starting with a set of test pilots followed by a
staged market approach. The Store of the Future is a completely remodeled store that allows us to reposition the brand
while becoming the destination for enhanced mind, body, and spirit.
Prescription File Purchases—In fiscal 2020, we spent $42.7 million on the purchase of prescription files. We
plan to increase our level of prescription file purchases in fiscal 2021 to approximately $50.0 million as they drive
additional traffic to our stores and deliver a strong return on investment.
Drug Purchasing and Distribution Efficiencies—In fiscal 2019, after a careful and comprehensive review of
our drug purchasing options, we agreed to key terms of an amendment to our drug purchasing agreement with McKesson
Corporation (“McKesson”). Under these terms, McKesson will continue to source all of Rite Aid’s branded and generic
pharmaceuticals and provide direct-to-store delivery to all of our pharmacies through March of 2029. In fiscal 2021, we
expect to continue to benefit from the agreed upon terms of this agreement.
Cost Control—In fiscal 2021, we will continue to pursue opportunities to control our costs in order to help
mitigate the impact of declining reimbursement rates and align our business with a new operational structure as the TSA
with WBA winds down. In fiscal 2020 we announced a major organizational restructuring that reduced managerial
layers and consolidated roles across the organization. As a result of this restructuring, we will achieve annual cost
savings of approximately $55.0 million. In fiscal 2021, we will target further cost savings through multiple
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opportunities, including: the consolidation of supporting functions at Rite Aid and EnvisionRxOptions; renewed focus
on driving down cost of indirect procurement, including using an outsourced vendor to help us better leverage scale and
achieve a better line of sight into market cost; the expansion of our central fill capabilities, which will drive further labor
efficiencies, which we can reinvest into freeing up pharmacists' time to engage with our customers; expansion of self-
checkout to drive labor efficiencies and improve traffic in high front-end volume stores; rationalization of our call center
facilities in both the retail and PBM business; and further reduction of high-cost circular advertising, which will reduce
print and distribution costs.
Products and Services
Sales of prescription drugs for our Retail Pharmacy segment represented approximately 67.0%, 66.6% and
65.9% of our total drugstore sales in fiscal years 2020, 2019 and 2018, respectively. In fiscal years 2020, 2019 and 2018,
prescription drug sales were $10.4 billion, $10.4 billion and $10.3 billion, respectively. See the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” and our
consolidated financial statements.
We carry a full assortment of non-prescription, or front-end, products. The types and number of front-end
products in each store vary, and selections are based on customer needs and preferences and available space. No single
front-end product category contributed significantly to our sales during fiscal 2020. Our Retail Pharmacy segment’s
principal classes of products in fiscal 2020 were the following:
Product Class
Prescription drugs
Over-the-counter medications and personal care
Health and beauty aids
General merchandise and other
Percentage of
Sales
67.0 %
11.0 %
5.0 %
17.0 %
We offer a wide variety of products under our private brands to meet the needs of our customers in virtually
every non-pharmacy department. We intend to increase our private brand sales and penetration in fiscal 2021 by
expanding our product lines, refreshing our package design, along with leveraging our marketing vehicles. We believe
that our assortment is differentiated and a compelling value to our customers based on our emphasis on high quality
standards and everyday/promotional pricing, while at the same time, improving our gross margin and reducing our
working capital investment in inventory.
We have a strategic alliance with GNC under which we have opened over 1,623 GNC stores within Rite Aid
stores as of February 29, 2020 and have a contractual commitment to open at least 99 additional GNC stores within Rite
Aid stores by December 2021. We believe the GNC stores enhance our wellness offerings and help differentiate us from
our competitors. GNC is a leading nationwide retailer of vitamin and mineral supplements, personal care, fitness and
other health-related products.
Through our 100% owned subsidiary, EnvisionRxOptions, we offer a broad range of pharmacy-related services.
In addition to its transparent and traditional PBM offerings through the EnvisionRx and MedTrak PBMs, EnvisionRx
also offers fully integrated mail-order and specialty pharmacy services through EnvisionPharmacies. Through its
Envision Insurance Company (“EIC”), EnvisionRx also serves one of the fastest-growing demographics in healthcare:
seniors enrolled in Medicare Part D. In addition, EnvisionRx, through its state of the art Laker Software, performs
prescription adjudication services for its own claims as well as claims for other PBM’s.
Technology
All of our stores are integrated into a common pharmacy system, which enables our customers to fill or refill
prescriptions in any of our stores throughout the country, identifies adverse drug interactions, and enables our
pharmacists to fill prescriptions more accurately and efficiently. Our customers may also order prescription refills over
the Internet through our website, www.riteaid.com, our mobile app, or over the phone through our telephonic automated
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refill systems for pick up at a Rite Aid store or home delivery from a majority of our stores. We have automated
pharmacy dispensing units in high volume stores, which are linked to our pharmacists’ computers that fill and label
prescription drug orders. We utilize central fill technology to facilitate the automated picking, packaging, and labeling of
prescriptions in a central filling location, which are sent to certain retail stores for delivery to the customer. We also
utilize workload sharing technology within our stores, whereby stores within a close proximity can shift the fulfillment
of prescriptions to stores with excess capacity. The efficiency of these processes allows our pharmacists to spend more
time consulting with and answering our customers’ questions and concerns about their prescription medications and
health conditions. Additionally, each of our stores employs point-of-sale technology that supports sales analysis and
recognition of customer trends. This same point-of-sale technology facilitates the maintenance of perpetual inventory
records which, together with our sales analysis, drives our automated inventory replenishment process.
In connection with our RxEvolution, we will greatly enhance and modernize the technology platforms that
power our company, with a relentless focus on customer experience and design. Our customers will visibly see a prompt
and significant shift in how technology is utilized to provide a seamless and connected experience, in store, online and
with mobile. As an important step in our digital journey, we launched our new website, mobile application, and e-
commerce solution in the first quarter of fiscal 2021. This personalized user experience is built on a modern and
scalable platform that will serve as the foundation for our digital and omni-channel solutions.
Currently, Envision and MedTrak run as separate PBMs, with unique systems and processes. We are in the
process of bringing together the best systems and processes across each organization to create a single, consistent PBM
platform focused on providing an optimized member, client, and partner experience.
We are also in the process of relaunching our EnvisionRxOptions mobile app with a focus on getting customers
the information and services they need, in a manner that is completely personalized to them. It will not simply facilitate
transactions, but rather provide customized, educational content, services and solutions that our customers need to get
the most effective low cost prescriptions.
We intend to deliver these digital initiatives during the next two fiscal years. The digital experience initiatives
we have outlined with our PBM, our pharmacies, our stores online, and through mobile, will revolutionize how we
engage and service customers, members and partners.
Sources and Availability of Raw Materials
Since fiscal 2015, under our pharmaceutical purchasing and delivery agreement (“Purchasing and Delivery
Agreement”) with limited exceptions, we purchased all of our branded pharmaceutical products and almost all of our
generic (non-brand name) pharmaceutical products from McKesson. If our relationship with McKesson were disrupted,
we could temporarily experience difficulties filling prescriptions for branded and generic drugs until we execute a
replacement wholesaler agreement or develop and implement self-distribution processes.
We purchase our non-pharmaceutical merchandise from numerous manufacturers and wholesalers. We believe
that competitive sources are readily available for substantially all of the non-pharmaceutical merchandise we carry and
that the loss of any one supplier would not have a material effect on our business.
We sell private brand and co-branded products that generally are supplied by numerous sources. The GNC
branded vitamin and mineral supplement products that we sell in our stores are developed by GNC, and along with our
Rite Aid brand vitamin and mineral supplements, are manufactured by GNC.
Customers and Third Party Payors
During fiscal 2020, our stores filled approximately 169.2 million prescriptions and served over one million
customers per day. The loss of any one customer would not have a material impact on our results of operations.
In fiscal 2020, substantially all of our pharmacy sales were to customers covered by third party payors (such as
insurance companies, prescription benefit management companies, government agencies, private employers or other
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managed care providers) that agree to pay for all or a portion of a customer’s eligible prescription purchases based on
negotiated and contracted reimbursement rates. During fiscal 2020, the top five third party payors accounted for
approximately 79.9% of our pharmacy sales. The largest third party payor, Caremark, represented 28.8% of our
pharmacy sales. The loss of, or a significant change to the prescription drug reimbursement rates by, a major third party
payor could decrease our revenue and harm our business.
During fiscal 2020, Medicaid and related managed care Medicaid payors sales were approximately 19.0% of
our pharmacy sales, of which the largest single Medicaid payor was approximately 1.4% of our pharmacy sales. During
fiscal 2020, approximately 38.4% of our pharmacy sales were to customers covered by Medicare Part D.
Through our Pharmacy Services segment we provide innovative pharmaceutical solutions for our clients which
are primarily employers, insurance companies, unions, government employee groups, health plans, Managed Medicaid
plans, Medicare plans, and other sponsors of health benefit plans, and individuals throughout the United States.
During fiscal 2020, Medicare Part D payor revenue was approximately 42.8% of our Pharmacy Services
Segment revenue, of which the largest single Medicare Part D payer was approximately 27.4% of our Pharmacy Services
Segment revenue. During fiscal 2020, approximately 24.9% of our Pharmacy Services Segment revenue was to
customers covered by Commercial payors. During fiscal 2020, approximately 14.9% of our Pharmacy Services Segment
revenue was to customers covered by Medicaid payors.
Competition
The retail drugstore and pharmacy benefit management industries are highly competitive. Our retail drugstore
operations compete with, among others, retail drugstore chains, independently owned drugstores, supermarkets, mass
merchandisers, discount stores, wellness offerings, dollar stores and mail order and internet pharmacies. We compete on
the basis of store location, convenience, customer service, product selection, price, and payor access. Our pharmacy
benefit management operations compete with other pharmacy benefit managers, such as Caremark and Express Scripts,
OptumRx and emerging competitors. We will increasingly compete on the basis of our PBM service offerings flexibility,
clinical offerings, network management, Rite Aid as an anchor (in Rite Aid markets), omni-channel consumer
engagement, and the strength of client facing teams through both transparent and traditional PBM models.
We believe continued consolidation in the healthcare industry, and the aggressive discounting of generic drugs
by supermarkets and mass merchandisers and other PBM service providers will further increase competitive pressures in
our industries.
Marketing and Advertising
In fiscal 2020, we advanced efforts to provide a seamlessly connected omni-channel customer experience. We
continue to take a holistic approach to managing our media mix while shifting towards a digital-first strategy. Marketing
and advertising expense was approximately $142.1 million, which was spent on our weekly circular (print and digital),
wellness+ rewards program/customer relationship marketing (CRM), digital/social marketing and focused pharmacy
marketing initiatives including television, radio and direct mail. Our marketing and advertising activities are primarily
focused on the following:
• Promotional marketing, a digital-first approach and further reduction of print advertising, to drive share of
wallet and new customer acquisition;
• Our free wellness+ rewards loyalty program, which benefits our members in several ways:
• Members gain access to our promotional pricing communicated in the weekly circular and at the shelf.
This includes the ability to earn BonusCash rewards that can be redeemed in-store or online.
• Members earn wellness+ points for every dollar spent on eligible front-end products and for every
eligible prescription filled. The accumulation of these points can qualify members for front-end
savings of up to 20% off every day.
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• Members who are 65+ years old can also join our wellness65+ program for front-end savings of 20%
off on the first Wednesday of every month (Wellness Wednesdays), regardless of their wellness+
points status.
• Members receive targeted and personalized offers through traditional retail distribution channels.
• Digitally-engaged members also gain access to the convenience of Load2Card coupons, email and
text/SMS communications, as well as personalized digital offers and shopping experiences at
riteaid.com and via our Mobile App.
• Emphasis on the broad selection, great quality and value of our own brand products;
•
Increased focus on 1:1 marketing through CRM programs;
• Support of specific market-wide initiatives and individual store programs such as competitive defense,
prescription file buys and grand openings for new and remodeled stores;
• Focused efforts on our omni-channel marketing initiatives including our Rite Aid mobile app, social media,
our riteaid.com website and e-commerce;
• Additional programs focused on health and wellness such as One Trip Refills, Vaccine Central and Quit
For You smoking cessation programs.
Associates
As of February 29, 2020, we had approximately 48,000 Retail Pharmacy segment associates: 13% were
pharmacists, 42% were part-time and 36% were represented by unions. Additionally, we have approximately 2,000
Pharmacy Services segment associates. Associate engagement is critical to our success. We annually survey our
associates to obtain feedback on various employment-related topics, including job satisfaction and their understanding of
our core values and mission. We believe that our relationships with our associates are good.
The number of graduates from U.S. Schools of Pharmacy is largely meeting our workforce demand. However,
pharmacist employment opportunities still exist in certain areas.
Research and Development
We do not make significant expenditures for research and development.
Licenses, Trademarks and Patents
The Rite Aid name is our most significant trademark and the most important factor in marketing our stores and
private brand products. We hold licenses to sell beer, wine and liquor, cigarettes and lottery tickets. As part of our
strategic alliance with GNC, we have a license to operate GNC “stores-within-Rite Aid-stores.” We also hold licenses to
operate our pharmacies and our distribution facilities. Through our 100% owned subsidiary EnvisionRx, we hold a
license to conduct Medicare Part D business with CMS.
Collectively, these licenses are material to our operations.
Seasonality
We experience moderate seasonal fluctuations in our results of operations concentrated in the first and fourth
fiscal quarters as the result of the concentration of the cough, cold and flu season and the holidays. We tailor certain
front-end merchandise to capitalize on holidays and seasons. We increase our inventory levels during our third fiscal
quarter in anticipation of the seasonal fluctuations described above. Our results of operations in the fourth and first fiscal
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quarters may fluctuate based upon the timing and severity of the cough, cold and flu season, both of which are
unpredictable.
Regulation
Our business is subject to federal, state and local laws, regulations, and administrative practices concerning the
provision of and payment for health care services, including, without limitation: federal, state and local licensure and
registration requirements concerning the operation of pharmacies and the practice of pharmacy; Medicare, Medicaid and
other publicly financed health benefit plan regulations prohibiting kickbacks, beneficiary inducement and the submission
of false claims; the ACA; regulations of the U.S. Food and Drug Administration, the U.S Consumer Product Safety
Commission, the U.S. Federal Trade Commission, and the U.S. Drug Enforcement Administration, including regulations
governing the purchase, sale, storing and dispensing of controlled substances and other products, as well as regulations
promulgated by state and other federal agencies concerning automated outbound contacts such as phone calls, text
messages and emails and the sale, advertisement and promotion of the products we sell, including nicotine products and
alcoholic beverages.
Our business is also subject to patient and consumer privacy obligations, including corporate, pharmacy and
associate responsibility imposed by the Health Insurance Portability and Accountability Act (“HIPAA”). As a HIPAA
covered entity, we are required to implement privacy standards, train our associates on the permitted uses and
disclosures of protected health information (“PHI”), provide a notice of privacy practices to our pharmacy customers and
permit pharmacy customers to access and amend their records and receive an accounting of disclosures of protected
health information. We are also subject to federal and state privacy and data security laws with respect to our receipt, use
and disclosure by us of personally identifiable information (“PII”), which laws require us to provide appropriate privacy
and security safeguards for such information. In addition we are also subject to the recently enacted California Consumer
Privacy Act (“CCPA”) which established numerous consumer rights including rights of access and deletion of
consumer’s data upon request. We are also subject to the Payment Card Industry Data Security Standard promulgated by
the payment card industry in connection with handling credit card data. This standard contains requirements devised to
aid entities that process, store or transmit credit card information to maintain a secure environment.
We are also subject to laws governing our relationship with our associates, including health and safety,
minimum wage requirements, overtime, sick leave, working conditions, equal employment opportunity and unionizing
efforts.
In addition, in connection with the ownership and operations of our stores, distribution centers and other sites,
we are subject to laws and regulations relating to the protection of the environment and health and safety matters,
including those governing the management and disposal of hazardous substances and the cleanup of contaminated sites.
Regarding PBM and affiliate operations, we are subject to federal, state, and local regulations, including all
rules, guidance, memoranda, and updates published by CMS. This includes the governance set forth by the Medicare
Part D program, which makes prescription drug coverage available to eligible Medicare beneficiaries through private
insurers. This program regulates all aspects of the provision of Medicare drug coverage, including enrollment,
formularies, pharmacy networks, marketing, and claims processing. In addition, various quasi-regulatory organizations
and credentialing organizations have issued (or may propose) model standards or other requirements concerning PBMs,
specialty pharmacies, or health plans. Examples include the National Association of Boards of Pharmacy, the National
Association of Insurance Commissioners (“NAIC”), the National Committee for Quality Assurance (“NCQA”), and the
Utilization Review Accreditation Commission (“URAC”), among others.
Corporate Governance and Internet Address
We recognize that good corporate governance is an important means of protecting the interests of our
stockholders, associates, customers and the community. We have closely monitored and implemented relevant
legislative and regulatory corporate governance reforms, including provisions of the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”), the rules of the SEC interpreting and implementing Sarbanes-Oxley and the corporate governance
listing standards of the NYSE.
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Our corporate governance information and materials, including our Certificate of Incorporation, Bylaws,
Corporate Governance Guidelines, the charters of our Audit Committee, Compensation Committee and Nominating and
Governance Committee, our Code of Ethics for the Chief Executive Officer and Senior Financial Officers, our Code of
Ethics and Business Conduct and our Related Person Transaction Policy are posted on the corporate governance section
of our website at www.riteaid.com and are available in print upon request to Rite Aid Corporation, 30 Hunter Lane,
Camp Hill, Pennsylvania 17011, Attention: Corporate Secretary. Our Board of Directors will regularly review corporate
governance developments and modify these materials and practices as warranted.
Our website also provides information on how to contact us and other items of interest to investors. We make
available on our website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, Extensible
Business Reporting Language (“XBRL”) data files of our annual report and quarterly reports, current reports on
Form 8-K and all amendments to these reports, as soon as reasonably practicable after we file these reports with, or
furnish them to, the SEC. We do not intend for the information contained on our website to be part of this annual report
on Form 10-K.
Item 1A. Risk Factors
Factors Affecting our Future Prospects
Set forth below is a description of certain risk factors which we believe may be relevant to an understanding of
us and our business. Security holders are cautioned that these and other factors may affect future performance and cause
actual results to differ from those which may be anticipated. Additionally, the impact of COVID-19 could further
exacerbate many of the risk described below or described elsewhere herein. See the section entitled “Cautionary
Statement Regarding Forward-Looking Statements.”
Risks Related to our Financial Condition
Widespread health developments, including the global COVID-19 pandemic, could materially and adversely affect
our business, financial condition and results of operations.
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and the
markets in which we have stores or otherwise operate. This pandemic, as well as the reality or fear of any other adverse
public health developments, has impacted and could further adversely and materially affect, among other things, our
workforce, operations, stores, and supply chain, and the operations of our customers, suppliers and business partners.
The local, national and international response to the virus is quickly developing, fluid and uncertain. Responses have
included voluntary and in some cases, mandatory quarantines as well as shut downs and other restrictions on travel and
commercial, social, medical and other activities, and declarations of emergencies. Such measures have contributed to the
sudden increase in the unemployment rate and changes in customer spending. Any such negative impact could result in a
material adverse effect on our business, financial conditions and results of operations.
In response to the spread of COVID-19, we have modified certain of our business practices (including store
hours and access, employee travel, employee work locations, and cancellation of physical participation in meetings,
events and conferences), and we may take further actions as may be required by government authorities or that we
determine are in the best interests of our associates, customers, suppliers and business partners. There is no certainty that
such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions
could be negatively impacted. Further, the initiatives we have implemented to slow and/or reduce the impact of
COVID-19 and the related support programs we have put in place for our associates and customers have in some
instances, increased our operating expenses and reduced the efficiency of our operations. There can be no assurance that
a continued effect of COVID-19 will not impact the measure we have taken to reduce costs.
We have incurred additional costs to ensure we meet the safety and needs of our associates and customers,
including the installation of Plexiglas shields at pharmacy and front-end counters to provide additional protection,
providing additional cleaning materials for our stores and other facilities, and focusing on home delivery and digital
services. In addition, we have enhanced certain employee benefits and compensation for those on the front-line. We
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expect to continue to incur additional costs, which may be significant, as we continue to implement operational changes
in response to this pandemic.
COVID-19 may also cause supply chain disruption which could result in higher supply chain costs to replenish
inventory in our stores and distribution centers. In addition, we may experience shortages in our generic drug supplies
due to replenishment delays resulting from COVID-19, which could result in the substitution of generic drugs with brand
drugs, which generally have a lower profit margin. Furthermore, we have experienced and may continue to experience
restricted stock availability in a number of categories, which may cause is to change our purchasing decisions across
many categories, and we cannot assure you whether we these delays or difficulty sourcing certain products will continue,
which could negatively impact us.
Further, our management is focused on mitigating COVID-19, which has required and will continue to require,
a large investment of time and resources across the company and may delay other value added services. COVID-19 or
any other adverse public health developments could inhibit or delay our ability to execute our strategic initiatives,
including, without limitation (i) improving our pharmacy benefit management business, (ii) redefining the role of our
pharmacists, including bringing pharmacists front and center and out from behind the counter, (iii) updating our retail
and digital experience; (iv) the roll-out of our future store concept, merchandising changes and rebranding efforts; and
(v) our plan to increase the sales volume and profitability of our existing brands. Additionally, the impact of COVID-19
on our business may be impacted by the costs of treatment of COVID-19, unemployment, and the related effects on
customer insurance coverage caused by governmental actions to mitigate the impact of COVID-19 or other adverse
public health developments, including reduced demand for acute medication.
The extent to which COVID-19 may impact our business depends on numerous evolving factors, which are
highly uncertain and cannot be predicted and are outside of our control, including new information which may quickly
emerge concerning the severity of the virus, the scope of the outbreak and the actions to contain the virus or treat its
impact and the disruption, volatility in the global capital markets, which may increase the cost of capital and adversely
impact our access to capital and to what extent normal economic and operating conditions can resume, among others.
As a result, the impact on our financial and operating results cannot be reasonably estimated at this time, but the impact
could be material. Additionally, the impact of COVID-19 could further exacerbate the impact of the other risk factors
contained in this and the other reports the Company files with the SEC.
We are highly leveraged. Our substantial indebtedness could limit cash flow available for our operations and could
adversely affect our ability to service debt or obtain additional financing if necessary.
We had, as of February 29, 2020, approximately $3.1 billion of outstanding indebtedness and stockholders’
equity of $674.5 million. We also had additional borrowing capacity under our $2.7 billion senior secured asset-based
revolving credit facility (the “Senior Secured Revolving Credit Facility” or “revolver”) of $1,940.0 million, net of
outstanding letters of credit of approximately $110.0 million. Subsequent to February 29, 2020, we drew additional
amounts under our revolver to ensure that we have ample cash on hand. We continue to have remaining availability
under our revolver.
Our high level of indebtedness will continue to restrict our operations. Among other things, our indebtedness
will:
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limit our flexibility in planning for, or reacting to, changes in the markets in which we compete;
place us at a competitive disadvantage relative to our competitors with less indebtedness;
limit our ability to reinvest in our business;
render us more vulnerable to general adverse economic, regulatory and industry conditions; and
require us to dedicate a substantial portion of our cash flow to service our debt.
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Our ability to meet our cash requirements, including our debt service obligations, is dependent upon our ability
to maintain our operating performance, which will be subject to general economic and competitive conditions and to
financial, business and other factors, many of which are beyond our control. We cannot provide assurance that our
business will generate sufficient cash flow from operations to fund our cash requirements and debt service obligations.
We believe we have adequate sources of liquidity to meet our anticipated requirements for working capital, debt
service and capital expenditures through fiscal 2021 and have no significant debt maturities prior to April 2023.
However, if our operating results, cash flow or capital resources prove inadequate, or if interest rates rise significantly,
we could face liquidity constraints. Additionally, we improved our leverage and liquidity position this past year by
selling our rights in our calendar 2019 Medicare Part D final reconciliation payment. There can be no assurance that we
will enter into a similar transaction for our calendar 2020 payment, or that if we do so, that the terms of such transaction
will differ, and such differences could be material. If we are unable to service our debt or experience a significant
reduction in our liquidity, we could be forced to reduce or delay planned capital expenditures and other initiatives, sell
assets, restructure or refinance our debt or seek additional equity capital, or need to change certain elements of our
strategy, and we may be unable to take any of these actions on satisfactory terms or in a timely manner. Any of these
actions may not be sufficient to allow us to service our debt obligations or may have an adverse impact on our business.
Additionally, the impact of COVID-19 on the financial markets and the economy may make it more difficult to
consummate any such transaction, or result in terms that are less favorable to us. Our existing debt agreements limit our
ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay our debts or refinance
our indebtedness could have a material adverse effect on us.
Borrowings under our senior secured credit facilities are based upon variable rates of interest, which could result in
higher expense in the event of increases in interest rates.
Borrowings under our senior secured credit agreement, dated as of December 20, 2018 (as amended by the First
Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”), consisting of a $2,700.0 million
senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and a $450.0 million
“first-in, last out” senior secured term loan facility (“Senior Secured Term Loan”) (collectively, the “Existing Facilities”)
bear interest at a rate that varies depending on the London Interbank Offered Rate (“LIBOR”). If LIBOR rises, the
interest rates on borrowings under our Existing Facilities will increase. Therefore an increase in LIBOR, even after
giving effect to our hedge activities, would increase our interest payment obligations under those borrowings and have a
negative effect on our cash flow and financial condition.
Further, the U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop
encouraging or requiring banks to submit LIBOR rates after 2021 and it is unclear if LIBOR will cease to exist or if new
methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change
from their current form, interest rates on future indebtedness may be adversely affected or we may need to renegotiate
the terms of our Existing Facilities to replace LIBOR with the new standard that is established, if any, or to otherwise
agree with the trustees or agents on a new means of calculating interest.
The covenants in the instruments that govern our current indebtedness may limit our operating and financial
flexibility.
The covenants in the instruments that govern our current indebtedness limit our ability to:
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incur debt and liens;
pay dividends;
• make redemptions and repurchases of capital stock;
• make loans and investments;
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prepay, redeem or repurchase debt;
engage in acquisitions, consolidations, asset dispositions, sale-leaseback transactions and affiliate
transactions;
change our business;
amend some of our debt and other material agreements;
issue and sell capital stock of subsidiaries;
restrict distributions from subsidiaries; and
grant negative pledges to other creditors.
The Credit Agreement has a financial covenant that requires us to maintain a minimum fixed charge coverage
ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is less than
$200.0 million, or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving
Credit Facility is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any,
which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250
million. As of February 29, 2020, we had availability under our revolver of approximately $1,940.0 million, our fixed
charge coverage ratio was greater than 1.00 to 1.00, and therefore, we were in compliance with the Credit Agreement’s
financial covenant. The Credit Agreement also limits our ability to maintain cash, without repaying a portion of our
outstanding borrowings under the Senior Secured Revolving Credit Facility, above a specified amount. For additional
details, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of
Continuing Operations—Future Liquidity”.
Risks Related to our Operations
We need to improve our operations in order to improve our financial condition, but our operations will not improve if
we cannot effectively implement our business strategy or if our strategy is negatively affected by worsening economic
conditions.
We have not yet achieved the sales productivity level of our major competitors. We believe that improving the
sales of existing stores is important to improving profitability and operating cash flow. If we are not successful in
implementing our strategies, including our efforts to increase sales and further reduce costs, or if our strategies are not
effective, we may not be able to improve our operations. A prolonged impact of COVID-19 may also make it more
difficult to implement our strategies or cause a delay in such implementation. In addition, if we are unable to meet our
obligations under the TSA, we would be exposed to significant financial penalties. Furthermore, any adverse change or
weakness in general economic conditions or major industries can adversely affect drug benefit plans and reduce our
pharmacy sales. Adverse changes in general economic conditions, including those resulting from COVID-19, such as
increased unemployment, could affect consumer buying practices and consequently reduce our sales of front-end
products, and cause a decrease in our profitability. Failure to improve operations or weakness in major industries or
general economic conditions would adversely affect our results of operations, financial condition and cash flows and our
ability to make principal or interest payments on our debt.
We purchase all of our brand and generic drugs from a single wholesaler. A disruption in this relationship may have
a negative effect on us.
We purchase all of our brand drugs and, with limited exceptions, all of our generic drugs from a single
wholesaler, McKesson. Because McKesson acts as a wholesaler for drugs purchased from manufacturers worldwide, any
disruption in the supply of a given drug, including disruptions related to COVID-19b, including supply shortages of key
ingredients, or regulatory actions by domestic or foreign governmental agencies, or specific actions taken by drug
manufacturers, could adversely impact McKesson’s ability to fulfill our demands, which could adversely affect us.
Pharmacy sales represented approximately 67.0% of our total drugstore sales during fiscal 2020. While we believe that
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alternative sources of supply for most generic and brand name pharmaceuticals are readily available, a significant
disruption in our relationship with McKesson could result in disruptions to our business until we execute a replacement
wholesaler agreement or develop and implement self-distribution processes. We believe we could obtain qualified
alternative sources, including through self-distribution, for substantially all of the prescription drugs we sell on an
acceptable basis, and accordingly that the impact of any disruption would be temporary, although the impact of COVID-
19 could make it more challenging to find a suitable replacement on our then desired timeline. On December 19, 2018,
we and McKesson entered into a binding letter of intent that will continue our pharmaceutical sourcing and distribution
partnership for an additional ten years. Under the terms, McKesson will continue providing us with sourcing and
direct-to-store delivery for brand and generic pharmaceutical products through March 2029.
Recent significant changes to our executive leadership team and any future loss of members of such team, and the
resulting management transitions could materially adversely affect our financial performance.
Our success depends to a significant degree on the continued contributions of members of our senior
management and other key operations, merchandising and administrative personnel, and the loss of any such persons
could have a material effect on our business. We have recently experienced significant changes to our executive
leadership team. In 2019, we named several new key leaders, including a new President and Chief Executive Officer,
Executive Vice President and Chief Financial Officer, Chief Operating Officer, Executive Vice President and Human
Resources Officer and Executive Vice President and Chief Pharmacy Officer, and in 2020, a new Executive Vice
President of Retail. These types of management changes have the potential to disrupt our operations due to the
operational and administrative inefficiencies, added costs, increased likelihood of turnover, and the loss of personnel
with vital institutional knowledge, experience and expertise, which could result in significant disruptions to our
operations. In addition, we must successfully integrate the new executive leadership team members within our
organization in order to achieve our operating objectives, and changes in key leadership positions may temporarily affect
our financial performance and results of operations as new leadership becomes familiar with our business. We are
currently engaging in these activities primarily on a work from home basis as a result of COVID-19.
A significant disruption in our computer systems or a cyber security breach could adversely affect our operations.
We rely extensively on our computer systems, including those used by EnvisionRx, RediClinic, and Health
Dialog, to manage our ordering, pricing, point-of-sale, inventory replenishment and other processes. Our systems have
been subject to attack by perpetrators of random or targeted malicious technology-related events, such as cyberattacks,
computer viruses, worms, bot attacks or other destructive or disruptive software and attempts to misappropriate customer
information, including credit card information. These sorts of attacks could subject our systems to damage or
interruption from power outages, computer and telecommunications failures, computer viruses, cyber security breaches,
vandalism, coordinated cyber security attacks, severe weather conditions, catastrophic events and human error, and our
disaster recovery planning cannot account for all eventualities. Although we deploy an information security program
designed to protect confidential information against data security breaches through a multi-layered approach to address
information security threats and vulnerabilities, including ones from a cyber security standpoint, a compromise of our
information security controls or of those businesses with whom we interact, which results in confidential information
being accessed, obtained, damaged or used by unauthorized or improper persons, could harm our reputation and expose
us to regulatory actions and claims from customers and clients, financial institutions, payment card associations and
other persons, any of which could adversely affect our business, financial position and results of operations. Moreover, a
data security breach could require that we expend significant resources related to our information systems and
infrastructure, and could distract management and other key personnel from performing their primary operational duties.
We could also be adversely impacted by any significant disruptions in the systems of third parties we interact with,
including key payors and vendors. If our systems are damaged, fail to function properly or otherwise become
unavailable, we may incur substantial costs to repair or replace them, and may experience loss of critical data and
interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results
of operations. Any compromise or breach of our data security, whether external or internal, or misuse of customer,
associate, supplier or our data could also result in a violation of applicable privacy, information security, and other laws,
significant legal and financial exposure, fines or lawsuits, damage to our reputation, loss or misuse of the information
and a loss of confidence in our security measures, which could harm our business. Although we maintain cyber security
insurance, we cannot assure you that the coverage limits under our insurance program will be adequate to protect us
against future claims. In addition, as the regulatory environment related to information security, data collection and use,
and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business,
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compliance with those requirements could also result in additional costs. Additionally, we are in the process of changing
our omni-channel distribution. There can be no assurance that we will be able to implement this technology on its
intended timeline or that it will achieve its intended benefits.
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us
to potential liability and potentially disrupt our business.
We accept payments using a variety of methods, including cash, checks, credit and debit cards, gift cards and
mobile payment technology, and we may accept new forms of payment over time. Acceptance of these payment options
subjects us to rules, regulations, contractual obligations and compliance requirements including payment network rules
and operating guidelines, data security standards and certification requirements, and rules governing electronic funds
transfers. These requirements may change over time or be reinterpreted, making compliance more difficult or costly. For
certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over
time and raise our operating costs. We rely on third parties to provide payment processing services, including the
processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to
provide these services to us, or if their systems are compromised, it could potentially disrupt our business. The payment
methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more
sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If
we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is
compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and
other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of
payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result
in a shift to other payment types or potential changes to our payment systems that may result in higher costs. As a result,
our business and operating results could be adversely affected.
If we fail to protect the security of personal information about our customers and associates, we could be subject to
costly government enforcement actions or private litigation.
Through our sales and marketing activities, we collect and store certain personal information that our customers
provide to purchase products or services, enroll in promotional programs, register on our web site, or otherwise
communicate and interact with us. We also gather and retain information about our associates in the normal course of
business. We may share information about such persons with vendors that assist with certain aspects of our business.
Despite instituted safeguards for the protection of such information, security could be compromised and confidential
customer or business information misappropriated, for which we have paid related penalties in the past. Loss of customer
or business information could disrupt our operations, damage our reputation, and expose us to claims from customers,
financial institutions, payment card associations and other persons, any of which could have an adverse effect on our
business, financial condition and results of operations. In addition, compliance with more rigorous privacy and
information security laws and standards may result in significant expense due to increased investment in technology and
the development of new operational processes.
Risks Related to the Retail Pharmacy and PBM Industries in which we Operate
The markets in which we operate are very competitive and further increases in competition could adversely affect us.
We face intense competition with local, regional and national companies, including other drugstore chains,
independently owned drugstores, supermarkets, mass merchandisers, dollar stores and internet pharmacies. Competition
from on-line retailers has significantly increased during the past few years. Some of our competitors have or may merge
with or acquire pharmaceutical services companies, PBMs, health insurance companies, mail order facilities or enter into
strategic partnership alliances with wholesalers or PBMs, which may further increase competition. We may not be able
to effectively compete against them because our existing or potential competitors may have financial and other resources
that are superior to ours. We also face competition from other PBMs, including large, national PBMs, PBMs owned by
national health plans and smaller standalone PBMs. Certain of these competitors entered into the PBM industry before
us, and there is no assurance that we will successfully compete with entities with more established PBM businesses.
Further, we may be at a competitive disadvantage because we are more highly leveraged than our competitors. The
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ability of our stores to achieve profitability depends on their ability to achieve a critical mass of loyal, repeat customers.
We cannot assure you that we will be able to continue to effectively compete in our markets or increase our sales volume
in response to further increased competition, or that any of our competitors are not in a better position to absorb the
impact of COVID-19.
Consolidation in the healthcare industry could adversely affect our business, financial condition and results of
operations.
Many organizations in the healthcare industry, including PBMs, have consolidated to create larger healthcare
enterprises with greater market power, which has contributed to continued pricing pressures. If this consolidation trend
continues, it could give the resulting enterprises even greater bargaining power, which may lead to further pressure on
the prices for our products and services and/or reduce our access to customers. If these pressures result in reductions in
our prices and/or reduce our access to customers, our business will become less profitable unless we are able to achieve
corresponding reductions in costs or develop profitable new revenue streams. We expect that market demand,
government regulation, third-party reimbursement policies, government contracting requirements, and societal pressures
will continue to cause the healthcare industry to evolve, potentially resulting in further business consolidations and
alliances among the industry participants we engage with, which may adversely impact our business, financial condition
and results of operations. In addition, our new strategy also includes selective acquisition opportunities and we cannot
assure you that we will be able to consummate any such transactions on commercially reasonable terms, if at all.
The availability of pharmacy drugs is subject to governmental regulations.
The continued conversion of various prescription drugs, including potential conversions of a number of popular
medications, to over-the-counter medications may reduce our pharmacy sales and customers may seek to purchase such
medications at non-pharmacy stores. Also, if the rate at which new prescription drugs become available slows or if new
prescription drugs that are introduced into the market fail to achieve popularity, our pharmacy sales may be adversely
affected. Additionally, we cannot assure you that the historic approval time for new drugs will not be impacted by the
FDA’s priorities in response to COVID-19. The withdrawal of certain drugs from the market or concerns about the
safety or effectiveness of certain drugs or negative publicity surrounding certain categories of drugs may also have a
negative effect on our pharmacy sales or may cause shifts in our pharmacy or front-end product mix.
Changes in third party reimbursement levels for prescription drugs and changes in industry pricing benchmarks
could reduce our margins and have a material adverse effect on our business.
Sales of prescription drugs reimbursed by third party payors, including the Medicare Part D plans and state
sponsored Medicaid and related managed care Medicaid agencies, represented substantially all of our pharmacy sales in
our Retail Pharmacy segment in fiscal 2020.
The continued efforts of the Federal government, health maintenance organizations, managed care
organizations, PBM companies, other State and local government entities, and other third-party payors to reduce
prescription drug costs and pharmacy reimbursement rates, as well as litigation relating to how drugs are priced, may
impact our profitability. These efforts may be increased as a result of increased deficits or sudden losses as a result of the
impact of COVID-19. In addition, some of these entities may offer pricing terms that we may not be willing to accept or
otherwise restrict or exclude our participation in their networks of pharmacy providers. Any significant loss of
third-party business could have a material adverse effect on our business and results of operations. In particular, there
has been a growth in the number of preferred Medicare Part D networks, many of which we are excluded from
participating in. Decreased reimbursement payments to retail and mail order pharmacies for brand and generic drugs has
caused a reduction in our profit. Historically, the effect of this trend has been mitigated by our efforts to negotiate
reduced acquisition costs of generic pharmaceuticals with manufacturers. Additionally, it has resulted in us providing
contractual financial performance guarantees to certain of our PBM clients with respect to minimum drug price
discounts for our retail pharmacy network and mail order pharmacy. Any inability to achieve guaranteed minimum drug
price discounts provided to our PBM clients could have an adverse effect on our results of operations.
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In addition, it is possible that the pharmaceutical industry or regulators may evaluate and/or develop an
alternative pricing reference to replace Average Wholesale Price (“AWP”), which is the pricing reference used for many
of our PBM client contracts, pharmaceutical manufacturer rebate agreements, retail pharmacy network contracts,
specialty payor agreements and other contracts with third party payors in connection with the reimbursement of drug
payments. Future changes to the use of AWP or to other published pricing benchmarks used to establish pharmaceutical
pricing, including changes in the basis for calculating reimbursement by federal and state health programs and/or other
payors, could impact the reimbursement we receive from Medicare programs and Medicaid health plans, the
reimbursement we receive from PBM clients and other payors and/or our ability to negotiate rebates with pharmaceutical
manufacturers, acquisition discounts with wholesalers and retail discounts with network pharmacies. The effect of these
possible changes on our business cannot be predicted at this time.
During the past several years, the United States health care industry has been subject to an increase in
governmental regulation, licensing and audits at both the federal and state levels. Efforts to control health care costs,
including prescription drug costs, are continuing at the federal and state government levels. Changing political,
economic and regulatory influences may significantly affect health care financing and reimbursement practices. A
change in the composition of pharmacy prescription volume toward programs offering lower reimbursement rates could
negatively impact our profitability. Additionally, significant changes in legislation, regulation and government policy
could significantly impact our business and the health care and retail industries. While it is not possible to predict
whether and when any such changes will occur or what form any such changes may take, specific proposals discussed
during and after the election that could have a material adverse effect on our business include, but are not limited to, the
repeal of all or part of the ACA and other significant changes to health care system legislation as well as changes with
respect to tax and trade policies, tariffs and other government regulations affecting trade between the United States and
other countries.
The repeal of all or part of the ACA, significant changes to Medicaid funding or even significant destabilization
of the Health Insurance Marketplaces could impact the number of Americans with health insurance and, consequently,
prescription drug coverage. Even if the ACA remains, significant provisions of the ACA have not yet been finalized
(e.g., nondiscrimination in health programs and activities, excise tax on high-cost employer-sponsored health coverage)
and it is uncertain whether or in what form these provisions will be finalized. We cannot predict the effect, if any, a
repeal of all or part of the ACA, the implementation or failure to implement the outstanding provisions of the ACA, or
the enactment of new health care system legislation to replace current legislation may have on our retail pharmacy, LTC
pharmacy and pharmacy services operations.
A substantial portion of our pharmacy revenue is currently generated from a limited number of third party payors,
and, if there is a loss of, or significant change to prescription drug reimbursement rates by, a major third party payor,
our revenue will decrease and our business and prospects could be adversely impacted.
A substantial portion of our pharmacy revenue is currently generated from a limited number of third party
payors. While we are not limited in the number of third party payors with which we can do business and results may
vary over time, our top five third party payors accounted for 79.9%, 80.4% and 78.6% of our pharmacy revenue during
fiscal 2020, 2019 and 2018, respectively. The largest third party payor, Caremark, represented 28.8%, 28.3% and 27.2%
of pharmacy sales during fiscal 2020, 2019 and 2018, respectively. We expect that a limited number of third party
payors will continue to account for a significant percentage of our pharmacy revenue, and the loss of all or a portion of,
or a significant change to customer access or prescription drug reimbursement rates by, a major third party payor could
decrease our revenue and harm our business.
A substantial portion of our Pharmacy Services segment revenue is currently generated from a limited number of
customers, and, if there is a loss of a major customer, our revenue will decrease and our business and prospects could
be adversely impacted.
A substantial portion of our Pharmacy Services segment revenue is currently generated from a limited number
of customers. While we are not limited in the number of customers with which we can do business and results may vary
over time, our top five customers accounted for 53.2%, 49.3% and 40.7% of our Pharmacy Services segment revenue
during fiscal 2020, 2019 and 2018, respectively. The largest payor, CMS, represented 27.4%, 23.0% and 17.3% of
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Pharmacy Services segment revenue during fiscal 2020, 2019 and 2018, respectively. We expect that a limited number
of customers will continue to account for a significant percentage of our Pharmacy Services segment revenue, and the
loss of all or a portion of a major customer could decrease our revenue and harm our business.
We are exposed to risks related to litigation and other legal proceedings.
We operate in a highly regulated and litigious environment. We are involved in legal proceedings, including
litigation, arbitration and other claims, and investigations, inspections, audits, claims, inquiries and similar actions by
pharmacy, healthcare, tax and other governmental authorities. Legal proceedings, in general, and securities, derivative
action and class action and multi-district litigation, in particular, can be expensive and disruptive. Additionally,
defending against these lawsuits and proceedings may involve significant expense and diversion of management’s
attention and resources. Some of these suits may purport or may be determined to be class actions and/or involve parties
seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for
several years. For example, we are a defendant in numerous litigation proceedings relating to opioids.
We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, and the costs
incurred in litigation can be substantial, regardless of the outcome. As a result, we could from time to time incur
judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such
developments could harm our reputation and have a material adverse effect on our results of operations in the period in
which the amounts are accrued and/or our cash flows in the period in which the amounts are paid.
We are subject to governmental regulations, procedures and requirements; our noncompliance or a significant
regulatory change could adversely affect our business, the results of our operations or our financial condition.
Our business is subject to numerous federal, state and local laws and regulations. Changes in these regulations
may require extensive system and operating changes that may be difficult to implement. Untimely compliance or
noncompliance with applicable regulations could result in the imposition of civil and criminal penalties that could
adversely affect the continued operation of our business, including: (i) suspension of payments from government
programs; (ii) loss of required government certifications; (iii) loss of authorizations or changes in requirements for
participating in, or exclusion from government reimbursement programs, such as the Medicare and Medicaid programs;
(iv) loss of licenses; or (v) significant fines or monetary penalties. The regulations to which we are subject include, but
are not limited to, federal, state and local registration and regulation of pharmacies; dispensing and sale of controlled
substances and products containing pseudoephedrine; applicable Medicare and Medicaid Regulations; the HIPAA;
regulations relating to the protection of the environment and health and safety matters, including those governing
exposure to and the management and disposal of hazardous substances; regulations enforced by the U. S. Federal Trade
Commission, the U. S. Department of Health and Human Services and the Drug Enforcement Administration as well as
state regulatory authorities, governing the sale, advertisement and promotion of products we sell; anti-kickback laws;
false claims laws and federal and state laws governing the practice of the profession of pharmacy. We are also governed
by federal and state laws of general applicability, including laws regulating matters of wage and hour laws, working
conditions, health and safety and equal employment opportunity.
Additionally, Congress passed the ACA in 2010, which resulted in significant structural changes to the health
insurance system. However, in December 2017, the individual mandate was repealed. If the individual mandate repeal or
a rollback of other aspects of the ACA, such as Medicaid expansion, actually leads to a significant reduction in demand
for the healthcare services, the demand for our pharmacy services businesses may decline and could have a material
impact on our business. Therefore, we cannot predict what effect, if any, the repeal of all or part of the ACA or any
subsequent replacement legislation may have on our retail pharmacy and pharmacy services businesses.
Certain risks are inherent in providing pharmacy services; our insurance may not be adequate to cover any claims
against us.
Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other
healthcare products, such as with respect to improper filling of prescriptions, labeling of prescriptions, adequacy of
warnings, unintentional distribution of counterfeit drugs and expiration of drugs. In addition, federal and state laws that
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require our pharmacists to offer counseling, without additional charge, to customers about medication, dosage, delivery
systems, common side effects and other information the pharmacists deem significant can impact our business. Our
pharmacists may also have a duty to warn customers regarding any potential negative effects of a prescription drug if the
warning could reduce or negate these effects. Although we maintain professional liability and errors and omissions
liability insurance, from time to time, claims result in the payment of significant amounts, some portions of which are
not funded by insurance. We cannot assure you that the coverage limits under our insurance programs will be adequate
to protect us against future claims, or that we will be able to maintain this insurance on acceptable terms in the future.
Our results of operations, financial condition or cash flows may be adversely affected if in the future our insurance
coverage proves to be inadequate or unavailable or there is an increase in liability for which we self-insure or we suffer
reputational harm as a result of an error or omission.
We may be subject to significant liability should the consumption of any of our products cause injury, illness or
death.
Products that we sell could become subject to contamination, product tampering, mislabeling or other damage
requiring us to recall our products. In addition, errors in the dispensing and packaging of pharmaceuticals could lead to
serious injury or death. Product liability claims may be asserted against us with respect to any of the products or
pharmaceuticals we sell and we may be obligated to recall our products. A product liability judgment against us or a
product recall could have a material, adverse effect on our business, financial condition or results of operations.
Risks of declining gross margins in the PBM industry could adversely impact our profitability.
The PBM industry has been experiencing margin pressure as a result of competitive pressures and increased
client demands for lower prices, performance guarantees, enhanced service offerings and higher rebate yields. With
respect to rebate yields, we maintain contractual relationships with brand name pharmaceutical manufacturers that
provide for rebates on drugs dispensed by pharmacies in our retail network and by our mail order pharmacy (all or a
portion of which may be passed on to clients). Manufacturer rebates often depend on a PBM’s ability to meet contractual
market share or other requirements, including in some cases the placement of a manufacturer’s products on the PBM’s
formularies. If we lose our relationship with one or more pharmaceutical manufacturers, or if the rebates provided by
pharmaceutical manufacturers decline, our business and financial results could be adversely affected. Further, changes in
existing federal or state laws or regulations or the adoption of new laws or regulations relating to patent term extensions,
rebate arrangements with pharmaceutical manufacturers, or to formulary management or other PBM services could also
reduce the manufacturer rebates we receive.
We also maintain contractual relationships with participating pharmacies that provide for discounts on retail
transactions for generic drugs and brand drugs dispensed by pharmacies in our retail network. If we lose our relationship
with one or more of the larger pharmacies in our network, or if the retail discounts provided by network pharmacies
decline, our business and financial results could be adversely affected. In addition, changes in federal or state laws or
regulations or the adoption of new laws or regulations relating to claims processing and billing, including our ability to
collect network administration and technology fees, could adversely impact our profitability.
The possibility of PBM client loss and/or the failure to win new PBM business could impact our ability to secure new
business.
Our PBM business generates net revenues primarily by contracting with clients to provide prescription drugs
and related health care services to plan members. PBM client contracts often have terms of approximately three years in
duration, so approximately one third of a PBM’s client base typically is subject to renewal each year. In some cases,
however, PBM clients may negotiate a shorter or longer contract term or may require early or periodic renegotiation of
pricing prior to expiration of a contract. In addition, the reputational impact of a service-related incident could negatively
affect our ability to grow and retain our client base. Further, the PBM industry has been impacted by consolidation
activity that may continue in the future. In the event one or more of our PBM clients is acquired by an entity that obtains
PBM services from a competitor, we may be unable to retain all or a portion of our clients’ business. Because of the
competitive nature of the business, we continually face challenges in competing for new PBM business and retaining or
renewing our existing PBM business. There can be no assurance that we will be able to win new business or secure
26
renewal business on terms as favorable to us as the present terms. These circumstances, either individually or in the
aggregate, could result in an adverse effect on our business and financial results.
Regulatory or business changes relating to our participation in Medicare Part D, the loss of Medicare Part D eligible
members, or our failure to otherwise execute on our strategies related to Medicare Part D, may adversely impact our
business and our financial results.
One of our subsidiaries, EIC, is an insurer domiciled in Ohio (with Ohio as its primary insurance regulator) and
licensed in all 50 states, and is approved to function as a Medicare Part D Prescription Drug Plan (“PDP”) plan sponsor
for purposes of individual insurance products offered to Medicare-eligible beneficiaries and for purposes of making
employer/union-only group waiver plans available for eligible clients. We also provide other products and services in
support of our clients’ Medicare Part D plans or the Federal Retiree Drug Subsidy program. We are working to minimize
the working capital tied to the business by reducing and/or selling the receivable as we did for calendar 2019, however
there are no assurances that we can reduce or sell the receivable for calendar 2020. There are many uncertainties about
the financial and regulatory risks of participating in the Medicare Part D program and we can give no assurance that
these risks will not materially adversely impact our business and financial results in future periods.
EIC is subject to various contractual and regulatory compliance requirements associated with participating in
Medicare Part D. EIC is subject to certain aspects of state laws regulating the business of insurance in all jurisdictions in
which EIC offers its PDP plans. As a PDP sponsor, EIC is required to comply with Federal Medicare Part D laws and
regulations applicable to PDP sponsors. Additionally, the receipt of Federal funds made available through the Part D
program by us, our affiliates, or clients is subject to compliance with the Part D regulations and established laws and
regulations governing the Federal government’s payment for healthcare goods and services, including the Anti-Kickback
Statute and the False Claims Act. Similar to our requirements with other clients, our policies and practices associated
with operating our PDP are subject to audit. If material contractual or regulatory non-compliance was to be identified,
monetary penalties and/or applicable sanctions, including suspension of enrollment and marketing or debarment from
participation in Medicare programs, could be imposed. Further, the adoption or promulgation of new or more complex
regulatory requirements associated with Medicare may require us to incur significant costs which could adversely impact
our business and our financial results.
In addition, due to the availability of Medicare Part D, some of our employer clients may decide to stop
providing pharmacy benefit coverage to retirees, instead allowing the retirees to choose their own Part D plans, which
could cause a reduction in demand for our Medicare Part D group insurance products. Extensive competition among
Medicare Part D plans could also result in the loss of Medicare Part D members by our managed care customers, which
would also result in a decline in our membership base. For example, if we were to lose our current Star rating with the
CMS, fewer customers may select our plans, which could have an adverse effect on our financial results. Like many
aspects of our business, the administration of the Medicare Part D program is complex. Any failure to execute the
provisions of the Medicare Part D program may have an adverse effect on our financial position, results of operations or
cash flows. As discussed above, in March 2010, comprehensive healthcare reform was enacted into federal law through
the passage of the ACA. Additionally, as described above, the ACA contains various changes to the Part D program and
could have a financial impact on our PDP and our clients’ demand for our other Part D products and services. Further, it
is unclear what effect, if any, the repeal of all or part of the ACA may have on the Part D program.
Failure to timely identify or effectively respond to changing consumer preferences and spending patterns, an inability
to expand the products being purchased by our clients and customers, or the failure or inability to obtain or offer
particular categories of products could negatively affect our relationship with our clients and customers and the
demand for our products and services.
The success of our business depends in part on customer loyalty, superior customer service and our ability to
persuade customers to purchase products in additional categories and our private label brands. Failure to timely identify
or effectively respond to changing consumer preferences and spending patterns, an inability to expand the products being
purchased by our clients and customers, or the failure or inability to obtain or offer particular categories of products
could negatively affect our relationship with our clients and customers and the demand for our products and services.
27
We offer our customers private label brand products that are available exclusively at our stores and through our
online retail site. The sale of private label products subjects us to unique risks including potential product liability risks
and mandatory or voluntary product recalls, our ability to successfully protect our intellectual property rights and the
rights of applicable third parties, and other risks generally encountered by entities that source, market and sell
private-label products. Any failure to adequately address some or all of these risks could have an adverse effect on our
business, results of operations and financial condition. Additionally, an increase in the sales of our private label brands
may negatively affect our sales of national-branded products which consequently, could adversely impact certain of our
supplier relationships. Our ability to locate qualified, economically stable suppliers who satisfy our requirements, and to
acquire sufficient products in a timely and effective manner, is critical to ensuring, among other things, that customer
confidence is not diminished. Any failure to develop sourcing relationships with a broad and deep supplier base could
adversely affect our financial performance and erode customer loyalty.
Moreover, customer expectations and new technology advances from our competitors have required that our
business evolve so that we are able to interface with our retail customers not only face-to-face in our stores but also
online and via mobile and social media. Our customers are using computers, tablets, mobile phones and other electronic
devices to shop in our stores and online, as well as to provide public reactions concerning each facet of our operation. If
we fail to keep pace with dynamic customer expectations and new technology developments, our ability to compete and
maintain customer loyalty could be adversely affected.
Finally, EnvisionRx’s specialty pharmacy business focuses on complex and high-cost medications that serve a
relatively limited universe of patients. As a result, the future growth of our specialty pharmacy business is dependent
largely upon expanding our base of drugs or penetration in certain treatment categories. Any contraction of our base of
patients or reduction in demand for the prescriptions we currently dispense could have an adverse effect on our business,
financial condition and results of operations.
Item 1B. Unresolved SEC Staff Comments
None
Item 2. Properties
As of February 29, 2020, we operated 2,461 retail drugstores. The average selling square feet of each store in
our chain is approximately 10,500 square feet. The average total square feet of each store in our chain is approximately
13,600. The stores in the eastern part of the U.S. average 8,800 selling square feet per store (11,200 average total square
feet per store). The stores in the western part of the U.S. average 14,300 selling square feet per store (19,000 average
total square feet per store).
28
The table below identifies the number of stores by state as of February 29, 2020:
State
California
Colorado
Connecticut
Delaware
Idaho
Massachusetts
Maryland
Michigan
Nevada
New Hampshire
New Jersey
New York
Ohio
Oregon
Pennsylvania
Vermont
Virginia
Washington
Total
Store
Count
540
3
34
38
14
10
43
260
1
60
129
318
208
72
519
6
70
136
2,461
Our stores have the following attributes at February 29, 2020:
Attribute
Freestanding
Drive through pharmacy
GNC stores within a Rite Aid store
Number Percentage
58.1 %
54.3 %
65.9 %
1,431
1,337
1,623
We lease 2,331 of our operating drugstore facilities under non-cancelable leases, many of which have original
terms of 10 to 22 years. In addition to minimum rental payments, which are set at competitive market rates, certain
leases require additional payments based on sales volume, as well as reimbursement for taxes, maintenance and
insurance. Most of our leases contain renewal options, some of which involve rent increases. The remaining 130
drugstore facilities are owned.
We own our corporate headquarters, which is located in a 213,000 square foot building at 30 Hunter Lane,
Camp Hill, Pennsylvania 17011. We lease 279,000 square feet of space in various buildings near Harrisburg,
Pennsylvania for document warehousing use and additional administrative personnel. We own additional buildings near
Harrisburg, Pennsylvania which total 100,000 square feet and house our model store and additional administrative
personnel.
29
We operate the following distribution centers and satellite distribution locations, which we own or lease as
indicated(1):
Location
Distribution centers, continuing operations
Perryman, Maryland
Perryman, Maryland(2)
Pontiac, Michigan
Woodland, California
Woodland, California(2)
Wilsonville, Oregon
Lancaster, California
Liverpool, New York
Owned or Approximate
Leased Square Footage
Owned
Leased
Owned
Owned
Leased
Leased
Owned
Owned
885,000
262,000
325,000
513,000
108,000
547,000
914,000
828,000
(1) The distribution centers included in this table exclude the distribution centers that have been or will be transferred to
WBA pursuant to the Sale.
(2) Satellite distribution locations.
The original terms of the leases for our distribution centers and satellite distribution locations range from 5 to
20 years. In addition to minimum rental payments, certain distribution centers require tax reimbursement, maintenance
and insurance. Most leases contain renewal options, some of which involve rent increases. Although from time to time,
we may be near capacity at some of our distribution facilities, particularly at our older facilities, we believe that the
capacity of our facilities is adequate.
We also own a 55,600 square foot ice cream manufacturing facility and lease a 32,000 square foot storage
facility located in El Monte, California.
We lease approximately 19,800 square feet in 36 HEB grocery stores in Texas under a master lease agreement
that contains various renewal options through 2024.
Our Pharmacy Services segment leases approximately 253,000 square feet of space in various buildings
primarily in Twinsburg, Ohio for additional administrative personnel. In addition, we own approximately 52,000 square
feet of space in North Canton, Ohio for our mail order and specialty drug facilities.
On a regular basis and as part of our normal business, we evaluate store performance and may reduce in size,
close or relocate a store if the store is redundant, underperforming or otherwise deemed unsuitable. We also evaluate
strategic dispositions and acquisitions of facilities and prescription files. When we reduce in size, close or relocate a
store or close distribution center facilities, we often continue to have leasing obligations or own the property. We attempt
to sublease this space. As of February 29, 2020, we had 3,009,575 square feet of excess space, 1,509,334 square feet of
which was subleased.
Item 3. Legal Proceedings
The information in response to this item is incorporated herein by reference to Note 21, Commitments,
Contingencies and Guarantees of the Consolidated Financial Statements of this Annual Report.
Item 4. Mine Safety Disclosures
Not applicable
30
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
On April 10, 2019, our Board of Directors approved a one-for-twenty reverse stock split of our outstanding
shares of common stock. The reverse stock split was effected on April 18, 2019 at 5:00 p.m. Eastern time. At the
effective time, every twenty issued and outstanding shares of our common stock were converted into one share of
common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each
stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the
Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds
from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. In
connection with the reverse stock split, the number of authorized shares of our common stock was also reduced on a
one-for-twenty basis, from 1.5 billion to 75 million. The par value of each share of common stock remained unchanged.
A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2014 Equity
Incentive Plan.
Our common stock is listed on the NYSE under the symbol “RAD.” On April 16, 2020, we had approximately
9,590 stockholders of record. The following table shows the quarterly high and low sales prices for our common stock,
adjusted on a retroactive basis to reflect the reverse stock split:
Fiscal Year
2021 (through April 16, 2020)
2020
2019
$
Quarter
First
First
Second
Third
Fourth
First
Second
Third
Fourth
High
19.93 $
15.00
9.96
11.58
23.88
39.60
42.40
27.80
23.00
Low
9.24
7.03
5.04
6.09
7.49
29.20
25.40
19.60
12.00
We have not declared or paid any cash dividends on our common stock since the third quarter of fiscal 2000
and we do not anticipate paying cash dividends on our common stock in the foreseeable future. Our senior secured credit
facility and some of the indentures that govern our other outstanding indebtedness restrict our ability to pay dividends.
We have not sold any unregistered equity securities during the period covered by this report, nor have we
repurchased any of our common stock, during the period covered by this report.
STOCK PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative total stockholder return on our
common stock for the last five fiscal years with the cumulative total return on (i) the Russell 2000 Consumer Staples
Index, (ii) the Russell 3000 Consumer Staples Index, (iii) the Russell 2000 Index, and (iv) the Russell 3000 Index, over
the same period (assuming the investment of $100.00 in our common stock and such indexes on February 28, 2015 and
reinvestment of dividends).
For comparison of cumulative total return, we have elected to use the Russell 2000 Consumer Staples Index,
consisting of 55 companies, and the Russell 2000 Index. In the past we used the Russell 1000 Consumer Staples Index
and the Russell 1000 Index but we feel this is a better comparison of the Company to a peer group of similar sized
companies. The Russell 2000 Consumer Staples Index is a capitalization-weighted index of companies that provide
products directly to consumers that are typically considered nondiscretionary items based on consumer purchasing
habits. The Russell 2000 Index consists of the smallest 2000 companies in the Russell 3000 Index and represents the
universe of small capitalization stocks from which many active money managers typically select.
31
STOCK PERFORMANCE GRAPH
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100 on February 28, 2015
February 29, 2020
RITE AID CORP
Russell 2000 Index
Russell 2000 Consumer Staples Index
Russell 3000 Index
Russell 3000 Consumer Staples Index
2016
99.75
85.29
100.69
92.82
105.43
2017
68.30
116.37
109.35
117.31
117.76
2018
23.93
129.67
111.17
134.56
114.34
2019
9.15
136.25
116.63
143.09
116.17
2020
8.53
128.38
103.31
151.91
123.64
32
Item 6. Selected Financial Data—Continuing Operations
The following selected financial data should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Continuing Operations” and the audited consolidated financial statements
and related notes.
February 29, March 2,
Fiscal Year Ended(1)
March 3,
March 4,
2020
(52 weeks)
2017
2018
2019
(52 weeks)
(53 weeks)
(52 weeks)
(Dollars in thousands, except per share amounts)
February 27,
2016
(52 weeks)
Summary of Continuing Operations:
Revenues from continuing operations
Net (loss) income from continuing
operations
Basic and diluted (loss) income per
share:
Basic (loss) income per share
from continuing operations
Diluted income (loss) per share
from continuing operations
Total assets
Total debt
$
$
$ 21,928,393 $ 21,639,557 $ 21,528,968 $ 22,927,540 $ 20,770,237
(469,219)
(666,954)
(349,532)
4,080
102,088
(8.82) $
(12.62) $
(6.66) $
0.08 $
1.99
(8.82) $
(12.62) $
(6.66) $
0.08 $
9,452,369
3,105,434
7,591,367
3,494,760
8,989,327
3,942,292
11,593,752
7,328,693
1.96
11,277,010
6,994,136
(1) As noted above, and further detailed in Note 3 to the consolidated financial statements, in connection with the Sale,
the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards
Codification 210-05—Discontinued Operations (“ASC 210-05”). In accordance with ASC 205-20, the Company
reclassified the assets and liabilities to be sold, including 1,932 stores (the “Acquired Stores”), three (3) distribution
centers, related inventory and other specified assets and liabilities thereto (collectively the “Assets to be Sold” or
“Disposal Group”) to assets and liabilities held for sale on its consolidated balance sheets, and reclassified the
financial results of the Disposal Group in its consolidated statements of operations and consolidated statements of
cash flows for all periods presented.
33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations
Overview
We are a healthcare company with a retail footprint, providing our customers and communities with a high
level of care and service through various programs we offer through our two reportable business segments, our Retail
Pharmacy segment and our Pharmacy Services segment. We accomplish our goal of delivering comprehensive care to
our customers through our retail drugstores, RediClinic walk-in retail health clinics and our transparent and traditional
PBMs EnvisionRxOptions and MedTrak. We also offer fully integrated mail-order and specialty pharmacy services
through EnvisionPharmacies. Additionally through EIC, EnvisionRxOptions also serves one of the fastest-growing
demographics in healthcare: seniors enrolled in Medicare Part D. When combined with our retail platform, this
comprehensive suite of services allows us to provide value and choice to customers, patients and payors and allows us to
compete in today’s evolving healthcare marketplace.
Retail Pharmacy Segment
Our Retail Pharmacy segment sells brand and generic prescription drugs, as well as an assortment of front-end
products including health and beauty aids, personal care products, seasonal merchandise, and a large private brand
product line. Our Retail Pharmacy segment generates the majority of its revenue through the sale of prescription drugs
and front-end products at our 2,461 retail stores. We replenish our retail stores through a combination of direct store
delivery of pharmaceutical products facilitated through our pharmaceutical Purchasing and Delivery Agreement with
McKesson, and the majority of our front-end products through our network of distribution centers. In addition, as of
February 29, 2020, the Retail Pharmacy segment includes 67 RediClinic walk-in retail clinics, of which, 31 were located
within Rite Aid retail stores in the Philadelphia and New Jersey markets.
Pharmacy Services Segment
Our Pharmacy Services segment provides a full range of pharmacy benefit services through
EnvisionRxOptions. The Pharmacy Services segment provides both transparent and traditional PBM options through its
EnvisionRxOptions and MedTrak PBMs. EnvisionRxOptions also offers fully integrated mail-order and specialty
pharmacy services through EnvisionPharmacies; an innovative claims adjudication software platform in Laker Software;
and a national Medicare Part D prescription drug plan through EIC’s EnvisionRx Plus product offering. The segment’s
clients are primarily employers, insurance companies, unions, government employee groups, health plans, Managed
Medicaid plans, Medicare plans, other sponsors of health benefit plans and individuals throughout the United States.
Restructuring
Beginning in Fiscal 2019, we initiated a series of restructuring plans designed to reorganize our executive
management team, reduce managerial layers, and consolidate roles. We also initiated restructuring plans with regard to
our future strategy and brand identification, which includes building tools to work with regional health plans to improve
patient health outcomes, rationalizing SKU’s in our front-end offering to free up working capital, assessing our pricing
and promotional strategy, rebranding our retail pharmacy and EnvisionRxOptions business, implementing executive
team enhancements, further reducing SG&A and headcount, separating the front-end and retail pharmacy teams into
separate units, integrating the Pharmacy Services segment both within the segment and across Rite Aid, including a
detailed review of our EnvisionRxOptions cost structure and action plans to streamline.
As a result of the restructuring that we announced in March 2019, we achieved annual cost savings of
approximately $55.0 million. These savings offset the reduction in TSA fees that we experienced in fiscal 2020. We
have also incurred restructuring costs to support our transformation initiatives, which we expect to provide future growth
and expense efficiency benefits. We anticipate our total fiscal 2021 restructuring-related costs to be approximately $60.0
million and expect to realize the full benefit of this investment over the next two years, although a prolonged impact of
COVID-19 could result in us realizing an amount different than anticipated.
34
Asset Sale to WBA
On September 18, 2017, we entered into the Amended and Restated Asset Purchase Agreement with WBA and
Buyer, which amended and restated in its entirety the previously disclosed Original Asset Purchase Agreement. Pursuant
to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer
agreed to purchase from Rite Aid 1,932 Acquired Stores, three distribution centers, related inventory and other specified
assets and liabilities related thereto for a purchase price of approximately $4.375 billion, on a cash-free, debt-free basis,
in the Sale. We completed the store transfer process in March of 2018, which resulted in the transfer of all 1,932 stores
and related assets to WBA and received cash proceeds of $4.157 billion.
During fiscal 2019, we completed the sale of one of our distribution centers and related assets to WBA for
proceeds of $61.2 million. The impact of the sale of the distribution center and related assets resulted in a pre-tax gain of
$14.2 million, which has been included in the results of operations and cash flows of discontinued operations during the
fifty-two week period ended March 2, 2019. During fiscal 2020, we completed the sale of the second distribution center
and related assets to WBA for proceeds of $62.8 million. The impact of the sale of the distribution center and related
assets resulted in a pre-tax gain of $19.3 million, which has been included in the results of operations and cash flows of
discontinued operations during the fifty-two week period ended February 29, 2020. On April 1, 2020, we completed the
inventory transfer at our remaining distribution center to WBA for proceeds of $19.3 million.
The transfer of the remaining distribution center and related non-inventory assets remains subject to minimal
customary closing conditions applicable only to the distribution center being transferred at such distribution center
closing, as specified in the Amended and Restated Asset Purchase Agreement. The transfer of the remaining distribution
center and related non-inventory assets is expected to occur in May 2020, and will constitute the final closing under the
Amended and Restated Asset Purchase Agreement. The term of the TSA continues after the final closing until October
17, 2020, unless earlier terminated.
The parties to the Amended and Restated Asset Purchase Agreement have each made customary representations
and warranties. We have agreed to various covenants and agreements, including, among others, our agreement to
conduct our business at the distribution centers being sold to WBA in the ordinary course during the period between the
execution of the Amended and Restated Asset Purchase Agreement and the distribution center closing. We have also
agreed to provide transition services to Buyer for up to three years after the initial closing of the Sale. Under the terms of
the TSA, we provide various services on behalf of WBA, including but not limited to the purchase and distribution of
inventory and virtually all selling, general and administrative activities. The term of the TSA has been extended to
October 17, 2020. In connection with these services, we purchase the related inventory and incur cash payments for the
selling, general and administrative activities, which, we bill on a cash neutral basis to WBA in accordance with terms as
outlined in the TSA. Total billings for these items during the fifty-two week periods ended February 29, 2020 and
March 2, 2019 were $3.0 billion and $6.9 billion, respectively, of which $38.7 million and $293.7 million is included in
Accounts receivable, net. We charged WBA TSA fees of $37.9 million during the fifty-two week period ended February
29, 2020 and $80.2 million in the fifty-two week period ended March 2, 2019, which are reflected as a reduction to
selling, general and administrative expenses.
Based on its magnitude and because we exited certain markets, the Sale represented a significant strategic shift
that has a material effect on our operations and financial results. Accordingly, we have applied discontinued operations
treatment for the Sale as required by GAAP.
Impact of COVID-19
In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a
pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States,
including in the markets in which we operate. In an effort to limit the spread of COVID-19, governmental entities have
taken various regulatory actions including, but not limited to “shelter in place” orders and the temporary closures of
many non-life sustaining businesses. Entities that provide life-sustaining services, such as healthcare providers, retail
pharmacy, grocery stores and gas stations have generally been permitted to remain open, which has allowed us to
continue to serve our customers during the pandemic.
35
Rite Aid is on the front lines of providing communities with essential care, services and products during the
COVID-19 pandemic. We have taken numerous steps to ensure that Rite Aid can continue providing these vital services
during this time of great need, including:
• Announcing plans to hire an additional 5,000 full and part-time associates to support store and distribution
•
•
•
center teams.
Implementing Hero Pay and Hero Bonus programs to show appreciation for the exceptional commitment of
Rite Aid associates on the front lines.
Instituting a “Pandemic Pay” policy that ensures associates are compensated if diagnosed with the virus or
quarantined because of exposure.
Implementing specific internal protocols to keep associates safe and ready to serve customers, including the
installation of Plexiglas shields at pharmacy and front-end counters to provide additional protection.
• Launching a new telehealth service RediClinic@Home to better serve patient needs.
• Designating 9 a.m. to 10 a.m. as a senior shopping hour to limit exposure for customers 60 and older and
offering a 30% discount to wellness+ rewards members every Wednesday in April.
• Establishing social distancing procedures that include marking floor areas in front of the pharmacy and front-
end counters with tape to ensure 6-foot separation.
• Waiving delivery-service fees for eligible prescriptions.
• Following enhanced cleaning and sanitization protocols designed specifically to prevent the spread of a wide
spectrum of viruses, including COVID-19 and influenza.
In response to the COVID-19 pandemic, we have implemented our business continuity plans in an effort to
continue normal operations based on the work from home and social distancing requirements of various governmental
entities. During the month of March, we saw increases in front-end same store sales, excluding cigarettes and tobacco
products, of 33.6 percent compared to the prior year period, due to demand for personal care, paper products and OTC
medications, and increases in 30-day comparable adjusted prescription count of 8.3 percent due to increased fills of
maintenance medications.
We expect these initial favorable results to be tempered by a decline in front-end sales during at least the
remainder of the first quarter of Fiscal 2021, due to social distancing measures that are in effect in our markets and a
moderation in prescription count, the timing of maintenance medication refills and a potential near-term decline in acute
prescriptions. Also, we have incurred incremental costs related to the Hero Pay and Bonus programs for front-line
associates, as well as incremental expenses (i.e. Plexiglas protective barriers, cleaning crews and additional staffing) to
ensure our stores stay open and to minimize the risk to our associates and customers. An extended impact of COVID-19
could result in us having to delay some of our strategic initiatives, such as bringing our pharmacists front and center in
the store and out from behind the counter, and the anticipated roll-out of our Stores of the Future.
We have also noted an increase in mail order prescriptions and drug utilization at our Pharmacy Services
segment during March 2020, which has been offset by higher utilization within the PDP plan offered by Envision
Insurance Company.
We currently have liquidity of approximately $1.9 billion, which consists of availability to borrow under our
secured revolving credit facility of $1.7 billion and cash on hand of $180 million. We will continue to assess this
development to determine if any material negative impacts are identified and will work to minimize the risk to our
financial position if material negative developments occur. However, the extent to which the COVID-19 outbreak will
impact our operations or financial results is uncertain, but such impact could be material.
Overview of Financial Results from Continuing Operations
The following information summarizes our financial results from continuing operations for fiscal 2020
compared to fiscal 2019. For discussion of our financial results from continuing operations for fiscal 2019 to fiscal 2018,
see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations”
36
included in our Annual Report on Form 10-K for the fiscal year ended March 2, 2019, which we filed with the SEC on
April 25, 2019.
Net Loss: Our net loss from continuing operations for fiscal 2020 was $469.2 million or $8.82 per basic and
diluted share compared to net loss from continuing operations for fiscal 2019 of $667.0 million or $12.62 per basic and
diluted share. The reduction in net loss is due to lower goodwill and intangible asset charges, lower LIFO expense,
lower lease termination and impairment charges, and a gain on debt retirements in the current year compared to a loss on
debt retirements in the prior year. These items were partially offset by higher income tax expense and higher
restructuring-related costs.
Adjusted EBITDA: Our Adjusted EBITDA from continuing operations for fiscal 2020 was $538.2 million or
2.5 percent of revenues, compared to $563.4 million or 2.6 percent of revenues for fiscal year 2019. The decrease in
Adjusted EBITDA from continuing operations was due primarily to a decrease of $34.8 million in the Retail Pharmacy
segment, partially offset by an increase of $9.5 million in the Pharmacy Services segment. The decrease in the Retail
Pharmacy Segment Adjusted EBITDA was driven by a $42.4 million reduction in TSA fee income from WBA. Also
contributing to the reduction in Adjusted EBITDA was a decrease in Adjusted EBITDA gross profit resulting from
reimbursement rate pressures that were not fully offset by generic drug purchasing efficiencies, a reduction in vendor
promotional income and a decline in front-end same store sales. These negative variances were partially offset by same-
store prescription count growth and lower selling, general and administrative expenses due to strong labor and benefits
expense control. The improvement in the Pharmacy Services Segment EBITDA was due to increased revenue and
improvements in pharmacy network management. Please see the sections entitled “Segment Analysis” and Adjusted
EBITDA, Adjusted Net Income (Loss) per Diluted Share and Other Non-GAAP Measures” below for additional details.
Consolidated Results of Operations—Continuing Operations
Revenue and Other Operating Data
Year Ended
February 29, 2020 March 2, 2019 March 3, 2018
Revenues(a)
Revenue growth (decline)
Net loss
Net loss per diluted share
Adjusted EBITDA(b)
Adjusted Net Income (Loss) (b)
Adjusted Net Income (Loss) per Diluted
Share(b)
$
$
$
$
$
(52 Weeks)
(52 Weeks)
(Dollars in thousands except per share amounts)
$ 21,639,557
$ 21,928,393
(52 Weeks)
$ 21,528,968
1.3 %
(469,219)
(8.82)
538,211
8,013
$ (666,954)
(12.62)
$
563,444
$
(3,051)
$
0.5 %
$
$
$
$
(6.1)%
(349,532)
(6.66)
559,854
22,440
0.15
$
(0.06)
$
0.42
(a) Revenues for the fiscal years ended February 29, 2020, March 2, 2019 and March 3, 2018 exclude $247,353,
$211,283 and $200,326, respectively, of inter-segment activity that is eliminated in consolidation.
(b) See “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other
Non-GAAP Measures” for additional details.
Revenues
Fiscal 2020 compared to Fiscal 2019: The 1.3% increase in revenues was due primarily to a $465.9 million
increase in Pharmacy Services segment revenues, partially offset by a $141.0 million decrease in Retail Pharmacy
segment revenues. Same store sales trends for fiscal 2020 and fiscal 2019 are described in the “Segment Analysis”
section below.
Please see the section entitled “Segment Analysis” below for additional details regarding revenues.
37
Costs and Expenses
Year Ended
February 29, 2020 March 2, 2019 March 3, 2018
Cost of revenues(a)
Gross profit
Gross margin
Selling, general and administrative
expenses
Selling, general and administrative
expenses as a percentage of revenues
Lease termination and impairment
charges
Goodwill and intangible asset impairment
charges
Interest expense
(Gain) loss on debt retirements, net
Walgreens Boots Alliance merger
termination fee
Loss (gain) on sale of assets, net
(52 Weeks)
$ 17,201,635
4,726,758
(52 Weeks)
(Dollars in thousands)
$ 16,963,205
4,676,352
(52 Weeks)
$ 16,748,863
4,780,105
21.6 %
21.6 %
22.2 %
$
4,587,336
$ 4,592,375
$ 4,651,262
20.9 %
21.2 %
21.6 %
42,843
107,994
58,765
—
229,657
(55,692)
375,190
227,728
554
261,727
202,768
—
—
4,226
—
(38,012)
(325,000)
(25,872)
(a) Cost of revenues for the fiscal years ended February 29, 2020, March 2, 2019 and March 3, 2018 exclude $247,353,
$211,283 and $200,326, respectively, of inter-segment activity that is eliminated in consolidation.
Gross Profit and Cost of Revenues
Gross profit increased by $50.4 million in fiscal 2020 compared to fiscal 2019. Gross profit for fiscal 2020
includes an increase of $16.1 million in our Retail Pharmacy segment and an increase in gross profit of $34.3 million
relating to our Pharmacy Services segment. Gross margin was 21.6% for fiscal 2020 compared to 21.6% in fiscal 2019.
Please see the section entitled “Segment Analysis” for a more detailed description of gross profit and gross margin
results by segment.
Selling, General and Administrative Expenses
SG&A decreased by $5.0 million in fiscal 2020 compared to fiscal 2019. The decrease in SG&A includes a
decrease of $30.5 million relating to our Retail Pharmacy segment, partially offset by an increase of $25.5 million
relating to our Pharmacy Services segment. Please see the section entitled “Segment Analysis” below for additional
details regarding SG&A.
Lease Termination and Impairment Charges
Impairment Charges:
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that an
asset group has a carrying value that may not be recoverable. The individual operating store is the lowest level for which
cash flows are identifiable. As such, we evaluate individual stores for recoverability of assets. To determine if a store
needs to be tested for recoverability, we consider items such as decreases in market prices, changes in the manner in
which the store is being used or physical condition, changes in legal factors or business climate, an accumulation of
losses significantly in excess of budget, a current period operating or cash flow loss combined with a history of operating
or cash flow losses or a projection of continuing losses, or an expectation that the store will be closed or sold.
We monitor new and recently relocated stores against operational projections and other strategic factors such as
regional economics, new competitive entries and other local market considerations to determine if an impairment
38
evaluation is required. For other stores, we perform a recoverability analysis if they have experienced current-period and
historical cash flow losses.
In performing the recoverability test, we compare the expected future cash flows of a store to the carrying
amount of its assets. Significant judgment is used to estimate future cash flows. Major assumptions that contribute to our
future cash flow projections include expected sales, gross profit and distribution expenses; expected costs such as
payroll, occupancy costs and advertising expenses; and estimates for other significant selling, and general and
administrative expenses. Additionally, we take into consideration that certain operating stores are executing specific
improvement plans which are monitored quarterly to recoup recent capital investments, such as an acquisition of an
independent pharmacy, which we have made to respond to specific competitive or local market conditions, or have
specific programs tailored towards a specific geography or market.
We recorded impairment charges of $39.9 million in fiscal 2020, $63.5 million in fiscal 2019 and $37.9 million
in fiscal 2018. Our methodology for recording impairment charges has been consistently applied in the periods
presented.
At February 29, 2020, approximately $965.5 million of our long-lived assets, including intangible assets, were
associated with 2,461 active operating stores. Additionally, in connection with the adoption of ASU 2016-02, Leases
(Topic 842), we have approximately $2.8 billion of operating lease right-of-use assets associated with the active stores.
If an operating store’s estimated future undiscounted cash flows are not sufficient to cover its carrying value, its
carrying value is reduced to fair value which is its estimated future discounted cash flows. The discount rate is
commensurate with the risks associated with the recovery of a similar asset. Beginning in fiscal year 2020, operating
lease right-of-use assets are included within the stores’ asset groups. We obtain fair values of these right-of-use assets
based on real estate market data.
An impairment charge is recorded in the period that the store does not meet its original return on investment
and/or has an operating loss for the last two years and its projected cash flows do not exceed its current asset carrying
value. The amount of the impairment charge is the entire difference between the current carrying asset value and the
estimated fair value of the assets using discounted future cash flows.
We recorded impairment charges for active stores of $34.8 million in fiscal 2020, $46.4 million in fiscal 2019
and $34.8 million in fiscal 2018.
We review key performance results for active stores on a quarterly basis and approve certain stores for closure.
Impairment for closed stores, if any (many stores are closed on lease expiration), are recorded in the quarter the closure
decision is approved. Closure decisions are made on an individual store or regional basis considering all of the
macro-economic, industry and other factors, in addition to, the operating store’s individual operating results. We
currently have no plans to close a significant number of active stores in future periods. We recorded impairment charges
for closed facilities of $5.1 million in fiscal 2020, $2.8 million in fiscal 2019 and $3.1 million in fiscal 2018.
39
The following table summarizes the impairment charges and number of locations, segregated by closed
facilities and active stores that have been recorded in fiscal 2020, 2019 and 2018:
(in thousands, except number of stores)
Active stores:
February 29, 2020
Number Charge
March 2, 2019
March 3, 2018
Number Charge
Number Charge
Stores previously impaired(1)
New, relocated and remodeled stores(2)
Remaining stores not meeting the recoverability
test(3)
Total impairment charges—active stores
Total impairment charges—closed facilities
Total impairment charges—other(4)
Total impairment charges—all locations
274 $ 11,449
11,228
8
288 $ 17,939
10,595
22
218 $ 7,313
13,100
28
38
320
30
—
12,148
34,825
5,050
—
350 $ 39,875
17,885
74
46,419
384
2,788
62
—
14,285
446 $ 63,492
14,369
60
34,782
306
3,091
67
—
—
373 $ 37,873
(1) These charges are related to stores that were impaired for the first time in prior periods. In an effort to improve the
operating results or to meet geographical competition, we will often make additional capital additions in stores that
were impaired in prior periods. These additions will be impaired in future periods if they are deemed to be
unrecoverable. In connection with our March 3, 2019 adoption of ASU 2016-02, Leases (Topic 842), under the
alternative transition method, and the recording of our corresponding right-of-use asset (“ROU”). Beginning with
fiscal 2020, we include the ROU in our recoverability assessment. Our fiscal 2020 impairment charge includes
$6,594 of impairment relating to our ROU and $4,855 of capital additions.
(2) These charges are related to new stores (open at least three years) and relocated stores (relocated in the last two
years) and significant strategic remodels (remodeled in the last year) that did not meet their recoverability test
during the current period. These stores have not met our original return on investment projections and have a
historical loss of at least two years. Their future cash flow projections do not recover their current carrying value.
Our fiscal 2020 impairment charge includes $5,625 of impairment relating to our ROU and $5,603 of capital assets.
(3) These charges are related to the remaining active stores that did not meet the recoverability test during the current
period. These stores have a historical loss of at least two years. Their future cash flow projections do not recover
their current carrying value. Our fiscal 2020 impairment charge includes $2,228 of impairment relating to our ROU
and $9,920 of capital assets.
(4) These fiscal 2019 charges were due to the impairment of assets related to the termination of a project to replace the
point of sale software used in our stores.
The primary drivers of our impairment charges are each store’s current and historical operating performance
and the assumptions that we make about each store’s operating performance in future periods. Projected cash flows are
updated based on the next year’s operating budget which includes the qualitative factors noted above. We are unable to
predict with any degree of certainty which individual stores will fall short or exceed future operating plans. Accordingly,
we are unable to describe future trends that would affect our impairment charges, including the likely stores and their
related asset values that may fail their recoverability test in future periods.
To the extent that actual future cash flows may differ from our projections materially certain stores that are
either not impaired or partially impaired in the current period may be further impaired in future periods. A 50 and 100
basis point decrease in our future sales assumptions as of February 29, 2020 would have resulted in 15 and 27,
respectively, additional stores being subjected to our impairment analysis.
Lease Termination Charges: Upon adoption of ASU 2016-02, Leases (Topic 842), we recorded a future lease
liability for every real estate lease and therefore, we no longer record a lease termination charge. Post adoption, we
record ancillary costs in connection with store closings. Prior to the adoption of ASU 2016-02, charges to close a store,
which principally consist of continuing lease obligations associated with ancillary costs, are recorded at the time the
store is closed and all inventory is liquidated, pursuant to the guidance set forth in ASC 420, “Exit or Disposal Cost
40
Obligations.” We calculate our liability for closed stores on a store-by-store basis. The calculation for stores where
remaining lease term exceeds one year includes the ancillary costs from the date of closure to the end of the remaining
lease term. We evaluate these assumptions each quarter and adjust the liability accordingly. As part of our ongoing
business activities, we assess stores and distribution centers for potential closure and relocation. Decisions to close or
relocate stores or distribution centers in future periods would result in lease termination charges for lease exit costs and
liquidation of inventory, as well as impairment of assets at these locations.
In fiscal 2020, 2019 and 2018, we recorded lease termination charges of $2.9 million, $44.5 million, and
$20.9 million, respectively. We have no plans to close a significant number of stores in future periods.
Goodwill and intangible asset impairment charges
In the fiscal fourth quarter of fiscal 2020 we completed a quantitative goodwill impairment assessment and
determined after evaluating the results, events and circumstances, that sufficient evidence existed to assert that it is more
likely than not that the fair values of the reporting units exceeded their carrying values. Therefore, no goodwill
impairment charge was assessed for the fiscal year ended February 29, 2020.
In the fiscal second quarter of fiscal 2019 we completed a qualitative goodwill impairment assessment, at which
time it was determined after evaluating results, events and circumstances that a quantitative assessment was necessary
for the Pharmacy Services segment. The quantitative assessment concluded that the carrying amount of the Pharmacy
Services segment exceeded its fair value principally due to a decrease in Adjusted EBITDA that was driven by
commercial business compression and an increase in SG&A expenses. This resulted in a goodwill impairment charge of
$313.0 million ($235.7 million net of the related income tax benefit) for the fiscal year ended March 2, 2019.
In the fiscal second quarter of fiscal 2019, due to the loss of access to a fertility drug for a direct to consumer
program that the Pharmacy Services segment administered, we recorded an impairment charge to reduce the book value
of customer relationships by $48.2 million (gross carrying amount of $77.0 million less accumulated amortization of
$28.8 million), and indefinite lived trademarks by $14.0 million both of which charges are included within Goodwill and
intangible asset impairment charges within the consolidated statement of operations.
Interest Expense
In fiscal 2020, 2019 and 2018, interest expense was $229.7 million, $227.7 million and $202.8 million,
respectively.
The annual weighted average interest rates on our indebtedness in fiscal 2020, 2019 and 2018 were 5.7%, 5.6%
and 7.1%, respectively.
Income Taxes—Continuing Operations
Income tax expense of $387.6 million, $77.5 million and $305.9 million, has been recorded for fiscal 2020,
2019 and 2018, respectively. Net loss for fiscal 2020 included a provision for income tax based on an overall tax rate of
(476.2)%, which included a (427.0)% impact related to establishing a full valuation allowance for federal deferred tax
assets and an increase to the valuation allowance for state net deferred tax assets that may not be realized based on our
most recent assessment that it is more likely than not that sufficient taxable income may not be generated to realize the
tax benefits of the majority of our net deferred tax assets.
Net loss for fiscal 2019 included a provision for income tax based on an overall tax rate of (13.1)% which
included a (36.0)% impact for an increase to the valuation allowance based on our assessment that it is more likely than
not that sufficient taxable income may not be generated to realize the tax benefits of some of our net deferred tax assets.
We recognized tax expense of $7.0 million, $91.1 million and $749.7 million within Net loss (income) from
discontinued operations, net of tax, in the Statement of Operations in fiscal 2020, fiscal 2019 and fiscal 2018,
respectively. Our effective income tax rate from discontinued operations included adjustments to the valuation allowance
of $0.0 million, $(2.4) million and $(22.3) million for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.
41
ASC 740, “Income Taxes” requires a company to evaluate its deferred tax assets on a regular basis to determine
if a valuation allowance against the net deferred tax assets is required. We take into account all available positive and
negative evidence with regard to the recognition of a deferred tax asset including our past earnings history, expected
future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved,
would adversely affect recognition of a deferred tax asset, carryback and carryforward periods and tax planning
strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The ultimate realization of
deferred tax assets is dependent upon the existence of sufficient taxable income generated in the carryforward periods.
Accordingly, changes in the valuation allowance from period to period are included in the tax provision in the period of
change.
We maintained a valuation allowance of $1,673.1 million, $1,091.4 million and $896.8 million against
remaining net deferred tax assets at fiscal year-end 2020, 2019 and 2018, respectively.
Our ability to utilize the losses and credits to offset future taxable income may be deferred or limited
significantly if we were to experience an “ownership change” as defined in section 382 of the Internal Revenue Code of
1986, as amended (the “Code”). In general, an ownership change will occur if there is a cumulative change in ownership
of the Company’s stock by “5-percent shareholders” (as defined in the Code) that exceeds 50 percentage points over a
rolling three-year period. The Company determined that no ownership change has occurred for purposes of Section 382
for the period ended February 29, 2020. It is important to note, that the limitation that would be created upon an
ownership change would only apply to income earned after the event that caused the ownership change.
Dilutive Equity Issuances
On February 29, 2020, 54.7 million shares of common stock, which includes unvested restricted shares, were
outstanding and an additional 1.3 million shares of common stock were issuable related to outstanding stock options.
On February 29, 2020, our 1.3 million shares of potentially issuable common stock consisted of the following
(shares in thousands):
Strike price
$0.00 - $19.99
$20.00 to $39.99
$40.00 to $59.99
$60.00 to $79.99
$80.00 to $99.99
$100.00 to $119.99
$120.00 to $139.99
$140.00 to $159.99
$160.00 and over
Total issuable shares
(a) The exercise of these options would provide cash of $39.2 million.
Outstanding
Stock
Options(a)
612
484
83
—
—
—
—
57
59
1,295
42
Segment Analysis
We evaluate the Retail Pharmacy and Pharmacy Services segments’ performance based on revenue, gross
profit, and Adjusted EBITDA. The following is a reconciliation of our segments to the consolidated financial statements:
Retail
Pharmacy
Pharmacy
Services
Intersegment
Eliminations(1)
Consolidated
February 29, 2020:
Revenues
Gross Profit
Adjusted EBITDA(*)
March 2, 2019:
Revenues
Gross Profit
Adjusted EBITDA(*)
March 3, 2018:
Revenues
Gross Profit
Adjusted EBITDA(*)
$ 15,616,186 $ 6,559,560 $ (247,353) $ 21,928,393
4,726,758
538,211
4,274,836
370,435
451,922
167,776
—
—
$ 15,757,152 $ 6,093,688 $ (211,283) $ 21,639,557
4,676,352
563,444
4,258,716
405,206
417,636
158,238
—
—
$ 15,832,625 $ 5,896,669 $ (200,326) $ 21,528,968
4,780,105
559,854
4,372,373
388,320
407,732
171,534
—
—
(1) Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when
Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this
occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.
(*) See the section entitled “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted
Share and Other Non-GAAP Measures” below for additional details.
43
Retail Pharmacy Segment Results of Continuing Operations
Revenues and Other Operating Data
Year Ended
February 29, 2020 March 2, 2019 March 3, 2018
(52 Weeks)
$ 15,616,186
(52 Weeks)
(Dollars in thousands)
$ 15,757,152
(52 Weeks)
$ 15,832,625
Revenues
Revenue decline
Same store sales growth (decline)
Pharmacy sales (decline) growth
Same store prescription count growth
(decline), adjusted to 30-day equivalents
Same store pharmacy sales growth
(decline)
Pharmacy sales as a % of total retail sales
Front-end sales decline
Same store front-end sales decline
Front-end sales as a % of total retail sales
Adjusted EBITDA(*)
Store data:
$
Total stores (beginning of period)
New stores
Store acquisitions
Closed stores
Total stores (end of period)
Relocated stores
Remodeled and expanded stores
(0.9)%
1.1 %
(0.4)%
(0.5) %
0.6 %
0.6 %
(5.6)%
(2.9)%
(6.7)%
3.5 %
0.7 %
(1.8)%
1.4 %
67.0 %
(1.9)%
(0.6)%
33.0 %
$
370,435
1.7 %
66.6 %
(2.5) %
(1.4) %
33.4 %
$
405,206
(3.9)%
65.9 %
(3.4)%
(0.8)%
34.1 %
388,320
2,469
2
—
(10)
2,461
5
76
2,550
1
—
(82)
2,469
1
134
2,604
3
—
(57)
2,550
20
179
(*) See the section entitled “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted
Share and Other Non-GAAP Measures” below for additional details.
Revenues
Fiscal 2020 compared to Fiscal 2019: The 0.9% decrease in revenue was primarily the result of store closures,
partially offset by a 1.1% increase in same store sales. Same store sales trends for fiscal 2020 and fiscal 2019 are
described in the following paragraphs. We include in same store sales all stores that have been open at least one year
except stores in liquidation, which are not included. Relocation stores are not included in same store sales until they have
been open for one year.
Pharmacy same store sales increased 1.4%. Pharmacy same store sales were positively impacted by an increase
of 3.5% in same store prescription count compared to the prior year, partially offset by an approximate 2.9% negative
impact from generic drug introductions. Same store prescription sales continued to benefit from strong execution and
focus on medication adherence through personalized interventions, prescription file buys, immunizations and gaining
access to new networks in markets where we have strong market presence.
Front-end same store sales decreased 0.6%. Front-end same stores sales, excluding cigarettes and tobacco
products, increased 0.6% driven by positive results in core categories such as upper respiratory, pain care, over-the-
counter medications and personal care.
44
Costs and Expenses
Cost of revenues
Gross profit
Gross margin
FIFO gross profit(*)
FIFO gross margin(*)
Selling, general and administrative
expenses
Selling, general and administrative
expenses as a percentage of revenues
Year Ended
February 29, 2020 March 2, 2019 March 3, 2018
(52 Weeks)
(52 Weeks)
(Dollars in thousands)
$ 11,341,350 $ 11,498,436 $ 11,460,252
4,372,373
4,258,716
4,274,836
(52 Weeks)
27.4 %
27.0 %
27.6 %
4,210,032
4,282,070
4,343,546
27.0 %
27.2 %
27.4 %
$
4,220,851
$ 4,251,378
$ 4,328,567
27.0 %
27.0 %
27.3 %
(*) See the section entitled “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted
Share and Other Non-GAAP Measures” below for additional details.
Gross Profit and Cost of Revenues
Gross profit increased by $16.1 million in fiscal 2020 compared to fiscal 2019. Gross profit was positively
impacted by a LIFO credit in the current year compared to a LIFO charge in the prior year, partially offset by lower
Pharmacy gross profit resulting from lower reimbursement rates that were partially offset by generic cost savings and
same store prescription count growth. Front-end gross profit declined from the prior year due to a decline in front-end
sales and lower vendor promotional income.
Overall gross margin was 27.4% for fiscal 2020 compared to 27.0% in fiscal 2019. Gross margin was higher
due primarily to a LIFO credit in the current year compared to a LIFO charge in the prior year. The LIFO credit was
partially offset by the decline in reimbursement rates that was partially offset by generic cost savings.
We use the LIFO method of inventory valuation, which is determined annually when inflation rates and
inventory levels are finalized. Therefore, LIFO costs for interim period financial statements are estimated. The LIFO
credit for fiscal 2020 was $64.8 million compared to a LIFO charge of $23.4 million in fiscal 2019. The LIFO credit for
fiscal 2020 is due primarily to deflation in generic prescription drug costs, partially offset by brand prescription drug cost
inflation.
Selling, General and Administrative Expenses
SG&A as a percentage of revenue was 27.0% in fiscal 2020 compared to 27.0% in fiscal 2019, and decreased
$30.5 million. The decrease in SG&A dollars was due primarily to strong labor and benefits expense control, partially
offset by a reduction in the TSA fee income from WBA. SG&A expenses as a percentage of revenues is flat to the prior
year.
45
Pharmacy Services Segment Results of Operations
Revenues and Other Operating Data
February 29, March 2,
March 3,
Year Ended
Revenues
Revenue growth (decline)
Adjusted EBITDA(*)
2020
(52 Weeks)
2019
(52 Weeks)
(Dollars and plan members in thousands)
$ 6,093,688
2018
(52 Weeks)
$ 5,896,669
$ 6,559,560
7.6 %
$
167,776
3.3 %
$
158,238
$
(7.8)%
171,534
(*) See the section entitled “Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted
Share and Other Non-GAAP Measures” below for additional details.
Revenues
Pharmacy Services segment revenue was $6,559.6 million and $6,093.7 million, respectively, for fiscal 2020
and 2019. The increase in the fiscal 2020 revenue for the segment is due to the increase in covered lives in our Medicare
Part D membership.
Costs and Expenses
February 29, March 2,
March 3,
Year Ended
Cost of revenues
Gross profit
Gross margin
Selling, general and administrative expenses
Selling, general and administrative expenses as
a percentage of revenues
Gross Profit and Cost of Revenues
2020
(52 Weeks)
$ 6,107,638
451,922
2019
(52 Weeks)
(Dollars in thousands)
$ 5,676,052
417,636
2018
(52 Weeks)
$ 5,488,937
407,732
6.9 %
6.9 %
6.9 %
$ 366,485
$ 340,997
$ 322,695
5.6 %
5.6 %
5.5 %
Gross profit increased by $34.3 million in fiscal 2020 compared to fiscal 2019. The increase in gross profit is
due primarily to improved pharmacy network management.
Selling, General and Administrative Expenses
Pharmacy Services segment selling, general and administrative expenses for fiscal 2020 was $366.5 million or
5.6% of revenues as compared to $341.0 million or 5.6% of revenues for fiscal 2019. The increase in SG&A is primarily
the result of increased commissions due to growth in Medicare Part D membership and growth in consumer pharmacy
programs.
Liquidity and Capital Resources
General
We have disclosed debt and interest expense on a continuing operations and discontinued operations basis on
our consolidated balance sheets and consolidated statements of operations. However, the following discussion regarding
liquidity and capital resources is at the total enterprise level, as we are contractually obligated for the payment of all
46
outstanding debt instruments and related interest under our various indentures, including borrowings under the Existing
Facilities.
We have two primary sources of liquidity: (i) cash provided by operating activities and (ii) borrowings under
our Existing Facilities. Our principal uses of cash are to provide working capital for operations, to service our
obligations to pay interest and principal on debt and to fund capital expenditures. Total liquidity as of February 29, 2020
was $2,041.9 million, which consisted of revolver borrowing capacity of $1,940.0 million and invested cash of
$101.9 million.
Credit Facilities
On December 20, 2018, we entered into a senior secured credit agreement (as amended by the First Amendment
to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”), consisting of a $2.7 billion senior secured
asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and a $450.0 million “first-in, last out”
senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured Revolving Credit
Facility, collectively, the “Existing Facilities”). We used proceeds from the Existing Facilities to refinance our prior
$2.7 billion existing credit agreement (the “Old Facility”). The Existing Facilities extend our debt maturity profile and
provide additional liquidity. Borrowings under the Senior Secured Revolving Credit Facility bear interest at a rate per
annum between LIBOR plus 1.25% and LIBOR plus 1.75% based upon the Average ABL Availability (as defined in the
Credit Agreement). Borrowings under the Senior Secured Term Loan bear interest at a rate per annum of LIBOR plus
3.00%. We are required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the
commitments under the Senior Secured Revolving Credit Facility, depending on Average ABL Availability. The
Existing Facilities mature on December 20, 2023, subject to an earlier maturity on December 31, 2022 if we have not
repaid or refinanced our existing 6.125% Notes due 2023 prior to such date. It is our intention to repay or refinance our
existing 6.125% Notes due 2023 prior to the early maturity becoming effective, although we cannot assure you what
impact the recent disruption in the financial markets will have on any such efforts.
Our ability to borrow under the Senior Secured Revolving Credit Facility is based upon a specified borrowing
base consisting of accounts receivable, inventory and prescription files. At February 29, 2020, we had approximately
$1,100.0 million of borrowings outstanding under the Existing Facilities and had letters of credit outstanding against the
Senior Secured Revolving Credit Facility of approximately $110.0 million, which resulted in additional borrowing
capacity under the Senior Secured Revolving Credit Facility of $1,940.0 million. If at any time the total credit exposure
outstanding under our Existing Facilities and the principal amount of our other senior obligations exceed the borrowing
base, we will be required to make certain other mandatory prepayments to eliminate such shortfall.
The Credit Agreement restricts us and all of our subsidiaries that guarantee our obligations under the Existing
Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary Guarantors”) from
accumulating cash on hand in excess of $200.0 million at any time when revolving loans are outstanding (not including
cash located in our store and lockbox deposit accounts and cash necessary to cover our current liabilities). This could
impact our ability to draw additional amounts on the revolver in response to COVID-19. The Credit Agreement also
states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or
second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior
obligations or the second priority debt) either (i) an event of default exists under our Existing Facilities or (ii) the sum of
our borrowing capacity under our Senior Secured Revolving Credit Facility and certain amounts held on deposit with the
senior collateral agent in a concentration account is less than $275.0 million for three consecutive business days or less
than or equal to $200.0 million on any day (a “cash sweep period”), the funds in our deposit accounts will be swept to a
concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under
the Existing Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded
pursuant to the terms of our Existing Facilities.
Our obligations under the Existing Facilities and the Subsidiary Guarantors’ obligations under the related
guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts
receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of
the Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of
47
their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary
Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property
(following the repayment of the Senior Secured Term Loan) and all other assets that do not constitute ABL priority
collateral, in each case, subject to customary exceptions and limitations.
The Credit Agreement allows us to have outstanding, at any time, up to an aggregate principal amount of
$1.5 billion in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in
addition to borrowings under the Existing Facilities and other existing indebtedness, provided that not in excess of
$750.0 million of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock
shall mature or require scheduled payments of principal prior to 90 days after the latest of (i) the fifth anniversary of the
effectiveness of the Existing Facilities and (ii) the latest maturity date of any Term Loan or Other Revolving
Commitment (each as defined in the Credit Agreement) (excluding bridge facilities allowing extensions on customary
terms to at least the date that is 90 days after such date). Subject to the limitations described in clauses (i) and (ii) of the
immediately preceding sentence, the Credit Agreement additionally allows us to issue or incur an unlimited amount of
unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the
Credit Agreement) is not in effect; provided, however, that certain of our other outstanding indebtedness limits the
amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or
other exemptions are not available. The Credit Agreement also contains certain restrictions on the amount of secured
first priority debt we are able to incur. The Credit Agreement also allows for the voluntary repurchase of any debt or
other convertible debt, so long as the Existing Facilities are not in default and we maintain availability under our
revolver of more than $365.0 million.
The Credit Agreement has a financial covenant that requires us to maintain a minimum fixed charge coverage
ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is less than
$200.0 million, or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving
Credit Facility is less than $250.0 million and, in each case, ending on and excluding the first day thereafter, if any,
which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than
$250.0 million. As of February 29, 2020, our fixed charge coverage ratio was greater than 1.00 to 1.00 and we were in
compliance with the Credit Agreement’s financial covenant. The Credit Agreement also contains covenants which place
restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and
acquisitions and the granting of liens.
The Credit Agreement provides for customary events of default including nonpayment, misrepresentation,
breach of covenants and bankruptcy. It is also an event of default if we fail to make any required payment on debt having
a principal amount in excess of $50.0 million or any event occurs that enables, or which with the giving of notice or the
lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment repurchase,
redemption or defeasance of such debt.
The indentures that govern our guaranteed unsecured notes and our guaranteed secured notes contain
restrictions on the amount of additional secured and unsecured debt that we may incur. As of February 29, 2020, we had
the ability to (i) draw the full amount under our revolving credit facility, (ii) incur additional secured debt, and (iii) enter
into certain sale and leaseback transactions. The ability to issue additional unsecured debt under the indenture is
generally governed by an interest coverage ratio test. As of February 29, 2020, we had the ability to issue additional
secured and unsecured debt under the indentures governing our unguaranteed unsecured notes.
Fiscal 2019 and 2020 Transactions
On March 13, 2018, we issued a notice of redemption for all of the 9.25% Notes that were outstanding on April
12, 2018, pursuant to the terms of the indenture of the 9.25% Notes. On April 12, 2018, we redeemed 100% of the
remaining outstanding 9.25% Notes. In connection therewith, we recorded a loss on debt retirement of $3.4 million
which included unamortized debt issuance costs, partially offset by unamortized discount. The debt repayment and
related loss on debt retirement is included in the results of operations and cash flows of discontinued operations.
48
On April 19, 2018, we announced that we had commenced an offer to purchase up to $700.0 million of the
outstanding 6.75% Notes and the 6.125% Notes pursuant to the asset sale provisions of such indentures. On May 21,
2018, we accepted for payment, pursuant to the offer to purchase, $1.4 million aggregate principal amount of the 6.75%
Notes and $4.8 million aggregate principal amount of the 6.125% Notes. The debt repayment and related loss on debt
retirement of $0.01 million for the 6.75% Notes is included in the results of operations and cash flows of discontinued
operations. The debt repayment and related loss on debt retirement of $0.06 million for the 6.125% Notes is included in
the results of operations and cash flows of continuing operations.
On April 29, 2018, we further reduced the borrowing capacity on our Old Facility from $3.0 billion to $2.7
billion. In connection therewith, we recorded a loss on debt retirement of $1.1 million, which included unamortized debt
issuance costs. The loss on debt retirement is included in the results of operations and cash flows of discontinued
operations.
On June 25, 2018, we redeemed the remaining $805.2 million of the 6.75% Notes, which resulted in a loss on
debt retirement of $18.1 million. The loss on debt retirement is included in the results of operations and cash flows of
discontinued operations.
On March 15, 2019, we entered into a Cap, which has been assigned to the variable interest rate payments on
the first $650.0 million notional amount of variable rate indebtedness. The Cap has an effective date of March 21, 2019
and expires on March 21, 2021. The Cap provides us with interest rate protection in the event that LIBOR increases
above 2.75%.
On October 11, 2019, we completed a privately negotiated purchase from a noteholder and its affiliated funds
of $84.1 million aggregate principal amount of the 7.70% Notes and 6.875% Notes for $51.3 million. In connection
therewith, we recorded a gain on debt retirement of $32.4 million, which included unamortized debt issuance costs. The
debt repayment and related gain on debt retirement is included in the results of operations and cash flows of continuing
operations.
On October 15, 2019, we commenced an offer to purchase up to $100.0 million of the outstanding 7.70% Notes
and the 6.875% Notes. In November 2019, we accepted for payment $18.1 million aggregate principal amount of the
7.70% Notes and $39.4 million aggregate principal amount of the 6.875% Notes for $38.4 million. In connection
therewith, we recorded a gain on debt retirement of $18.5 million, which included unamortized debt issuance costs. The
debt repayment and related gain on debt retirement is included in the results of operations and cash flows of continuing
operations.
During November 2019, we made additional purchases of $15.0 million aggregate principal amount of the
7.70% Notes for $10.0 million. In connection therewith, we recorded a gain on debt retirement of $4.8 million, which
included unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the
results of operations and cash flows of continuing operations.
On January 6, 2020, we commenced an offer to exchange up to $600.0 million aggregate principal amount of
the outstanding 6.125% Senior Notes due 2023 for newly issued 7.500% Senior Secured Notes due 2025. On February 5,
2020, we announced that the exchange offer was oversubscribed and accepted for payment $600.0 million aggregate
principal amount of the 6.125% Senior Notes due 2023 in exchange for newly issued 7.500% Senior Secured Notes due
2025. We accounted for the exchange as a debt modification and accordingly did not record a loss on debt retirement.
The 7.500% Senior Secured Notes due 2025 mature on July 1, 2025, and are guaranteed on a senior secured
basis by the same Subsidiary Guarantors that guarantee the Existing Facilities and the 6.125% Senior Notes due 2023.
The 7.500% Senior Secured Notes due 2025 and the obligations under the related guarantees are secured by (i) a first-
priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in
subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and other collateral to the
extent it does not constitute ABL priority collateral (as defined below), and (ii) a second-priority lien on all of the
Subsidiary Guarantors’ cash and cash equivalents, accounts receivables, payment intangibles, inventory, prescription
49
files (including eligible script lists) and, intellectual property (prior to the repayment of the Senior Secured Term Loan)
(collectively, the “ABL priority collateral”), which, in each case, also secure the Existing Facilities.
On February 19, 2020, our wholly-owned subsidiary, Envision Insurance Company, entered into a receivable
purchase agreement with Bank of America, N.A. and Bank of America, N.A. purchased from Envision Insurance
Company its right, title and interest in the 2019 Medicare Part D final reconciliation payment in the amount of $501.4
million anticipated to be paid by the Centers for Medicare & Medicaid Services, an agency within CMS, to Envision
Insurance Company or about October 30, 2020. On the closing date, we realized net cash proceeds of $449.9 million and
recognized a related loss of $16.9 million, which is included as a component of loss on sale of assets, net. We expect to
collect the remaining $34.6 million during the third quarter of fiscal 2021. Proceeds from this sale were used to reduce
our leverage and there can be no assurance that we will enter into similar transactions in the future or that any such
transaction will be on similar terms.
Off-Balance Sheet Arrangements
As of February 29, 2020, we had no material off balance sheet arrangements.
Contractual Obligations and Commitments
The following table details the maturities of our indebtedness and lease financing obligations as of February 29,
2020, as well as other contractual cash obligations and commitments.
Less Than 1 Year 1 to 3 Years 3 to 5 Years After 5 Years
Total
(Dollars in thousands)
Payment due by period
Contractual Cash Obligations
Long term debt(1)
Lease financing obligations(2)
Operating leases
Open purchase orders
Other, primarily self insurance and
retirement plan obligations(3)
Minimum purchase commitments(4)
Total contractual cash obligations
$
$
177,249 $
11,307
662,644
132,823
354,497 $ 2,426,804 $ 933,420 $ 3,891,970
43,078
4,033,590
132,823
16,660
1,314,774
—
7,064
889,755
—
8,047
1,166,417
—
60,849
90,712
170,818
148,850
1,135,584 $ 1,639,628 $ 3,336,622 $ 2,309,295 $ 8,421,129
52,529
58,138
44,441
—
12,999
—
Less Than 1 Year 1 to 3 Years 3 to 5 Years After 5 Years
Total
Payment due by period
Commitments
Lease guarantees(5)
Lease guarantees(6)
Outstanding letters of credit
Total contractual cash obligations and
commitments
$
3,312 $
2,454 $
428 $
— $
278,212
53,245
441,942
56,768
305,868
—
432,054
—
6,194
1,458,076
110,013
$
1,470,353 $ 2,140,792 $ 3,642,918 $ 2,741,349 $ 9,995,412
(1) Includes principal and interest payments for all outstanding debt instruments. Interest was calculated on variable rate
instruments using rates as of February 29, 2020.
(2) Represents the minimum lease payments on non-cancelable leases, including interest, net of sublease income on a
continuing operations basis as the minimum lease payments on non-cancelable leases, including interest, net of
sublease income is being assumed by WBA as part of the Sale.
(3) Includes the undiscounted payments for self-insured medical coverage, actuarially determined undiscounted
payments for self-insured workers’ compensation and general liability, and actuarially determined obligations for
defined benefit pension and nonqualified executive retirement plans.
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(4) Represents commitments to purchase products and licensing fees from certain vendors.
(5) Represents lease guarantee obligations for 16 former stores related to certain business dispositions. The respective
purchasers assume the obligations and are, therefore, primarily liable for these obligations.
(6) Represents lease guarantee obligations for 1,393 former stores related to the Asset Sale. WBA assumed the
obligations and are, therefore, primarily liable for these obligations.
Obligations for income tax uncertainties pursuant to ASC 740, “Income Taxes” of approximately $23.4 million
are not included in the table above as we are uncertain as to if or when such amounts may be settled.
Net Cash Provided By (Used In) Operating, Investing and Financing Activities from Continuing Operations
Cash flow provided by operating activities was $510.9 million in fiscal 2020. Operating cash flow was
positively impacted by the sale of our calendar 2019 Medicare Part D receivable from CMS, lower WBA TSA
receivables due to fewer stores being serviced and a reduction in customer receivables at our Pharmacy Services
segment. These amounts were partially offset by a reduction in accounts payable correlating to the reduced WBA TSA
stores being serviced and a reduction in payroll related accruals.
Cash flow used in operating activities was $165.7 million in fiscal 2019. Operating cash flow was negatively
impacted by the payment of $182.4 million to our reinsurance carrier relating to the calendar 2017 CMS receivable, a
decrease in accrued interest due to the payoff of several of our debt instruments with proceeds from the Asset Sale and
the timing in receivables and payables.
Cash used in investing activities was $149.8 million in fiscal 2020. Cash used for the purchase of property,
plant and equipment was lower than in the prior year due primarily to a slowdown in our store remodeling program
while we developed our RxEvolution strategy. Proceeds from the disposition of assets and investments includes cash
proceeds associated with the monetization of company-owned life insurance.
Cash used in investing activities was $198.6 million in fiscal 2019. Cash used for the purchase of property,
plant, and equipment was higher than in the prior year primarily due to increased investments in our store base and
prescription file buys.
Cash used in financing activities was $326.7 million in fiscal 2020, which reflects net revolver repayments and
the repayment of a portion of our 6.875% notes and 7.7% notes.
Cash provided by financing activities was $803.3 million in fiscal 2019, which reflects the proceeds relating to
our December 20, 2018 refinancing and additional revolver borrowings.
Capital Expenditures
During the fiscal years ended February 29, 2020, March 2, 2019 and March 3, 2018 capital expenditures were
as follows:
Year Ended
February 29, March 2,
March 3,
2020
(52 weeks)
2019
(52 weeks)
(Dollars in thousands)
2018
(52 weeks)
New store construction, store relocation and store remodel projects
Technology enhancements, improvements to distribution centers and other
corporate requirements
Purchase of prescription files from other retail pharmacies
Total capital expenditures
51
$ 62,379 $ 94,334 $ 86,839
109,326
42,681
99,040
28,885
$ 214,386 $ 244,689 $ 214,764
102,444
47,911
Future Liquidity
We are highly leveraged. Our high level of indebtedness could: (i) limit our ability to obtain additional
financing; (ii) limit our flexibility in planning for, or reacting to, changes in our business and the industry; (iii) place us
at a competitive disadvantage relative to our competitors with less debt; (iv) render us more vulnerable to general
adverse economic and industry conditions, including those resulting from COVID-19; and (v) require us to dedicate a
substantial portion of our cash flow to service our debt. Based upon our current levels of operations, we believe that cash
flow from operations together with available borrowings under the revolver and other sources of liquidity will be
adequate to meet our requirements for working capital, debt service and capital expenditures at least for the next twelve
months. Based on our liquidity position, which we expect to remain strong, we do not expect to be subject to the
minimum fixed charge covenant in our Existing Facilities in the next twelve months. We have increased our level of
borrowing under our revolver compared to historical amounts to ensure that we have adequate liquidity in response to
COVID-19. We continue to have borrowing capacity under the Existing Facilities after such increased borrowings. We
will continue to assess our liquidity position and potential sources of supplemental liquidity in light of our operating
performance, and other relevant circumstances, and we may evaluate alternative sources of liquidity, including further
opportunities related to any receivable due to us from CMS, sale and leaseback transactions, and other transactions to
optimize our asset base. From time to time, we may seek additional deleveraging or refinancing transactions, including
entering into transactions to exchange debt for shares of common stock or other debt securities (including additional
secured debt), issuance of equity (including preferred stock and convertible securities), repurchase or redemption of
outstanding indebtedness, or seek to refinance our outstanding debt (including our Existing Facilities) or may otherwise
seek transactions to reduce interest expense and extend debt maturities. Any of these transactions could impact our
financial results.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to inventory shrink, goodwill
impairment, impairment of long-lived assets, revenue recognition, vendor discounts and purchase discounts,
self-insurance liabilities, lease termination charges, income taxes and litigation. Additionally, we have critical
accounting policies regarding revenue recognition and vendor allowances and purchase discounts for our Pharmacy
Services segment. We base our estimates on historical experience, current and anticipated business conditions, the
condition of the financial markets and various other assumptions that are believed to be reasonable under existing
conditions. Variability reflected in the sensitivity analyses presented below is based on our recent historical experience.
Actual results may differ materially from these estimates and sensitivity analyses.
The following critical accounting policies require the use of significant judgments and estimates by
management:
Inventory shrink: The carrying value of our inventory is reduced by a reserve for estimated shrink losses that
occur between physical inventory dates. When estimating these losses, we consider historical loss results at specific
locations. Shrink expense is recognized by applying the estimated shrink rate to sales since the last physical inventory.
Although possible, we do not expect a significant change to our shrink rate in future periods. A 10 basis point difference
in our estimated shrink rate for the year ended February 29, 2020, would have affected pre-tax income by approximately
$4.0 million.
Goodwill Impairment: Our policy is to perform an impairment test of goodwill at least annually, and more
frequently if events or circumstances occurred that would indicate a reduced fair value in our reporting units could exist.
In our quantitative impairment test, fair value estimates are calculated using an average of the income and market
approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the
market approach is based on certain multiples of selected guideline public companies or selected guideline transactions.
The approaches incorporate a number of market participant assumptions including future growth rates, discount rates,
income tax rates and market activity in assessing fair value and are reporting unit specific. If the carrying amount
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exceeds the reporting unit’s fair value, we recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value. In addition, we consider the income tax effect of any tax deductible goodwill
when measuring a goodwill impairment loss. Our Pharmacy Services reporting unit has goodwill of $1.06 billion at
February 29, 2020 and the fair value of the reporting unit is approximately 25% higher than the carrying value.
Impairment of long-lived assets: We evaluate long-lived assets for impairment whenever events or changes in
circumstances indicate that an asset group has a carrying value that may not be recoverable. The individual operating
store is the lowest level for which cash flows are identifiable. As such, we evaluate individual stores for recoverability.
To determine if a store needs to be tested for recoverability, we consider items such as decreases in market prices,
changes in the manner in which the store is being used or physical condition, changes in legal factors or business
climate, an accumulation of losses significantly in excess of budget, a current period operating or cash flow loss
combined with a history of operating or cash flow losses or a projection of continuing losses, or an expectation that the
store will be closed or sold.
We monitor new and recently relocated stores against operational projections and other strategic factors such as
regional economics, new competitive entries and other local market considerations to determine if an impairment
evaluation is required. For other stores, we perform a recoverability analysis if they have experienced current-period and
historical cash flow losses.
In performing the recoverability test, we compare the expected future cash flows of a store to the carrying
amount of its assets. Significant judgment is used to estimate future cash flows. Major assumptions that contribute to our
future cash flow projections include: expected sales and gross profit, pharmacy reimbursement rates, expected costs such
as payroll, and estimates for other significant selling, general and administrative expenses.
If an operating store’s estimated future undiscounted cash flows are not sufficient to cover its carrying value, its
carrying value is reduced to fair value which is its estimated future discounted cash flows. The discount rate is
commensurate with the risks associated with the recovery of a similar asset. Beginning in fiscal year 2020, operating
lease right-of-use assets are included within the stores’ asset groups. We obtain fair values of these right-of-use assets
based on real estate market data.
We regularly approve certain stores for closure. Impairment charges for closed stores, if any, are evaluated and
recorded in the quarter the closure decision is approved.
We also evaluate assets to be disposed of on a quarterly basis to determine if an additional impairment charge is
required. Fair value estimates are provided by independent brokers who operate in the local markets where the assets are
located.
If our actual future cash flows differ from our projections materially, certain stores that are either not impaired
or partially impaired in the current period may be further impaired in future periods. A 50 and 100 basis point decrease
in our future sales assumptions as of February 29, 2020 would have resulted in 15 and 27, respectively, additional stores
being subjected to our impairment analysis.
Revenue recognition for our loyalty program: We offer a chain-wide customer loyalty program, “wellness+
Rewards”. Members participating in our wellness+ Rewards loyalty card program earn points on a calendar year basis
for eligible front-end merchandise purchases and qualifying prescriptions.
Effective January 1, 2020, members reach specific wellness+ tiers based on points accumulated during the six
calendar month periods between January 1st and June 30th, and July 1st through December 31st, which entitles such
customers to certain future discounts and other benefits upon reaching that tier. For example, any customer that reaches
500 points during the six calendar month period between January 1st and June 30th achieves the “Gold” tier, enabling him
or her to receive a 20% discount on qualifying purchases of front-end merchandise for the remaining portion of that six
calendar month period and for the following six calendar months. There is also a similar “Silver” level with a lower
threshold and benefit level. Prior to January 1, 2020, the wellness+ tiers were based on points accumulated for a full
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calendar year, and entitled such customers to wellness+ benefits for the remainder of that calendar year and also the next
calendar year.
Points earned pursuant to the wellness+ program represent a performance obligation and we allocate revenue
between the merchandise purchased and the wellness+ points based on the relative stand-alone selling price of each
performance obligation. The relative value of the wellness+ points is initially deferred as a contract liability (included in
other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the benefit
period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into
revenue.
Self-insurance liabilities: We expense claims for self-insured workers’ compensation and general liability
insurance coverage as incurred including an estimate for claims incurred but not paid. The expense for self-insured
workers’ compensation and general liability claims incurred but not paid is determined using several factors, including
historical claims experience and development, severity of claims, medical costs and the time needed to settle claims. We
discount the estimated expense for workers’ compensation to present value as the time period from incurrence of the
claim to final settlement can be several years. We base our estimates for such timing on previous settlement activity. The
discount rate is based on the current market rates for Treasury bills that approximate the average time to settle the
workers’ compensation claims. These assumptions are updated on an annual basis. A 30 basis point difference in the
discount rate for the year ended February 29, 2020, would have affected pretax income by approximately $2.0 million.
Income taxes: We currently have net operating loss (“NOL”) carryforwards that can be utilized to offset future
income for federal and state tax purposes. These NOLs generate significant deferred tax assets. Realization is dependent
on generating sufficient taxable income prior to the expiration of the loss carryforwards.
Our ability to utilize the losses and credits to offset future taxable income may be deferred or limited
significantly if the Company were to experience an “ownership change” as defined in section 382 of the Internal
Revenue Code of 1986, as amended (the “Code”). In general, an ownership change will occur if there is a cumulative
change in ownership of the Company’s stock by “5-percent shareholders” (as defined in the Code) that exceeds
50 percentage points over a rolling three-year period. The Company determined that no ownership change has occurred
for purposes of Section 382 for the period ended February 29, 2020. It is important to note that the limitation that would
be created upon an ownership change would only apply to income earned after the event that caused the ownership
change.
We regularly review the deferred tax assets for recoverability considering the relative impact of negative and
positive evidence including our historical profitability, projected taxable income, the expected timing of the reversals of
existing temporary differences and tax planning strategies. The weight given to the potential effect of the negative and
positive evidence is commensurate with the extent to which it can be objectively verified. In evaluating the objective
evidence that historical results provide, we consider three years of cumulative pretax book income (loss).
We establish a valuation allowance against deferred tax assets when we determine that it is more likely than not
that some portion of our deferred tax assets will not be realized. Valuation allowances are based on evidence of our
ability to generate sufficient taxable income by jurisdiction. On a quarterly basis, management evaluates the likelihood
that we will realize the deferred tax assets and adjusts the valuation allowances, if appropriate. If we determine that we
would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an
adjustment to the deferred tax asset valuation allowance, which would impact the provision for income taxes.
We recognize tax liabilities in accordance with ASC 740, “Income Taxes” and we adjust these liabilities when
our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of
some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current
estimate of the tax liabilities.
Litigation reserves: We are involved in litigation on an on-going basis. We accrue our best estimate of the
probable loss related to legal claims. Such estimates are based upon a combination of litigation and settlement strategies.
These estimates are updated as the facts and circumstances of the cases develop and/or change. To the extent additional
54
information arises or our strategies change, it is possible that our best estimate of the probable liability may also change.
Changes to these reserves during the last three fiscal years were not material.
Revenue recognition for our Pharmacy Services segment:
The Pharmacy Services segment sells prescription drugs indirectly through its retail pharmacy network and
directly through its mail service dispensing pharmacy. The Pharmacy Services segment recognizes revenue from
prescription drugs sold by (i) its mail service dispensing pharmacy and (ii) under retail pharmacy network contracts
where it is the principal at the contract prices negotiated with its clients, primarily employers, insurance companies,
unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, and other sponsors of
health benefit plans, and individuals throughout the United States. Revenues include: (i) the portion of the price the
client pays directly to the Pharmacy Services segment, net of any volume-related or other discounts paid back to the
client (see “Drug Discounts” below), (ii) the price paid to the Pharmacy Services segment by client plan members for
mail order prescriptions (“Mail Co-Payments”), (iii) client plan member copayments made directly to the retail
pharmacy network and (iv) administrative fees. Revenue is recognized when the Pharmacy Services segment meets its
performance obligations relative to each transaction type. The following revenue recognition policies have been
established for the Pharmacy Services segment:
• Revenues generated from prescription drugs sold by third party pharmacies in the Pharmacy Services
segment’s retail pharmacy network and associated administrative fees are recognized at the Pharmacy
Services segment’s point-of-sale, which is when the claim is adjudicated by the Pharmacy Services
segment’s online claims processing system. At this point, we have performed across all of our performance
obligations.
• Revenues generated from prescription drugs sold by the Pharmacy Services segment’s mail service
dispensing pharmacy are recognized when the prescription is shipped. At the time of shipment, the
Pharmacy Services segment has performed all of its performance obligations under its client contracts, as
control of and title to the product has passed to the client plan members. The Pharmacy Services segment
does not experience a significant level of returns or reshipments.
• Revenues generated from administrative fees based on membership or claims volume are recognized
monthly based on the terms within the individual contracts, either a monthly member based fee, or a claims
volume based fee.
In the majority of its contracts, the Pharmacy Services segment is the principal because its client contracts give
clients the right to obtain access to its pharmacy contracts under which the Pharmacy Services segment directs its
pharmacy network to provide the services (drug dispensing, consultation, etc.) and goods (prescription drugs) to the
clients’ members at its negotiated pricing. The Pharmacy Services segment’s obligations under its client contracts are
separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network contracts.
In the majority of these contracts, the Pharmacy Services segment is contractually required to pay the third party
pharmacies in its retail pharmacy network for products sold after payment is received from its clients. The Pharmacy
Services segment has control over these transactions until the prescription is transferred to the member and, thus, that it
is acting as a principal. As such, the Pharmacy Services segment records the total prescription price contracted with
clients in revenues.
Amounts paid to pharmacies and amounts charged to clients are exclusive of the applicable co-payment under
Pharmacy Services segment contracts. Retail pharmacy co-payments, which we instruct retail pharmacies to collect from
members, are included in our revenues and our cost of revenues.
For contracts under which the Pharmacy Services segment acts as an agent or does not control the prescription
drugs prior to transfer to the client, no revenue is recognized.
We deduct from our revenues that are generated from prescription drugs sold by third party pharmacies the
manufacturers’ rebates that are earned by our clients based on their members’ utilization of brand-name formulary drugs.
55
For the majority of our clients, we pass these rebates to clients at point-of-sale based on actual claims data and our
estimates of the manufacturers’ rebates earned by our clients. We base our estimates on the best available data and recent
history for the various factors that can affect the amount of rebates earned by the client. We also deduct from our
revenues pricing guarantees and guarantees regarding the level of service we will provide to the client or member as well
as other payments made to our clients. Because the inputs to most of these estimates are not subject to a high degree of
subjectivity or volatility, the effect of adjustments between estimated and actual amounts have not been material to our
results of operations or financial condition.
We participate in the federal government’s Medicare Part D program as a Prescription Drug Plan (“PDP”)
through our EIC subsidiary. Our net revenues include insurance premiums earned by the PDP, which are determined
based on the PDP’s annual bid and related contractual arrangements with CMS. The insurance premiums include a
beneficiary premium, which is the responsibility of the PDP member, but is subsidized by CMS in the case of
low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially deferred as
accrued expenses and are then recognized ratably as revenue over the period in which members are entitled to receive
benefits.
We have recorded estimates of various assets and liabilities arising from our participation in the Medicare
Part D program based on information in our claims management and enrollment systems. Significant estimates arising
from our participation in the Medicare Part D program include: (i) estimates of low-income cost subsidy, reinsurance
amounts and coverage gap discount amounts ultimately payable to or receivable from CMS based on a detailed claims
reconciliation, (ii) an estimate of amounts receivable from CMS under a risk-sharing feature of the Medicare Part D
program design, referred to as the risk corridor (iii) estimates for claims that have been reported and are in the process of
being paid or contested and (iv) our estimate of claims that have been incurred but have not yet been reported. Actual
amounts of Medicare Part D-related assets and liabilities could differ significantly from amounts recorded. Historically,
the effect of these adjustments has not been material to our results of operations or financial position.
Vendor allowances and purchase discounts for our Pharmacy Services segment: Our Pharmacy Services
segment receives purchase discounts on products purchased. Contractual arrangements with vendors, including
manufacturers, wholesalers and retail pharmacies, normally provide for the Pharmacy Services segment to receive
purchase discounts from established list prices in one, or a combination, of the following forms: (i) a direct discount at
the time of purchase or (ii) a discount (or rebate) paid subsequent to dispensing when products are purchased indirectly
from a manufacturer (e.g., through a wholesaler or retail pharmacy). These rebates are recognized based on estimates
when prescriptions are dispensed and are generally calculated and billed to manufacturers within 30 days of the end of
each completed quarter. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to
the amounts billed and collected has not been material to the results of operations. We account for the effect of any such
differences as a change in accounting estimate in the period the reconciliation is completed. The Pharmacy Services
segment also receives additional discounts under its wholesaler contract. In addition, the Pharmacy Services segment
receives fees from pharmaceutical manufacturers for administrative services. Purchase discounts and administrative
service fees are recorded as a reduction of cost of revenues.
Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and Other
Non-GAAP Measures
In addition to net income (loss) determined in accordance with GAAP, we use certain non-GAAP measures,
such as “Adjusted EBITDA”, in assessing our operating performance. We believe the non-GAAP measures serve as an
appropriate measure in evaluating the performance of our business. We define Adjusted EBITDA as net income (loss)
excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments (which
removes the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), charges
or credits for facility closing and impairment, goodwill and intangible asset impairment charges, inventory write-downs
related to store closings, gains or losses on debt retirements, the WBA merger termination fee, and other items (including
stock-based compensation expense, merger and acquisition-related costs, a non-recurring litigation settlement (as further
discussed below), severance, restructuring-related costs and costs related to facility closures and gain or loss on sale of
assets). We reference this particular non-GAAP financial measure frequently in our decision-making because it provides
supplemental information that facilitates internal comparisons to the historical periods and external comparisons to
56
competitors. In addition, incentive compensation is primarily based on Adjusted EBITDA and we base certain of our
forward-looking estimates on Adjusted EBITDA to facilitate quantification of planned business activities and enhance
subsequent follow-up with comparisons of actual to planned Adjusted EBITDA.
The following is a reconciliation of our net loss to Adjusted EBITDA for fiscal 2020, 2019 and 2018:
February 29, 2020 March 2, 2019 March 3, 2018
(52 weeks)
(52 weeks)
(52 weeks)
Net loss from continuing operations
$
Interest expense
Income tax expense
Depreciation and amortization
LIFO (credit) charge
Lease termination and impairment charges
Goodwill and intangible asset impairment
charges
(Gain) loss on debt retirements, net
Merger and Acquisition‑related costs
Stock-based compensation expense
Restructuring-related costs
Inventory write-downs related to store closings
Litigation settlement
Loss (gain) on sale of assets, net
Walgreens Boots Alliance merger termination
fee
Other
Adjusted EBITDA from continuing operations
$
(Dollars in thousands)
(469,219) $ (666,954) $ (349,532)
202,768
227,728
229,657
305,987
77,477
387,607
386,057
357,882
328,277
(28,827)
23,354
(64,804)
58,765
107,994
42,843
—
(55,692)
3,599
16,087
105,642
4,652
—
4,226
375,190
554
37,821
12,115
4,704
13,487
18,000
(38,012)
261,727
—
24,283
25,793
—
7,586
—
(25,872)
—
5,336
(325,000)
—
16,119
12,104
538,211 $ 563,444 $ 559,854
The following is a reconciliation of our net loss from continuing operations to Adjusted Net Income (Loss) and
Adjusted Net Income (Loss) per Diluted Share for fiscal 2020, 2019 and 2018. Adjusted Net Income (Loss) is defined as
net income (loss) excluding the impact of amortization expense, merger and acquisition-related costs, a non-recurring
litigation settlement (as further discussed below), gains or losses on debt retirements, LIFO adjustments (which removes
the entire impact of LIFO, and effectively reflects the results as if we were on a FIFO inventory basis), goodwill and
intangible asset impairment charges, restructuring-related costs and the WBA merger termination fee. We calculate
Adjusted Net Income (Loss) per Diluted Share using our above-referenced definition of Adjusted Net Income (Loss).
We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share are useful indicators of our
57
operating performance over multiple periods. Adjusted Net Income (Loss) per Diluted Share is calculated using our
above-referenced definition of Adjusted Net Income (Loss):
Net loss
Add back - Income tax expense
Loss before income taxes
Adjustments:
Amortization expense
LIFO (credit) charge
Goodwill and intangible asset
impairment charges
(Gain) loss on debt retirements, net
Merger and Acquisition‑related costs
Restructuring-related costs
Litigation settlement
Walgreens Boots Alliance merger
termination fee
Adjusted income (loss) before income taxes
Adjusted income tax expense (benefit) (a)
Adjusted net income (loss)
Net loss per diluted share
Adjusted net income (loss) per diluted share
$
$
February 29, 2020 March 2, 2019 March 3, 2018
(52 weeks)
(52 weeks)
(52 weeks)
(Dollars in thousands)
$
(469,219) $ (666,954) $ (349,532)
305,987
387,607
(43,545)
(81,612)
77,477
(589,477)
103,941
(64,804)
125,640
23,354
147,739
(28,827)
—
(55,692)
3,599
105,642
—
375,190
554
37,821
4,704
18,000
261,727
—
24,283
—
—
—
11,074
3,061
8,013 $
(8.82) $
0.15 $
—
(4,214)
(1,163)
(3,051) $
(12.62) $
(0.06) $
(325,000)
36,377
13,937
22,440
(6.66)
0.42
(a) The fiscal year 2020, 2019 and 2018 annual effective tax rates, calculated using a federal rate plus a net state rate
that excluded the impact of state NOL’s, state credits and valuation allowance, was used for the fifty-two weeks
ended February 29, 2020, the fifty-two weeks ended March 2, 2019 and the fifty-two weeks ended March 3, 2018,
respectively.
We have in the past and may in the future be involved in litigation, claims and proceedings that result in legal
settlements or similar payments. We have historically not made adjustments for amounts related to these matters when
calculating Adjusted EBITDA and Adjusted Net Income (Loss). Given the nature of a material legal settlement incurred
in the second quarter of fiscal 2019, for comparability purposes we have added the amount of this settlement back to net
income when calculating Adjusted EBITDA and Adjusted Net Income (Loss) for the fifty-two week period ended
March 2, 2019 to help investors better compare our operating performance over multiple periods. For additional
information regarding the settlement see Note 21 to the consolidated financial statements.
In addition to Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted Net (Loss) Income per Diluted
Share, we occasionally refer to several other Non-GAAP measures, on a less frequent basis, in order to describe certain
components of our business and how we utilize them to describe our results. These measures include but are not limited
to Adjusted EBITDA Gross Margin and Gross Profit (gross margin/gross profit excluding non-Adjusted EBITDA
items), Adjusted EBITDA SG&A (SG&A expenses excluding non-Adjusted EBITDA items), FIFO Gross Margin and
FIFO Gross Profit (gross margin/gross profit before LIFO charges), and Free Cash Flow (Adjusted EBITDA less cash
paid for interest, rent on closed stores, capital expenditures, acquisition costs and the change in working capital).
We include these non-GAAP financial measures in our earnings announcements in order to provide
transparency to our investors and enable investors to better compare our operating performance with the operating
performance of our competitors including with those of our competitors having different capital structures. Adjusted
EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share or other non-GAAP measures
should not be considered in isolation from, and are not intended to represent an alternative measure of, operating results
or of cash flows from operating activities, as determined in accordance with GAAP. Our definition of these non-GAAP
measures may not be comparable to similarly titled measurements reported by other companies.
58
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our future earnings, cash flow and fair values relevant to financial instruments are dependent upon prevalent
market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our major market
risk exposure is changing interest rates. Increases in interest rates would increase our interest expense. We enter into
debt obligations to support capital expenditures, acquisitions, working capital needs and general corporate purposes. Our
policy is to manage interest rates through the use of a combination of variable-rate credit facilities, fixed-rate long-term
obligations and derivative transactions.
The table below provides information about our financial instruments that are sensitive to changes in interest
rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as
of February 29, 2020 and assumes that we have not repaid or refinanced our existing 6.125% Senior Notes due 2023
prior to December 31, 2022.
2021 2022 2023
2024
2025 Thereafter
(Dollars in thousands)
Fair Value at
Total
February 29, 2020
Long-term debt, including current
portion, excluding financing lease
obligations
Fixed Rate
Average Interest Rate
Variable Rate
Average Interest Rate
$ —
$ —
$ —
$ 1,153,490
$ —
$ 866,387
$ 2,019,877
0.00 % 0.00 % 0.00 %
$ —
$ —
$ —
$ 1,100,000
0.00 % 0.00 % 0.00 %
6.13 % 0.00 %
$
3.76 % 0.00 %
$ —
7.53 %
—
0.00 %
$
6.73 %
$
3.76 %
$ 1,100,000
1,921,385
1,100,000
Our ability to satisfy interest payment obligations on our outstanding debt will depend largely on our future
performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors
beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding
indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of
operations could be materially adversely affected. We cannot be assured that any replacement borrowing or equity
financing could be successfully completed.
The interest rate on our variable rate borrowings, which include our revolving credit facility and our term loan
facility, are based on LIBOR. If the market rates of interest for LIBOR changed by 100 basis points as of February 29,
2020, our annual interest expense would change by approximately $11.0 million. Our annual interest expense would
change by approximately $11.0 million when considering the benefit of the Cap which became effective on March 21,
2019.
A change in interest rates does not have an impact upon our future earnings and cash flow for fixed-rate debt
instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future
earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods
subsequent to the periods when the debt matures. Increases in interest rates would also impact our ability to refinance
existing maturities on favorable terms.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and notes thereto are included elsewhere in this report and are
incorporated by reference herein. See Item 15 of Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
59
Item 9A. Controls and Procedures
(a) Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
“Internal Control—Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, our management has concluded that, as of February 29, 2020, we did
not have any material weaknesses in our internal control over financial reporting and our internal control over financial
reporting was effective.
Attestation Report of the Independent Registered Public Accounting Firm
The attestation report of our independent registered public accounting firm, Deloitte & Touche LLP, on our
internal control over financial reporting is included after the next paragraph.
(c) Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarter ended February 29, 2020 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Rite Aid Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Rite Aid Corporation and subsidiaries (the “Company”)
as of February 29, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of February 29, 2020, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended February 29, 2020, of the Company
and our report dated April 27, 2020, expressed an unqualified opinion on those consolidated financial statements and
included an explanatory paragraph regarding the Company’s adoption of Accounting Standards Update (“ASU”) 2016-
12, Leases.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 27, 2020
61
Item 9B. Other Information
None
62
PART III
We intend to file with the SEC a definitive proxy statement for our 2020 Annual Meeting of Stockholders
pursuant to Regulation 14A not later than 120 days after February 29, 2020. The information required by Part III
(Items 10, 11, 12, 13 and 14) is incorporated by reference from that proxy statement. Our 2020 Annual Meeting of
Stockholders is scheduled to be held on July 8, 2020.
63
Item 15. Exhibits and Financial Statement Schedule
PART IV
(a)
The consolidated financial statements of the Company and report of the independent registered public
accounting firm identified in the following index are included in this report from the individual pages filed as a part of
this report:
1. Financial Statements
The following financial statements, report of the independent registered public accounting firm and
supplementary data are included herein:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of February 29, 2020 and March 2, 2019
Consolidated Statements of Operations for the fiscal years ended February 29, 2020, March 2, 2019 and March 3,
2018
Consolidated Statements of Comprehensive (Loss) Income for the fiscal years ended February 29, 2020, March 2,
2019 and March 3, 2018
Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 29, 2020, March 2, 2019 and
March 3, 2018
Consolidated Statements of Cash Flows for the fiscal years ended February 29, 2020, March 2, 2019 and March 3,
2018
Notes to Consolidated Financial Statements
70
73
74
75
76
77
78
2. Financial Statement Schedule
Schedule II—Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not required or the required information is
included in the consolidated financial statements or notes thereto.
3. Exhibits
Exhibit
Numbers
Description
Incorporation By Reference To
2.1 Amended and Restated Asset Purchase Agreement, dated
Exhibit 2.1 to Form 8-K, filed on
September 18, 2017, among Rite Aid Corporation, Walgreens
Boots Alliance, Inc. and Walgreen Co.**
2.2 Agreement and Plan of Merger, dated February 18, 2018, among
Rite Aid Corporation, Albertsons Companies, Inc., Ranch
Acquisition II LLC and Ranch Acquisition Corp.**
2.3 Termination Agreement, dated as of August 8, 2018, among Rite
Aid Corporation, Albertsons Companies, Inc., Ranch Acquisition
II LLC and Ranch Acquisition Corp.
2.4 Receivable Purchase Agreement, dated as of February 19, 2020,
by and between Envision Insurance Company and Part D
Receivable Trust 2020-1 (Series A)
Indemnity Agreement, dated as of February 19, 2020 by and
between Rite Aid Corporation and Part D Receivable Trust 2020-
1 (Series A)
2.5
September 19, 2017
Exhibit 2.1 to Form 8-K, filed on
February 20, 2018
Exhibit 2.1 to Form 8-K, filed on
August 8, 2018
Exhibit 2.1 to Form 8-K, filed on
February 21, 2020
Exhibit 2.2 to Form 8-K, filed on
February 21, 2020
3.1 Amended and Restated Certificate of Incorporation
Exhibit 3.1 to Form 8-K, filed on
April 18, 2019
64
Exhibit
Numbers
Description
3.2 Amended and Restated By-Laws
Incorporation By Reference To
Exhibit 3.1 to Form 8-K, filed on
April 17, 2020
4.1
Indenture, dated as of August 1, 1993, between Rite Aid
Corporation, as issuer, and Morgan Guaranty Trust Company of
New York, as trustee, related to the Company’s 7.70% Notes due
2027
Exhibit 4A to Registration
Statement on Form S-3, File
No. 033-63794, filed on June 3,
1993
4.2 Supplemental Indenture, dated as of February 3, 2000, between
Rite Aid Corporation and U.S. Bank Trust National Association
(as successor trustee to Morgan Guaranty Trust Company of New
York) to the Indenture dated as of August 1, 1993, between Rite
Aid Corporation and Morgan Guaranty Trust Company of New
York, relating to the Company’s 7.70% Notes due 2027
Indenture, dated as of December 21, 1998, between Rite Aid
Corporation, as issuer, and Harris Trust and Savings Bank, as
trustee, related to the Company’s 6.875% Notes due 2028
4.3
4.4 Supplemental Indenture, dated as of February 3, 2000, between
Rite Aid Corporation and Harris Trust and Savings Bank to the
Indenture, dated December 21, 1998, between Rite Aid
Corporation and Harris Trust and Savings Bank, related to the
Company’s 6.875% Notes due 2028
Indenture, dated as of April 2, 2015, among Rite Aid Corporation,
as issuer, the subsidiary guarantors named therein and The Bank
of New York Mellon Trust Company, N.A., related to the
Company’s 6.125% Senior Notes due 2023
4.5
4.6 Supplemental Indenture, dated as of August 23, 2018, among Rite
Aid Corporation, the subsidiary guarantors named therein and
The Bank of New York Mellon Trust Company, N.A., to the
Indenture, dated as of April 2, 2015, among Rite Aid Corporation,
as issuer, the subsidiary guarantors named therein and The Bank
of New York Mellon Trust Company, N.A., related to the
Company’s 6.125% Senior Notes due 2023
4.7 Supplemental Indenture, dated as of February 8, 2019, among
Rite Aid Corporation, the subsidiary guarantors named therein
and The Bank of New York Mellon Trust Company, N.A., to the
Indenture, dated as of April 2, 2015, among Rite Aid Corporation,
as issuer, the subsidiary guarantors named therein and The Bank
of New York Mellon Trust Company, N.A., related to the
Company’s 6.125% Senior Notes due 2023
Indenture, dated as of February 5, 2020, among Rite Aid
Corporation, the subsidiary guarantors named therein and The
Bank of New York Mellon Trust Company, N.A., related to the
Company’s 7.500% Senior Secured Notes due 2025
4.8
Exhibit 4.1 to Form 8-K filed on
February 7, 2000
Exhibit 4.1 to Registration
Statement on Form S-4, File
No. 333-74751, filed on March 19,
1999
Exhibit 4.4 to Form 8-K, filed on
February 7, 2000
Exhibit 4.1 to Form 8-K, filed on
April 2, 2015
Exhibit 4.1 to Form 8-K filed on
August 23, 2018
Exhibit 4.9 to Form 10-K filed on
April 25, 2019
Exhibit 4.1 to Form 8-K filed on
February 5, 2020
4.9 Description of the Company’s securities registered pursuant to
Filed herewith
Section 12 of the Securities Exchange Act of 1934
2000 Omnibus Equity Plan
10.1
10.2
2001 Stock Option Plan
10.3
2004 Omnibus Equity Plan
10.4
2006 Omnibus Equity Plan
Included in Proxy Statement dated
October 24, 2000
Exhibit 10.3 to Form 10-K, filed on
May 21, 2001
Exhibit 10.4 to Form 10-K, filed on
April 29, 2005
Exhibit 10 to Form 8-K, filed on
January 22, 2007
65
Exhibit
Numbers
10.5
2010 Omnibus Equity Plan
Description
Incorporation By Reference To
Exhibit 10.1 to Form 8-K, filed on
June 25, 2010
10.6 Amendment No. 1, dated September 21, 2010, to the 2010
Exhibit 10.7 to Form 10-Q, filed on
Omnibus Equity Plan
October 7, 2010
10.7 Amendment No. 2, dated January 16, 2013, to the 2010 Omnibus
Exhibit 10.8 to Form 10-K, filed on
Equity Plan
2012 Omnibus Equity Plan
10.8
April 23, 2013
Exhibit 10.1 to Form 8-K, filed on
June 25, 2012
10.9 Amendment No. 1, dated January 16, 2013, to the 2012 Omnibus
Exhibit 10.10 to Form 10-K, filed
10.10
Equity Plan
2014 Omnibus Equity Plan
10.11 Form of Award Agreement
on April 23, 2013
Exhibit 10.1 to Form 8-K, filed on
June 23, 2014
Exhibit 10.2 to Form 8-K, filed on
May 15, 2012
10.12 Supplemental Executive Retirement Plan
Exhibit 10.6 to Form 10-K, filed on
April 28, 2010
10.13 Executive Incentive Plan for Officers of Rite Aid Corporation
Exhibit 10.1 to Form 8-K, filed on
10.14 Amended and Restated Employment Agreement by and between
Rite Aid Corporation and John T. Standley, dated as of
January 21, 2010
10.15 Employment Agreement, dated as of July 24, 2014, by and
between Rite Aid Corporation and Darren W. Karst
February 24, 2012
Exhibit 10.7 to Form 10-K, filed on
April 28, 2010
Exhibit 10.2 to Form 10-Q, filed on
October 2, 2014
10.16 Letter Agreement, dated October 26, 2015, to the Employment
Exhibit 10.1 to Form 8-K, filed on
Agreement by and between Rite Aid Corporation and Darren W.
Karst, dated as of July 24, 2014
October 28, 2015
10.17 Employment Agreement by and between Rite Aid Corporation
Exhibit 10.1 to Form 10-Q, filed on
and Jocelyn Konrad dated as of August 18, 2015
January 6, 2016
10.18 Employment Agreement by and between Rite Aid Corporation
Exhibit 10.2 to Form 10-Q, filed on
and Bryan Everett dated as of June 22, 2015
10.19 Form of Retention Award Agreement
January 6, 2016
Exhibit 10.1 to Form 8-K, filed on
January 7, 2016
10.20 Form of December 31, 2015 Retention Award Agreement
Exhibit 10.2 to Form 8-K, filed on
10.21 Credit Agreement, dated as of December 20, 2018, among Rite
Aid Corporation, the lenders from time to time party thereto and
Bank of America, N.A., as administrative agent and collateral
agent.
January 7, 2016
Exhibit 10.1 to Form 8-K, filed on
December 20, 2018
10.22 Amended and Restated Collateral Trust and Intercreditor
Exhibit 10.3 to Form 8-K, filed on
June 11, 2009
Agreement, including the related definitions annex, dated as of
June 5, 2009, among Rite Aid Corporation, each subsidiary
named therein or which becomes a party thereto, Wilmington
Trust Company, as collateral trustee, Citicorp North
America, Inc., as senior collateral processing agent, The Bank of
New York Trust Company, N.A., as trustee under the 2017 7.5%
Note Indenture (as defined therein) and The Bank of New York
Mellon Trust Company, N.A., as trustee under the 2016 10.375%
Note Indenture (as defined therein), and each other Second
Priority Representative and Senior Representative which becomes
a party thereto
66
Exhibit
Numbers
10.23
Description
Employment Agreement by and between RxOptions, LLC and its
affiliates operating the EnvisionRXOptions business and Ben
Bulkley dated February 15, 2019
Incorporation By Reference To
Exhibit 10.27 to Form 10-K, filed
on April 25, 2019
10.24 Separation Agreement by and between Rite Aid Corporation and
Exhibit 10.28 to Form 10-Q, filed
John T. Standley, dated as of March 12, 2019
on July 11, 2019
10.25 Separation Agreement by and between Rite Aid Corporation and
Exhibit 10.29 to Form 10-Q, filed
Darren Karst, dated as of March 12, 2019
on July 11, 2019
10.26 Separation Agreement by and between Rite Aid Corporation and
Exhibit 10.30 to Form 10-Q, filed
Kermit Crawford, dated as of March 12, 2019
on July 11, 2019
10.27 Amendment to Employment Agreement by and between Rite Aid
Exhibit 10.31 to Form 10-Q, filed
10.28
Corporation and Bryan Everett, dated as of March 12, 2019
Amendment to Employment Agreement by and between Rite Aid
Corporation and Jocelyn Z. Konrad, dated as of March 12, 2019
on July 11, 2019
Exhibit 10.32 to Form 10-Q, filed
on July 11, 2019
10.29 Amendment to Employment Agreement by and between Rite Aid
Exhibit 10.33 to Form 10-Q, filed
Corporation and Matthew C. Schroeder, dated as of March 12,
2019
on July 11, 2019
10.30 Amendment to Employment Agreement by and between Rite Aid
Exhibit 10.34 to Form 10-Q, filed
Corporation and Brian Hoover, dated as of March 12, 2019
on July 11, 2019
10.31 Amendment to Employment Agreement by and between Rite Aid
Exhibit 10.35 to Form 10-Q, filed
Corporation and Brian Hoover, dated as of December 5, 2017
on July 11, 2019
10.32 Amendment to Employment Agreement by and between Rite Aid
Exhibit 10.36 to Form 10-Q, filed
Corporation and Brian Hoover, dated as of August 10, 2016
on July 11, 2019
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
Employment Agreement by and between Rite Aid Corporation
and Brian Hoover, dated as of January 1, 2001
Exhibit 10.37 to Form 10-Q, filed
on July 11, 2019
Eleventh Amendment to Supply Agreement by and between Rite
Aid Corporation and McKesson Corporation, dated as of
February 28, 2019*
Employment Agreement by and between Rite Aid Corporation
and Heyward Donigan, dated August 8, 2019**
Employment Inducement Award Agreement by and between Rite
Aid Corporation and Heyward Donigan, dated August 12, 2019
Consulting Agreement by and between Rite Aid Corporation and
Avalon Retail Consulting, Inc., through its president, John T.
Standley, dated August 14, 2019
Employment Agreement dated October 2, 2019 by and between
Rite Aid Corporation and James Peters
Separation Agreement dated October 2, 2019 by and between
Rite Aid Corporation and Bryan Everett
Consulting Agreement dated October 2, 2019 by and between
Rite Aid Corporation and Bryan Everett
Exhibit 10.38 to Form 10-Q, filed
on July 11, 2019
Exhibit 10.1 to Form 8-K, filed on
August 12, 2019
Exhibit 10.2 to Form 8-K, filed on
August 12, 2019
Exhibit 10.1 to Form 8-K, filed on
August 16, 2019
Exhibit 10.1 to Form 8-K, filed on
October 2, 2019
Exhibit 10.2 to Form 8-K, filed on
October 2, 2019
Exhibit 10.3 to Form 8-K, filed on
October 2, 2019
Filed herewith
10.41 Employment Agreement by and between Rite Aid Corporation
and James J. Comitale, dated as of October 26, 2015
10.42 Amendment to Employment Agreement by and between James J.
Filed herewith
Comitale, dated November 6, 2019
10.43 Employment Agreement by and between Rite Aid Corporation
Filed herewith
and Jessica Kazmaier, dated as of March 12, 2019
67
Exhibit
Numbers
Description
Incorporation By Reference To
10.44 Amendment to Employment Agreement by and between Jessica
Filed herewith
Kazmaier, dated November 6, 2019
10.45 Employment Agreement by and between Justin Mennen, dated as
Filed herewith
of December 7, 2018
10.46 Amendment to Employment Agreement by and between Justin
Filed herewith
Mennen, dated November 6, 2019
10.47 Employment Agreement by and between Rite Aid Corporation
Filed herewith
and Andre Persaud, dated as of January 28, 2020
10.48 Employment Agreement by and between RxOptions, LLC and
Filed herewith
Dan Robson, dated as of December 12, 2019
21 Subsidiaries of the Registrant
23 Consent of Independent Registered Public Accounting Firm
31.1 Certification of CEO pursuant to Rule 13a-14(a) or
Filed herewith
Filed herewith
Filed herewith
Rule 15d-14(a) under the Securities Exchange Act of 1934, as
amended
31.2 Certification of CFO pursuant to Rule 13a-14(a) or
Filed herewith
32
Rule 15d-14(a) under the Securities Exchange Act of 1934, as
amended
Certification of CEO and CFO pursuant to 18 United States Code,
Section 1350, as enacted by Section 906 of the Sarbanes-Oxley
Act of 2002
Filed herewith
101.INS XBRL Instance Document - the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File - The cover page interactive data
file does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
* Confidential portions of this Exhibit were redacted pursuant to Item 601(b)(10) of Regulation S-K and Rite Aid
Corporation agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted
schedule and/or exhibit upon request.
** Certain schedules and/or exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K
and Rite Aid Corporation agrees to furnish supplementally to the Securities and Exchange Commission a copy of
any omitted schedule and/or exhibit upon request.
In reviewing the agreements included as exhibits to this Annual Report on Form 10-K please remember they are
included to provide you with information regarding their terms and are not intended to provide any other factual or
disclosure information about Rite Aid Corporation, its subsidiaries or the other parties to the agreements. The
agreements may contain representations and warranties by each of the parties to the applicable agreement. These
representations and warranties have been made solely for the benefit of the other parties to the applicable agreement
and:
•
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk
to one of the parties if those statements prove to be inaccurate;
68
•
have been qualified by disclosures that were made to the other party in connection with the negotiation of the
applicable agreement, which disclosures are not necessarily reflected in the agreement;
• may apply standards of materiality in a way that is different from what may be viewed as material to you or
other investors; and
• were made only as of the date of the applicable agreement or such other date or dates as may be specified in the
agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they
were made or at any other time. Additional information about Rite Aid Corporation may be found elsewhere in this
report and the Company’s other public filings, which are available without charge through the SEC’s website at
http://www.sec.gov.
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Rite Aid Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rite Aid Corporation and subsidiaries (the
"Company") as of February 29, 2020 and March 2, 2019, the related consolidated statements of operations,
comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended
February 29, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of February 29, 2020 and March 2, 2019, and the results of its operations and its cash flows
for each of the three years in the period ended February 29, 2020, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of February 29, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated April 27, 2020 expressed an unqualified opinion on the Company's
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, effective March 3, 2019, the Company adopted FASB
Accounting Standards Update 2016-02, Leases (Topic 842), using the alternative transition method which does not
require prior periods to be recast.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
70
Realizability of Deferred Income Tax Assets — Refer to Note 7 to the financial statements
Critical Audit Matter Description
The Company recognizes deferred income taxes for differences between the financial reporting and tax basis of assets
and liabilities. Deferred tax assets include loss and credit carryforwards and are reduced by a valuation allowance if,
based on available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized.
The Company regularly reviews the deferred tax assets for recoverability considering historical profitability, projected
taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. As of
February 29, 2020, the Company has $2.8 billion of gross deferred tax assets and a valuation allowance of $1.7 billion.
Given the complexity in the determination of whether it is more likely than not that sufficient taxable income will be
generated to realize deferred tax assets, auditing the valuation of deferred tax assets involved especially subjective
judgment, including the need to involve our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Working with our income tax specialists, our audit procedures to determine if it is more likely than not that deferred tax
assets will be realized included the following, among others:
• We tested the effectiveness of internal controls over the calculation and valuation of deferred income tax
assets, including the controls over the Company’s consideration of positive and negative evidence.
• We evaluated the reasonableness of management’s estimates of future taxable income by considering the
weight applied to significant negative evidence and positive evidence that is objectively verifiable.
• We evaluated the Company’s “more likely than not” conclusion with regard to deferred tax assets that are
considered realizable and recomputed the valuation allowance for those that were not considered realizable.
• We evaluated management’s disclosure of the valuation allowance in its form 10-K footnote.
Goodwill – Pharmacy Services Reporting Unit — Refer to Note 13 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit
to the carrying value of each reporting unit. The Company uses either a qualitative assessment approach or a quantitative
assessment approach. For the quantitative approach, the Company estimates fair value using an average based on an
income approach and a market approach. The income approach is based on the present value of future cash flows of the
reporting unit, while the market approach is based on certain multiples of selected guideline public companies or
selected guideline transactions. The approaches incorporate a number of market participant assumptions including
future growth rates, discount rates, income tax rates, and market activity. Changes in these assumptions could have a
significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance
was $1.108 billion as of February 29, 2020, of which $1.065 billion is allocated to the Pharmacy Services reporting unit.
Given the significant estimates and assumptions by management to estimate the fair value of the Pharmacy Services
reporting unit, including future growth rates, discount rates, and market activity, our audit procedures included a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those
over the determination of the fair value of the Pharmacy Services reporting unit, such as controls related to
management’s selection of future growth rates, discount rate, and market multiples.
71
• We evaluated the reasonableness of management’s future growth rates by comparing the forecasts of revenues
and EBITDA to:
o Historical revenues and EBITDA margins.
o
o Forecasted information included in Company press releases as well as in analyst and industry reports
Internal communications to management and the Board of Directors.
for the Company and certain of its peer companies.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation
methodology, (2) discount rate, and (3) market activity by:
o Testing the source information underlying the determination of the discount rate and market multiples
and the mathematical accuracy of the calculations.
o Developing a range of independent estimates and comparing those to the discount rate and market
multiples selected by management.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 27, 2020
We have served as the Company's auditor since 1999.
72
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
February 29,
2020
March 2,
2019
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Current assets held for sale
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangibles, net
Deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations
Accounts payable
Accrued salaries, wages and other current liabilities
Current portion of operating lease liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt, less current maturities
Long-term operating lease liabilities
Lease financing obligations, less current maturities
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
$
218,180 $
144,353
1,788,712
1,871,941
179,132
117,581
4,101,719
1,308,514
—
1,108,136
448,706
409,084
215,208
$ 9,452,369 $ 7,591,367
1,286,785
1,921,604
181,794
92,278
3,700,641
1,215,838
2,903,256
1,108,136
359,491
16,680
148,327
$
8,840 $
1,484,081
746,318
490,161
37,063
2,766,463
3,077,268
2,710,347
19,326
204,438
8,777,842
—
16,111
1,618,585
808,439
—
—
2,443,135
3,454,585
—
24,064
482,893
6,404,677
—
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and
outstanding 54,716 and 54,016
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
54,716
5,890,903
(5,222,194)
(48,898)
674,527
54,016
5,876,977
(4,713,244)
(31,059)
1,186,690
$ 9,452,369 $ 7,591,367
The accompanying notes are an integral part of these consolidated financial statements.
73
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues
Costs and expenses:
Cost of revenues
Selling, general and administrative expenses
Lease termination and impairment charges
Goodwill and intangible asset impairment charges
Interest expense
(Gain) loss on debt retirements, net
Walgreens Boots Alliance merger termination fee
Loss (gain) on sale of assets, net
Loss from continuing operations before income taxes
Income tax expense
Net loss from continuing operations
Net income from discontinued operations, net of tax
Net (loss) income
February 29,
2020
(52 Weeks)
Year Ended
March 2,
2019
(52 Weeks)
March 3,
2018
(52 Weeks)
$ 21,928,393 $ 21,639,557 $ 21,528,968
17,201,635
4,587,336
42,843
—
229,657
(55,692)
—
4,226
22,010,005
(81,612)
387,607
(469,219)
17,045
(452,174) $
16,963,205
4,592,375
107,994
375,190
227,728
554
—
(38,012)
22,229,034
(589,477)
77,477
(666,954)
244,741
(422,213) $
16,748,863
4,651,262
58,765
261,727
202,768
—
(325,000)
(25,872)
21,572,513
(43,545)
305,987
(349,532)
1,293,002
943,470
$
Computation of (loss) income attributable to common stockholders:
Loss from continuing operations attributable to common
stockholders—basic and diluted
Income from discontinued operations attributable to common
stockholders—basic and diluted
(Loss) income attributable to common stockholders—basic and diluted $
$
(469,219) $
(666,954) $
(349,532)
17,045
(452,174) $
244,741
(422,213) $
1,293,002
943,470
Basic and diluted (loss) income per share:
Continuing operations
Discontinued operations
Net basic and diluted (loss) income per share
$
$
$
(8.82) $
0.32 $
(8.50) $
(12.62) $
4.63 $
(7.99) $
(6.66)
24.64
17.98
The accompanying notes are an integral part of these consolidated financial statements.
74
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
February 29,
2020
(52 Weeks)
Net (loss) income
Other comprehensive (loss) income:
Defined benefit pension plans:
Amortization of net actuarial losses included in net periodic pension
cost, net of $0, $1,765 and $4,842 income tax expense
Change in fair value of interest rate cap
Total other comprehensive (loss) income
Comprehensive (loss) income
$
(452,174) $
(17,351)
(488)
(17,839)
(470,013) $
$
Year Ended
March 2,
2019
(52 Weeks)
March 3,
2018
(52 Weeks)
(422,213) $ 943,470
7,255
3,490
—
3,490
7,255
(418,723) $ 950,725
The accompanying notes are an integral part of these consolidated financial statements.
75
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Accumulated
Other
Accumulated Comprehensive
Deficit
Loss
Total
BALANCE MARCH 4, 2017
Net income
Other comprehensive income:
Changes in Defined Benefit Plans, net of $4,842 tax expense
Comprehensive income
Adoption of ASU 2016-09
Adoption of ASU 2018-02
Exchange of restricted shares for taxes
Issuance of restricted stock
Cancellation of restricted stock
Amortization of restricted stock balance
Stock-based compensation expense
Amortization of performance-based incentive plans
Stock options exercised
BALANCE MARCH 3, 2018
Net loss
Other comprehensive income:
Changes in Defined Benefit Plans, net of $1,765 tax expense
Comprehensive loss
Adoption of ASU 2014-09
Exchange of restricted shares for taxes
Issuance of restricted stock
Cancellation of restricted stock
Amortization of restricted stock balance
Stock-based compensation expense
Stock options exercised
BALANCE MARCH 2, 2019
Net loss
Other comprehensive loss:
Changes in Defined Benefit Plans, net of $0 tax expense
Change in fair value of interest rate cap
Comprehensive loss
Adoption of ASU 2016-02
Exchange of restricted shares for taxes
Issuance of restricted stock
Cancellation of restricted stock
Amortization of restricted stock balance
Stock-based compensation expense
BALANCE FEBRUARY 29, 2020
Additional
Paid-In
Common Stock
Shares Amount Capital
52,685
52,685 $ 5,840,859 $ (5,237,157) $
943,470
11,729
(513)
(73)
693
(180)
(73)
693
(180)
241
241
(4,030)
(693)
180
18,365
2,761
1,667
5,555
53,366 $ 53,366 $ 5,864,664 $ (4,282,471) $
(422,213)
(8,560)
(70)
709
(88)
(70)
709
(88)
99
99
(2,349)
(709)
88
14,628
(1,539)
2,194
54,016 $ 54,016 $ 5,876,977 $ (4,713,244) $
(452,174)
(56,776)
(240)
1,402
(462)
(240)
1,402
(462)
(1,680)
(1,402)
462
15,840
706
54,716 $ 54,716 $ 5,890,903 $ (5,222,194) $
(42,317) $ 614,070
943,470
513
7,255
7,255
950,725
11,729
—
(4,103)
—
—
18,365
2,761
1,667
5,796
(34,549) $ 1,601,010
(422,213)
3,490
3,490
(418,723)
(8,560)
(2,419)
—
—
14,628
(1,539)
2,293
(31,059) $ 1,186,690
(452,174)
(17,351)
(488)
(17,351)
(488)
(470,013)
(56,776)
(1,920)
—
—
15,840
706
(48,898) $ 674,527
The accompanying notes are an integral part of these consolidated financial statements.
76
RITE AID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net (loss) income
Net income from discontinued operations, net of tax
Net loss from continuing operations
Adjustments to reconcile to net cash provided by (used in) operating activities of continuing operations:
$
$
Depreciation and amortization
Lease termination and impairment charges
Goodwill and intangible asset impairment charges
LIFO (credit) charge
Loss (gain) on sale of assets, net
Stock-based compensation expense
(Gain) loss on debt retirements, net
Changes in deferred taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Operating lease right-of-use assets and operating lease liabilities
Other assets
Other liabilities
Net cash provided by (used in) operating activities of continuing operations
Investing activities:
Payments for property, plant and equipment
Intangible assets acquired
Proceeds from insured loss
Proceeds from dispositions of assets and investments
Proceeds from sale-leaseback transactions
Net cash used in investing activities of continuing operations
Financing activities:
Proceeds from issuance of long-term debt
Net (payments to) proceeds from revolver
Principal payments on long-term debt
Change in zero balance cash accounts
Net proceeds from issuance of common stock
Payments for taxes related to net share settlement of equity awards
Financing fees paid for early debt redemption
Deferred financing costs paid
Net cash (used in) provided by financing activities of continuing operations
Cash flows from discontinued operations:
Operating activities of discontinued operations
Investing activities of discontinued operations
Financing activities of discontinued operations
Net cash provided by (used in) discontinued operations
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
February 29,
2020
(52 Weeks)
Year Ended
March 2,
2019
(52 Weeks)
March 3,
2018
(52 Weeks)
(452,174)
17,045
(469,219)
$
$
(422,213)
244,741
(666,954)
$
$
943,470
1,293,002
(349,532)
328,277
42,843
—
(64,804)
4,226
16,087
(55,692)
385,904
486,563
15,141
(92,062)
14,112
(38,351)
(62,168)
510,857
(171,705)
(42,681)
—
59,658
4,879
(149,849)
600,000
(225,000)
(706,103)
12,671
—
(1,921)
(518)
(5,781)
(326,652)
(23,836)
63,307
—
39,471
73,827
144,353
218,180
357,882
107,994
375,190
23,354
(38,012)
12,115
554
95,638
(75,844)
(44,645)
125,925
—
1,000
(439,906)
(165,709)
(196,778)
(47,911)
—
43,550
2,587
(198,552)
450,000
875,000
(440,370)
(59,481)
2,294
(2,419)
(171)
(21,564)
803,289
386,057
58,765
261,727
(28,827)
(25,872)
25,793
—
260,411
(349,481)
18,835
211,511
—
(10,082)
52,165
511,470
(185,879)
(28,885)
4,239
27,586
—
(182,939)
—
(265,000)
(9,882)
35,605
5,796
(4,103)
—
—
(237,584)
(62,956)
664,740
(1,343,793)
(742,009)
(302,981)
447,334
144,353
(245,126)
3,496,222
(3,140,119)
110,977
201,924
245,410
447,334
$
$
The accompanying notes are an integral part of these consolidated financial statements.
77
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Description of Business
The Company is a Delaware corporation and through its 100% owned subsidiaries, operates a pharmacy retail
healthcare company in the United States of America. The Company operates through its two reportable segments: the
Retail Pharmacy segment and the Pharmacy Services segment. The Retail Pharmacy segment operates one of the largest
retail drugstore chains in the United States, with 2,461 stores in operation as of February 29, 2020. The Retail Pharmacy
segment’s drugstores’ primary business is the sale of brand and generic prescription drugs. The Retail Pharmacy segment
also sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private
brand product line. The Pharmacy Services segment operates both transparent and traditional pharmacy benefit
management (“PBM”) businesses; mail-order and specialty pharmacy services through EnvisionPharmacies; a claims
adjudication software platform through Laker Software; and a national Medicare Part D prescription drug plan through
Envision Insurance Company (“EIC”). See Note 20 for additional details on the Company’s reportable segments.
The discussion and presentation of the operating and financial results of our business segments have been
impacted by the following event.
Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase
Agreement (the "Amended and Restated Asset Purchase Agreement"), dated as of September 18, 2017, by and among
Rite Aid, WBA and Walgreen Co., an Illinois corporation and 100% owned subsidiary of WBA ("Buyer"), Buyer agreed
to purchase from Rite Aid 1,932 stores (the "Acquired Stores"), three distribution centers, related inventory and other
specified assets and liabilities related thereto for a purchase price of approximately $4,375,000, on a cash free, debt free
basis (the "Asset Sale" or the "Sale"). As of February 29, 2020, the Company has sold all 1,932 Acquired Stores, two
distribution centers and related assets to WBA in exchange for proceeds of $4,280,711, which were used to repay
outstanding debt. Based on its magnitude and because the Company has exited certain markets, the Sale represents a
significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the
Company has applied discontinued operations treatment for the Asset Sale as required by Accounting Standards
Codification 210-05—Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company
reclassified the assets and liabilities to be sold, including the 1,932 Acquired Stores, three distribution centers, related
inventory and other specified assets and liabilities related thereto (collectively the “Assets to be Sold” or “Disposal
Group”) to assets and liabilities held for sale on its consolidated balance sheets as of the periods ended February 29,
2020 and March 2, 2019, and reclassified the financial results of the Disposal Group in its consolidated statements of
operations and consolidated statements of cash flows for all periods presented. Additionally, corporate support activities
related to the Disposal Group were not reclassified to discontinued operations. See additional information as provided in
Note 3 Asset Sale to WBA.
78
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Revenues for the Company are as follows:
February 29,
2020
(52 Weeks)
Year Ended
March 2,
2019
(52 Weeks)
March 3,
2018
(52 Weeks)
Retail Pharmacy segment:
Pharmacy sales
Front-end sales
Other revenue
Total Retail Pharmacy segment
Pharmacy Services segment revenue
Intersegment elimination
Total revenue
$ 10,354,293 $ 10,391,539 $ 10,328,376
5,348,613
155,636
15,832,625
5,896,669
(200,326)
$ 21,928,393 $ 21,639,557 $ 21,528,968
5,215,152
150,461
15,757,152
6,093,688
(211,283)
5,114,976
146,917
15,616,186
6,559,560
(247,353)
Sales of prescription drugs for our Retail Pharmacy segment represented approximately 67.0%, 66.6% and
65.9% of the Company’s total drugstore sales in fiscal years 2020, 2019 and 2018, respectively. The Retail Pharmacy
segment’s principal classes of products in fiscal 2020 were the following:
Product Class
Prescription drugs
Over-the-counter medications and personal care
Health and beauty aids
General merchandise and other
Fiscal Year
Percentage
of Sales
67.0 %
11.0 %
5.0 %
17.0 %
The Company’s fiscal year ends on the Saturday closest to February 29 or March 1. The fiscal years ended
February 29, 2020, March 2, 2019 and March 3, 2018 included 52 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its 100% owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments, which are readily convertible
to known amounts of cash and which have original maturities of three months or less when purchased.
Allowance for Uncollectible Receivables
Substantially all prescription sales are made to customers who are covered by third-party payors, such as
insurance companies, government agencies and employers. The Company recognizes receivables that represent the
amount owed to the Company for sales made to customers or employees of those payors that have not yet been paid. The
79
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Company maintains a reserve for the amount of these receivables deemed to be uncollectible. This reserve is calculated
based upon historical collection activity adjusted for current conditions.
Inventories
Inventories are stated at the lower of cost or market. Inventory balances include the capitalization of certain
costs related to purchasing, freight and handling costs associated with placing inventory in its location and condition for
sale. The Company uses the last-in, first-out (“LIFO”) cost flow assumption for substantially all of its inventories. The
Company calculates its inflation index based on internal product mix and utilizes the link-chain LIFO method.
Impairment of Long-Lived Assets
Asset impairments are recorded when the carrying value of assets are not recoverable. For purposes of
recognizing and measuring impairment of long-lived assets, the Company categorizes assets of operating stores as
“Assets to Be Held and Used” and “Assets to Be Disposed Of.” The Company evaluates assets at the store level because
this is the lowest level of identifiable cash flows ascertainable to evaluate impairment. Assets being tested for
recoverability at the store level include tangible long-lived assets, right-of-use assets for leased stores, and identifiable,
finite-lived intangibles that arose in purchase business combinations. Corporate assets to be held and used are evaluated
for impairment based on excess cash flows from the stores that support those assets.
The Company reviews long-lived assets to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted
expected future cash flows is less than the carrying amount of the asset, the Company recognizes an impairment loss.
Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value using the expected future cash flows
discounted at a rate commensurate with the risks associated with the recovery of the asset.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. The
Company provides for depreciation using the straight-line method over the following useful lives: buildings—30 to
45 years; equipment—3 to 15 years.
Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of
the asset or the term of the lease. When determining the amortization period of a leasehold improvement, the Company
considers whether discretionary exercise of a lease renewal option is reasonably assured. If it is determined that the
exercise of such option is reasonably assured, the Company will amortize the leasehold improvement asset over the
minimum lease term, plus the option period. This determination depends on the remaining life of the minimum lease
term and any economic penalties that would be incurred if the lease option is not exercised.
Capitalized lease assets are recorded at the lesser of the present value of minimum lease payments or fair market
value and amortized over the estimated useful life of the related property or term of the lease.
The Company capitalizes direct internal and external development costs associated with internal-use software.
Neither preliminary evaluation costs nor costs associated with the software after implementation are capitalized. For
80
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
fiscal years 2020, 2019 and 2018, the Company capitalized costs of approximately $15,240, $13,716 and $13,940,
respectively.
Goodwill
The Company recognizes goodwill as the excess of the purchase price over the fair value of the assets acquired
and liabilities assumed during business combinations. The Company accounts for goodwill under ASC Topic 350,
“Intangibles—Goodwill and Other”, which does not permit amortization, but instead requires the Company to perform
an annual impairment review, or more frequently if events or circumstances indicate that impairment may be more
likely. See Note 13 for additional information on goodwill.
Intangible Assets
The Company has certain finite-lived intangible assets that are amortized over their useful lives. Prescription
files acquired in business combinations are amortized over an estimated useful life of ten years on an accelerated basis,
which approximates the anticipated prescription file retention and related cash flows. Purchased prescription files
acquired in other than business combinations are amortized over their estimated useful lives of five years on a
straight-line basis. The value of finite-lived trade names are amortized over 10 years on a straight-line basis. The value of
customer relationships, acquired in connection with the Company’s acquisition of EnvisionRx, are amortized over a
period between 10 and 20 years on a descending percentage method which matches the pattern of expected discounted
cash flows. The Pharmacy Services segment’s contract with Centers for Medicare and Medicaid Services (“CMS”) for
Medicare Part D (“Part D”), which is required in order to act as a national provider of the Part D benefit, is amortized
over 25 years on a straight line basis.
Indefinite lived assets
The Company has a single indefinite-lived intangible asset consisting of a trade name. Intangible assets that are
determined to have an indefinite life are not amortized, but are required to be evaluated at least annually for impairment.
If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such individual indefinite-
lived intangible asset is impaired by the amount of the excess.
Deferred Financing Costs
Costs incurred to issue debt are deferred and amortized as a component of interest expense over the terms of the
related debt agreements. Amortization expense of deferred financing costs was $10,187, $10,761 and $8,403 for
fiscal 2020, 2019 and 2018, respectively.
Revenue Recognition
Retail Pharmacy Segment
For front-end sales, the Retail Pharmacy segment recognizes revenues upon the transfer of control of the goods
to the customer. The Company satisfies its performance obligation at the point of sale for front-end transactions. The
Retail Pharmacy segment front-end revenue is measured based on the amount of fixed consideration that it expects to
receive, net of an allowance for estimated future returns. Return activity is immaterial to revenues and results of
operations in all periods presented.
81
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
For pharmacy sales, the Retail Pharmacy segment recognizes revenue upon the transfer of control of the goods
to the customer. The Company satisfies its performance obligation, upon pickup by the customer, which is when the
customer takes title to the product. Each prescription claim represents an individual arrangement with the customer and
is a performance obligation, separate and distinct from other prescription claims. The Company's revenue is measured
based on the amount of fixed consideration that we expect to receive, reduced by refunds owed to the third party payor
for pricing guarantees and performance against defined value-based service and performance metrics. The inputs to these
estimates are not highly subjective or volatile. The effect of adjustments between estimated and actual amounts have not
been material to the Company's results of operations or financial position. Prescriptions are generally not returnable.
The Retail Pharmacy segment offers a chain-wide loyalty card program titled wellness+. Individual customers
are able to become members of the wellness+ program. Members participating in the wellness+ loyalty card program
earn points on a calendar year basis for eligible front-end merchandise purchases and qualifying prescription purchases.
Effective January 1, 2020, members reach specific wellness+ tiers based on points accumulated during the six
calendar month periods between January 1st and June 30th, and July 1st through December 31st, which entitles such
customers to certain future discounts and other benefits upon reaching that tier. For example, any customer that reaches
500 points during the six calendar month period between January 1st and June 30th achieves the “Gold” tier, enabling him
or her to receive a 20% discount on qualifying purchases of front-end merchandise for the remaining portion of that six
calendar month period and for the following six calendar months. There is also a similar “Silver” level with a lower
threshold and benefit level. Prior to January 1, 2020, the wellness+ tiers were based on points accumulated for a full
calendar year, and entitled such customers to wellness+ benefits for the remainder of that calendar year and also the next
calendar year.
Points earned pursuant to the wellness+ program represent a performance obligation and the Company allocates
revenue between the merchandise purchased and the wellness+ points based on the relative stand-alone selling price of
each performance obligation. The relative value of the wellness+ points is initially deferred as a contract liability
(included in other current and noncurrent liabilities). As members receive discounted front-end merchandise or when the
benefit period expires, the Retail Pharmacy segment recognizes an allocable portion of the deferred contract liability into
revenue. The Retail Pharmacy segment had accrued contract liabilities of $52,668 as of February 29, 2020, of which
$52,668 is included in other current liabilities and $0 is included in noncurrent liabilities. The Retail Pharmacy segment
had accrued contract liabilities of $63,720 as of March 2, 2019, of which $51,042 is included in other current liabilities
and $12,678 is included in noncurrent liabilities.
Pharmacy Services Segment
The Pharmacy Services segment sells prescription drugs indirectly through its retail pharmacy network and
directly through its mail service dispensing pharmacy. The Pharmacy Services segment recognizes revenue from
prescription drugs sold by (i) its mail service dispensing pharmacy and (ii) under retail pharmacy network contracts
where it is the principal at the contract prices negotiated with its clients, primarily employers, insurance companies,
unions, government employee groups, health plans, Managed Medicaid plans, Medicare plans, and other sponsors of
health benefit plans, and individuals throughout the United States. Revenues include: (i) the portion of the price the client
pays directly to the Pharmacy Services segment, net of any volume-related or other discounts paid back to the client (see
“Drug Discounts” below), (ii) the price paid to the Pharmacy Services segment by client plan members for mail order
prescriptions (“Mail Co-Payments”), (iii) client plan member copayments made directly to the retail pharmacy network
and (iv) administrative fees. Revenue is recognized when the Pharmacy Services segment meets its performance
82
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
obligations relative to each transaction type. The following revenue recognition policies have been established for the
Pharmacy Services segment:
• Revenues generated from prescription drugs sold by third party pharmacies in the Pharmacy Services
segment’s retail pharmacy network and associated administrative fees are recognized at the Pharmacy
Services segment’s point-of-sale, which is when the claim is adjudicated by the Pharmacy Services
segment’s online claims processing system. At this point the Company has performed all of its performance
obligations.
• Revenues generated from prescription drugs sold by the Pharmacy Services segment’s mail service
dispensing pharmacy are recognized when the prescription is shipped. At the time of shipment, the
Pharmacy Services segment has performed all of its performance obligations under its client contracts, as
control of and title to the product has passed to the client plan members. The Pharmacy Services segment
does not experience a significant level of returns or reshipments.
• Revenues generated from administrative fees based on membership or claims volume are recognized
monthly based on the terms within the individual contracts, either a monthly member based fee, or a claims
volume based fee.
In the majority of its contracts, the Pharmacy Services segment is the principal because its client contracts give
clients the right to obtain access to its pharmacy contracts under which the Pharmacy Services segment directs its
pharmacy network to provide the services (drug dispensing, consultation, etc.) and goods (prescription drugs) to the
clients’ members at its negotiated pricing. The Pharmacy Services segment’s obligations under its client contracts are
separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network contracts.
In the majority of these contracts, the Pharmacy Services segment is contractually required to pay the third party
pharmacies in its retail pharmacy network for products sold after payment is received from its clients. The Pharmacy
Services segment has control over these transactions until the prescription is transferred to the member and, thus, that it
is acting as a principal. As such, the Pharmacy Services segment records the total prescription price contracted with
clients in revenues.
Amounts paid to pharmacies and amounts charged to clients are exclusive of the applicable co-payment under
Pharmacy Services segment contracts. Retail pharmacy co-payments, which we instruct retail pharmacies to collect from
members, are included in our revenues and our cost of revenues.
For contracts under which the Pharmacy Services segment acts as an agent or does not control the prescription
drugs prior to transfer to the client, no revenue is recognized, except the administrative fee.
Drug Discounts—The Pharmacy Services segment deducts from its revenues that are generated from
prescription drugs sold by third party pharmacies any rebates, inclusive of discounts and fees, earned by its clients based
on utilization levels and other factors as negotiated with the prescription drug manufacturers or suppliers. Rebates are
paid to clients in accordance with the terms of client contracts.
Medicare Part D—The Pharmacy Services segment, through its EIC subsidiary, participates in the federal
government’s Medicare Part D program as a Prescription Drug Plan (“PDP”). Please refer to Note 9, Medicare Part D.
83
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Disaggregation of Revenue
The following tables disaggregate the Company’s revenue by major source in each segment for the fiscal year
ended February 29, 2020:
In thousands
Retail Pharmacy segment:
Pharmacy sales
Front-end sales
Other revenue
Total Retail Pharmacy segment
Pharmacy Services segment
Intersegment elimination
Total revenue
February 29, 2020
$ 10,354,293
5,114,976
146,917
15,616,186
6,559,560
(247,353)
$ 21,928,393
Impact of New Revenue Recognition Standard on Financial Statement Line Items
The Company adopted the new revenue standard using the modified retrospective method. The cumulative
effect of applying the new standard to all contracts was recorded as an adjustment to accumulated deficit as of the
adoption date. As a result of applying the modified retrospective method to adopt the new revenue standard, the
following adjustments were made to accounts on the consolidated balance sheet as of March 4, 2018:
In thousands
Consolidated Balance Sheet:
Accounts receivable, net
Inventories, net
Deferred tax assets
Total assets
Accumulated deficit
Total shareholders’ equity
Impact of Change in Accounting Policy
As Reported
Adjusted
March 3, 2018 Adjustments March 4, 2018
$ 1,869,100 $ (57,897) $ 1,811,203
1,850,660
592,235
8,980,767
(4,291,031)
1,592,450
1,799,539
594,019
8,989,327
(4,282,471)
1,601,010
51,121
(1,784)
(8,560)
(8,560)
(8,560)
See Note 20 for additional information about the revenues of the Company’s business segments.
Cost of Revenues
Retail Pharmacy Segment
Cost of revenues for the Retail Pharmacy segment includes the following: the cost of inventory sold during the
period, including related vendor rebates and allowances, LIFO credit or charges, costs incurred to return merchandise to
vendors, inventory shrink, purchasing costs and warehousing costs, which include inbound freight costs from the vendor,
distribution payroll and benefit costs, distribution center occupancy costs and depreciation expense and delivery
expenses to the stores.
84
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Pharmacy Services Segment
The Pharmacy Services segment’s cost of revenues includes the cost of prescription drugs sold during the
reporting period indirectly through its retail pharmacy network and directly through its mail service dispensing
pharmacy. The cost of prescription drugs sold component of cost of revenues includes: (i) the cost of the prescription
drugs purchased from manufacturers or distributors and shipped to members in clients’ benefit plans from the Pharmacy
Services segment’s mail service dispensing pharmacy, net of any volume-related or other discounts (see the section
entitled “Vendor Rebates and Allowances and Purchase Discounts” below) and (ii) the cost of prescription drugs sold
through the Pharmacy Services segment’s retail pharmacy network under contracts where it is the principal, net of any
volume-related or other discounts.
See Note 20 for additional information about the cost of revenues of the Company’s business segments.
Vendor Rebates and Allowances and Purchase Discounts
Retail Pharmacy Segment
The Retail Pharmacy segment rebates and allowances received from vendors relate to either buying and
merchandising or promoting the product. Buying and merchandising related rebates and allowances are recorded as a
reduction of cost of revenue as product is sold. Buying and merchandising rebates and allowances include all types of
vendor programs such as cash discounts from timely payment of invoices, purchase discounts or rebates, volume
purchase allowances, price reduction allowances and slotting allowances. Certain product promotion related rebates and
allowances, primarily related to advertising, are recorded as a reduction in selling, general and administrative expenses
when the advertising commitment has been satisfied.
Pharmacy Services Segment
The Pharmacy Services segment receives purchase discounts on products purchased. The Pharmacy Services
segment’s contractual arrangements with vendors, including manufacturers, wholesalers and retail pharmacies, normally
provide for the Pharmacy Services segment to receive purchase discounts from established list prices in one, or a
combination, of the following forms: (i) a direct discount at the time of purchase, or (ii) a discount (or rebate) paid
subsequent to dispensing when products are purchased indirectly from a manufacturer (e.g., through a wholesaler or
retail pharmacy). These rebates are recognized when prescriptions are dispensed and are generally billed to
manufacturers within 30 days of the end of each completed quarter. Historically, the effect of adjustments resulting from
the reconciliation of rebates recognized to the amounts billed and collected has not been material to the Pharmacy
Services segment’s results of operations. The Pharmacy Services segment accounts for the effect of any such differences
as a change in accounting estimate in the period the reconciliation is completed. The Pharmacy Services segment also
receives additional discounts under its wholesaler contracts and fees from pharmaceutical manufacturers for
administrative services. Purchase discounts and administrative service fees are recorded as a reduction of cost of
revenues.
Rent
The Company records rent expense on operating leases on a straight-line basis over the reasonably certain lease
term. The Company begins to record rent expense at the time that the Company has the right to use the property. From
85
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
time to time, the Company receives incentive payments from landlords that subsidize lease improvement construction.
These leasehold incentives are recorded as a reduction to the right-of-use asset.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include store and corporate administrative payroll and benefit
costs, occupancy costs which include retail store and corporate rent costs, facility and leasehold improvement
depreciation and utility costs, advertising, repair and maintenance, insurance, equipment depreciation and professional
fees.
Repairs and Maintenance
Routine repairs and maintenance are charged to operations as incurred. Improvements and major repairs, which
extend the useful life of an asset, are capitalized and depreciated.
Advertising
Advertising costs, net of specific vendor advertising allowances, are expensed in the period the advertisement
first takes place. Advertising expenses, net of vendor advertising allowances, for fiscal 2020, 2019 and 2018 were
$142,079, $147,519 and $161,826, respectively.
Insurance
The Company is self-insured for certain general liability and workers’ compensation claims. For claims that are
self-insured, stop-loss insurance coverage is maintained for workers’ compensation occurrences exceeding $1,000 and
general liability occurrences exceeding $3,000. The Company utilizes actuarial studies as the basis for developing
reported claims and estimating claims incurred but not reported relating to the Company’s self-insurance. Workers’
compensation claims are discounted to present value using a risk-free interest rate.
Benefit Plan Accruals
The Company has several defined benefit plans, under which participants earn a retirement benefit based upon a
formula set forth in the plan. The Company records expense related to these plans using actuarially determined amounts
that are calculated under the provisions of ASC 715, “Compensation—Retirement Benefits.” Key assumptions used in
the actuarial valuations include the discount rate, the expected rate of return on plan assets and the rate of increase in
future compensation levels.
Stock-Based Compensation
The Company has several stock option plans, which are described in detail in Note 17. The Company accounts
for stock-based compensation under ASC 718, “Compensation—Stock Compensation.” The Company recognizes option
expense over the requisite service period of the award, net of an estimate for the impact of award forfeitures.
86
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Store Pre-opening Expenses
Costs incurred prior to the opening of a new or relocated store, associated with a remodeled store or related to
the opening of a distribution facility are charged to operations as incurred.
Litigation Reserves
The Company is involved in litigation on an ongoing basis. The Company accrues its best estimate of the
probable loss related to legal claims. Such estimates are developed in consultation with in-house counsel, and are based
upon a combination of litigation and settlement strategies.
Income Taxes
Deferred income taxes are determined based on the difference between the financial reporting and tax basis of
assets and liabilities. Deferred income tax expense (benefit) represents the change during the reporting period in the
deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets
include tax loss and credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is
more likely than not that some portion of the deferred tax assets will not be realized. Changes in valuation allowances
from period to period are included in the tax provision in the period of change.
The Company has net operating loss (“NOL”) carryforwards that can be utilized to offset future income for
federal and state tax purposes. These NOLs generate a significant deferred tax asset. The Company regularly reviews the
deferred tax assets for recoverability considering historical profitability, projected taxable income, the expected timing of
the reversals of existing temporary differences and tax planning strategies.
The Company recognizes tax liabilities in accordance with ASC 740, “Income Taxes” and the Company adjusts
these liabilities with changes in judgment as a result of the evaluation of new information not previously available. Due
to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially
different from the current estimate of the tax liabilities.
The Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, among other things, permanently
lowered the statutory federal corporate tax rate from 35% to 21%, effective for tax years including or beginning January
1, 2018. Under the guidance of ASC 740, “Income Taxes” (“ASC 740”), the Company re-measured its net deferred tax
assets on the date of enactment based on the reduction in the overall future tax benefit expected to be realized at the
lower tax rate implemented by the new legislation.
Sales Tax Collected
Sales taxes collected from customers and remitted to various governmental agencies are presented on a net basis
(excluded from revenues) in the Company’s statement of operations.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ from those estimates.
87
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Significant Concentrations
Retail Pharmacy Segment
The Company’s pharmacy sales were primarily to customers covered by health plan contracts, which typically
contract with a third party payor that agrees to pay for all or a portion of a customer’s eligible prescription purchases.
During fiscal 2020, the top five third party payors accounted for approximately 79.9% of the Company’s pharmacy sales.
The largest third party payor, Caremark, represented 28.8%, 28.3% and 27.2% of pharmacy sales during fiscal 2020,
2019 and 2018, respectively. Third party payors are entities such as an insurance company, governmental agency, health
maintenance organization or other managed care provider, and typically represent several health care contracts and
customers.
During fiscal 2020, state sponsored Medicaid agencies and related managed care Medicaid payors accounted for
approximately 19.0% of the Company’s pharmacy sales, the largest of which was approximately 1.4% of the Company’s
pharmacy sales. During fiscal 2020, approximately 38.4% of the Company’s pharmacy sales were to customers covered
by Medicare Part D. Any significant loss of third- party payor business could have a material adverse effect on the
Company’s business and results of operations.
During fiscal 2020, the Company purchased brand and generic pharmaceuticals, which amounted to
approximately 99.0% of the dollar volume of its prescription drugs from McKesson Corporation (“McKesson”) under its
expanded agreement executed on February 17, 2014 and amended in fiscal 2019 for our pharmaceutical purchasing and
distribution whereby McKesson assumed responsibility for purchasing essentially all of the brand and generic
medications the Company dispenses as well as providing a new direct store delivery model to all of the Company’s
stores. If the Company’s relationship with McKesson was disrupted, it could temporarily have difficulty filling
prescriptions for brand-named and generic drugs until it executed a replacement wholesaler agreement or developed and
implemented self-distribution processes.
Pharmacy Services Segment
Our Pharmacy Services segment revenue is currently generated from a limited number of customers. During
fiscal 2020, our top five customers accounted for 53.2% of our Pharmacy Services segment revenue. The largest payor,
CMS, represented 27.4%, 23.0% and 17.3% of Pharmacy Services segment revenue during fiscal 2020, 2019 and 2018,
respectively. Pharmacy Services segment customers are entities such as employers, insurance companies, unions,
government employee groups, health plans, Managed Medicaid plans, Medicare plans, and other sponsors of health
benefit plans, and individuals throughout the United States.
The Pharmacy Services segment, through its EIC subsidiary, participates in the federal government’s Medicare
Part D program as a PDP. During fiscal 2020, fiscal 2019 and fiscal 2018, net revenues of $436,435 (2.0% of
consolidated revenues), $391,024 (1.8% of consolidated revenues) and $203,361 (1.0% of consolidated revenues),
respectively, include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and
related contractual arrangements with CMS.
Derivatives
The Company may enter into interest rate swap agreements to hedge the exposure to increasing rates with
respect to its variable rate debt, when the Company deems it prudent to do so. Upon inception of interest rate swap or cap
88
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
agreements, or modifications thereto, the Company performs a comprehensive review of the interest rate swap
agreements based on the criteria as provided by ASC 815, “Derivatives and Hedging.” As of March 2, 2019, the
Company had no interest rate swap arrangements or other derivatives. On March 15, 2019, the Company entered into an
interest rate cap ("Cap"), which has been assigned to the variable interest rate payments on the first $650.0 million
notional amount of variable rate indebtedness. The Cap has an effective date of March 21, 2019 and expires on March
21, 2021. The Cap provides the Company with interest rate protection in the event that LIBOR increases above 2.75%.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases, (Topic 842) (“ASU-2016-02” or the “Lease
Standard”), which is intended to improve financial reporting around leasing transactions. The ASU affects all companies
and other organizations that engage in lease transactions (both lessee and lessor). This ASU requires organizations that
lease assets—referred to as “lessees”—to recognize on the balance sheet a right of use asset (“ROU asset”) and a lease
liability for the obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods
within those years beginning January 1, 2019.
During July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The ASU
provides administrative relief by allowing entities to implement the Lease Standard using an alternative transition
method. Effectively, the alternative transition method permits adoption of the Lease Standard through an adjustment to
its opening balance sheet for the period of adoption, with the cumulative effect accounted for as an adjustment to
retained earnings, without restating prior periods.
The Company adopted the Lease Standard on March 3, 2019 under the alternative transition method as
permissible under ASU 2018-11, and applied the Lease Standard to all leases through a cumulative-effect adjustment to
beginning accumulated deficit. As a result, comparative financial information has not been restated and continues to be
reported under the accounting standards in effect for those periods. The Company elected the package of practical
expedients permitted under the transition guidance within the Lease Standard, which includes, among other things, the
ability to carry forward the existing lease classification. On March 3, 2019, the Company recorded a liability for
operating leases of $3,295,327, a ROU asset for such leases of $3,026,976 and recorded an after-tax transition
adjustment to increase accumulated deficit by $56,776.
As permitted under the practical expedient concerning assessment of lease portfolio, the Company chose not to
reassess its lease portfolio, and consequently, all existing leases that were classified as operating leases in accordance
with Topic 840, continue to be classified as operating leases, and all existing leases that were classified as capital leases
under Topic 840 continue to be classified as finance leases.
The Company performed an evaluation of ROU asset for impairment on transition. Stores that had previously
been impaired and continued to fail the recoverability test as of March 2, 2019 were evaluated. Any store ROU asset
with a carrying amount in excess of fair value was written down to the fair value. Fair value of those ROU assets was
determined based on a study of market rents for similar active/operating retails sites. The result of this impairment
assessment was a $81,745 write-down of the ROU assets on transition to accumulated deficit. In addition, the Company
recognized $24,969 of deferred gains as a reduction to accumulated deficit upon transition related to prior sale-leaseback
transactions along with other minor adjustments.
As of March 2, 2019, the Company had $124,046 in closed store and lease exit liabilities under Topic 420
(“Topic 420 Liabilities”). Under transition to Topic 842, existing Topic 420 liabilities were eliminated by recording a
89
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
reduction to the ROU asset balance. However, in certain cases the Company had larger existing Topic 420 liabilities than
the ROU asset balances. This excess amount of $9,333 continues to be recorded as a liability and will reduce lease
expense over the remaining lease term of the affected stores. In addition, upon transition, the Company reclassified
deferred rent, including unamortized tenant income allowances, prepaid rent, and favorable and unfavorable lease
balances resulting from prior acquisition accounting to the ROU asset.
The following is a discussion of the Company’s lease policy under the new lease accounting standard:
The Company determines if an arrangement contains a lease at the inception of a contract. Operating lease
right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease
liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-
use assets and operating lease liabilities are recognized at the commencement date based on the present value of the
remaining future minimum lease payments. As the interest rate implicit in the Company’s leases is not readily
determinable, the Company utilizes its incremental borrowing rate, determined by class of underlying asset, to discount
the lease payments. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest
that we would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use
quoted interest rates obtained from financial institutions in an input to derive our incremental borrowing rate as the
discount rate for the lease. The ROU asset is equal to the operating lease liability plus lease payments made before
commencement, less lease incentives received from the landlord.
The Company’s real estate leases typically contain options that permit lease extensions for additional periods of
up to five years each. For real estate leases, generally, the renewal periods are not included within the lease term and the
associated payments are not included in the measurement of the ROU asset and operating lease liability as the options to
extend are not considered reasonably certain to occur at lease commencement. The Company reevaluates each lease on a
regular basis to consider the economic and strategic incentives of exercising the renewal options and will include all
reasonably certain options in the measurement of our lease term. Generally, the renewal option periods are not included
within the lease term and the associated payments are not included in the measurement of the operating lease right-of-use
asset and the operating lease liability until the renewals are i) evaluated and ii) determined to be exercised. The Company
has an insignificant amount of non-real estate leases however, renewal options are not included in the lease term for non-
real estate leases because they are not considered reasonably certain of being exercised at lease commencement. The
Company rarely executes leases less than 12 months. On transition, the Company did include in its ROU asset balance
leases with less than 12 months remaining.
For real estate leases, the Company accounts for lease components and non-lease components as a single lease
component. Certain real estate leases require additional payments based on sales volume, as well as reimbursement for
real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Other
real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and
insurance. These fixed payments are considered part of the lease payment and included in the operating lease right-of-use
assets and operating lease liabilities.
90
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Impact of the Lease Standard on Financial Statement Line Items
As a result of applying the alternative transition method to adopt the Lease Standard, the following adjustments
were made to accounts on the unaudited condensed consolidated balance sheet as of March 3, 2019:
(in thousands)
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Current assets held for sale
Total current assets
Property, plant and equipment, net
Operating lease right-of-use asset
Goodwill
Other intangibles, net
Deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations
Accounts payable
Accrued salaries, wages and other current liabilities
Current portion of operating lease liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt, less current maturities
Long-term operating lease liabilities
Lease financing obligations, less current maturities
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Impact of change in accounting policy
As reported
March 2, 2019 Adjustments March 3, 2019
As adjusted
$
$
$
144,353 $
1,788,712
1,871,941
179,132
117,581
4,101,719
1,308,514
—
1,108,136
448,706
409,084
215,208
144,353
— $
1,788,712
—
1,871,941
—
127,684
(51,448)
161,278
43,697
4,093,968
(7,751)
1,308,514
—
3,026,976
3,026,976
1,108,136
—
419,074
(29,632)
409,084
—
214,122
(1,086)
7,591,367 $ 2,988,507 $ 10,579,874
16,111 $
1,618,585
808,439
—
—
2,443,135
3,454,585
—
24,064
482,893
6,404,677
—
— $
—
(56,553)
457,305
45,167
445,919
—
2,838,022
—
(238,658)
3,045,283
—
16,111
1,618,585
751,886
457,305
45,167
2,889,054
3,454,585
2,838,022
24,064
244,235
9,449,960
—
Common stock, par value $1 per share; 75,000 shares authorized; shares issued and outstanding
54,016
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Note 16 for additional information.
$
—
54,016
54,016
5,876,977
—
5,876,977
(4,713,244)
(56,776)
(4,770,020)
(31,059)
—
(31,059)
1,129,914
(56,776)
1,186,690
7,591,367 $ 2,988,507 $ 10,579,874
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 outlines a single
comprehensive model for companies to use in accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB
issued ASU No. 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), which amends
91
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
the principal-versus-agent implementation guidance and in April 2016, the FASB issued ASU No. 2016-10, Identifying
Performance Obligations and Licensing, which amends the guidance in those areas in the new revenue recognition
standard. These ASUs, collectively the “new revenue standard”, are effective for annual reporting periods (including
interim reporting periods within those periods) beginning January 1, 2018.
The Company adopted the new revenue standard as of March 4, 2018 using the modified retrospective method
and applying the new standard to all contracts with customers. Therefore, the comparative financial information has not
been restated and continues to be reported under the accounting standards in effect for those periods. In connection with
the adoption of the new revenue standard, the Company identified one difference in its Retail Pharmacy segment related
to the timing of revenue recognition for third party prescription revenues, which was historically recognized at the time
the prescription was filled. Upon adoption of ASU No. 2014-09, this revenue is recognized at the time the customer takes
possession of the merchandise. In connection with its March 4, 2018 adoption of the new revenue standard on a modified
retrospective basis, the Company recorded a reduction to accounts receivable of $57,897, a reduction to deferred tax
assets of $1,784, an increase to inventory of $51,121, and a corresponding increase to accumulated deficit of $8,560
within its Retail Pharmacy segment.
In addition, the Company identified revenues under one specific rebate administration program under which the
Company’s Pharmacy Services segment was determined to be the principal and historically recognized revenues and cost
of revenues on a gross basis of approximately $123,500 during fiscal 2018. Upon adoption of the new revenue standard,
the Company is now recording revenue from this program on a net basis.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement benefits (Topic 715-20). This ASU
amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other
postretirement plans. The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive
income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the
disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect
of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This
ASU is effective for fiscal years ending after December 15, 2020 and must be applied on a retrospective basis. The
Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a
material impact on the Company’s financial position.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40), which is intended to provide entities with additional guidance to determine which software
implementation costs to capitalize and which costs to expense. The ASU will allow entities to capitalize costs for
implementation activities during the application development stage. ASU No. 2018-15 is effective for fiscal years and
interim periods within those years beginning after December 15, 2019 (fiscal 2021). Early adoption of ASU 2018-15 is
permitted. The Company is in the process of assessing the impact of the adoption of ASU 2018-15, but does not expect
adoption will have a material impact on the Company’s financial position, results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which
adds to U.S. GAAP an impairment model (known as the current expected credit loss ("CECL") model), that is based on
expected losses rather than incurred losses. Under ASU 2016-13, an entity will recognize, as an allowance, its estimate
of lifetime expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU
2016-13 impacts non-banks as most non-banks have financial instruments or other assets (e.g. trade, contract and lease
92
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
receivables, financial guarantees, loans and loan commitments and held-to-maturity debt securities). The Company is
evaluating the effect of adopting ASU 2016-13, but does not expect the adoption to have a material impact on the
Company’s financial position, results of operations and cash flows.
.
2. Restructuring
Beginning in fiscal 2019, the Company initiated a series of restructuring plans designed to reorganize its
executive management team, reduce managerial layers, and consolidate roles. The Company also initiated restructuring
plans with regard to its future strategy and brand identification, which includes building tools to work with regional
health plans to improve patient health outcomes, rationalizing SKU’s in its front-end offering to free up working capital,
assessing its pricing and promotional strategy, rebranding its retail pharmacy and EnvisionRxOptions business,
implementing executive team enhancements, further reducing SG&A and headcount, separating the front-end and retail
pharmacy teams into separate units, integrating the Pharmacy Services segment both within the segment and across Rite
Aid, including a detailed review of the EnvisionRxOptions cost structure and action plans to streamline.
For the year ended February 29, 2020, the Company incurred total restructuring-related costs of $105,642,
which are included as a component of SG&A. These costs are as follows:
Retail Pharmacy
segment
Pharmacy
Services segment
Total
Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts
(a)
Non-executive retention costs associated with the March 2019
reorganization (b)
Professional and other fees relating to restructuring activities (c)
Total restructuring-related costs
$
47,154 $
11,339 $ 58,493
8,927
31,657
87,738 $
4,243
2,322
13,170
33,979
17,904 $ 105,642
$
93
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
For the year ended March 2, 2019, the Company incurred total restructuring-related costs of $4,704, which are
included as a component of SG&A. These costs are as follows:
Retail Pharmacy
segment
Pharmacy
Services segment Total
Restructuring-related costs
Severance and related costs associated with ongoing reorganization efforts
(a)
Non-executive retention costs associated with the March 2019 reorganization
(b)
Professional and other fees relating to restructuring activities (c)
Total restructuring-related costs
$
$
— $
— $
—
3,224
—
3,224 $
1,480
—
4,704
—
1,480 $ 4,704
A summary of activity for the year ended February 29, 2020 in the restructuring-related liabilities associated
with the programs noted above, which is included in accrued salaries, wages and other current liabilities, is as follows:
Balance at March 2, 2019
Additions charged to expense
Cash payments
Balance at June 1, 2019
Additions charged to expense
Cash payments
Balance at August 31, 2019
Additions charged to expense
Cash payments
Balance at November 30, 2019
Additions charged to expense
Cash payments
Balance at February 29, 2020
Severance and related
Professional and
costs (a)
Retention costs (b) other fees (c)
Total
$
$
$
$
$
— $
27,076
(4,653)
22,423 $
8,381
(4,580)
26,224 $
17,320
(5,036)
38,508 $
5,716
(7,996)
36,228 $
4,704 $
6,664
(242)
11,126 $
4,087
(11,200)
4,013 $
1,268
—
5,281 $
1,151
—
6,432 $
9,610
(9,610)
— $ 4,704
43,350
(14,505)
— $ 33,549
25,145
12,677
(6,768)
(22,548)
5,909 $ 36,146
6,687
25,275
(10,124)
(5,088)
7,508 $ 51,297
11,872
5,005
(18,115)
(10,119)
2,394 $ 45,054
(a) – Severance and related costs reflect severance accruals, executive search fees, outplacement services and other
similar charges associated with ongoing reorganization efforts.
(b) – As part of its March 2019 reorganization, the Company incurred costs with the implementation of a retention plan
for certain of its key associates.
(c) – Professional and other fees include costs incurred in connection with the identification and implementation of
initiatives associated with restructuring activities.
The Company anticipates incurring approximately $60,000 during fiscal 2021 in connection with its continued
restructuring activities.
94
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
3. Asset Sale to WBA
On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement with
WBA and Buyer, which amended and restated in its entirety the previously disclosed Asset Purchase Agreement, dated
as of June 28, 2017, by and among the Company, WBA and Buyer. Pursuant to the terms and subject to the conditions
set forth in the Amended and Restated Asset Purchase Agreement, Buyer agreed to purchase from the Company 1,932
Acquired Stores, three distribution centers, related inventory and other specified assets and liabilities related thereto for a
purchase price of $4,375,000, on a cash-free, debt-free basis in the Sale.
The Company announced on September 19, 2017 that the waiting period under the HSR Act, expired with
respect to the Sale. The Company completed the store transfer process in March of 2018, which resulted in the transfer of
all 1,932 stores and related assets to WBA, and received cash proceeds of $4,156,686.
During fiscal 2019, the Company completed the sale of one of its distribution centers and related assets to WBA
for proceeds of $61,251. The impact of the sale of the distribution center and related assets resulted in a pre-tax gain of
$14,151, which has been included in the results of operations and cash flows of discontinued operations during the fifty-
two week period ended March 2, 2019. During fiscal 2020, the Company completed the sale of the second distribution
center and related assets to WBA for proceeds of $62,774. The impact of the sale of the distribution center and related
assets resulted in a pre-tax gain of $19,268, which has been included in the results of operations and cash flows of
discontinued operations during the fifty-two week period ended February 29, 2020. On April 1, 2020, we completed the
inventory transfer at our remaining distribution center to WBA for proceeds of $19,280.
The transfer of the remaining distribution center and related non-inventory assets remains subject to minimal
customary closing conditions applicable only to the distribution center being transferred at such distribution center
closing, as specified in the Amended and Restated Asset Purchase Agreement.
The parties to the Amended and Restated Asset Purchase Agreement have each made customary representations
and warranties. The Company has agreed to various covenants and agreements, including, among others, the Company’s
agreement to conduct its business at the distribution centers being sold to WBA in the ordinary course during the period
between the execution of the Amended and Restated Asset Purchase Agreement and the distribution center closing. The
Company has also agreed to provide transition services to Buyer for up to three years after the initial closing of the Sale.
Under the terms of the TSA, the Company provides various services on behalf of WBA, including but not limited to the
purchase and distribution of inventory and virtually all selling, general and administrative activities. The term of the TSA
has been extended to October 17, 2020. In connection with these services, the Company purchases the related inventory
and incurs cash payments for the selling, general and administrative activities, which, the Company bills on a cash
neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items during the fifty-two
week periods ended February 29, 2020 and March 2, 2019 were $3,030,967 and $6,887,092, respectively, of which
$38,737 and $293,662 is included in Accounts receivable, net. The Company charged WBA TSA fees of $37,922 during
the fifty-two week period ended February 29, 2020 and $80,277 in the fifty-two week period ended March 2, 2019,
which are reflected as a reduction to selling, general and administrative expenses.
Based on its magnitude and because the Company exited certain markets, the Sale represented a significant
strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company
has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05—
Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the Disposal Group
to assets and liabilities held for sale on its consolidated balance sheets as of the periods ended February 29, 2020 and
95
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
March 2, 2019, and reclassified the financial results of the Disposal Group in its consolidated statements of operations
and consolidated statements of cash flows for all periods presented. The Company also revised its discussion and
presentation of operating and financial results to be reflective of its continuing operations as required by ASC 205-20.
The carrying amount of the Assets to be Sold, which were included in the Retail Pharmacy segment, have been
reclassified from their historical balance sheet presentation to current assets and liabilities held for sale as follows:
February 29, March 2,
2020
2019
Inventories
Property and equipment
Operating lease right-of-use asset
Current assets held for sale
Current portion of operating lease liabilities
Long-term operating lease liabilities
Current liabilities held for sale
43,576
34,983
$ 13,719 $ 68,233
49,348
—
$ 92,278 $ 117,581
—
$
—
—
2,002 $
35,061
$ 37,063 $
The operating results of the discontinued operations that are reflected on the consolidated statements of
operations within net income from discontinued operations are as follows:
Revenues
Costs and expenses:
Cost of revenues(a)
Selling, general and administrative expenses(a)
Lease termination and impairment charges
Loss on debt retirements, net
Interest expense(b)
Gain on stores sold to Walgreens Boots Alliance
(Gain) loss on sale of assets, net
Income from discontinued operations before income taxes
Income tax expense
Net income from discontinued operations, net of tax
February 29, March 2,
March 3,
2020
(52 weeks)
2019
(52 weeks)
2018
(52 weeks)
$
(21) $ 34,889 $ 8,686,397
(5,639)
1,498
—
—
1
—
(19,937)
(24,077)
24,056
7,011
6,406,067
2,134,276
77
8,180
224,300
(2,128,832)
(377)
6,643,691
2,042,706
749,704
$ 17,045 $ 244,741 $ 1,293,002
24,271
20,681
—
22,646
4,616
(374,619)
1,486
(300,919)
335,808
91,067
(a) Cost of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate
overhead. These charges are reflected in continuing operations.
(b) In accordance with ASC 205-20, the operating results for the fifty-two week period ended February 29, 2020, the
fifty-two week period ended March 2, 2019 and the fifty-two week period ended March 3, 2018, respectively, for
the discontinued operations include interest expense relating to the outstanding indebtedness repaid with the
estimated excess proceeds from the Sale.
96
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The operating results reflected above do not fully represent the Disposal Group’s historical operating results, as
the results reported within net income from discontinued operations only include expenses that are directly attributable to
the Disposal Group.
4. (Loss) Income Per Share
Basic (loss) income per share is computed by dividing income available to common stockholders by the
weighted average number of shares of common stock outstanding for the period. Diluted (loss) income per share reflects
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared in the income of the Company subject to
anti- dilution limitations.
February 29,
2020
(52 Weeks)
March 2,
2019
(52 Weeks)
March 3,
2018
(52 Weeks)
Basic and diluted (loss) income per share:
Numerator:
Net loss from continuing operations
Net income from discontinued operations
(Loss) income attributable to common
stockholders— basic and diluted
Denominator:
Basic weighted average shares
Outstanding options and restricted shares, net
Diluted weighted average shares
Basic and diluted (loss) income per share:
Continuing operations
Discontinued operations
Net basic and diluted (loss) income per share
$ (469,219) $ (666,954) $ (349,532)
1,293,002
244,741
17,045
$ (452,174) $ (422,213) $
943,470
53,228
—
53,228
52,854
—
52,854
52,481
—
52,481
$
$
(8.82) $
0.32
(8.50) $
(12.62) $
4.63
(7.99) $
(6.66)
24.64
17.98
Due to their antidilutive effect, 1,295, 1,036 and 374 potential common shares related to stock options have
been excluded from the computation of diluted income per share as of February 29, 2020, March 2, 2019 and March 3,
2018, respectively. Also, excluded from the computation of diluted income per share as of February 29, 2020, March 2,
2019 and March 3, 2018 are restricted shares of 1,253, 1,008 and 610, respectively, which are included in shares
outstanding.
On April 10, 2019, the Company’s Board of Directors approved a one-for-twenty reverse stock split of the
Company’s outstanding shares of common stock. The reverse stock split was effected on April 18, 2019 at 5:00 p.m.
Eastern time. At the effective time, every twenty issued and outstanding shares of the Company’s common stock were
converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split,
and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or
deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the
total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the
open market. In connection with the reverse stock split, the number of authorized shares of our common stock was also
reduced on a one-for-twenty basis, from 1,500,000 to 75,000. The par value of each share of common stock remained
97
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
unchanged. A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s
2014 Equity Incentive Plan.
5. Lease Termination and Impairment Charges
Impairment Charges
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate
that an asset group has a carrying value that may not be recoverable. The individual operating store is the lowest level for
which cash flows are identifiable. As such, the Company evaluates individual stores for recoverability of assets. To
determine if a store needs to be tested for recoverability, the Company considers items such as decreases in market
prices, changes in the manner in which the store is being used or physical condition, changes in legal factors or business
climate, an accumulation of losses significantly in excess of budget, a current period operating or cash flow loss
combined with a history of operating or cash flow losses or a projection of continuing losses, or an expectation that the
store will be closed or sold.
The Company monitors new and recently relocated stores against operational projections and other strategic
factors such as regional economics, new competitive entries and other local market considerations to determine if an
impairment evaluation is required. For other stores, it performs a recoverability analysis if it has experienced
current-period and historical cash flow losses.
In performing the recoverability test, the Company compares the expected future cash flows of a store to the
carrying amount of its assets. Significant judgment is used to estimate future cash flows. Major assumptions that
contribute to its future cash flow projections include expected sales, gross profit and distribution expenses; expected
costs such as payroll, occupancy costs and advertising expenses; and estimates for other significant selling, and general
and administrative expenses. Many long-term macro-economic and industry factors are considered, both quantitatively
and qualitatively, in the future cash flow assumptions. In addition to current and expected economic conditions such as
inflation, interest and unemployment rates that affect customer shopping patterns, the Company considers that it operates
in a highly competitive industry which includes the actions of other national and regional drugstore chains,
independently owned drugstores, supermarkets, mass merchandisers, dollar stores and internet pharmacies. Additionally,
the Company takes into consideration that certain operating stores are executing specific improvement plans which are
monitored quarterly to recoup recent capital investments, such as an acquisition of an independent pharmacy, which it
has made to respond to specific competitive or local market conditions, or have specific programs tailored towards a
specific geography or market.
The Company recorded impairment charges of $39,875 in fiscal 2020, $63,492 in fiscal 2019 and $37,873 in
fiscal 2018. The Company’s methodology for recording impairment charges has been consistently applied in the periods
presented.
At February 29, 2020, $965.5 million of the Company’s long-lived assets, including intangible assets, were
associated with 2,461 active operating stores. Additionally, in connection with the adoption of ASU 2016-02, Leases
(Topic 842), we have approximately $2.8 billion of operating lease right-of-use assets associated with the active stores.
If an operating store’s estimated future undiscounted cash flows are not sufficient to cover its carrying value, its
carrying value is reduced to fair value. Fair value is its estimated future discounted cash flows. The discount rate is
commensurate with the risks associated with the recovery of a similar asset. Beginning in fiscal year 2020, operating
98
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
lease right-of-use assets are included within the stores’ asset groups. We obtain fair values of these right-of-use assets
based on real estate market data.
An impairment charge is recorded in the period that the store does not meet its original return on investment
and/or has an operating loss for the last two years and its projected cash flows do not exceed its current asset carrying
value. The amount of the impairment charge is the entire difference between the current asset carrying value and its fair
value which is the estimated future discounted cash flows.
The Company recorded impairment charges for active stores of $34,825 in fiscal 2020, $46,419 in fiscal 2019
and $34,782 in fiscal 2018.
The Company reviews key performance results for active stores on a quarterly basis and approves certain stores
for closure. Impairment for closed stores, if any (many stores are closed on lease expiration), are recorded in the quarter
the closure decision is approved. Closure decisions are made on an individual store or regional basis considering all of
the macro-economic, industry and other factors, in addition to, the active store’s individual operating results. The
Company recorded impairment charges for closed facilities of $5,050 in fiscal 2020, $2,788 in fiscal 2019 and $3,091 in
fiscal 2018.
The following table summarizes the impairment charges and number of locations, segregated by closed
facilities and active stores that have been recorded in fiscal 2020, 2019 and 2018:
(in thousands, except number of stores)
Active stores:
Stores previously impaired(1)
New, relocated and remodeled stores(2)
Remaining stores not meeting the
recoverability test(3)
Total impairment charges—active stores
Total impairment charges—closed facilities
Total impairment charges—other(4)
Total impairment charges—all locations
February 29, 2020
Number Charge
March 2, 2019
March 3, 2018
Number Charge
Number Charge
274 $ 11,449
11,228
8
288 $ 17,939
10,595
22
218 $ 7,313
13,100
28
38
320
30
—
12,148
34,825
5,050
—
350 $ 39,875
74
384
62
—
17,885
46,419
2,788
14,285
446 $ 63,492
14,369
60
34,782
306
3,091
67
—
—
373 $ 37,873
(1) These charges are related to stores that were impaired for the first time in prior periods. In an effort to improve the
operating results or to meet geographical competition, the Company will often make additional capital additions in
stores that were impaired in prior periods. These additions will be impaired in future periods if they are deemed to
be unrecoverable. In connection with our March 3, 2019 adoption of ASU 2016-02, Leases (Topic 842), under the
alternative transition method, and the recording of our corresponding right-of-use asset (“ROU”). Beginning with
fiscal 2020, the Company includes the ROU in its recoverability assessment. The fiscal 2020 impairment charge
includes $6,594 of impairment relating to the ROU and $4,855 of capital additions.
(2) These charges are related to new stores (open at least three years) and relocated stores (relocated in the last
two years) and significant strategic remodels (remodeled in the last year) that did not meet their recoverability test
during the current period. These stores have not met their original return on investment projections and have a
historical loss of at least two years. Their future cash flow projections do not recover their current carrying value.
The fiscal 2020 impairment charge includes $5,625 of impairment relating to the ROU and $5,603 of capital assets.
99
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
(3) These charges are related to the remaining active stores that did not meet the recoverability test during the current
period. These stores have a historical loss of at least 2 years. Their future cash flow projections do not recover their
current carrying value. The fiscal 2020 impairment charge includes $2,228 of impairment relating to the ROU and
$9,920 of capital assets.
(4) These fiscal 2019 charges were due to the impairment of assets related to the termination of a project to replace the
point of sale software used in the Company’s stores.
The primary drivers of its impairment charges are each store’s current and historical operating performance and
the assumptions that the Company makes about each store’s operating performance in future periods. Projected cash
flows are updated based on the next year’s operating budget which includes the qualitative factors noted above. The
Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The
categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to
the measurement of fair value. The three levels of the hierarchy consist of the following:
• Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to access at the measurement date.
• Level 2—Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active
markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the instrument.
• Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best
estimate of inputs market participants could use in pricing the asset or liability at the measurement date,
including assumptions about risk.
Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating
impairment using Level 2 and Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets
using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use
assets. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net
future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest (which is
Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the
store is located. Significant increases or decreases in actual cash flows may result in valuation changes.
The table below sets forth by level within the fair value hierarchy the long-lived assets, which include right-of-
use assets in fiscal 2020, as of the impairment measurement date for which an impairment assessment was performed
and total losses as of February 29, 2020 and March 2, 2019:
Fair Values
as of
Total
Charges
Long-lived assets held for use
Long-lived assets held for sale
Total
Level 2
Level 1
$
$
$
— $ 113,510 $ 278 $
— $ 2,689 $
— $
— $ 116,199 $ 278 $
Level 3 Impairment Date February 29, 2020
(38,878)
(997)
(39,875)
113,788 $
2,689 $
116,477 $
100
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Fair Values
as of
Total
Charges
Long-lived assets held for use
Long-lived assets held for sale
Total
Level 2
Level 1
$
$
$
Level 3
— $ 8,116 $
— $
— $ 1,545 $
— $
— $ 1,545 $ 8,116 $
Impairment Date March 2, 2019
(62,115)
8,116 $
(1,377)
1,545 $
(63,492)
9,661 $
The above assets reflected in the caption Long-lived assets held for sale are separate and apart from the Assets
to be Sold and due to their immateriality, have not been reclassified to assets held for sale.
Lease Termination and Facility Exit Charges
Upon adoption of ASU 2016-02, Leases (Topic 842), the Company recorded a future lease liability for every
real estate lease and therefore, no longer records a lease termination charge. Post adoption, the Company records
ancillary costs in connection with store closings. Prior to the adoption of ASU 2016-02, charges to close a store, which
principally consist of continuing lease obligations associated with ancillary costs, are recorded at the time the store is
closed and all inventory is liquidated, pursuant to the guidance set forth in ASC 420, “Exit or Disposal Cost
Obligations.” The Company calculates the liability for closed stores on a store-by-store basis. The calculation for stores
where the remaining lease term exceeds one year, includes the ancillary costs from the date of closure to the end of the
remaining lease term. The Company evaluates these assumptions each quarter and adjusts the liability accordingly. As
part of the Company's ongoing business activities, the Company assesses stores and distribution centers for potential
closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in lease
termination charges for lease exit costs and liquidation of inventory, as well as impairment of assets at these locations.
In fiscal 2020, 2019 and 2018, the Company recorded lease termination charges of $2,968, $44,502 and
$20,892, respectively. The Company has no plans to close a significant number of stores in future periods.
As part of the Company's ongoing business activities, the Company assesses stores and distribution centers for
potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result
in lease termination charges, lease exit costs and inventory liquidation charges, as well as impairment of assets at these
locations. When a store or distribution center is closed, the Company records an expense for unrecoverable costs and
accrues a liability equal to the present value at current credit adjusted risk-free interest rates of any anticipated executory
costs which are not included within the store or distribution center's respective lease liability under Topic 842. Other
store or distribution center closing and liquidation costs are expensed when incurred.
101
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The following table reflects the closed store and distribution center charges that relate to new closures, changes
in assumptions and interest accretion:
Balance—beginning of period
Year Ended
February 29, March 2,
March 3,
2020
2019
2018
(52 Weeks) (52 Weeks) (52 Weeks)
$ 124,046 $ 133,290 $ 165,138
Existing Topic 420 liabilities eliminated by recording
a reduction to the ROU asset
Provision for present value of noncancellable lease
payments of closed stores
Changes in assumptions about future sublease income,
terminations and changes in interest rates
Interest accretion
Cash payments, net of sublease income
Balance—end of period
$
(112,288)
—
—
—
35,190
8,871
1,082
737
—
11,439
9,741
—
(53,240)
(54,912)
(9,505)
2,253 $ 124,046 $ 133,290
The Company’s revenues and income before income taxes for fiscal 2020, 2019 and 2018 included results from
stores that have been closed or are approved for closure as of February 29, 2020. The revenue, operating expenses and
income before income taxes of these stores for the periods are presented as follows:
Year Ended
February 29, March 2,
March 3,
2020
2019
2018
Revenues
Operating expenses
Gain from sale of assets
Other expenses
Income (loss) before income taxes
$ 17,182 $ 191,110 $ 333,984
369,859
(18,221)
2,442
(20,096)
209,645
(38,110)
2,490
17,085
18,046
(2,550)
776
910
Included in these stores’ loss before income taxes are:
Depreciation and amortization
Inventory liquidation charges
292
(486)
960
(5,536)
2,058
(2,828)
The above results are not necessarily indicative of the impact that these closures will have on revenues and
operating results of the Company in the future, as the Company often transfers the business of a closed store to another
Company store, thereby retaining a portion of these revenues and operating expenses.
6. Fair Value Measurements
The Company utilizes the three-level valuation hierarchy as described in Note 5 for the recognition and
disclosure of fair value measurements.
As of February 29, 2020 and March 2, 2019, the Company did not have any financial assets measured on a
recurring basis. Please see Note 5 for fair value measurements of non-financial assets measured on a non-recurring basis.
102
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Other Financial Instruments
Financial instruments other than long-term indebtedness include cash and cash equivalents, accounts receivable
and accounts payable. These instruments are recorded at book value, which we believe approximate their fair values due
to their short term nature. In addition, as of February 29, 2020 and March 2, 2019, the Company has $7,022 and $7,191,
respectively, of investments carried at amortized cost as these investments are being held to maturity. These investments
are included as a component of other assets as of February 29, 2020 and as a component of prepaid expenses and other
current assets as of March 2, 2019. The Company believes the carrying value of these investments approximates their
fair value.
The fair value for LIBOR-based borrowings under the Company’s senior secured credit facility is estimated
based on the quoted market price of the financial instrument which is considered Level 1 of the fair value hierarchy. The
fair values of substantially all of the Company’s other long-term indebtedness are estimated based on quoted market
prices of the financial instruments which are considered Level 1 of the fair value hierarchy. The carrying amount and
estimated fair value of the Company’s total long-term indebtedness was $3,077,268 and $3,021,385, respectively, as of
February 29, 2020. The carrying amount and estimated fair value of the Company’s total long-term indebtedness was
$3,454,585 and $3,120,335, respectively, as of March 2, 2019.
On March 15, 2019, the Company entered into an interest rate cap (“Cap”), which has been designated to the
variable interest rate payments on the first $650.0 million notional amount of variable rate indebtedness. The Cap has an
effective date of March 21, 2019 and expires on March 21, 2021. The Cap provides the Company with interest rate
protection in the event that LIBOR increases above 2.75%. The nominal fair market value of the Cap is recorded as a
component of other assets. LIBOR continues to be supported through maturity of the Cap.
7. Income Taxes
On December 22, 2017 (the “Enactment Date”), H.R. 1, originally known as the Tax Cuts and Jobs Act, was
enacted. The new law (Public Law No.115-97 hereinafter referred to as the “Tax Act”) includes significant changes to
the U.S. corporate income tax system including, but not limited to, lowering the statutory corporate tax rate from 35% to
21%, limiting or eliminating certain deductions and the repeal of Corporate AMT tax regime. The majority of the
provisions were applicable to the Company beginning with fiscal 2019. For fiscal 2018, the Company computed its
income tax expense using a blended federal tax rate of 32.6%. The 21% federal tax rate applies to the fiscal year ending
March 2, 2019 and each year thereafter.
103
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The provision for income tax expense (benefit) from continuing operations was as follows:
Current tax:
Federal
State
Deferred tax and other:
Federal
State
Total income tax expense
Year Ended
February 29, March 2, March 3,
2020
2019
2018
(52 Weeks) (52 Weeks) (52 Weeks)
$
(6,758) $ (22,187) $
13,725
6,967
9,866
(12,321)
(210)
51,279
51,069
345,469
35,171
50,151
39,647
316,451
(61,533)
380,640
254,918
$ 387,607 $ 77,477 $ 305,987
89,798
A reconciliation of the expected statutory federal tax and the total income tax expense (benefit) from continuing
operations was as follows:
Year Ended
February 29, March 2,
March 3,
2020
2019
2018
Federal statutory rate*
Federal tax rate change
Nondeductible expenses
State income taxes, net
Increase (decrease) of previously recorded liabilities
Nondeductible compensation
Officer life insurance
Qualified fringe disallowance
Acquisition costs
Stock based compensation
Valuation allowance
Other
Total income tax expense
(52 Weeks) (52 Weeks) (52 Weeks)
$ (17,093) $ (123,790) $ (14,202)
324,765
1,213
(22,836)
27,295
654
—
—
696
8,363
(8,853)
(11,108)
$ 387,607 $ 77,477 $ 305,987
—
1,025
46,620
(4,477)
2,623
5,555
974
—
4,999
347,599
(218)
—
2,890
(12,605)
(3,105)
1,798
—
—
—
3,478
212,252
(3,441)
* Federal statutory rate included in the above table is 21.0%, 21.0% and 32.6%, respectively, for the fiscal years ended
February 29, 2020, March 2, 2019 and March 3, 2018.
Net loss for fiscal 2020 from continuing operations included income tax expense of $387,607, of which
$347,599 relates to establishing a full valuation allowance for federal deferred tax assets and an increase to the valuation
allowance for state net deferred tax assets that may not be realized based on the Company's most recent assessment of all
available evidence including future projections of taxable income.
104
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Net loss for fiscal 2019 from continuing operations included income tax expense of $77,477, of which $212,252
relates to the increase in valuation allowance for federal and state net deferred tax assets that may not be realized based
on the Company's future projections of taxable income.
Net loss for fiscal 2018 from continuing operations included income tax expense of $305,987, of which
$324,765 relates to the federal income tax rate change on the re-measurement of net deferred tax assets pursuant to the
Tax Act. Additionally, the Company recorded within state income taxes the net impact of the Pennsylvania tax law
change which resulted in a substantial increase to the state net operating loss carryforwards and a corresponding increase
to the valuation allowance.
The Company recognized tax expense of $7,011, $91,067 and $749,704 within Net loss (income) from
discontinued operations, net of tax, in the Statement of Operations in fiscal 2020, fiscal 2019 and fiscal 2018,
respectively. The Company’s effective income tax rate from discontinued operations included adjustments to the
valuation allowance of $0, $(2,417) and $(32,870) for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.
The tax effect of temporary differences that gave rise to significant components of deferred tax assets and
liabilities consisted of the following at February 29, 2020 and March 2, 2019:
2020
2019
Deferred tax assets:
Accounts receivable
Accrued expenses
Liability for lease exit costs
Pension, retirement and other benefits
Long-lived assets
Operating lease liabilities
Credits
Net operating losses
Other
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Outside basis difference
Inventory
Operating lease right-of-use assets
Other
Total gross deferred tax liabilities
Net deferred tax assets
$
29,734 $
99,637
772
98,408
303,630
903,020
35,197
1,284,831
654
2,755,883
(1,673,119)
1,082,764
36,607
107,356
37,333
87,397
320,561
—
48,884
1,084,139
—
1,722,277
(1,091,416)
630,861
5,616
242,238
818,230
—
1,066,084
$
16,680 $
5,392
215,588
—
797
221,777
409,084
105
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
A reconciliation of the beginning and ending amount of unrecognized tax benefits from continuing operations
was as follows:
Unrecognized tax benefits
Increases to prior year tax positions
Decreases to tax positions in prior periods
Increases to current year tax positions
Settlements
Divestitures
Lapse of statute of limitations
Unrecognized tax benefits balance
2020
2019
$ 219,839 $ 230,210 $
2018
8,939
—
(1,015)
224,408
—
(1,607)
(515)
$ 198,325 $ 219,839 $ 230,210
440
(6,448)
—
—
—
(15,506)
155
(111)
—
—
(543)
(9,872)
The amount of the above unrecognized tax benefits at February 29, 2020, March 2, 2019 and March 3, 2018
which would impact the Company’s effective tax rate, if recognized, was $23,439, $28,482 and $31,377 respectively.
Additionally, any impact on the effective rate may be mitigated by the valuation allowance that is remaining against the
Company’s net deferred tax assets.
The Company believes that it is reasonably possible that a decrease of up to $13,210 in unrecognized tax
benefits related to state exposures may be necessary in the next twelve months however, management does not expect
the change to have a significant impact on the results of operations or the financial position of the Company.
The Company recognizes interest and penalties related to tax contingencies as income tax expense. The
Company recognized an expense/(benefit) for interest and penalties in connection with tax matters of $(220), $(769) and
$7,058 for fiscal years 2020, 2019 and 2018, respectively. As of February 29, 2020 and March 2, 2019 the total amount
of accrued income tax-related interest and penalties was $6,332 and $6,553, respectively.
The Company files U.S. federal income tax returns as well as income tax returns in those states where it does
business. The consolidated federal income tax returns are closed for examination through fiscal year 2016. However, any
net operating losses that were generated in these prior closed years may be subject to examination by the IRS upon
utilization. Tax examinations by various state taxing authorities could generally be conducted for a period of three to five
years after filing of the respective return.
Net Operating Losses and Tax Credits
At February 29, 2020, the Company had federal net operating loss carryforwards of approximately $1,152,396.
Of these, $900,383 will expire, if not utilized, between fiscal 2029 and 2031. An additional $178,246 will expire, if not
utilized, between fiscal 2032 and 2038.
At February 29, 2020, the Company had state net operating loss carryforwards of approximately $11,413,504,
the majority of which will expire ratably through fiscal 2031; the net tax effect of these carryforwards is $1,046,331 and
are reflected in the table above.
At February 29, 2020, the Company had federal business tax credit carryforwards of $18,427 the majority of
which will expire between 2021 and 2025. In addition to these credits, the Company had an alternative minimum tax
106
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
credit carryforwards of $6,748 which will be refunded to the Company between fiscal 2021 and 2022. The Company
recorded a receivable for the refundable AMT tax credits of $6,748 for fiscal 2020.
Valuation Allowances
The valuation allowances as of February 29, 2020 and March 2, 2019 apply to the net deferred tax assets of the
Company. The Company maintained a valuation allowance of $1,673,119 and $1,091,416 at February 29, 2020 and
March 2, 2019, respectively. The primary driver of the increase for fiscal 2020 and fiscal 2019 is to reduce federal and
state net deferred tax assets that may not be realized based on the Company's future projections of taxable income.
8. Accounts Receivable
The Company maintains an allowance for doubtful accounts receivable based upon the expected collectability
of accounts receivable. The allowance for uncollectible accounts at February 29, 2020 and March 2, 2019 was $12,849
and $13,106 respectively. The Company’s accounts receivable are due primarily from third-party payors (e.g., PBM
companies, insurance companies or governmental agencies) and are recorded net of any allowances provided for under
the respective plans. Since payments due from third-party payors are sensitive to payment criteria changes and legislative
actions, the allowance is reviewed continually and adjusted for accounts deemed uncollectible by management.
9. Medicare Part D
The Company offers Medicare Part D benefits through EIC, which has contracted with CMS to be a PDP and,
pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, must be a risk-bearing entity
regulated under state insurance laws or similar statutes.
EIC is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these laws
and regulations, EIC must file quarterly and annual reports with the National Association of Insurance Commissioners
(“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under formulas
established by certain states and must, in certain circumstances, request and receive the approval of certain state
regulators before making dividend payments or other capital distributions to the Company. The Company does not
believe these limitations on dividends and distributions materially impact its financial position. EIC is subject to
minimum capital and surplus requirements in certain states. The minimum amount of capital and surplus required to
satisfy regulatory requirements in these states is $20,195 as of December 31, 2019. EIC was in excess of the minimum
required amounts in these states as of February 29, 2020.
The Company has recorded estimates of various assets and liabilities arising from its participation in the
Medicare Part D program based on information in its claims management and enrollment systems. Significant estimates
arising from its participation in this program include: (i) estimates of low-income cost subsidies, reinsurance amounts,
and coverage gap discount amounts ultimately payable to CMS based on a detailed claims reconciliation that will occur
in the following year; (ii) an estimate of amounts receivable from CMS under a risk-sharing feature of the Medicare
Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the
process of being paid or contested and for our estimate of claims that have been incurred but have not yet been reported.
On February 19, 2020, the Company entered into a receivable purchase agreement (the “Receivable Purchase
Agreement”) with Bank of America, N.A. (the “Purchaser”).
107
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Pursuant to the terms and conditions set forth in the Receivable Purchase Agreement, the Company sold
$501,422 of its calendar 2019 CMS receivable for $484,547, of which $449,949 was received on February 19, 2020. The
remaining $34,598, which is included in accounts receivable, net as of February 29, 2020, is payable to the Company,
subject to final CMS claim reconciliation adjustments, upon receipt of the final remittance from CMS. In connection
therewith, the Company recognized a loss of $16,875, which is included as a component of loss on sale of assets, net.
On February 19, 2020, concurrent with the Receivable Purchase Agreement, the Company entered into an
indemnity agreement (the “Indemnity Agreement”), whereby the Company has agreed to indemnify, reimburse and hold
Purchaser harmless from certain liabilities and expenses actually suffered or incurred by the Purchaser resulting from the
occurrence of certain events as specified in the Indemnity Agreement. Based on its evaluation of the Indemnity
Agreement, the Company has determined that it is highly unlikely that the events covered under the Indemnity
Agreement would occur, and consequently, the Company has not recorded any indemnification liability associated with
the Indemnity Agreement.
As of February 29, 2020, accrued salaries, wages and other current liabilities included $14,083 of amounts due
to CMS resulting from the receipt of the Company’s monthly capitation payment. As of March 2, 2019, accounts
receivable, net included $392,400 due from CMS.
10. Manufacturer Rebates Receivables
The Pharmacy Services Segment has manufacturer rebates receivables of $530,451 and $445,200 included in
Accounts receivable, net, as of February 29, 2020 and March 2, 2019, respectively.
11. Inventory
At February 29, 2020 and March 2, 2019, inventories were $539,640 and $604,444, respectively, lower than the
amounts that would have been reported using the first-in, first-out (“FIFO”) cost flow assumption. The Company
calculates its FIFO inventory valuation using the retail method for store inventories and the cost method for distribution
facility inventories. The Company recorded a LIFO credit for fiscal year 2020 of $64,804, compared to a LIFO charge of
$23,354 for fiscal year 2019 and a LIFO credit of $28,827 for fiscal year 2018. During fiscal 2020, 2019 and 2018, a
reduction in non-pharmacy inventories resulted in the liquidation of applicable LIFO inventory quantities carried at
lower costs in prior years. This LIFO liquidation resulted in a $14,449, $5,884 and $2,707 cost of revenues decrease,
with a corresponding reduction to the adjustment to LIFO for fiscal 2020, fiscal 2019 and fiscal 2018, respectively.
108
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
12. Property, Plant and Equipment
Following is a summary of property, plant and equipment, including capital lease assets, at February 29, 2020
and March 2, 2019:
Land
Buildings
Leasehold improvements
Equipment
Software
Construction in progress
Accumulated depreciation
Property, plant and equipment, net
$
2020
131,814 $
513,264
1,533,729
1,774,424
60,035
44,063
4,057,329
(2,841,491)
2019
139,406
533,580
1,527,371
1,765,575
38,680
49,344
4,053,956
(2,745,442)
$ 1,215,838 $ 1,308,514
Depreciation expense, which included the depreciation of assets recorded under capital leases, was $224,336,
$232,242 and $238,318 in fiscal 2020, 2019 and 2018, respectively.
Included in property, plant and equipment was the carrying amount, which approximates fair value, of assets to
be disposed of totaling $1,187 and $452 at February 29, 2020 and March 2, 2019, respectively.
13. Goodwill and Other Intangibles
Goodwill and indefinitely-lived assets, such as certain trademarks acquired in connection with acquisition
transactions, are not amortized, but are instead evaluated for impairment on an annual basis at the end of the fiscal year,
or more frequently if events or circumstances indicate it may be more likely than not that the fair value of a reporting
unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, including goodwill, the Company performs a quantitative goodwill
impairment test. The fair value estimates used in the quantitative impairment test are calculated using an average of the
income and market approaches. The income approach is based on the present value of future cash flows of each reporting
unit, while the market approach is based on certain multiples of selected guideline public companies or selected
guideline transactions. The approaches, which qualify as Level 3 within the fair value hierarchy, incorporate a number of
market participant assumptions including future growth rates, discount rates, income tax rates and market activity in
assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit’s fair value, the
Company recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value. In addition, the Company considers the income tax effect of any tax deductible goodwill when measuring a
goodwill impairment loss.
In the fiscal fourth quarter of fiscal 2020, the Company completed a quantitative goodwill impairment
assessment and determined after evaluating the results, events and circumstances, that sufficient evidence existed to
assert that it is more likely than not that the fair values of the reporting units exceeded their carrying values. Therefore,
no goodwill impairment charge was assessed for the fiscal year ended February 29, 2020.
In the fiscal second quarter of fiscal 2019, the Company completed a qualitative goodwill impairment
assessment, at which time it was determined after evaluating results, events and circumstances that a quantitative
109
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
assessment was necessary for the Pharmacy Services segment. The quantitative assessment concluded that the carrying
amount of the Pharmacy Services segment exceeded its fair value principally due to a decrease in Adjusted EBITDA that
was driven by commercial business compression and an increase in SG&A expenses. This resulted in goodwill
impairment charges of $312,985 ($235,698 net of the related income tax benefit) for the fiscal year ended March 2,
2019. As of February 29, 2020 and March 2, 2019, the accumulated impairment losses for the Pharmacy Services
segment was $574,712.
Below is a summary of the changes in the carrying amount of goodwill by segment for the fiscal years ended
February 29, 2020 and March 2, 2019:
Balance, March 3, 2018
Goodwill impairment
Balance, March 2, 2019
Goodwill impairment
Balance, February 29, 2020
Total
Pharmacy
Retail
Pharmacy
Services
$ 43,492 $ 1,377,628 $ 1,421,120
(312,984)
(312,984)
1,064,644
1,108,136
—
—
$ 43,492 $ 1,064,644 $ 1,108,136
—
43,492
—
The Company’s intangible assets are primarily finite-lived and amortized over their useful lives. Following is a
summary of the Company’s finite-lived and indefinite-lived intangible assets as of February 29, 2020 and March 2,
2019.
2020
2019
Gross
Remaining
Weighted
Average
Gross
Carrying Accumulated
Amortization Carrying Accumulated
Remaining
Weighted
Average
Amortization
Amount
Amortizatio
n
Net
Period
Amount
Amortizatio
n
Net
Period
Favorable leases, non-compete agreements and
other(a)(b)
Prescription files
Customer relationships(a)
CMS license
Claims adjudication and other developed
software
Trademarks
Backlog
Total finite
Trademarks
Total
$ 186,183 $
950,887
388,000
57,500
(163,575) $ 22,608
(867,430)
83,457
156,985
(231,015)
46,728
(10,772)
3 years $
3 years
12 years
21 years
370,855 $
919,749
388,000
57,500
(318,503) $ 52,352
92,527
(827,222)
194,648
(193,352)
49,028
(8,472)
58,985
20,100
11,500
(39,459)
(9,413)
(11,500)
$ 1,673,155 $ (1,333,164)
—
19,526
10,687
—
339,991
19,500
$ 1,692,655 $ (1,333,164) $ 359,491
19,500
3 years
6 years
0 years
58,985
20,100
11,500
(31,030)
(7,404)
(11,500)
27,955
12,696
—
$ 1,826,689 $ (1,397,483) $ 429,206
19,500
$ 1,846,189 $ (1,397,483) $ 448,706
19,500
—
Indefinite
7 years
3 years
13 years
22 years
4 years
7 years
0 years
Indefinite
(a) Amortized on an accelerated basis which is determined based on the remaining useful economic lives of the
customer relationships that are expected to contribute directly or indirectly to future cash flows.
(b) Favorable leases were reclassified into operating lease right-of-use assets upon the adoption of ASU 2016-02,
Leases (Topic 842).
During fiscal 2019, the Company has recorded an impairment charge to reduce the book value of customer
relationships by $48,205 (gross carrying amount of $77,000 less accumulated amortization of $28,795), and indefinite
110
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
lived trademarks by $14,000, both of which charges are included within goodwill and intangible asset impairment
charges within the consolidated statement of operations.
In connection with the Company’s RxEvolution initiatives as previously announced on March 16, 2020, it is in
process of rebranding its EnvisionRxOptions and MedTrak subsidiaries to its new brand name, Elixir. As of February 29,
2020, Other Intangibles, net included $30,187 relating to the historical brand names, composed of $10,687 of finite lived
and $19,500 of indefinite lived Trademarks. Upon the implementation of the rebranding initiatives during fiscal 2021,
the Company will subject these assets to the appropriate impairment test.
Also included in other non-current liabilities as of February 29, 2020 and March 2, 2019 are unfavorable lease
intangibles with a net carrying amount of $0 and $14,763, respectively. In connection with the Adoption of ASU 2016-
02, Leases (Topic 842), both favorable and unfavorable leases were reclassified into operating lease right-of-use assets.
Amortization expense for these intangible assets and liabilities was $103,941, $125,640 and $147,739 for fiscal
2020, 2019 and 2018, respectively. The anticipated annual amortization expense for these intangible assets and liabilities
is 2021—$84,107; 2022—$63,396; 2023—$48,262; 2024—$34,623 and 2025—$23,319.
14. Accrued Salaries, Wages and Other Current Liabilities
Accrued salaries, wages and other current liabilities consisted of the following at February 29, 2020 and March
2, 2019:
Accrued wages, benefits and other personnel costs
Accrued interest
Accrued sales and other taxes payable
Accrued store expense
Other
2020
2019
$ 254,773 $ 302,025
13,991
80,708
143,053
268,662
$ 746,318 $ 808,439
12,073
76,816
97,801
304,855
111
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
15. Indebtedness and Credit Agreement
Following is a summary of indebtedness and lease financing obligations at February 29, 2020 and March 2,
2019:
Secured Debt:
Senior secured revolving credit facility due December 2023
($650,000 and $875,000 face value less unamortized debt
issuance costs of $19,167 and $24,069)
FILO term loan due December 2023 ($450,000 face value less
unamortized debt issuance costs of $3,046 and $3,918)
2020
2019
$ 630,833 $
850,931
446,954
1,077,787
446,082
1,297,013
Second Lien Secured Debt:
7.5% senior notes due July 2025 ($600,000 and $0 face value less
unamortized debt issuance costs of $10,927 and $0)
Guaranteed Unsecured Debt:
6.125% senior notes due April 2023 ($1,153,490 and $1,753,490
face value less unamortized debt issuance costs of $8,430 and
$16,982)
Unguaranteed Unsecured Debt:
7.7% notes due February 2027 ($237,386 and $295,000 face
value less unamortized debt issuance costs of $908 and $1,295)
6.875% fixed-rate senior notes due December 2028 ($29,001 and
$128,000 face value less unamortized debt issuance costs of $131
and $642)
Lease financing obligations
Total debt
Current maturities of long-term debt and lease financing
obligations
Long-term debt and lease financing obligations, less current
maturities
Credit Facility
589,073
589,073
—
—
1,145,060
1,145,060
1,736,508
1,736,508
236,478
293,705
28,870
265,348
28,166
3,105,434
127,358
421,063
40,176
3,494,760
(8,840)
(16,111)
$ 3,096,594 $ 3,478,649
On December 20, 2018, the Company entered into a senior secured credit agreement (as amended by the First
Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”), consisting of a $2,700,000
senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility”) and a $450,000 “first-
in, last out” senior secured term loan facility (“Senior Secured Term Loan,” and together with the Senior Secured
Revolving Credit Facility, collectively, the “Existing Facilities”). The Company used proceeds from the Existing
Facilities to refinance its prior $2,700,000 existing credit agreement (the “Old Facility”). The Existing Facilities extend
the Company’s debt maturity profile and provide additional liquidity. Borrowings under the Senior Secured Revolving
Credit Facility bear interest at a rate per annum between LIBOR plus 1.25% and LIBOR plus 1.75% based upon the
112
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Average ABL Availability (as defined in the Credit Agreement). Borrowings under the Senior Secured Term Loan bear
interest at a rate per annum of LIBOR plus 3.00%. The Company is required to pay fees between 0.250% and 0.375%
per annum on the daily unused amount of the commitments under the Senior Secured Revolving Credit Facility,
depending on Average ABL Availability. The Existing Facilities mature on December 20, 2023, subject to an earlier
maturity on December 31, 2022 if the Company has not repaid or refinanced its existing 6.125% Notes due 2023 prior to
such date. It is the Company’s intention to repay or refinance its existing 6.125% Notes due 2023 prior to the early
maturity becoming effective.
The Company’s ability to borrow under the Senior Secured Revolving Credit Facility is based upon a specified
borrowing base consisting of accounts receivable, inventory and prescription files. At February 29, 2020, the Company
had $1,100,000 of borrowings outstanding under the Existing Facilities and had letters of credit outstanding against the
Senior Secured Revolving Credit Facility of $110,013 which resulted in additional borrowing capacity under the Senior
Secured Revolving Credit Facility of $1,939,987. If at any time the total credit exposure outstanding under our Existing
Facilities and the principal amount of our other senior obligations exceed the borrowing base, the Company will be
required to make certain other mandatory prepayments to eliminate such shortfall.
The Credit Agreement restricts the Company and all of its subsidiaries that guarantee its obligations under the
Existing Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary
Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding
(not including cash located in our store and lockbox deposit accounts and cash necessary to cover our current liabilities).
The Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any
senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a
representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Existing
Facilities or (ii) the sum of the Company’s borrowing capacity under our Senior Secured Revolving Credit Facility and
certain amounts held on deposit with the senior collateral agent in a concentration account is less than $275.0 million for
three consecutive business days or less than or equal to $200.0 million on any day (a “cash sweep period”), the funds in
the Company’s deposit accounts will be swept to a concentration account with the senior collateral agent and will be
applied first to repay outstanding revolving loans under the Existing Facilities, and then held as collateral for the senior
obligations until such cash sweep period is rescinded pursuant to the terms of our Existing Facilities.
The Company’s obligations under the Existing Facilities and the Subsidiary Guarantors’ obligations under the
related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents,
accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the
repayment of the Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including
substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all
of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries),
intellectual property (following the repayment of the Senior Secured Term Loan) and all other assets that do not
constitute ABL priority collateral, in each case, subject to customary exceptions and limitations.
The Credit Agreement allows the Company to have outstanding, at any time, up to an aggregate principal
amount of $1,500,000 in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock
in addition to borrowings under the Existing Facilities and other existing indebtedness, provided that not in excess of
$750,000 of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock shall
mature or require scheduled payments of principal prior to 90 days after the latest of (i) the fifth anniversary of the
effectiveness of the Existing Facilities and (ii) the latest maturity date of any Term Loan or Other Revolving
Commitment (each as defined in the Credit Agreement) (excluding bridge facilities allowing extensions on customary
113
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
terms to at least the date that is 90 days after such date). Subject to the limitations described in clauses (i) and (ii) of the
immediately preceding sentence, the Credit Agreement additionally allows the Company to issue or incur an unlimited
amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as
defined in the Credit Agreement) is not in effect; provided, however, that certain of the Company’s other outstanding
indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the
time of incurrence or other exemptions are not available. The Credit Agreement also contains certain restrictions on the
amount of secured first priority debt the Company is able to incur. The Credit Agreement also allows for the voluntary
repurchase of any debt or other convertible debt, so long as the Existing Facilities are not in default and the Company
maintains availability under its revolver of more than $365,000.
The Credit Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge
coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility is
less than $200,000 or (ii) on the third consecutive business day on which availability under the Senior Secured
Revolving Credit Facility is less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any,
which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $250,000.
As of February 29, 2020, the Company’s fixed charge coverage ratio was greater than 1.00 to 1.00 and the Company was
in compliance with the Credit Agreement’s financial covenant. The Credit Agreement also contains covenants which
place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers
and acquisitions and the granting of liens.
The Credit Agreement provides for customary events of default including nonpayment, misrepresentation,
breach of covenants and bankruptcy. It is also an event of default if the Company fails to make any required payment on
debt having a principal amount in excess of $50.0 million or any event occurs that enables, or which with the giving of
notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment,
repurchase, redemption or defeasance of such debt.
With the exception of EIC, substantially all of Rite Aid Corporation’s 100% owned subsidiaries guarantee the
obligations under the Existing Facilities, the secured guaranteed notes and unsecured guaranteed notes. The Company’s
obligations under the Existing Facilities and the Subsidiary Guarantors’ obligations under the related guarantees are
secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable,
inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Senior
Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their
deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary
Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property
(following the repayment of the Senior Secured Term Loan) and all other assets that do not constitute ABL priority
collateral, in each case, subject to customary exceptions and limitations. The subsidiary guarantees related to the
Company’s Existing Facilities, the secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes,
are full and unconditional and joint and several, and there are no restrictions on the ability of the Company to obtain
funds from its subsidiaries. The Company has no independent assets or operations. Other than EIC, the subsidiaries,
including joint ventures, that do not guarantee the Existing Facilities and applicable notes, are minor. As such, condensed
consolidating financial information for the Company, its guaranteeing subsidiaries and non-guaranteeing subsidiaries is
presented for those periods subsequent to the acquisition of EnvisionRx. See Note 24 “Guarantor and Non-Guarantor
Condensed Consolidating Financial Information” for additional disclosure.
114
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Fiscal 2019 and 2020 Transactions
During January 2018, the Company used proceeds from the Asset Sale to repay and retire all of its outstanding
second lien $470,000 tranche 1 term loan and $500,000 tranche 2 term loan principal (the “Second Lien Term Loan
Prepayment”). During February 2018, the Company reduced the borrowing capacity on its Old Facility from $3,700,000
to $3,000,000 (which was subsequently further reduced as described below). In connection with the transactions, the
Company recorded a loss on debt retirement of $8,180, which included interest and unamortized debt issuance costs. The
debt repayment and related loss on debt retirement is included in the results of operations and cash flows of discontinued
operations.
On February 27, 2018, the Company announced that it had commenced an offer to purchase up to $900,000 of
the outstanding 9.25% senior notes due 2020 (the “9.25% Notes”), the 6.75% senior notes due 2021 (the “6.75% Notes”)
and the 6.125% senior notes due 2023 (the “6.125% Notes”), pursuant to the asset sale provisions of the indentures of
such notes. On March 29, 2018, the Company accepted for payment, pursuant to its offer to purchase, $3,454 principal
amount of the 9.25% Notes, representing 0.38% of the outstanding principal amount of the 9.25% Notes, $3,471
principal amount of the 6.75% Notes, representing 0.43% of the outstanding principal amount of the 6.75% Notes, and
$41,751 principal amount of the 6.125% Notes, representing 2.32% of the outstanding principal amount of the 6.125%
Notes. In connection therewith, the Company recorded a loss on debt retirement of $49 which included unamortized debt
issuance costs, partially offset by unamortized discount. The debt repayment and related loss on debt retirement is
included in the results of operations and cash flows of discontinued operations. The debt repayment and related loss on
debt retirement of $498 for the 6.125% Notes is included in the results of operations and cash flows of continuing
operations.
On March 13, 2018, the Company issued a notice of redemption for all of the 9.25% Notes that were
outstanding on April 12, 2018, pursuant to the terms of the indenture of the 9.25% Notes. On April 12, 2018, the
Company redeemed 100% of the remaining outstanding 9.25% Notes. In connection therewith, the Company recorded a
loss on debt retirement of $3,422 which included unamortized debt issuance costs, partially offset by unamortized
discount. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows
of discontinued operations.
On April 19, 2018, the Company announced that it had commenced an offer to purchase up to $700,000 of its
outstanding 6.75% Notes and its 6.125% Notes pursuant to the asset sale provisions of such indentures. On May 21,
2018, the Company accepted for payment, pursuant to its offer to purchase, $1,360 aggregate principal amount of the
6.75% Notes and $4,759 aggregate principal amount of the 6.125% Notes. The debt repayment and related loss on debt
retirement of $8 for the 6.75% Notes is included in the results of operations and cash flows of discontinued operations.
The debt repayment and related loss on debt retirement of $56 for the 6.125% Notes is included in the results of
operations and cash flows of continuing operations.
On April 29, 2018, the Company further reduced the borrowing capacity on its Old Facility from $3,000,000 to
$2,700,000. In connection therewith, the Company recorded a loss on debt retirement of $1,091, which included
unamortized debt issuance costs. The loss on debt retirement is included in the results of operations and cash flows of
discontinued operations.
On June 25, 2018, the Company redeemed the remaining $805,169 of its 6.75% Notes, which resulted in a loss
on debt retirement of $18,075. The loss on debt retirement is included in the results of operations and cash flows of
discontinued operations.
115
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
On March 15, 2019, the Company entered into a Cap, which has been assigned to the variable interest rate
payments on the first $650,000 notional amount of variable rate indebtedness. The Cap has an effective date of March
21, 2019 and expires on March 21, 2021. The Cap provides the Company with interest rate protection in the event that
LIBOR increases above 2.75%.
On October 11, 2019, the Company completed a privately negotiated purchase from a noteholder and its
affiliated funds of $84,097 aggregate principal amount of the 7.70% Notes and 6.875% Notes for $51,300. In connection
therewith, the Company recorded a gain on debt retirement of $32,416, which included unamortized debt issuance costs.
The debt repayment and related gain on debt retirement is included in the results of operations and cash flows of
continuing operations.
On October 15, 2019, the Company commenced an offer to purchase up to $100,000 of its outstanding 7.70%
Notes and its 6.875% Notes. In November 2019, the Company accepted for payment $18,075 aggregate principal amount
of the 7.70% Notes and $39,441 aggregate principal amount of the 6.875% Notes for $38,392. In connection therewith,
the Company recorded a gain on debt retirement of $18,510, which included unamortized debt issuance costs. The debt
repayment and related gain on debt retirement is included in the results of operations and cash flows of continuing
operations.
During November 2019, the Company made additional purchases of $15,000 aggregate principal amount of the
7.70% Notes for $10,012. In connection therewith, the Company recorded a gain on debt retirement of $4,766, which
included unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the
results of operations and cash flows of continuing operations
On January 6, 2020, the Company commenced an offer to exchange up to $600,000 aggregate principal amount
of the outstanding 6.125% Senior Notes due 2023 for newly issued 7.500% Senior Secured Notes due 2025. On February
5, 2020, the Company announced that the exchange offer was oversubscribed and accepted for payment $600,000
aggregate principal amount of the 6.125% Senior Notes due 2023 in exchange for newly issued 7.500% Senior Secured
Notes due 2025. The Company accounted for the exchange as a debt modification and accordingly did not record a loss
on debt retirement.
The 7.500% Senior Secured Notes due 2025 mature on July 1, 2025, and are guaranteed on a senior secured
basis by the same Subsidiary Guarantors that guarantee the Existing Facilities and the 6.125% Senior Notes due 2023.
The 7.500% Senior Secured Notes due 2025 and the obligations under the related guarantees are secured by (i) a first-
priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in
subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and other collateral to the
extent it does not constitute ABL priority collateral (as defined below), and (ii) a second-priority lien on all of the
Subsidiary Guarantors’ cash and cash equivalents, accounts receivables, payment intangibles, inventory, prescription
files (including eligible script lists) and, intellectual property (prior to the repayment of the Senior Secured Term Loan
(collectively, the “ABL priority collateral”), which, in each cash, also secure the Existing Facilities.
On February 19, 2020, the Company’s wholly-owned subsidiary, Envision Insurance Company, entered into a
receivable purchase agreement with Bank of America, N.A. and Bank of America, N.A. purchased from Envision
Insurance Company its right, title and interest in the 2019 Medicare Part D final reconciliation payment in the amount of
$501,422 anticipated to be paid by the Centers for Medicare & Medicaid Services, an agency within CMS, to Envision
Insurance Company on October 30, 2020. On the closing date, the Company realized net cash proceeds of $449,949.
116
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Interest Rates and Maturities
The annual weighted average interest rate on the Company’s indebtedness was 5.7%, 5.6% and 7.1% for fiscal
2020, 2019 and 2018, respectively.
The aggregate annual principal payments of long-term debt for the five succeeding fiscal years are as follows:
2021—$0; 2022—$0; 2023—$0; 2024—$2,253,490 and $866,387 in 2025 and thereafter. These aggregate annual
principal payments of long-term debt assume that the Company has not repaid or refinanced its existing 6.125% Senior
Notes due 2023 prior to December 31, 2022.
16. Leases
The Company leases most of its retail stores and certain distribution facilities under noncancellable operating
and finance leases, most of which have initial lease terms ranging from 5 to 22 years. The Company also leases certain of
its equipment and other assets under noncancellable operating leases with initial terms ranging from 3 to 10 years. In
addition to minimum rental payments, certain store leases require additional payments based on sales volume, as well as
reimbursements for taxes, maintenance and insurance. Most leases contain renewal options, certain of which involve rent
increases.
The following table is a summary of the Company’s components of net lease cost for the year ended February
29, 2020:
Operating lease cost
Financing lease cost:
Amortization of right-of-use asset
Interest on long-term finance lease liabilities
Total finance lease costs
Short-term lease costs
Variable lease costs
Less: sublease income
Net lease cost
Year Ended February 29, 2020
653,803
$
$
$
5,722
3,276
8,998
1,160
168,849
(20,930)
811,880
Supplemental cash flow information related to leases for the year ended February 29, 2020:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases
Operating cash flows paid for interest portion of finance leases
Financing cash flows paid for principal portion of finance leases
Right-of-use assets obtained in exchange for lease obligations:
$
Operating leases
Finance leases
641,709
3,276
6,313
365,192
—
Year Ended February 29, 2020
117
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Supplemental balance sheet information related to leases as of February 29, 2020 (in thousands, except lease
term and discount rate):
Operating leases:
Operating lease right-of-use asset
Short-term operating lease liabilities
Long-term operating lease liabilities
Total operating lease liabilities
Finance leases:
Property, plant and equipment, net
Current maturities of long-term debt and lease financing obligations
Lease financing obligations, less current maturities
Total finance lease liabilities
Weighted average remaining lease term
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
February 29,
2020
$ 2,903,256
$
490,161
2,710,347
$ 3,200,508
$
19,904
$
$
8,840
19,326
28,166
7.8
8.9
6.1 %
10.2 %
As a result of the Sale to WBA and the related Amended and Restated Asset Purchase Agreement, the Company
has lease guarantee obligations related to 1,393 former stores. The Company is only obligated to pay for the lease
guarantees in the event that WBA fails to perform under the lease agreements, as WBA is the primary obligor.
118
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The following table summarizes the maturity of lease liabilities under finance and operating leases as of
February 29, 2020:
Fiscal year
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
February 29, 2020
Total
Operating
Finance
Leases (1)
Leases
$ 11,307 $ 662,644 $ 673,951
614,085
609,984
560,379
556,433
497,595
493,933
399,224
395,822
1,331,434
1,314,774
4,076,668
4,033,590
(847,994)
(833,082)
$ 28,166 $ 3,200,508 $ 3,228,674
4,101
3,946
3,662
3,402
16,660
43,078
(14,912)
(1) – Future operating lease payments have not been reduced by minimum sublease rentals of $48 million due in the
future under noncancelable leases.
Sale-Leaseback Transactions:
During the year ended February 29, 2020, the Company sold one owned operating store to an independent third
party. Net proceeds from the sale were $4,879. Concurrent with this sale, the Company entered into an agreement to
lease the store back from the purchaser over a minimum lease term of 10 years. The Company accounted for this lease as
an operating lease right-of-use asset and a corresponding operating lease liability in accordance with the Lease Standard.
The transaction resulted in a gain of $4,149 which is included in the gain on sale of assets, net for the fifty-two weeks
ended February 29, 2020. During the year ended March 2, 2019, the Company did not enter into any sale-leaseback
transactions. The Company has additional capacity under its outstanding debt agreements to enter into additional sale-
leaseback transactions.
Prior year disclosure before the adoption of ASU 2016-02:
Total rental expense, net of sublease income of $4,509 and $4,682, was $626,166 and $628,511 in fiscal 2019
and fiscal 2018, respectively. These amounts include contingent rentals of $7,084 and $8,339 in fiscal 2019 and 2018,
respectively.
119
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Following are the minimum lease payments for all properties under a lease agreement that will have to be made
in each of the years indicated based on non-cancelable leases in effect as of March 2, 2019:
Fiscal year
2020
2021
2022
2023
2024
Later years
Total minimum lease payments
Amount representing interest
Present value of minimum lease payments
17. Stock Option and Stock Award Plans
$
$
Lease
Financing
Obligations
Operating
Leases
19,300 $
687,412
4,811
610,874
4,588
545,863
4,383
490,864
4,042
431,714
1,541,408
20,470
57,594 $ 4,308,135
(17,418)
40,176
The Company recognizes share-based compensation expense in accordance with ASC 718, “Compensation—
Stock Compensation.” Expense is recognized over the requisite service period of the award, net of an estimate for the
impact of forfeitures. Operating results for fiscal 2020, 2019 and 2018 include $16,087, $12,115 and $25,793 of
compensation costs related to the Company’s stock-based compensation arrangements.
In June 2010, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2010
Omnibus Equity Plan. Under the plan, 1,750 shares of Rite Aid common stock are available for granting of restricted
stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of
Directors. The adoption of the 2010 Omnibus Equity Plan became effective on June 23, 2010.
In June 2012, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2012
Omnibus Equity Plan. Under the plan, 1,425 shares of Rite Aid common stock are available for granting of restricted
stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of
Directors. The adoption of the 2012 Omnibus Equity Plan became effective on June 21, 2012.
In June 2014, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2014
Omnibus Equity Plan. Under the plan, 2,900 shares of Rite Aid common stock plus any shares of common stock
remaining available for grant under the Rite Aid Corporation 2010 Omnibus Equity Plan and the Rite Aid Corporation
2012 Omnibus Equity Plan as of the effective date of the 2014 Plan (provided that no more than 1,250 shares may be
granted as incentive stock options) are available for granting of restricted stock, stock options, phantom stock, stock
bonus awards and other equity based awards at the discretion of the Board of Directors. The adoption of the 2014
Omnibus Equity Plan became effective on June 19, 2014.
All of the plans provide for the Board of Directors (or at its election, the Compensation Committee) to
determine both when and in what manner options may be exercised; however, it may not be more than 10 years from the
date of grant. All of the plans provide that stock options may be granted at prices that are not less than the fair market
value of a share of common stock on the date of grant. The aggregate number of remaining shares authorized for
issuance for all plans is 580 as of February 29, 2020.
120
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Stock Options
The Company determines the fair value of stock options issued on the date of grant using the
Black-Scholes-Merton option-pricing model. The following weighted average assumptions were used for options granted
in fiscal 2020, 2019 and 2018:
Expected stock price volatility(1)
Expected dividend yield(2)
Risk-free interest rate(3)
Expected option life(4)
2020
2019
2018
56 %N/A
0.0 %N/A
1.5 %N/A
58 %
0.0 %
1.9 %
5.5 years N/A 5.5 years
(1) The expected volatility is based on the historical volatility of the stock price over the most recent period equal to
expected life of the option.
(2) The dividend rate that will be paid out on the underlying shares during the expected term of the options. The
Company does not currently pay dividends on its common stock, as such, the dividend rate is assumed to be 0%.
(3) The risk free interest rate is equal to the rate available on United States Treasury zero-coupon issues as of the grant
date of the option with a remaining term equal to the expected term.
(4) The period of time for which the option is expected to be outstanding. The Company analyzed historical exercise
behavior to estimate the life.
121
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The weighted average fair value of options granted during fiscal 2020, 2019 and 2018 was $3.66, $0.00 and
$21.60, respectively. Following is a summary of stock option transactions for the fiscal years ended February 29, 2020,
March 2, 2019 and March 3, 2018:
Weighted Weighted
Average
Remaining Aggregate
Intrinsic
Contractual
Value
Term
Outstanding at March 4, 2017
Granted
Exercised
Cancelled
Outstanding at March 3, 2018
Granted
Exercised
Cancelled
Outstanding at March 2, 2019
Granted
Exercised
Cancelled
Outstanding at February 29, 2020
Vested or expected to vest at February 29, 2020
Exercisable at February 29, 2020
Average
Exercise
Price
Per Share
54.93
41.00
24.05
126.61
51.42
N/A
23.07
71.07
50.15
7.21
N/A
48.56
30.29
30.29
50.97
Shares
1,694 $
50
(241)
(160)
1,343 $
—
(99)
(208)
1,036 $
612
—
(353)
1,295 $
1,295 $
683 $
5.61 $ 3,920
5.61 $ 3,920
0
2.14 $
As of February 29, 2020, there was $1,916 of total unrecognized pre-tax compensation costs related to unvested
stock options, net of forfeitures. These costs are expected to be recognized over a weighted average period of 3.24 years.
Cash received from stock option exercises for fiscal 2020, 2019 and 2018 was $0, $2,294 and $5,796,
respectively. The income tax benefit from stock options for fiscal 2020, 2019 and 2018 was $ 0, $7 and $10,
respectively. The total intrinsic value of stock options exercised for fiscal 2020, 2019 and 2018 was $0, $726 and $3,032,
respectively.
Typically, stock options granted vest, and are subsequently exercisable in equal annual installments over a four-
year period for employees.
Restricted Stock
The Company provides restricted stock grants to associates under plans approved by the stockholders. Shares
awarded under the plans typically vest in equal annual installments over a three-year period. Unvested shares are
122
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
forfeited upon termination of employment. Following is a summary of restricted stock transactions for the fiscal years
ended February 29, 2020, March 2, 2019 and March 3, 2018:
Balance at March 4, 2017
Granted
Vested
Cancelled
Balance at March 3, 2018
Granted
Vested
Cancelled
Balance at March 2, 2019
Granted
Vested
Cancelled
Balance at February 29, 2020
Weighted
Average
Shares
Grant Date
Fair Value
291 $ 157.35
56.44
693
160.61
(194)
73.95
(179)
66.34
611 $
16.05
700
76.99
(215)
72.87
(88)
28.60
1,008 $
8.40
1,402
28.59
(695)
16.76
(462)
10.32
1,253 $
At February 29, 2020, there was $10,396 of total unrecognized pre-tax compensation costs related to unvested
restricted stock grants, net of forfeitures. These costs are expected to be recognized over a weighted average period of
1.91 years.
The total fair value of restricted stock vested during fiscal years 2020, 2019 and 2018 was $19,846, $16,519 and
$31,125, respectively.
Performance Based Incentive Plan
Beginning in fiscal 2015, the Company provided certain of its associates with performance based incentive
plans under which the associates will receive a certain number of shares of the Company’s common stock or cash based
on the Company meeting certain financial and performance goals. If such goals are not met, no stock-based
compensation expense is recognized and any recognized stock-based compensation expense is reversed. The Company
incurred $(461), $(1,084) and $4,122 related to these performance based incentive plans for fiscal 2020, 2019 and 2018,
respectively, which is recorded as a component of stock-based compensation expense.
18. Retirement Plans
Defined Contribution Plans
The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k) defined
contribution plans covering nonunion associates and certain union associates. The Company does not contribute to all of
the plans. In accordance with those plan provisions, the Company matches 100% of a participant’s pretax payroll
contributions, up to a maximum of 3% of such participant’s pretax annual compensation. Thereafter, the Company will
match 50% of the participant’s additional pretax payroll contributions, up to a maximum of 2% of such participant’s
123
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
additional pretax annual compensation. Total expense recognized for the above plans was $42,746 in fiscal 2020,
$44,564 in fiscal 2019 and $67,949 in fiscal 2018.
The Company sponsored a Supplemental Executive Retirement Plan (“SERP”) for its officers, based on an
account-based plan design, that was subject to a five year graduated vesting schedule. On February 25, 2019, the SERP
was terminated and additional allocations were discontinued and all prior benefits under the program became fully
vested. During fiscal 2020, participant benefits under this program were paid in full. The expense recognized for the
SERP was $3,871 in fiscal 2020, $4,913 in fiscal 2019 and $12,426 in fiscal 2018.
Defined Benefit Plans
The Company and its subsidiaries also sponsor a qualified defined benefit pension plan that requires benefits to
be paid to eligible associates based upon years of service and, in some cases, eligible compensation. The Company’s
funding policy for The Rite Aid Pension Plan (the “Defined Benefit Pension Plan”) is to contribute the minimum amount
required by the Employee Retirement Income Security Act of 1974. However, the Company may, at its sole discretion,
contribute additional funds to the plan. The Company made contributions of $0 in fiscal 2020, $2,715 in fiscal 2019 and
$9,023 in fiscal 2018.
Net periodic pension expense and other changes recognized in other comprehensive income for the defined
benefit pension plans included the following components:
Defined Benefit Pension Plan
2019
2018
2020
$
462 $
597 $ 1,212
6,340
6,159
(4,525)
(5,673)
3,393
1,769
$ 3,550 $ 2,852 $ 6,420
6,186
(4,793)
1,695
$ 19,046 $ (3,486) $ (8,704)
(3,393)
(1,769)
(12,097)
(5,255)
(1,695)
17,351
$ 20,901 $ (2,403) $ (5,677)
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized net loss
Net periodic pension expense
Other changes recognized in other comprehensive loss:
Unrecognized net (gain) loss arising during period
Amortization of unrecognized net (loss) gain
Net amount recognized in other comprehensive loss
Net amount recognized in pension expense and other
comprehensive loss
124
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The table below sets forth reconciliation from the beginning of the year for both the benefit obligation and plan
assets of the Company’s defined benefit plans, as well as the funded status and amounts recognized in the Company’s
balance sheet as of February 29, 2020 and March 2, 2019:
Change in benefit obligations:
Benefit obligation at end of prior year
Service cost
Interest cost
Distributions
Actuarial loss (gain)
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Actual return on plan assets
Distributions (including expenses paid by the plan)
Fair value of plan assets at end of year
Funded status
Net amount recognized
Amounts recognized in consolidated balance sheets consisted of:
Accrued pension liability
Net amount recognized
Amounts recognized in accumulated other comprehensive loss consist
of:
Net actuarial loss
Amount recognized
Defined Benefit
Pension Plan
2020
2019
$ 150,705 $ 161,851
597
6,159
(8,816)
(9,086)
$ 178,904 $ 150,705
462
6,186
(7,525)
29,076
—
14,823
(7,525)
$ 124,832 $ 130,860
2,715
72
(8,815)
$ 132,130 $ 124,832
$ (46,774) $ (25,873)
$ (46,774) $ (25,873)
(46,774)
(25,873)
$ (46,774) $ (25,873)
$ (44,760) $ (27,409)
$ (44,760) $ (27,409)
The estimated net actuarial loss and prior service cost amounts that will be amortized from accumulated other
comprehensive loss into net periodic pension expense in fiscal 2021 are $3,646 and $0, respectively.
The accumulated benefit obligation for the defined benefit pension plan was $178,904 and $150,705 as of
February 29, 2020 and March 2, 2019, respectively.
The significant actuarial assumptions used for all defined benefit plans to determine the benefit obligation as of
February 29, 2020, March 2, 2019 and March 3, 2018 were as follows:
Discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on plan assets
125
Defined Benefit
Pension Plan
2019
2018
2020
2.75 % 4.25 % 4.00 %
N/A
N/A
6.00 % 6.25 % 6.25 %
N/A
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Weighted average assumptions used to determine net cost for the fiscal years ended February 29, 2020, March
2, 2019 and March 3, 2018 were:
Discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on plan assets
2020
Defined Benefit
Pension Plan
2019
4.25 % 4.00 % 4.00 %
N/A
N/A
6.25 % 6.25 % 6.50 %
N/A
2018
To develop the expected long-term rate of return on assets assumption, the Company considered the historical
returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension
portfolio. This resulted in the selection of the 6.25% long-term rate of return on plan assets assumption for fiscal 2020,
2019 and 2018.
The Company’s pension plan asset allocations at February 29, 2020 and March 2, 2019 by asset category were
as follows:
Equity securities
Fixed income securities
Total
February 29, March 2,
2020
2019
47 %
53 %
100 %
52 %
48 %
100 %
The investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan with assets, are to:
• Achieve a rate of return on investments that exceeds inflation over a full market cycle and is consistent
with actuarial assumptions;
• Balance the correlation between assets and liabilities by diversifying the portfolio among various asset
classes to address return risk and interest rate risk;
• Balance the allocation of assets between the investment managers to minimize concentration risk;
• Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and
• Control administrative and management costs.
The asset allocation established for the pension investment program reflects the risk tolerance of the Company,
as determined by:
•
•
•
the current and anticipated financial strength of the Company;
the funded status of the plan; and
plan liabilities.
126
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Investments in both the equity and fixed income markets will be maintained, recognizing that historical results
indicate that equities (primarily common stocks) have higher expected returns than fixed income investments. It is also
recognized that the correlation between assets and liabilities must be balanced to address higher volatility of equity
investments (return risk) and interest rate risk.
The following targets are to be applied to the allocation of plan assets.
Category
Equity securities
Fixed income securities
Total
Target
Allocation
52 %
48 %
100 %
On March 27, 2020, in an effort to mitigate the economic impact of COVID-19, the President of the United
States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) into law. While the Company expects
to contribute $6,330 to the Defined Benefit Pension Plan during fiscal 2021, it is still evaluating the impact of the
CARES act on its fiscal 2021 contributions.
Short Term Investments
Short term investments, which is a short term investment fund, and is considered cash and cash equivalents, is
classified within Level 2 of the valuation hierarchy due to the lack of an active market for trading.
Common and Collective Trusts
Common collective trust funds are stated at fair value as determined by the issuer of the common collective
trust funds based on the net asset value (“NAV”) of the underlying investments in accordance with ASC 820. There are
generally no restrictions on redemptions from these funds and no unfunded commitments to invest. In accordance with
ASC subtopic 820-10, certain investments that were measured at NAV per share (or its equivalent) have not been
classified in the fair value hierarchy. The underlying investments mainly consist of equity and fixed income securities
funds that are valued based on the daily closing price as reported by the fund.
The proceeding methods described may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are
appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different fair value measurement at February 29, 2020.
127
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The following table sets forth by level within the fair value hierarchy a summary of the plan’s investments
measured at fair value on a recurring basis as of February 29, 2020 and March 2, 2019:
Fair Value Measurements at February 29, 2020
Equity Securities
International equity
Large Cap
Small-Mid Cap
Fixed Income
Long Term Credit Bond Index
Long Term US Government Bonds
20+ Year Treasury STRIPS
Intermediate Fixed Income
AGT High Yield Bond
Other types of investments
Short Term Investments
Total
Equity Securities
International equity
Large Cap
Small-Mid Cap
Fixed Income
Long Term Credit Bond Index
Long Term US Government Bonds
20+ Year Treasury STRIPS
Intermediate Fixed Income
Other types of investments
Short Term Investments
Total
Quoted Prices in
Active Markets
for Identical
Significant
Observable
Assets (Level 1) Inputs (Level 2) Inputs (Level 3)
Significant
Unobservable
Total
$
— $
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
— $ 15,251
33,174
—
14,223
—
—
—
—
—
—
25,129
18,897
1,447
14,606
7,673
$
—
— $
1,729
1,729 $
—
1,729
— $ 132,129
Fair Value Measurements at March 2, 2019
Quoted Prices in
Active Markets
for Identical
Significant
Observable
Assets (Level 1) Inputs (Level 2) Inputs (Level 3)
Unobservable
Significant
Total
$
— $
—
—
—
—
—
—
— $
—
—
—
—
—
—
— $ 15,396
34,058
—
14,534
—
—
—
—
—
44,103
8,383
847
5,920
$
—
— $
—
— $
—
1,591
— $ 124,832
128
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Following are the future benefit payments expected to be paid for the Defined Benefit Pension Plan during the
years indicated:
Defined Benefit
Fiscal Year
2021
2022
2023
2024
2025
2026 - 2030
Total
Pension Plan
$
8,992
9,025
8,963
9,212
9,157
45,471
90,820
$
19. Multiemployer Plans that Provide Pension Benefits
The Company contributes to a number of multiemployer defined benefit pension plans under the terms of
collective-bargaining agreements that cover certain of its union-represented employees. The risks of participating in
these multiemployer plans are different from single-employer plans. Assets contributed to the multiemployer plan by one
employer may be used to provide benefits to employees of other participating employers. If a participating employer
stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating
employers. Additionally, if the Company chooses to stop participating in some of its multiemployer plans, the Company
may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal
liability.
The Company’s participation in these plans for the annual period ended February 29, 2020 is outlined in the
table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (EIN) and the three-
digit plan number, if applicable. The most recent Pension Protection Act zone status available for fiscal 2020 and fiscal
2019 is for the plan year-ends as indicated below. The zone status is based on information that the Company received
from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than
65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The
“FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a
rehabilitation plan (“RP”) is either pending or has been implemented. In addition to regular plan contributions, the
Company may be subject to a surcharge if the plan is in the red zone. The “Surcharge Imposed” column indicates
whether a surcharge has been imposed on contributions to the plan. The last two columns list the expiration date(s) of the
collective-bargaining agreement(s) to which the plans are subject and any minimum funding requirements. There have
129
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
been no significant changes that affect the comparability of total employer contributions of fiscal years 2020, 2019 and
2018.
Pension
1199 SEIU Health Care Employees
Pension Fund
Pension Protection
Act Zone Status
2019
2020
EIN/Pension
Plan Number
13-3604862-001 Green—
12/31/2018
Green—
12/31/2017
No
FIP/ RP
Status
Pending/
Expiration
Date of
Collective-
Contributions of the Company Surcharge Bargaining
Imposed Agreement
2019
$ 9,026 $ 9,670 $ 7,372
2018
No
4/18/2022
Implemented 2020
Minimum
Funding
Requirements
Contribution rate of 12.6% of gross
wages per associate beginning
09/30/2018. Contribution rate of
10.76% of gross wages earned per
associate beginning 01/01/2016.
Southern California United Food
and Commercial Workers Unions
and Drug Employers Pension Fund
51-6029925-001
Red—
12/31/2019
Red—
12/31/2018
Implemented
8,495
8,273
8,149
No
7/17/2021
UFCW Pharmacists, Clerks and
Drug Employers Pension Trust
94-2518312-001 Green—
12/31/2019
Green—
12/31/2018
No
2,421
2,666
2,739
No
7/13/2019
United Food and Commercial
Workers Union-Employer Pension
Fund
34-6665155-001
Red—
9/30/2019
Red—
9/30/2018
Implemented
738
772
786
No
2/28/2021
United Food and Commercial
Workers Union Local 880—
Mercantile Employers Joint
Pension Fund
Other Funds
51-6031766-001 Yellow—
9/30/2019
Yellow—
9/30/2018
Implemented
437
470
495
No
2/28/2021
1,554
1,438
$ 22,671 $ 23,499 $ 20,979
1,648
From 01/01/2020 through
12/31/2020 contributions of $1.758
per hour worked for pharmacists
and $0.797 per hour worked for
non-pharmacists. From 01/01/2019
through 12/31/2019 contributions
of $1.672 per hour for worked for
pharmacists and $0.758 per hour
worked for non pharmacists. From
01/01/2018 to 12/31/2018
contributions of $1.586 per hour
worked.
Effective 09/01/2014, contribution
rate frozen at $0.55 per hour
worked for associates.
Effective 02/03/2019 contribution
rate of $2.16 per hour worked.
Effective 02/04/2018 contribution
rate of $2.03 per hour worked.
Effective 02/05/2017 contribution
rate of $1.89 per hour worked.
Effective 10/01/2019 contribution
rate of $2.06 per hour worked.
Effective 10/01/2018 contribution
rate of $1.97 per hour worked.
Effective 01/01/2017 contribution
rate $1.88 per hour worked.
The Company was listed in these plans Forms 5500 as providing more than 5% of the total contributions for the
following plans and plan years:
Pension Fund
UFCW Pharmacists, Clerks and Drug Employers Pension Trust
Southern California United Food and Commercial Workers Unions and Drug
Employers Pension Fund
United Food & Commercial Workers Union - Employer Pension Fund
United Food & Commercial Workers Union Local 880—Mercantile Employers Joint
Pension Fund
Year Contributions to Plan
Exceeded More Than 5 % of
Total Contributions (as of
the Plan’s Year-End)
12/31/2018 and 12/31/2017
12/31/2018 and 12/31/2017
9/30/2018 and 9/30/2017
9/30/2018 and 9/30/2017
130
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
At the date the Company’s financial statements were issued, certain Forms 5500 were not available.
During fiscal 2020, 2019 and 2018, the Company did not withdraw from any plans or incur any additional
withdrawal liabilities.
20. Segment Reporting
The Company has two reportable segments, its retail drug stores (“Retail Pharmacy”), and its pharmacy services
(“Pharmacy Services”) segments.
The Retail Pharmacy segment’s primary business is the sale of prescription drugs and related consultation to its
customers. Additionally, the Retail Pharmacy segment sells a full selection of health and beauty aids and personal care
products, seasonal merchandise and a large private brand product line. The Pharmacy Services segment offers a full
range of PBM services including plan design and administration, on both a transparent pass-through model and
traditional model, formulary management and claims processing. Additionally, the Pharmacy Services segment offers
specialty and mail order services, infertility treatment, and drug benefits to eligible beneficiaries under the federal
government’s Medicare Part D program.
The Company’s chief operating decision makers are its Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and the President—Pharmacy Services (collectively the “CODM”). The CODM has ultimate
responsibility for enterprise decisions. The CODM determines, in particular, resource allocation for, and monitors
performance of, the consolidated enterprise, the Retail Pharmacy segment and the Pharmacy Services segment. The
Retail Pharmacy and Pharmacy Services segment managers have responsibility for operating decisions, allocating
resources and assessing performance within their respective segments. The CODM relies on internal management
reporting that analyzes enterprise results on certain key performance indicators, namely, revenues, gross profit and
Adjusted EBITDA.
The following is balance sheet information for the Company’s reportable segments:
February 29, 2020:
Total Assets
Goodwill
March 2, 2019:
Total Assets
Goodwill
Retail
Pharmacy
Pharmacy
Services
Eliminations(1) Consolidated
$ 6,757,196 $ 2,709,737 $
43,492
1,064,644
(14,564) $ 9,452,369
1,108,136
—
$ 5,071,055 $ 2,534,771 $
43,492
1,064,644
(14,459) $ 7,591,367
1,108,136
—
(1) As of February 29, 2020 and March 2, 2019, intersegment eliminations include netting of the Pharmacy Services
segment long-term deferred tax liability of $0 against the Retail Pharmacy segment long-term deferred tax asset for
consolidation purposes in accordance with ASC 740, and intersegment accounts receivable of $14,564 and $14,459,
respectively, that represents amounts owed from the Pharmacy Services segment to the Retail Pharmacy segment
that are created when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase
covered products.
131
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The following table is a reconciliation of the Company’s business segments to the consolidated financial
statements for the fiscal years ended February 29, 2020, March 2, 2019 and March 3, 2018:
Retail
Pharmacy
Pharmacy
Services
Intersegment
Eliminations(1) Consolidated
February 29, 2020:
Revenues
Gross Profit
Adjusted EBITDA(2)
Additions to property and equipment and intangible
assets
March 2, 2019:
Revenues
Gross Profit
Adjusted EBITDA(2)
Additions to property and equipment and intangible
assets
March 3, 2018:
Revenues
Gross Profit
Adjusted EBITDA(2)
Additions to property and equipment and intangible
assets
$ 15,616,186 $ 6,559,560 $ (247,353) $ 21,928,393
4,726,758
538,211
4,274,836
370,435
451,922
167,776
—
—
192,489
21,897
—
214,386
$ 15,757,152 $ 6,093,688 $ (211,283) $ 21,639,557
4,676,352
563,444
4,258,716
405,206
417,636
158,238
—
—
228,079
16,610
—
244,689
$ 15,832,625 $ 5,896,669 $ (200,326) $ 21,528,968
4,780,105
559,854
4,372,373
388,320
407,732
171,534
—
—
199,437
15,327
—
214,764
(1) Intersegment eliminations include intersegment revenues and corresponding cost of revenues that occur when
Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this
occurs, both the Retail Pharmacy and Pharmacy Services segments record the revenue on a stand-alone basis.
(2) See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Continuing
Operations—Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per Diluted Share and
Other Non-GAAP Measures” for additional details.
132
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
The following is a reconciliation of net (loss) income to Adjusted EBITDA for fiscal 2020, 2019 and 2018:
February 29, March 2,
March 3,
Net loss from continuing operations
Interest expense
Income tax expense
Depreciation and amortization
LIFO (credit) charge
Lease termination and impairment charges
Goodwill and intangible asset impairment charges
(Gain) loss on debt retirements, net
Merger and Acquisition-related costs
Stock-based compensation expense
Restructuring-related costs
Inventory write-downs related to store closings
Litigation settlement
Loss (gain) on sale of assets, net
Walgreens Boots Alliance merger termination fee
Other
Adjusted EBITDA from continuing operations
.
21. Commitments, Contingencies and Guarantees
Legal Matters and Regulatory Proceedings
2019
(52 weeks)
2020
(52 weeks)
2018
(52 weeks)
$ (469,219) $ (666,954) $ (349,532)
202,768
305,987
386,057
(28,827)
58,765
261,727
—
24,283
25,793
—
7,586
—
(25,872)
(325,000)
16,119
$ 538,211 $ 563,444 $ 559,854
229,657
387,607
328,277
(64,804)
42,843
—
(55,692)
3,599
16,087
105,642
4,652
—
4,226
—
5,336
227,728
77,477
357,882
23,354
107,994
375,190
554
37,821
12,115
4,704
13,487
18,000
(38,012)
—
12,104
The Company is involved in numerous legal matters including litigation, arbitration, and other claims, and is
subject to regulatory proceedings including investigations, inspections, audits, inquiries, and similar actions by
pharmacy, health care, tax and other governmental authorities arising in the ordinary course of its business, including,
without limitation, the matters described below. The Company records accruals for outstanding legal matters and
applicable regulatory proceedings when it believes it is probable that a loss has been incurred, and the amount can be
reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters and regulatory
proceedings that could affect the amount of any existing accrual and developments that would make a loss contingency
both probable and reasonably estimable, and as a result, warrant an accrual. If a loss contingency is not both probable
and estimable, the Company does not establish an accrued liability. None of the Company’s accruals for outstanding
legal matters or regulatory proceedings are material individually or in the aggregate to the Company’s consolidated
financial position.
The Company’s contingencies are subject to significant uncertainties, many of which are beyond the
Company’s control, including, among other factors: (i) proceedings are in early stages; (ii) whether class or collective
action status is sought and the likelihood of a class being certified; (iii) the outcome of pending appeals or motions;
(iv) the extent of potential damages, fines or penalties, which are often unspecified or indeterminate; (v) the impact of
discovery on the matter; (vi) whether novel or unsettled legal theories are at issue; (vii) there are significant factual
issues to be resolved; and/or (viii) in the case of certain government agency investigations, whether a qui tam lawsuit
133
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
(“whistleblower” action) has been filed and whether the government agency makes a decision to intervene in the lawsuit
following investigation. While the Company cannot predict the outcome of any of the contingencies, the Company’s
management does not believe that the outcome of any of these legal matters or regulatory proceedings will be material to
the Company’s consolidated financial position. It is possible, however, the Company’s results of operations or cash
flows could be materially affected by unfavorable outcomes in outstanding legal matters or regulatory proceedings.
California Employment Litigation.
The Company is currently a defendant in several lawsuits filed in courts in California that contain allegations
regarding violations of the California Business and Professions Code, various California employment laws and
regulations, industry wage orders, wage-and-hour laws, rules and regulations pertaining primarily to failure to pay
overtime, failure to pay premiums for missed meals and rest periods, failure to provide accurate wage statements, and
failure to reimburse business expenses (the “California Cases”). Some of the California Cases purport or may be
determined to be class actions or PAGA representative actions and seek substantial damages and penalties. These single-
plaintiff and multi-plaintiff California Cases in the aggregate, seek substantial damages. The Company believes that its
defenses and assertions in the California Cases have merit. The Company has aggressively challenged the merits of the
lawsuits and, where applicable, allegations that the lawsuits should be certified as class or representative actions.
Additionally, at this time the Company is not able to predict either the outcome of or estimate a potential range of loss
with respect to the California Cases and is defending itself against these claims
Usual and Customary and DUR/Code 1 Litigation.
In January 2017, qui tam plaintiff Azam Rahimi (“Relator”) filed a sealed False Claims Act (“FCA”) lawsuit in
the United States District Court for the Eastern District of Michigan. The United States Attorney’s Office for the Eastern
District of Michigan, 18 states, and the District of Columbia declined to intervene. The unsealed lawsuit alleges that the
Company failed to report Rite Aid’s Rx Savings Program prices as its usual and customary charges under the Medicare
Part D program, federal and state Medicaid programs, and other publicly funded health care programs, and that the
Company is thus liable under the federal FCA and similar state statutes. On December 12, 2019, the court granted the
Company’s motion to dismiss and judgment on the pleadings based upon the FCA’s public disclosure bar. The Relator
filed a motion for reconsideration which was denied. Relator also filed a notice of appeal (which was held in abeyance)
while the motion for reconsideration was pending. At this stage of the proceedings, the Company is not able to either
predict the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit and is defending itself
against these claims.
The State of Mississippi, by and through its Attorney General, filed a lawsuit against the Company and various
purported related entities on September 27, 2016 alleging the Company failed to accurately report usual and customary
prices to Mississippi’s Division of Medicaid. At this stage of the proceedings, the Company is not able to either predict
the outcome of this lawsuit or estimate a potential range of loss with respect to the lawsuit, and is defending itself against
these claims.
The Company is involved in a putative consumer class action lawsuit in the United States District Court for the
Southern District of California captioned Byron Stafford v. Rite Aid Corp. A separate lawsuit, Robert Josten v. Rite Aid
Corp., was consolidated with this lawsuit in November, 2019. The lawsuit contains allegations that (i) the Company was
obligated to charge the plaintiffs’ insurance companies a “usual and customary” price for their prescription drugs; and
(ii) the Company failed to do so because the prices it reported were not equal to or adjusted to account for the prices that
Rite Aid offers to uninsured and underinsured customers through its Rx Savings Program. At this stage of the
134
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
proceedings, the Company is not able to either predict the outcome or estimate a potential range of loss and is defending
itself against these claims.
In June 2013, the Company was served with a Civil Investigative Demand (“CID”) by the United States
Attorney’s Office for the Eastern District of California (the “USAO”) regarding (1) the Company’s Drug Utilization
Review (“DUR”) and prescription dispensing protocol; and (2) the dispensing of drugs designated as “Code 1” by the
State of California. The Company cooperated with the investigation, researched the government’s allegations, and
refuted the government’s position. The Company produced documents including certain prescription files related to
Code 1 drugs to the USAO’s office and the State of California Department of Justice’s Bureau of Medical Fraud and
Elder Abuse (“CADOJ”). In August 2014, the USAO and 8 states’ attorneys general declined to intervene in a California
False Claim Act lawsuit filed under seal in the Eastern District of California by qui tam plaintiff Loyd F. Schmuckley
(“Relator”) based on DUR and Code 1 allegations. In July 2016, the Commonwealth of Massachusetts and the District of
Columbia also declined to intervene in the lawsuit. At this stage of the proceedings, the Company is not able to either
predict the outcome of this matter or estimate a potential range of loss with respect to this matter, and is defending itself
against these claims.
Pseudoephedrine Investigation.
On April 26, 2012, the Company was served with an administrative subpoena from the U.S. Drug Enforcement
Administration (“DEA”), Albany, New York District Office, requesting information regarding the Company’s sale of
products containing pseudoephedrine (“PSE”). In April 2012, it also received a communication from the U.S. Attorney’s
Office for the Northern District of New York (“USAO”) regarding an investigation of possible civil violations of the
Combat Methamphetamine Epidemic Act of 2005 (“CMEA”). Additional subpoenas were subsequently served
requesting broader information and documents regarding PSE sales and recordkeeping. The Company cooperated
throughout the course of the investigation. The allegations forming the basis of the investigation occurred between 2009
and 2014. The Company recently finalized the civil settlement of the investigation for $4.75 million with no admission
of liability.
Controlled Substances Litigation, Audits and Investigations
The Company along with various other defendants are named in multiple opioid-related lawsuits filed by
counties, cities, municipalities, Native American tribes, hospitals, third-party payers, and others across the United States.
In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated and transferred hundreds of federal
opioid-related lawsuits that name the Company and/or a related entity as a defendant to the multi-district litigation
(“MDL”) pending in the United States District Court for the Northern District of Ohio before Judge Dan Polster under In
re National Prescription Opiate Litigation (Case No. 17-MD-2804). A significant number of similar cases that are not
part of the MDL and name the Company and/or a related entity or entities as a defendant in also are pending in state
courts. The plaintiffs in all of these opioid-related lawsuits generally allege claims concerning the impacts of widespread
opioid abuse against defendants along the pharmaceutical supply chain, including manufacturers, wholesale distributors,
and retail pharmacies. At this stage of the proceedings, the Company is not able to predict the outcome of the opioid-
related lawsuits or estimate a potential range of loss regarding the lawsuits. The Company is defending itself against all
relevant claims.
The Company also has received warrants, subpoenas, CIDs, and other requests for documents and information
from, and is being investigated by, the federal and state governments regarding opioids and other controlled substances.
The Company has been cooperating with and responding to these investigatory inquiries.
135
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Miscellaneous Litigation and Investigations.
In addition to the above described matters, the Company is subject from time to time to various claims and
lawsuits and governmental investigations arising in the ordinary course of business. While the Company’s management
cannot predict the outcome of any of the claims, the Company’s management does not believe that the outcome of any of
these matters will be material to the Company’s consolidated financial position. It is possible, however, that the
Company’s results of operations or cash flows could be materially affected by an unfavorable resolution of pending
litigation or contingencies.
These other legal proceedings include claims of improper disclosure of personal information, anticompetitive
practices, general contractual matters, product liability, professional malpractice, non-compliance with state and federal
regulatory regimes, marketing misconduct, intellectual property litigation and employment litigation. Some of these
other legal proceedings are or are purported to be class actions or derivative claims. The Company is defending itself
against the claims brought in these matters.
22. Supplementary Cash Flow Data
Cash paid for interest(a)
Cash (refunds) payments for income taxes, net(a)
Equipment financed under capital leases
Equipment received for noncash consideration
Reduction in lease financing obligation
Accrued capital expenditures
Gross borrowings from revolver(a)
Gross repayments to revolver(a)
(a)–Amounts are presented on a total company basis.
March 2,
2019
February 29,
2020
March 3,
2018
405,579
$ 216,489 $ 267,760 $
87,087
17,383 $
$
13,123
4,165 $
$
2,044
— $
$
4,740
— $
$
$
28,869
15,298 $
$ 2,897,000 $ 4,257,000 $ 4,221,000
$ 3,122,000 $ 3,382,000 $ 6,651,000
(4,935) $
3,715 $
— $
— $
15,952 $
Significant components of cash used by Other Liabilities of $62,168 for the fifty-two week period ended
February 29, 2020 includes cash used resulting from changes in accrued wages, benefits and other personnel costs of
$47,252 and changes in accrued store expenses of $45,252.
23. Related Party Transactions
There were receivables from related parties of $0 and $11 at February 29, 2020 and March 2, 2019,
respectively.
24. Guarantor and Non-Guarantor Condensed Consolidating Financial Information
Rite Aid Corporation conducts the majority of its business through its subsidiaries. With the exception of EIC,
substantially all of Rite Aid Corporation’s 100 % owned subsidiaries guarantee the obligations under the Existing
Facilities, the secured guaranteed notes and unsecured guaranteed notes (the “Subsidiary Guarantors”). Additionally,
136
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
with the exception of EIC, the subsidiaries, including joint ventures, that do not guarantee the Existing Facilities, the
secured guaranteed notes and unsecured guaranteed notes, are minor.
For the purposes of preparing the information below, Rite Aid Corporation uses the equity method to account
for its investment in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments
in the non-guarantor subsidiaries. The subsidiary guarantees related to the Company’s Existing Facilities, secured
guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and
several. Presented below is condensed consolidating financial information for Rite Aid Corporation, the Subsidiary
Guarantors, and the non-guarantor subsidiaries at February 29, 2020 and March 2, 2019 and for the fiscal years ended
February 29, 2020, March 2, 2019 and March 3, 2018. Separate financial statements for Subsidiary Guarantors are not
presented.
137
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Balance Sheet
February 29, 2020
Rite Aid
Corporation
(Parent
Subsidiary Guarantor
Non-
Company Only) Guarantors Subsidiaries Eliminations Consolidated
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Intercompany receivable
Inventories, net of LIFO reserve of $0, $539,640, $0, $0, and
$539,640
Prepaid expenses and other current assets
Current assets held for sale
$
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangibles, net
Deferred tax assets
Investment in subsidiaries
Intercompany receivable
Other assets
Total assets
194,005 $
— $
—
—
1,278,002
(56,608)
24,175 $
8,783
43,304
$
—
—
13,304 (a)
218,180
1,286,785
—
—
—
—
—
—
—
—
—
10,828
7,843,411
—
—
1,921,604
171,086
92,278
3,600,367
1,215,838
2,903,256
1,108,136
312,763
5,852
67,342
4,090,373
141,305
—
—
—
13,304
—
—
—
—
—
1,921,604
181,794
92,278
3,700,641
1,215,838
2,903,256
1,108,136
359,491
16,680
—
—
148,327
$ 9,452,369
(7,910,753)(b)
(4,090,373)(a)
—
140,720 $ (11,987,822)
$
7,854,239 $ 13,445,232 $
8,840 $
— $
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing
obligations
Accounts payable
Intercompany payable
Accrued salaries, wages and other current liabilities
Current portion of operating lease liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt, less current maturities
Long-term operating lease liabilities
Lease financing obligations, less current maturities
Intercompany payable
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Total stockholders’ equity
— $
—
—
12,071
—
—
12,071
3,077,268
—
—
4,090,373
—
7,179,712
—
674,527
1,471,459
(43,304)
711,491
490,161
37,063
2,675,710
—
2,710,347
19,326
—
196,438
5,601,821
—
7,843,411
—
—
13,304 (a)
—
—
—
13,304
—
—
—
(4,090,373)(a)
—
(4,077,069)
—
(7,910,753)(b)
$
8,840
1,484,081
—
746,318
490,161
37,063
2,766,463
3,077,268
2,710,347
19,326
—
204,438
8,777,842
—
674,527
$ 9,452,369
Total liabilities and stockholders’ equity
$
7,854,239 $ 13,445,232 $
140,720 $ (11,987,822)
(a) Elimination of intercompany accounts receivable and accounts payable amounts.
(b) Elimination of investments in consolidated subsidiaries.
138
—
10,708
—
86,970
—
—
—
46,728
—
—
—
7,022
12,622
30,000
22,756
—
—
65,378
—
—
—
—
8,000
73,378
—
67,342
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Balance Sheet
March 2, 2019
Rite Aid
Corporation
Non-
(Parent
Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Intercompany receivable
Inventories, net of LIFO reserve of $0, $604,444, $0, $0, and
$604,444
Prepaid expenses and other current assets
Current assets held for sale
$
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles, net
Deferred tax assets
Investment in subsidiaries
Intercompany receivable
Other assets
Total assets
(in thousands)
122,134 $
22,219 $
— $
—
—
1,377,342
400,526
411,370
—
$
—
—
(400,526)(a)
144,353
1,788,712
—
—
—
—
—
—
—
—
—
8,294,315
—
—
1,871,941
172,448
117,581
4,061,972
1,308,514
1,108,136
399,678
419,122
55,109
3,639,035
208,018
—
6,684
—
440,273
—
—
49,028
(10,038)
—
—
7,190
—
—
—
(400,526)
—
—
—
—
1,871,941
179,132
117,581
4,101,719
1,308,514
1,108,136
448,706
409,084
—
—
215,208
$ 7,591,367
(8,349,424)(b)
(3,639,035)(a)
—
486,453 $ (12,388,985)
$
8,294,315 $ 11,199,584 $
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing
obligations
Accounts payable
Intercompany payable
Accrued salaries, wages and other current liabilities
Total current liabilities
Long-term debt, less current maturities
Lease financing obligations, less current maturities
Intercompany payable
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
16,111 $
— $
—
—
14,005
14,005
3,454,585
—
3,639,035
—
7,107,625
—
1,186,690
8,294,315 $ 11,199,584 $
1,612,181
—
778,020
2,406,312
—
24,064
—
474,893
2,905,269
—
8,294,315
— $
6,404
400,526
16,414
423,344
—
—
—
8,000
431,344
—
55,109
—
—
(400,526)(a)
—
(400,526)
—
—
(3,639,035)(a)
—
(4,039,561)
—
(8,349,424)(b)
$
16,111
1,618,585
—
808,439
2,443,135
3,454,585
24,064
—
482,893
6,404,677
—
1,186,690
$ 7,591,367
486,453 $ (12,388,985)
(a) Elimination of intercompany accounts receivable and accounts payable amounts.
(b) Elimination of investments in consolidated subsidiaries.
139
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 29, 2020
Rite Aid
Corporation
Non-
(Parent
Subsidiary
Company Only) Guarantors
Guarantor
Subsidiaries Eliminations
Consolidated
$
Revenues
Costs and expenses:
Cost of revenues
Selling, general and administrative
expenses
Lease termination and impairment charges
Interest expense
Gain on debt retirements
Loss on sale of assets, net
Equity in earnings of subsidiaries, net of
tax
(Loss) income from continuing operations
before income taxes
Income tax expense (benefit)
Net (loss) income from continuing
operations
Net income from discontinued operations
Net (loss) income
Total other comprehensive (loss) income
Comprehensive (loss) income
$
$
— $ 21,514,693 $ 441,827 $ (28,127)(a) $ 21,928,393
(in thousands)
—
16,818,111
411,266
(27,742)(a) 17,201,635
—
—
216,834
—
—
4,560,220
42,843
13,586
(55,692)
4,226
27,501
—
(763)
—
—
(385)(a)
—
—
—
—
4,587,336
42,843
229,657
(55,692)
4,226
235,340
452,174
(12,233)
21,371,061
—
438,004
(223,107)(b)
(251,234)
—
22,010,005
(452,174)
—
143,632
396,017
3,823
(8,410)
223,107
—
—
(452,174)
(17,839)
(452,174) $ (252,385) $ 12,233 $ 223,107
—
223,107 (b)
17,351
(470,013) $ (252,691) $ 12,233 $ 240,458
17,045
(235,340)
(17,351)
—
12,233
—
$
$
(81,612)
387,607
(469,219)
17,045
(452,174)
(17,839)
(470,013)
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
140
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended March 2, 2019
Rite Aid
Corporation
(Parent
Subsidiary
Company Only) Guarantors
Non-
Guarantor
Subsidiaries Eliminations
(in thousands)
Consolidated
$
Revenues
Costs and expenses:
Cost of revenues
Selling, general and administrative
expenses
Lease termination and impairment charges
Goodwill and intangible asset impairment
charges
Interest expense
Loss on debt retirements
Gain on sale of assets, net
Equity in earnings of subsidiaries, net of
tax
— $ 21,297,937 $ 397,328 $ (55,708)(a) $ 21,639,557
—
16,648,099
370,413
(55,307)(a) 16,963,205
—
—
4,567,690
107,994
25,086
—
—
206,862
—
—
375,190
21,704
554
(38,012)
—
(838)
—
—
(401)(a)
—
—
—
—
—
4,592,375
107,994
375,190
227,728
554
(38,012)
210,736
417,598
(1,033)
21,682,186
—
394,661
(209,703)(b)
(265,411)
—
22,229,034
(Loss) income from continuing operations
before income taxes
Income tax benefit
Net (loss) income from continuing
operations
Net income from discontinued operations
Net (loss) income
Total other comprehensive income (loss)
Comprehensive (loss) income
(417,598)
—
(384,249)
75,843
2,667
1,634
209,703
—
$
(417,598) $ (460,092) $
(4,615)
(422,213)
3,490
249,356
(210,736)
3,490
$
(418,723) $ (207,246) $
$
—
1,033
—
1,033 $ 209,703
—
209,703 (b)
(3,490)
1,033 $ 206,213
$
(589,477)
77,477
(666,954)
244,741
(422,213)
3,490
(418,723)
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
141
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Statement of Operations
For the Year Ended March 3, 2018
Rite Aid
Corporation
(Parent
Subsidiary
Company Only) Guarantors
Non-
Guarantor
Subsidiaries Eliminations
(in thousands)
Consolidated
Revenues
$
— $ 21,413,734 $ 209,356 $
(94,122)(a) $ 21,528,968
Costs and expenses:
Cost of revenues
Selling, general and administrative
expenses
Lease termination and impairment
expenses
Goodwill and intangible asset
impairment charges
Interest expense
Walgreens Boots Alliance, Inc.
termination fee
Gain on sale of assets, net
Equity in earnings of subsidiaries, net of
tax
(Loss) income from continuing operations
before income taxes
Income tax expense
Net (loss) income from continuing
operations
Net loss from discontinued operations
Net (loss) income
Total other comprehensive income (loss)
Comprehensive (loss) income
—
16,645,136
197,084
(93,357)(a) 16,748,863
—
4,635,531
16,496
(765)(a)
4,651,262
—
58,765
—
—
183,825
261,727
19,261
(325,000)
—
—
(25,872)
—
(318)
—
—
—
—
—
—
—
58,765
261,727
202,768
(325,000)
(25,872)
(1,034,775)
(1,175,950)
(4,072)
21,590,476
—
213,262
1,038,847 (b)
944,725
—
21,572,513
1,175,950
—
(176,742)
313,965
(3,906)
(7,978)
(1,038,847)
—
(43,545)
305,987
1,175,950
(232,480)
943,470 $ 1,034,775 $ 4,072 $ (1,038,847)(b) $
(1,038,847)
—
(490,707)
1,525,482
4,072
—
7,255
(7,255)
950,725 $ 1,042,030 $ 4,072 $ (1,046,102)
7,255
—
$
(349,532)
1,293,002
943,470
7,255
950,725
$
$
(a) Elimination of intercompany revenues and expenses.
(b) Elimination of equity in earnings of subsidiaries.
142
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
Year Ended February 29, 2020
Rite Aid
Corporation
Non-
(Parent
Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
(in thousands)
$
(214,470) $ 723,371 $
1,956 $
— $ 510,857
Operating activities:
Net cash (used in) provided by operating
activities
Investing activities:
Payments for property, plant and equipment
Intangible assets acquired
Intercompany activity
Proceeds from dispositions of assets and
investments
Proceeds from sale-leaseback transactions
Net cash used in investing activities
Financing activities:
—
—
—
(171,705)
(42,681)
(539,344)
—
—
—
59,658
4,879
(689,193)
Proceeds from issuance of long-term debt
Net payments to revolver
Principal payments on long-term debt
Change in zero balance cash accounts
Financing fees paid for early debt redemption
Payments for taxes related to net share settlement
of equity awards
Deferred financing costs paid
Intercompany activity
600,000
(225,000)
(694,093)
—
—
—
(5,781)
539,344
—
—
(12,010)
12,671
(518)
(1,921)
—
—
—
—
—
—
—
539,344
(171,705)
(42,681)
—
—
—
—
—
—
539,344
59,658
4,879
(149,849)
—
—
—
—
—
—
—
—
—
—
600,000
(225,000)
(706,103)
12,671
(518)
—
—
—
—
—
(539,344)
(1,921)
(5,781)
—
Net cash provided by (used in) financing
activities
Cash flows of discontinued operations:
Operating activities of discontinued operations
Investing activities of discontinued operations
Financing activities of discontinued operations
Net cash provided by discontinued operations
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
214,470
(1,778)
—
(539,344)
(326,652)
(23,836)
63,307
—
39,471
71,871
122,134
—
—
—
—
—
—
— $ 194,005 $ 24,175 $
—
—
—
—
1,956
22,219
(23,836)
—
63,307
—
—
—
39,471
—
73,827
—
144,353
—
— $ 218,180
143
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
Year Ended March 2, 2019
Rite Aid
Corporation
(Parent
Company
Only)
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries Eliminations Consolidated
(in thousands)
$
(255,962) $
74,124 $ 16,129 $
— $ (165,709)
—
—
—
(196,778)
(47,911)
(727,221)
—
—
—
—
—
727,221
(196,778)
(47,911)
—
—
—
43,550
2,587
—
—
—
—
43,550
2,587
—
(925,773)
—
727,221
(198,552)
450,000
875,000
(427,992)
—
2,294
—
—
(21,564)
727,221
—
—
(12,378)
(59,481)
—
(2,419)
(171)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(727,221)
450,000
875,000
(440,370)
(59,481)
2,294
(2,419)
(171)
(21,564)
—
1,604,959
(74,449)
—
(727,221)
803,289
(4,615)
—
(1,344,382)
(58,341)
664,740
589
—
—
—
(1,348,997)
—
—
— $ 122,134 $ 22,219 $
606,988
(319,110)
441,244
—
16,129
6,090
$
—
—
—
(62,956)
664,740
(1,343,793)
—
—
—
— $
(742,009)
(302,981)
447,334
144,353
Operating activities:
Net cash (used in) provided by operating
activities
Investing activities:
Payments for property, plant and equipment
Intangible assets acquired
Intercompany activity
Proceeds from dispositions of assets and
investments
Proceeds from sale-leaseback transactions
Net cash (used in) provided by investing
activities
Financing activities:
Proceeds from issuance of long-term debt
Net proceeds from revolver
Principal payments on long-term debt
Change in zero balance cash accounts
Net proceeds from issuance of common stock
Payments for taxes related to net share
settlement of equity awards
Financing fees paid for early redemption
Deferred financing costs paid
Intercompany activity
Net cash provided by (used in) financing
activities
Cash flows of discontinued operations:
Operating activities of discontinued operations
Investing activities of discontinued operations
Financing activities of discontinued operations
Net cash (used in) provided by discontinued
operations
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
144
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Rite Aid Corporation
Condensed Consolidating Statement of Cash Flows
For the Year Ended March 3, 2018
Rite Aid
Corporation
(Parent
Company
Subsidiary
Only)
Guarantors
Non-
Guarantor
Subsidiarie
s
(in thousands)
Eliminations Consolidated
$
158,247
$
379,439 $ (26,216)
$
— $
511,470
Operating activities:
Net cash (used in) provided by operating
activities
Investing activities:
Payments for property, plant and equipment
Intangible assets acquired
Intercompany activity
Proceeds from insured loss
Proceeds from dispositions of assets and
investments
Net cash (used in) provided by investing
activities
Financing activities:
Net payments to revolver
Principal payments on long-term debt
Change in zero balance cash accounts
Net proceeds from issuance of
common stock
Payments for taxes related to net share
settlement of equity awards
Intercompany activity
Net cash provided by (used in) financing
activities
Cash flows of discontinued operations:
Operating activities of discontinued
operations
Investing activities of discontinued operations
Financing activities of discontinued
operations
Net cash provided by (used in)
discontinued operations
Increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
period
Cash and cash equivalents, end of period
—
—
—
—
—
(185,879)
(28,885)
(3,460,291)
4,239
27,586
—
—
—
—
—
—
—
3,460,291
—
(185,879)
(28,885)
—
4,239
—
27,586
—
(3,643,230)
—
3,460,291
(182,939)
(265,000)
—
—
—
(9,882)
35,605
5,796
—
—
3,460,291
(4,103)
—
—
—
—
—
—
—
—
—
—
—
—
(3,460,291)
(265,000)
(9,882)
35,605
5,796
(4,103)
—
3,201,087
21,620
—
(3,460,291)
(237,584)
(224,300)
—
(20,826)
3,496,222
(3,135,034)
(5,085)
(3,359,334)
3,470,311
—
—
—
—
228,140
(26,216)
—
—
(245,126)
3,496,222
—
(3,140,119)
—
—
110,977
201,924
213,104
441,244 $
32,306
6,090
$
$
—
— $
245,410
447,334
$
—
—
—
145
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
25. Interim Financial Results (Unaudited)
First
Revenues
Cost of revenues
Selling, general and administrative expenses
Lease termination and impairment charges
Interest expense
Gain on debt retirements, net
(Gain) loss on sale of assets, net
Second
Quarter
Fiscal Year 2020
Third
Fourth
Quarter
Year
Quarter
Quarter
$ 5,372,589 $ 5,366,264 $ 5,462,298 $ 5,727,242 $ 21,928,393
17,201,635
4,273,323
4,587,336
1,134,854
42,843
166
229,657
57,856
(55,692)
(55,692)
4,226
(1,371)
22,010,005
5,409,136
4,460,621
1,154,300
40,728
53,429
—
9,896
5,718,974
4,221,825
1,135,530
1,471
60,102
—
(1,587)
5,417,341
4,245,866
1,162,652
478
58,270
—
(2,712)
5,464,554
(Loss) income from continuing operations
before income taxes
Income tax (benefit) expense
Loss from continuing operations
Net income (loss) from discontinued
operations, net of tax
Net income (loss)
Basic (loss) income per share(a):
Continuing operations
Discontinued operations
Net basic (loss) income per share
Diluted (loss) income per share(a):
Continuing operations
Discontinued operations
Net diluted (loss) income per share
(91,965)
7,374
(99,339)
(51,077)
27,628
(78,705)
53,162
876
52,286
8,268
351,729
(343,461)
(320)
(99,659)
(574)
(79,279)
(801)
51,485
18,740
(324,721)
(81,612)
387,607
(469,219)
17,045
(452,174)
$
$
$
$
$
$
(1.88) $
— $
(1.88) $
(1.88) $
— $
(1.88) $
(1.48) $
(0.01) $
(1.49) $
(1.48) $
(0.01) $
(1.49) $
0.98 $
(0.01) $
0.97 $
(6.43) $
0.35 $
(6.08) $
0.98 $
(0.02) $
0.96 $
(6.43) $
0.35 $
(6.08) $
(8.82)
0.32
(8.50)
(8.82)
0.32
(8.50)
146
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
Revenues
Cost of revenues
Selling, general and administrative expenses
Lease termination and impairment charges
Goodwill and intangible asset impairment
charges
Interest expense
Loss on debt retirements, net
Gain on sale of assets, net
First
Second
Quarter
Fiscal Year 2019
Third
Fourth
Quarter
Quarter
Quarter
$ 5,388,490 $ 5,421,362 $ 5,450,060 $ 5,379,645 $ 21,639,557
16,963,205
4,592,375
107,994
4,260,211
1,153,991
39,609
4,215,281
1,143,202
55,898
4,267,972
1,142,555
2,628
4,219,741
1,152,627
9,859
Year
—
375,190
—
—
375,190
62,792
554
(5,859)
5,439,714
56,233
—
(4,965)
5,880,269
56,008
(382)
5,468,781
52,695
—
(26,806)
5,440,270
227,728
554
(38,012)
22,229,034
Loss from continuing operations before
income taxes
Income tax (benefit) expense
Loss from continuing operations
Net income (loss) from discontinued
operations, net of tax
Net income (loss)
Basic and diluted income (loss) per share(a):
$
Continuing operations
Discontinued operations
$
Net basic and diluted income (loss) per share $
(51,224)
(9,497)
(41,727)
(458,907)
(106,559)
(352,348)
(18,721)
(1,471)
(17,250)
(60,625)
195,004
(255,629)
(589,477)
77,477
(666,954)
256,143
$ 214,416 $
(6,792)
(359,140) $
12,740
244,741
(17,350)
(4,510) $ (272,979) $ (422,213)
(0.79) $
4.86 $
4.07 $
(6.67) $
(0.13) $
(6.80) $
(0.33) $
0.24 $
(0.09) $
(4.83) $
(0.32) $
(5.15) $
(12.62)
4.63
(7.99)
(a) Income per share amounts for each quarter may not necessarily total to the yearly income per share due to the
weighting of shares outstanding on a quarterly and year-to-date basis.
During the fourth quarter of fiscal 2020, the Company recorded an income tax expense of $347,599 in
connection with the revaluation of the Company’s deferred tax assets resulting from an increase in the valuation
allowance as discussed in Note 7 and facilities impairment charges of $38,342. Also, during the fourth quarter of fiscal
2020, the Company recorded a LIFO credit of $72,357 which resulted from deflation in generic drug costs, partially
offset by brand drug inflation compared to a LIFO charge recognized at prior year end caused by higher inflation on
pharmaceutical drugs.
During the fourth quarter of fiscal 2019, the Company recorded an income tax expense of $212,252 in
connection with the revaluation of the Company’s deferred tax assets resulting from an increase in the valuation
allowance as discussed in Note 7 and facilities impairment charges of $28,920. Also, during the fourth quarter of fiscal
2019, the Company recorded a LIFO charge of $4,043 due to higher inflation on pharmaceutical drugs as compared to a
LIFO credit recognized at prior year end caused by deflation on pharmacy generics.
147
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(In thousands, except per share amounts)
26. Financial Instruments
The carrying amounts and fair values of financial instruments at February 29, 2020 and March 2, 2019 are listed
as follows:
Variable rate indebtedness
Fixed rate indebtedness
2020
2019
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$ 1,077,787 $ 1,100,000 $ 1,297,013 $ 1,325,000
$ 1,999,481 $ 1,921,385 $ 2,157,571 $ 1,795,335
Cash, trade receivables and trade payables are carried at market value, which approximates their fair values due
to the short-term maturity of these instruments. In addition, as of February 29, 2020 and March 2, 2019, the Company
had $7,022 and $7,191, respectively, of investments carried at amortized cost, as these investments are being held to
maturity. As of February 29, 2020, these investments are included as a component of other assets. As of March 2, 2019,
these investments are included as a component of prepaid expenses and other current assets. The Company believes the
carrying value of these investments approximates their fair value.
The following methods and assumptions were used in estimating fair value disclosures for financial
instruments:
LIBOR-based borrowings under credit facilities:
The carrying amounts for LIBOR-based borrowings under the credit facilities and term notes are estimated
based on the quoted market price of the financial instruments.
Long-term indebtedness:
The fair values of long-term indebtedness are estimated based on the quoted market prices of the financial
instruments. If quoted market prices were not available, the Company estimated the fair value based on the quoted
market price of a financial instrument with similar characteristics.
27. Subsequent Events
In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a
pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States,
including in the markets in which we operate. In an effort to limit the spread of COVID-19, governmental entities have
taken various regulatory actions including, but not limited to “shelter in place” orders and the temporary closures of
many non-life sustaining businesses. Entities that provide life-sustaining services, such as healthcare providers, retail
pharmacy, grocery stores and gas stations have generally been permitted to remain open, which has allowed the
Company to continue to serve its customers during the pandemic.
As of April 16, 2020, the Company had liquidity of $1.9 billion, which consisted of availability to borrow under
its Senior Secured Revolving Credit Facility of $1.7 billion and cash on hand of $180.0 million. The Company will
continue to assess the impact of COVID-19 on the Company’s financial position. However, the extent to which the
COVID-19 outbreak will impact the Company’s operations or financial results is uncertain, but such impact could be
material.
148
RITE AID CORPORATION AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended February 29, 2020, March 2, 2019 and March 3, 2018
(dollars in thousands)
Allowances deducted from accounts receivable for estimated
uncollectible amounts:
Year ended February 29, 2020
Year ended March 2, 2019
Year ended March 3, 2018
Additions
Balance at Charged to
Beginning Costs and
of Period
Expenses Deductions
Balance at
End of
Period
$ 13,106 $ 40,357 $ 40,614 $ 12,849
$ 25,134 $ 48,728 $ 60,756 $ 13,106
$ 30,891 $ 94,006 $ 99,763 $ 25,134
149
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
RITE AID CORPORATION
By:
/s/ BRUCE G. BODAKEN
Bruce G. Bodaken
Chairman
Dated: April 27, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in their respective capacities on April 27, 2020.
Signature
Title
/s/ HEYWARD DONIGAN
Heyward Donigan
President and Chief Executive Officer (principal
executive officer)
/s/ MATTHEW C. SCHROEDER
Matthew C. Schroeder
Executive Vice President and Chief Financial Officer
(principal financial officer)
/s/ BRIAN T. HOOVER
Brian T. Hoover
Senior Vice President and Chief Accounting Officer
(principal accounting officer)
/s/ BRUCE G. BODAKEN
Bruce G. Bodaken
/s/ ELIZABETH BURR
Elizabeth Burr
/s/ ROBERT E. KNOWLING, JR
Robert E. Knowling, Jr
/s/ KEVIN E. LOFTON
Kevin E. Lofton
/s/ LOUIS P. MIRAMONTES
Louis P. Miramontes
Director
Director
Director
Director
Director
150
Title
Signature
/s/ ARUN NAYAR
Arun Nayar
/s/ KATHERINE QUINN
Katherine Quinn
/s/ MARCY SYMS
Marcy Syms
Director
Director
Director
151
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
Exhibit 4.9
As of April 16, 2020, Rite Aid Corporation (“Rite Aid,” the “Company,” “we,” “our” and “us” refer solely to Rite Aid Corporation and
not its subsidiaries and any person that succeeds thereto) has one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”): our common stock.
DESCRIPTION OF COMMON STOCK
The following description of our common stock is a summary and does not purport to be complete. It is subject to and qualified in its
entirety by reference to our Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and our Amended
and Restated By-Laws (the “By-Laws”), each of which are incorporated by reference as exhibits to the Annual Report on Form 10-K.
We encourage you to read our Certificate of Incorporation, our By-Laws and the applicable provisions of the Delaware General
Corporation Law, for additional information.
General
The authorized capital stock of Rite Aid consists of 95,000,000 shares, of which (i) 20,000,000 shares are preferred stock, par value
$1.00 per share, and (ii) 75,000,000 shares are common stock, par value $1.00 per share. As of April 16, 2020, there are no
outstanding shares of preferred stock. As of April 16, 2020, the total number of outstanding shares of common stock is 54,704,579.
The common stock are registered under Section 12 of the Exchange Act. All of the shares of common stock issued and outstanding are
fully paid and nonassessable.
Voting Rights
Each holder of our common stock is entitled to one vote for each share held on record on all matters submitted to a vote of our security
holders. Except as otherwise provided by law, the holders of our common stock vote as one class. The shares of our common stock do
not have cumulative voting rights. As a result, subject to the voting rights of the holders of any shares of our preferred stock, the holders
of our common stock entitled to exercise more than 50% of the voting rights in an election of directors can elect 100% of the directors
to be elected in a particular year if they choose to do so. In such event, the holders of the remaining common stock voting for the election
of directors will not be able to elect any persons to our board of directors.
Dividends
Subject to preferences that may apply to any preferred stock outstanding, holders of our common stock are entitled to receive dividends
out of assets legally available at the time and in the amounts that the Board may determine from time to time.
Liquidation Rights
In the event of a liquidation, dissolution or winding-up of Rite Aid, the holders of our common stock are entitled to share equally and
ratably in the assets of Rite Aid, if any, remaining after the payment of all debts and liabilities of Rite Aid and the liquidation preference
of any outstanding series of preferred stock.
Other Rights and Preferences
Our common stock has no sinking fund, redemption provisions, or preemptive, conversion, or exchange rights.
Listing
Our common stock is listed on The New York Stock Exchange under the trading symbol “RAD.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Broadridge Corporate Issuer Solutions.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
Some provisions of Delaware law and our Certificate of Incorporation and By-Laws could make the following more difficult:
acquisition of us by means of a tender offer; acquisition of control of us by means of a proxy contest or otherwise; or removal of our
incumbent officers and directors. These provisions are designed to discourage coercive takeover practices and inadequate takeover
bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of
directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the
disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms.
Charter and By-Laws Provisions
Our Certificate of Incorporation specifies that our board of directors shall consist of not less than three nor more than 15 directors
elected for terms of one year. Our By-Laws provide that the number of directors on our board may be fixed by our board only. The
number of directors may be increased or decreased by our board only. In the interim period between annual meetings of security
holders or of special meetings of security holders, vacancies and newly created directorships may be filled by our board. Any directors
so elected will hold office until the next annual meeting of stockholders and until such directors’ successor shall have been elected and
qualified. Our Certificate of Incorporation and our By-Laws do not provide for cumulative voting in the election of directors.
Our Certificate of Incorporation requires that any mergers, consolidations, asset dispositions and other transactions involving a
Related Person (as defined below) be approved, unless certain conditions are satisfied, by the affirmative vote of the holders of shares
representing not less than 75% of the outstanding shares of stock entitled to vote. These special voting requirements do not apply if the
transaction is approved by a majority of the Continuing Directors (as defined below) or the consideration offered to our security
holders meets specified fair price standards (including related procedural requirements as to the form of consideration and continued
payment of dividends). “Continuing Director” as defined in our Certificate of Incorporation means a member of our board who was
not affiliated with a Related Person (as defined below) and was a member of our board prior to the time that the Related Person
acquired the last shares of common stock entitling such Related Person to exercise, in the aggregate, in excess of 10% of the total
voting power of all classes of voting stock, or any individual, corporation, partnership, person or other entity (“Person”) recommended
to succeed a Continuing Director by a majority of Continuing Directors. “Related Person,” as defined in our Certificate of
Incorporation, means any Person, together with any affiliate or associate of such Person, who has beneficial ownership, directly or
indirectly, of shares of stock of Rite Aid entitling such Person to exercise more than 10% of the total voting power of all classes of
voting stock.
Under our Certificate of Incorporation and By-Laws, security holders may consent to any action required or permitted to be taken at
any meeting of security holders without prior notice or a vote if a written consent or consents, setting forth the action so taken, shall be
signed by holders of outstanding stock having not less than the minimum number of votes that would be necessary to take the action at
a meeting at which all shares entitled to vote thereon were present and voted. Our By-Laws establish an advance notice procedure for
stockholders to bring matters before a meeting of stockholders, including proposed nominations of persons for election to our board,
other
2
than nominations made by or at the direction of our board. These procedures specify the information stockholders must include in
their notice and the timeframe in which they must give us notice. Our By-Laws also permit stockholders representing ownership of not
less than 10% of the outstanding shares of our common stock to request that the our secretary call a special meeting of the
stockholders, provided that the stockholders satisfy the requirements specified therein and subject to certain other limitations. Our-By-
Laws provide that business transacted at a special meeting is limited to the purpose(s) stated in a valid special meeting request and any
additional matters our Board determines to include in the notice of the special meeting.
Our Certificate of Incorporation authorizes our board to establish one or more series of undesignated preferred stock, the terms of
which can be determined by our board at the time of issuance.
Our By-Laws authorize the board to alter, amend or repeal the By-Laws and to adopt new By-Laws.
Exclusive Forum
Our By-Laws provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Company or our stockholders;
(iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, or our
Certificate of Incorporation or our By-Laws; or (iv) any action asserting a claim against us or any of our directors, officers, employees
or agents governed by the internal affairs doctrine; provided, however, that in the event the Court of Chancery of the State of
Delaware lacks jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be
another state or federal court located within the State of Delaware. Our By-Laws also provide that any person or entity purchasing or
otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of
forum provision. It is possible that a court of law could rule that the choice of forum provision contained in our By-Laws is
inapplicable or unenforceable if it is challenged in a proceeding or otherwise.
Other Limitations on Stockholder Actions
Our Certificate of Incorporation also provides that no director shall be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director, except as required by law, as in effect from time to time. Currently, Delaware law
requires that liability be imposed for the following: any breach of the director’s duty of loyalty to our company or our stockholders;
any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; unlawful payments of
dividends or unlawful stock repurchases or redemptions; and any transaction from which the director derived an improper personal
benefit.
Our By-Laws also provide that we will indemnify any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an action by or in the right of us) by reason of the fact that
such person is or was our director or officer, or served any other enterprise at our request as a director, officer, employee, agent or
fiduciary. We will reimburse the expenses, including attorneys’ fees, actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not
opposed to our best interests, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s
conduct was unlawful.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law. Section 203 prohibits Delaware corporations from engaging
in a wide range of specified transactions with any interested stockholder for three years following the date that person became an
interested stockholder, unless the transaction is approved in a prescribed manner. Generally, an interested stockholder is any person,
other than the corporation and any of its majority-owned subsidiaries, who owns 15% or more of any class or series of stock entitled to
vote generally in the election of directors. Section 203 may tend to deter any potential unfriendly offers or other efforts to obtain
control of our
3
company that are not approved by our board of directors. This may deprive the stockholders of opportunities to sell shares of our
common stock at prices higher than the prevailing market price.
4
EMPLOYMENT AGREEMENT
Exhibit 10.41
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of the 26th day of
October 2015 by and between Rite Aid Corporation, a Delaware corporation (the “Company”) and James J.
Comitale (“Executive”).
WHEREAS, the Company desires to hire and employ Executive and Executive desires to provide the
Company with Executive’s services subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and
agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and Executive (individually a “Party” and together the “Parties”),
intending to be legally bound, agree as follows:
1. Term of Employment.
The term of Executive’s employment under this Agreement shall commence on October 26, 2015 (the
“Effective Date”) and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending
on the date that is two (2) years following the Effective Date (the “Original Term of Employment”). The
Original Term of Employment shall be automatically renewed for successive one (1) year terms (the “Renewal
Terms”) unless at least one hundred twenty (120) days prior to the expiration of the Original Term of
Employment or any Renewal Term, either Party notifies the other Party in writing that Executive or it is
electing to terminate this Agreement at the expiration of the then current Term of Employment. “Term” shall
mean the Original Term of Employment and all Renewal Terms. For purposes of this Agreement, except as
otherwise provided herein, the phrases “year during the Term” or similar language shall refer to each twelve
(12) month period commencing on the Effective Date or applicable anniversaries thereof.
2. Position and Duties.
2.1 Generally. During the Term, Executive shall serve as the Senior Vice President and
General Counsel and shall have such officer level duties, responsibilities and authority as are customary for
Senior Vice President and shall have such other officer level duties, responsibilities and authorities as shall be
assigned by the Company from time to time consistent with such position. Executive shall devote Executive’s
full working time, attention, knowledge and skills faithfully and to the best of Executive’s ability, to the duties
and responsibilities assigned by the Company in furtherance of the business affairs and activities of the
Company and its subsidiaries, affiliates and strategic partners. Executive shall report to the Company’s Chief
Administrative Officer. Contemporaneously with termination of Executive’s employment with the Company for
any reason, Executive shall automatically resign from all offices and positions Executive holds with the
Company or any subsidiary without any further action on the part of Executive or the Company.
1
2.2 Other Activities. Anything herein to the contrary notwithstanding, nothing in this
Agreement shall preclude the Executive from engaging in the following activities: (i) serving on the board of
directors of a reasonable number of other corporations or the boards of a reasonable number of trade
associations and/or charitable organizations, subject to the Company’s approval, which shall not be
unreasonably withheld, (ii) engaging in charitable activities and community affairs, and (iii) managing
Executive’s personal investments and affairs, provided that Executive’s activities pursuant to clauses (i), (ii) or
(iii) do not violate Sections 6 or 7 below or materially interfere with the proper performance of Executive’s
duties and responsibilities under this Agreement. Executive shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions, and restrictions as the Company may from time to time establish
for officers of the Company or employees generally.
3. Compensation.
3.1 Base Salary. During the Term, as compensation for Executive’s services hereunder,
Executive shall receive a salary at the annualized rate of three hundred and seventy-five thousand dollars
($375,000) per year (“Base Salary” as may be adjusted from time to time), which shall be paid in accordance
with the Company’s normal payroll practices and procedures, less such deductions or offsets required by
applicable law or otherwise authorized by Executive.
3.2 Annual Performance Bonus. The Executive shall participate each fiscal year during the
Term in the Company’s annual bonus plan as adopted and approved by the Company’s Board of Directors (the
“Board”) or the Compensation Committee of the Board (the “Compensation Committee”) from time to time.
For the fiscal year ongoing as of the Effective Date (“FY 16”), Executive’s annual bonus opportunity pursuant
to such plan shall equal fifty percent (50%) (the “Annual Target Bonus”) of the Base Salary and for each
subsequent year, equal the bonus opportunity of other Senior Vice Presidents of the Company or a higher level
as determined by the Compensation Committee of the Board of Directors. Payment of any bonus earned shall be
made in accordance with the terms of the Company’s annual bonus plan as in effect for the year for which the
bonus is earned.
3.3 Equity Awards.
Executive will be eligible to participate during the Term in the Company’s Long Term Incentive Plan
(“LTIP”). Executive’s target long term incentive opportunity shall be seventy-five percent (75%) of Executive’s
Base Salary. In the discretion of the Board, on each regular grant date occurring during the Term, Executive
will be granted long-term incentive awards under the Company’s 2014 Omnibus Equity Plan or any successor
plan thereto (the “Equity Plan”), a copy of which Equity Plan has been filed as Exhibit 10.1 to the Company’s
current report on Form 8-K filed with the Securities and Exchange Commission on June 23, 2014, pursuant to
the LTIP valued at seventy-five percent (75%) of Base Salary calculated in a manner consistent with and
containing the same terms and conditions as other senior executives.
4. Additional Benefits.
4.1 Employee Benefits. During the Term, Executive shall be eligible to participate in the
employee benefit plans (including, but not limited to medical, dental and life insurance plans, short-term and
long-term disability coverage, the Supplemental Executive Retirement Plan and 401(k) plans in which executive
employees of the Company are generally
2
eligible to participate), subject to satisfaction of any eligibility requirements and the other generally applicable
terms of such plans. Nothing in this Agreement shall prevent the Company from amending or terminating any
employee benefit plans of the Company from time to time as the Company deems appropriate.
4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses
reasonably incurred by Executive in furtherance of Executive’s duties hereunder, including without limitation,
travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules
and policies relating thereto as the Company may from time to time adopt or as may be required in order to
permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal
Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in
effect (the “Code”).
4.3 Vacation. Executive shall be entitled to five (5) weeks paid vacation during each year of
the Term.
4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an
automobile allowance of $1,000.00 per month.
4.5 Annual Financial Planning Allowance. During the Term, the Company shall provide
Executive with an annual financial planning allowance in the amount of $3,000.00.
4.6 Relocation. Executive shall be eligible to participate in the Company’s Level 1
relocation plan for executives subject to the terms and conditions of such plan.
4.7 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the
full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses,
damages, liabilities or actions (including security holder actions, in respect thereof) relating to or arising out of
the Executive’s employment with and service as an officer of the Company, and (b) pay all reasonable costs,
expenses and attorney’s fees incurred by Executive in connection with or relating to the defense of any such
loss, claim, cost, expense, damage, liability or action, subject to Executive’s undertaking to repay in the event it
is ultimately determined that Executive is not entitled to be indemnified by the Company. Following
termination (except for termination by the Company for Cause) of the Executive’s employment or service with
the Company or any subsidiaries of the Company, the Company shall cause any director and officer liability
insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years
following the date of termination of employment.
5. Termination.
5.1 Termination of Executive’s Employment by the Company for Cause. The Company
may terminate Executive’s employment hereunder for Cause (as defined below). Such termination shall be
effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the
facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of
such notice in accordance with Section 12 hereof. “Cause,” as determined in reasonable good faith by a
committee comprised of
3
three (3) senior officers (one of which shall be Executive’s supervisor) of the Company, shall mean: (i)
Executive’s gross negligence or willful misconduct in the performance of the duties or responsibilities of
Executive’s position with the Company or any subsidiary, or failure to timely carry out any lawful directive of
the Company; (ii) Executive’s misappropriation of any funds or property of the Company or any subsidiary; (iii)
the conduct by Executive which is a material violation of this Agreement or Company Policy or which
materially interferes with the Executive’s ability to perform Executive’s duties; (iv) the commission by
Executive of an act of fraud or dishonesty toward the Company or any subsidiary; (v) Executive’s misconduct
or negligence which damages or injures the Company or the Company’s reputation; (vi) Executive is convicted
of or pleads guilty to a misdemeanor involving moral turpitude or any felony; or (vii) the use or disclosure to
any third party by Executive of any confidential or proprietary information of the Company or any subsidiary.
5.2 Compensation upon Termination by the Company for Cause or by Executive
without Good Reason. In the event of Executive’s termination of employment (i) by the Company for Cause or
(ii) by Executive voluntarily without Good Reason:
(a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base
Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses
incurred by Executive through the date of notice of such termination, to the extent otherwise provided under
Section 4.2 above, and (iii) all other vested payments and benefits to which Executive may otherwise be entitled
pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such
termination ((i), (ii) and (iii) collectively, the “Accrued Benefits”). All other rights of Executive (and, except as
provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with
Executive’s employment with the Company shall terminate effective as of the date of such termination of
employment and Executive shall not be entitled to any payments or benefits not specifically described in this
subsection (a) or (b) below.
(b) Any portion of any restricted stock or any other equity incentive awards as to
which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to
the date of termination shall be forfeited as of the date of termination date and any portion of Executive’s stock
options that have vested and become exercisable prior to the date of termination shall remain exercisable for a
period of ninety (90) days following the date of termination of employment (or, such later date as may be
permitted by the relevant stock option or equity plan, or, if earlier, until the expiration of the respective terms of
the options), whereupon all such options shall terminate; provided, however, in the event of termination of
Executive by the Company for Cause, any stock options that have not been exercised prior to the date of
termination shall immediately terminate as of such date.
Any termination of Executive’s employment by Executive voluntarily without Good Reason shall be
effective upon a thirty (30) day notice to the Company or such earlier date as the Company determines in its
discretion and designates in writing. A termination of Executive’s employment by the Company for Cause or by
the Executive other than for Good Reason shall not constitute a breach of this Agreement.
4
5.3 Compensation upon Termination of Executive’s Employment by the Company
Other Than for Cause or by Executive for Good Reason. Executive’s employment hereunder may be
terminated by the Company other than for Cause or by Executive for Good Reason. In the event that
Executive’s employment hereunder is terminated by the Company other than for Cause or by Executive for
Good Reason:
(a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) an amount equal
to two (2) times the sum of the Executive’s then Base Salary and Annual Target Bonus as of the date of
termination of employment, such amount payable in equal installments pursuant to the Company’s standard
payroll procedures for management employees over a period of two (2) years following the date that the release
of claims (referred to below) becomes irrevocable (provided, if as of the date of termination the release of
claims could become irrevocable in either of two taxable years of Executive, payments shall not commence
before the first day of the later such taxable year), and (iii) with respect to health insurance coverage, the cost of
COBRA benefits (and equivalent benefits which shall be provided by the Company following expiration of any
COBRA continuation period) to Executive and his immediate family for a period of two (2) years following the
date of termination of employment.
(b) The stock option awards held by Executive shall vest and become immediately
exercisable and the restrictions with respect to any awards of non-performance based restricted stock
(“Restricted Stock”) shall lapse, in each case to the extent such options would otherwise have become vested
and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company
for a period of two (2) years following the date of termination. Such portion of Executive’s stock options
(together with any portion of Executive’s stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of ninety (90) days following the date of termination
of employment (or, such later date as may be permitted by the relevant stock option or equity plan, or, if earlier,
until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any
remaining portion of Executive’s stock options that have not vested (or deemed to have vested) as of the date of
termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall
not have lapsed as of the date of termination shall be forfeited as of such date.
(c) If a termination pursuant to Section 5.3 of the Agreement occurs following the start
of the Company’s fiscal year, Executive shall also be entitled to receive, to the extent not previously paid
(which shall be paid at the same time paid to other eligible participants in the bonus plan) and following
determination by the Compensation Committee (or the Board) that the Company has achieved or exceeded its
annual performance targets for the fiscal year, a pro rata annual bonus determined by multiplying the
performance level achieved (relative to Executive’s Annual Target Bonus amount) by the fraction (x) the
numerator of which is the number of days between the beginning of the then current fiscal year of the Company
and the date of termination of employment and (y) the denominator of which is 365. Executive shall also
receive any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
obligations of the Company) hereunder or otherwise in connection with Executive’s
(d) All other rights of Executive (and, except as provided in Section 5.6 below, all
5
employment with the Company shall terminate effective as of the date of such termination of employment and
Executive shall not be entitled to any payments or benefits not specifically described in 5.3(a) through (c).
Any termination of employment pursuant to this Section 5.3 shall be effective upon a thirty (30) day
notice thereof or the Company may elect in its sole discretion to reduce or eliminate the notice period and pay
the Executive’s Base Salary for some or all of the notice period in lieu of notice. A termination of Executive’s
employment by the Company other than for Cause or by the Executive for Good Reason shall not constitute a
breach of this Agreement. To be eligible for the payment, benefits and stock rights described in Section
5.3(a)(ii) and (iii), (b) and (c) above, Executive must execute within sixty (60) days of the date of termination,
not revoke, and abide by a release (which shall be substantially in the form attached hereto as Appendix A) of
all claims , cooperate with the Company in the event of litigation and fully comply with Executive’s obligations
under Sections 6 and 7 below.
5.4 Definition of Good Reason. For purposes of this Agreement, “Good Reason” shall mean
the occurrence of any one of the following:
(a) the assignment to Executive of any duties or responsibilities materially inconsistent
with Executive’s status and position as Senior Vice President and General Counsel of the Company or any
material adverse change in Executive’s title or reporting relationships; or
in writing; or
(b) any decrease in Executive’s then Base Salary to which Executive has not agreed to
(c) a material breach by the Company of this Agreement;
provided, however, that the Executive has provided written notice (which shall set forth in reasonable detail the
specific conduct of the Company that constitutes Good Reason and the specific provisions of this Agreement on
which Executive relies) to the Company of the existence of any condition described in any one of the
subparagraphs (a), (b), or (c) within thirty (30) days of the initial existence of such condition, and the Company
has not cured the condition within thirty (30) days of the receipt of such notice. Any termination of employment
by the Executive for Good Reason pursuant to Section 5.3 must occur no later than the date that is the three (3)
month anniversary of the initial existence of the condition giving rise to the termination right.
5.5 Compensation upon Termination of Executive’s Employment by Reason of
Executive’s Death or Total Disability. In the event that Executive’s employment with the Company is
terminated by reason of Executive’s death or Total Disability (as defined below), subject to the requirements of
applicable law:
(a) Executive or Executive’s estate, as the case may be, shall be entitled to receive (i)
the Accrued Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans,
as applicable, in which Executive is a participant and (iii) continued health insurance coverage for Executive
and/or Executive’s immediate family, as applicable (or reimbursement to the Executive for the cost of
purchasing health insurance
6
coverage substantially comparable to the coverage provided by the Company, excepting payments for such
periods that the Company provides such coverage) for a period of two (2) years following the date of death or
Total Disability as the case may be. Executive or Executive’s estate shall also be entitled to receive, at the same
time as is paid to other eligible participants in the bonus plan, following determination by the Compensation
Committee (or the Board) of the Company’s performance under the applicable annual performance goals for the
fiscal year , a pro rata annual bonus determined by multiplying the performance level achieved (relative to
Executive’s Annual Target Bonus amount) by the fraction (x) the numerator of which is the number of days
between the beginning of the then current fiscal year of the Company and the date of termination of
employment and (y) the denominator of which is 365. Executive or Executive’s estate shall also be entitled to
any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
(b) All stock option awards held by Executive shall vest and become immediately
exercisable and the restrictions with respect to any awards of Restricted Stock shall lapse, in each case to the
extent such options would otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two (2) years following the date
of death or Total Disability as the case may be. Such portion of Executive’s stock options (together with any
portion of Executive’s stock options that have vested and become exercisable prior to the date of termination)
shall remain exercisable for a period of ninety (90) days following the date of termination of employment (or,
such later date as may be permitted by the relevant stock option or equity plan, or, if earlier, until the expiration
of the respective terms of the options), whereupon all such options shall terminate. Any remaining portion of
Executive’s stock options that have not vested (or deemed to have vested) as of the date of termination shall
terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as
of the date of termination shall be forfeited as of such date.
(c) All other rights of Executive (and, except as provided in Section 5.6 below, all
obligations of the Company) hereunder or otherwise in connection with Executive’s employment with the
Company shall terminate effective as of the date of such termination of employment and Executive shall not be
entitled to any payments or benefits not specifically described in Section 5.5(a) and (b).
“Total Disability” shall mean any physical or mental disability that has prevented Executive from (a)(i)
performing one or more of the essential functions of Executive’s position for a period of not less than ninety
(90) days in any twelve (12) month period and (ii) which is expected to be of permanent or indeterminate
duration but expected to last at least twelve (12) continuous months or result in death of the Executive as
determined (y) by a physician selected by the Company or its insurer or (z) pursuant to the Company’s benefit
programs; or (b) reporting to work for ninety (90) or more consecutive business days and being unable to
engage in any substantial activity.
5.6 Survival. In the event of any termination of Executive’s employment, Executive and the
Company nevertheless shall continue to be bound by the terms and conditions set forth in Section 4.7 and
Sections 5 through 10 below, which shall survive the expiration of the Term; provided, however, the
indemnification obligations in Section 4.7 shall not survive
7
expiration of the Term in the event of termination of Executive’s employment by the Company for Cause.
5.7 Change in Control Best Payments Determination. Any other provision of this
Agreement to the contrary notwithstanding, if any portion of any payment or benefit under this Agreement
either individually or in conjunction with any payment or benefit under any other plan, agreement or
arrangement (all such payments and benefits, the “Total Payments”) would constitute an “excess parachute
payment” within the meaning of Internal Revenue Code Section 280G, that is subject to the tax imposed by
Section 4999 of such Code (the “Excise Tax”), then the Total Payments to be made to Executive shall be
reduced, but only to the extent that Executive would retain a greater amount on an after-tax basis than he would
retain absent such reduction, such that the value of the Total Payments that Executive is entitled to receive shall
be $1 less than the maximum amount which the Employee may receive without becoming subject to the Excise
Tax. For purposes of this Section 5.7, the determination of whichever amount is greater on an after-tax basis
shall be (x) based on maximum federal, state and local income and employment tax rates and the Excise Tax
that would be imposed on Executive and (y) made at the Company’s expense by independent accountants
selected by the Company and Executive (which may be the Company’s income tax return preparers if Executive
so agrees) which determination shall be binding on both Executive and the Company. Any such reduction as
may apply under this Section 5 7 shall be applied in the following order: (i) payments that are payable in cash
the full amount of which are treated as parachute payments under Treasury Regulation Section 1.280G-1, Q&A
24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and
benefits due in respect of any equity the full amount of which are treated as parachute payments under Treasury
Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined
under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in
cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts
that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity
valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values
reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next
be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will next be
reduced pro-rata.
5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein,
Executive shall not be entitled to damages or to any severance or other benefits upon termination of
employment with the Company under any circumstances and for any or no reason, including, but not limited to
any severance pay under any Company severance plan, policy or practice.
6. Protection of Confidential Information.
Executive acknowledges that during the course of Executive’s employment with the Company, its
subsidiaries, affiliates and strategic partners, Executive will be exposed to documents and other information
regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including
without limitation, information about their past, present and future financial condition, pricing strategy, prices,
suppliers, cost
8
information, business and marketing plans, the markets for their products, key personnel, past, present or future
actual or threatened litigation, trade secrets and other intellectual property, current and prospective customer
lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs
and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to
the public (the “Confidential Information”). Executive further acknowledges that the services to be performed
under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition
of the foregoing, the Executive covenants and agrees as follows:
6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever
divulge, disclose, or otherwise use any Confidential Information (other than as necessary to perform
Executive’s duties under this Agreement and in furtherance of the Company’s best interests), unless and until
such information is readily available in the public domain by reason other than Executive’s disclosure or use
thereof in violation of the first clause of this Section 6.1. Executive acknowledges that Company is the owner
of, and that Executive has not rights to, any trade secrets, patents, copyrights, trademarks, know-how or similar
rights of any type, including any modifications or improvements to any work or other property developed,
created or worked on by Executive during the Term of this Agreement.
6.2 Return of Company Property, Records and Files. Upon the termination of Executive’s
employment at any time and for any reason, or at any other time the Board may so direct, Executive shall
promptly deliver to the Company’s offices in Harrisburg, Pennsylvania all of the property and equipment of the
Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards,
personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda,
customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form
or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners,
successors or assigns, and/or their respective past and present officers, directors, employees or consultants
(collectively, the “Company Property, Records and Files”); it being expressly understood that, upon termination
of Executive’s employment at any time and for any reason, Executive shall not be authorized to retain any of
the Company Property, Records and Files, any copies thereof or excerpts therefrom.
7. Noncompetition and Other Matters.
7.1 Noncompetition. During the Executive’s employment with the Company or one of its
subsidiaries and during the twelve (12) month period following the termination of Executive’s employment (the
“Restricted Period”), Executive will not directly, or indirectly knowingly cause any other person to, engage in
Competition with the Company or any of its subsidiaries in the Restricted Area (as defined below).
“Competition” shall mean engaging in any activity for a Competitor of the Company or any of its subsidiaries,
whether as a principal, agent, partner, officer, director, employee, independent contractor, investor, consultant
or stockholder (except as a less than five percent (5%) shareholder of a publicly traded company) or otherwise.
A “Competitor” shall mean any individual or entity that engages in the same or similar business as one or more
business units of the Company or its subsidiaries. As of the Effective Date, it is understood that the Company’s
business units include: (1) pharmacy benefits management (“PBM”), including the administration of pharmacy
benefits for businesses, government agencies
9
or health plans; mail order pharmacy; specialty pharmacy and Medicare Part D services; (2) the sale of
prescription drugs either at retail or over the internet; and (3) retail health care (“RediClinic”). It is understood
and agreed that PBM competitors include, but are not limited to, CVS Health, Express Scripts and Catamaran
Corp., as well as health plans or insurers that provide PBM services. It is also understood and agreed that retail
pharmacy competitors include any individual or entity that sells or has imminent plans to sell prescription
drugs, including but not limited to, drugstore companies such as Walgreens Boots Alliance and CVS Health;
mass merchants such as Wal-Mart Stores, Inc. and Target Corp.; and food/drug combinations such as Kroger
Co., Albertsons LLC and Ahold USA. It is understood and agreed that RediClinic competitors include, but are
not limited to, Walgreen’s Take Care Clinics, CVS Health’s Minute Clinics and The Little Clinic. During
Executive’s employment by the Company or one of its subsidiaries and during the Restricted Period, Executive
will not directly, or indirectly knowingly cause any other person to, engage in any activity that involves
providing audit review or other consulting or advisory services with respect to any relationship between the
Company and any third party. The “Restricted Area” means those states within the United States in which the
Company, including its subsidiaries, conducts its business, including the District of Columbia and Puerto Rico.
7.2 Noninterference. During the Restricted Period, Executive shall not, directly or
indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of
the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her
or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners,
successors or assigns for the purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or
sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic
partners, successors or assigns for any other reason.
7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly,
solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then
under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to
terminate, limit or otherwise modify his, her or its relationship with the Company or its subsidiaries, affiliates,
strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or
its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers,
clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason. During the
Restricted Period, Executive shall not hire, either directly or through any employee, agent or representative, any
field and corporate management employee of the Company or any subsidiary or any such person who was
employed by the Company or any subsidiary within 180 days of such hiring.
7.4 Rules of Professional Conduct. Notwithstanding anything in this Agreement to the
contrary, nothing in this this Section 7 shall restricts the right of Executive to practice law after termination of
employment with the Company.
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8. Rights and Remedies upon Breach.
If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above
(the “Restrictive Covenants”), the Company and its subsidiaries, affiliates, strategic partners, successors or
assigns shall have the following rights and remedies, each of which shall be independent of the others and
severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies
available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in
equity.
8.1 Specific Performance. The right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would
not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or
assigns.
8.2 Accounting. The right and remedy to require Executive to account for and pay over to
the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all
compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as a
result of any transaction or activity constituting a breach of any of the Restrictive Covenants.
8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive
Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder
of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect without regard
to the invalid portions.
8.4 Modification by the Court. If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court
shall have the power (and is hereby instructed by the parties) to modify or reduce the duration or scope of such
provision, as the case may be (it being the intent of the parties that any such modification or reduction be
limited to the minimum extent necessary to render such provision enforceable), and, in its modified or reduced
form, such provision shall then be enforceable.
8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to
specifically enforce the Restrictive Covenants by issuing an injunction in aid of arbitration upon the courts of
any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise,
it is the intention of Executive that such determination not bar or in any way affect the right of the Company or
its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts of
any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.
11
8.6 Extension of Restriction in the Event of Breach. In the event that Executive breaches
any of the provisions set forth in this Section 8, the length of time of the Restricted Period shall be extended for
a period of time equal to the period of time during which Executive is in breach of such provision.
9. No Violation of Third-Party Rights. Executive represents, warrants and covenants that
Executive:
(i) will not, in the course of employment, infringe upon or violate any proprietary rights of
any third party (including, without limitation, any third party confidential relationships, patents, copyrights,
mask works, trade secrets, or other proprietary rights);
(ii) is not a party to any conflicting agreements with third parties, which will prevent
Executive from fulfilling the terms of employment and the obligations of this Agreement;
(iii) does not have in Executive’s possession any confidential or proprietary information or
documents belonging to others and will not disclose to the Company, use, or induce the Company to use, any
confidential or proprietary information or documents of others; and
(iv) agrees to respect any and all valid obligations which Executive may now have to prior
employers or to others relating to confidential information, inventions, discoveries or other intellectual property
which are the property of those prior employers or others, as the case may be.
Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or
expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be
subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants.
10. Arbitration.
Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or
assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies
are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out
of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive’s
employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that
employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, shall be submitted to final and binding arbitration in the Commonwealth of Pennsylvania
according to the National Employment Dispute Resolution Rules and procedures of the American Arbitration
Association at the time in effect. The Company shall be responsible for any filing, administrative or arbitrator
fees that exceed the amount it would cost to file a claim in a court of competent jurisdiction in the
Commonwealth of Pennsylvania. This arbitration obligation extends to any and all claims that may arise by and
between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly
extends to, without
12
limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open
labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing,
breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the Pennsylvania Constitution, the United States
Constitution, and applicable state and federal fair employment laws, federal and state equal employment
opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil
Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities
Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income
Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and any
other state or federal law. Executive understands that by entering into this Agreement, Executive is waiving
Executive’s rights to have a court determine Executive’s rights, including under federal, state or local statutes
prohibiting employment discrimination, including sexual harassment and discrimination on the basis of age,
race, color, religion, national origin, disability, veteran status or any other factor prohibited by governing law.
Executive further understands that there is no intent herein to interfere with the Equal Employment Opportunity
Commission’s right to enforce the laws it oversees or your right to file an administrative charge of employment
discrimination or a similar state or local administrative agency.
11. Assignment.
Neither this Agreement, nor any of Executive’s rights or obligations hereunder, may be assigned or
otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder,
and Executive hereby consents to any such assignment, in whole or in part, (i) to any of the Company’s
subsidiaries, affiliates, or parent corporations; or (ii) to any other successor or assign in connection with the sale
of all or substantially all of the Company’s assets or stock or in connection with any merger, acquisition and/or
reorganization involving the Company.
12. Notices.
All notices and other communications under this Agreement shall be in writing and shall be given by fax
or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons
named below:
If to the Company: Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Chief Administrative Officer
Fax: (717) 760-7867
If to Executive: James J. Comitale, at Executive’s last address shown on the payroll records of the
Company.
Any party may change such party’s address for notices by notice duly given pursuant hereto.
13
13. General.
13.1 No Offset or Mitigation. The Company’s obligation to make the payments provided for
in, and otherwise to perform its obligations under this Agreement shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the Company may have against the
Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the
Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts,
benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of
this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
13.2 Governing Law. This Agreement is executed in Pennsylvania and shall be governed by
and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving
effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different
state or jurisdiction. Any court action instituted by Executive relating in any way to this Agreement shall be
filed exclusively in state or federal court in the Commonwealth of Pennsylvania and Executive consents to the
jurisdiction and venue of said courts in any action instituted by or on behalf of the Company against Executive.
13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties
relating to Executive’s employment with the Company and cancels and supersedes all agreements,
arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the
Executive and the Company and/or any subsidiary or affiliate.
13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument
executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
13.5 Conflict with Other Agreements. Executive represents and warrants that neither
Executive’s execution of this Agreement nor the full and complete performance of Executive’s obligations
hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any
person or entity.
13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be
binding upon the Company (and its successors and assigns) and Executive and Executive’s heirs, executors and
personal representatives.
13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may
withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required
to be withheld by applicable laws or regulations.
14
13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this Agreement. If any provision of this
Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect
to the fullest extent consistent with law.
13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not
be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or
equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell,
transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets
of the Executive in the event of insolvency or bankruptcy.
13.10 Survival. This Agreement shall survive the termination of Executive’s employment and
the expiration of the Term to the extent necessary to give effect to its provisions.
13.11 Captions. The section headings contained herein are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.
13.12 Counterparts. This Agreement may be executed by the parties hereto in separate
counterparts; each of which when so executed and delivered shall be an original but all such counterparts
together shall constitute one and the same instrument.
14. Compliance with Code Section 409A.
(a) Interpretation: The intent of the parties is that payments and benefits under this
Agreement comply with Section 409A of the Code, to the extent subject thereto, and accordingly, to the
maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith.
Notwithstanding anything contained herein to the contrary, Executive shall not be considered to have
terminated employment with the Company for purposes of any payments under this Agreement which are
subject to Section 409A of the Code until the Executive has incurred a “separation from service” from the
Company within the meaning of Section 409A of the Code.
(b) Payment of Benefits: To the extent necessary to avoid adverse tax consequences,
and except as described below, any payment to which Executive becomes entitled under the Agreement, or any
arrangement or plan referenced in this Agreement, that constitutes “deferred compensation” under section 409A
of the Code (“409A”), and is (a) payable upon Executive’s termination; (b) at a time when the Executive is a
“specified employee” as defined by 409A shall not be made until the first payroll date after the earliest of: (1)
the expiration of the six (6) month period (the “Deferral Period”) measured from the date of Executive’s
“separation from service” within the meaning of such term under 409A; or (2) the date of Executive’s death.
On the first payroll date after the expiration of the Deferral Period, all payments that would have been
made during the Deferral Period (whether in a single lump sum or in
15
installments) shall be paid as a single lump sum to Executive or, if applicable, Executive’s beneficiary. This
section shall not apply to any payment which meets the short term deferral exception to 409A or constitutes
“separation pay” as described in Treasury Regulation Section 409A-1(b)(9) (in general, payments (i) that are
made on an involuntary separation from service which (ii) do not exceed the lesser of two (2) times (x) the
Executive’s annualized compensation for the taxable year preceding the year in which the separation from
service occurs or (y) the Code Section 401(a)(17) limit on compensation for the year in which separation from
service occurs and (iii) are paid in total by the end of the second calendar year following the calendar year in
which the separation from service occurs).
For purposes of 409A, each payment and each installment described in this Agreement shall be
considered a separate payment from each other payment or installment and to the extent required by 409A, a
payment due upon termination of employment will only be paid upon Executive’s separation from service
within the meaning of such term under 409A.
(c) Reimbursements: To the extent required by 409A, with regard to any provision
that provides for the reimbursement of costs and expenses, or for the provision of in-kind benefits: (i) the right
to such reimbursement or in-kind benefit shall not be subject to liquidation or exchange for another benefit; (ii)
the amount of expenses or in-kind benefits available or paid in one (1) year shall not affect the amount available
or paid in any subsequent year; and (iii) such payments shall be made on or before the last day of the
Executive’s taxable year in which the expense occurred.
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date
first written above.
RITE AID CORPORATION
/s/ Darren Karst
By: Darren Karst
Its: Senior EVP, CAO & CFO
EXECUTIVE
/s/ James J. Comitale
James J. Comitale
16
Appendix A to Employment Agreement
Date
Name
Address
City, State Zip
Re: Severance Agreement and General Release
Dear Name:
We are interested in resolving cooperatively your separation of employment with Rite Aid Corporation
(the “Company”), which will take place on [DATE], (your “Separation Date”). Toward this end, we propose the
following Severance Agreement, which includes a General Release.
Whereas, the Company has previously entered into an employment agreement with you, dated [DATE]
(the “Employment Agreement”), which contains among other things, certain provisions regarding severance
compensation payable upon termination of your employment with the Company under certain circumstances.
Other than what is expressly set forth herein, the terms and conditions of the Employment Agreement shall
remain in full force and effect.
The terms and conditions set forth in Paragraph 1 below will apply regardless of whether you decide to
sign this Severance Agreement and General Release. However, you will not be eligible to receive the payments
and benefits set forth in Paragraph 2 below unless you sign on or after the Separation Date and do not revoke
this Severance Agreement and General Release, within the time period specified below.
You may consider for twenty-one (21) days whether you wish to sign this Severance Agreement and
General Release starting on the Separation Date. Since this Severance Agreement and General Release
(“Agreement”) is a legal document, you are advised to review it with an attorney prior to signing it.
1. General Terms of Termination. As noted above, whether or not you sign this Agreement:
(a) Your last day of employment with the Company is your Separation Date. You will be paid for all
time worked up to and including your termination.
(b) You will be paid for earned but unused vacation days and any properly documented reasonable
expenses incurred in connection with your employment through your Separation Date.
(c) Except as contemplated by the Employment Agreement, your eligibility to participate in all other
group benefits except Company sponsored health insurance including medical, dental, vision and prescription as
an employee of the Company will end on the last day of the calendar month in which separation occurs.
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(d) You acknowledge (i) receipt of all compensation and benefits due through the Separation Date
as a result of services performed for the Company with the receipt of a final paycheck, except as provided in
this Agreement; (ii) you have reported to the Company any and all work-related injuries incurred during
employment; (iii) the Company properly provided any leave of absence because of your or your family
member’s health condition and you have not been subjected to any improper treatment, conduct or actions due
to a request for or taking such leave; and (iv) you have provided the Company with written notice of any and all
concerns regarding suspected ethical and compliance issues or violations on the part of the Company or any of
the Released Parties.
2. Separation Payment. Except with respect to the Accrued Benefits as defined in the
Employment Agreement, if you sign this Agreement, agreeing to be bound by the General Release in Paragraph
3 below and the other terms and conditions of this Agreement described below, and comply with the
requirements of this Paragraph 2 (other than the Accrued Benefits), you will receive the compensation and
benefits as contemplated by the Employment Agreement. You will not be eligible for the payment and benefits
described in this Paragraph 2 unless: (i) you sign this Agreement no later than twenty-one (21) days after you
receive it, promptly return the Agreement to the Company after you sign it, and do not timely revoke it; and (ii)
you have returned all Company property and documents in accordance with Paragraph 15 below.
3. General Release. In consideration of the benefits provided by the Company, you personally and
for your heirs, executors, administrators, successors and assigns, fully, finally and forever release and discharge
the Company and its parents, subsidiaries, and affiliates, as well as their respective successors, assigns, officers,
owners, directors, agents, representatives, attorneys, and employees (collectively, the “Released Parties”), of
and from all claims, demands, actions, causes of action, suits, damages, losses, and expenses, of any and every
nature whatsoever, (a) as a result of actions or omissions occurring through the date Employee signs this
Agreement or (b) arising at any time under or relating to any agreements between you and any Releasee existing
as of the Separation Date. Specifically included in this waiver and release are, among other things, any and all
claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act, the Pennsylvania Human Relations Act, or any other federal, state or local
statute, rule, ordinance, or regulation, as well as any claims under common law for tort, contract, or wrongful
discharge (the “Released Claims”). The above release does not waive claims (i) for unemployment or workers’
compensation benefits, (ii) for vested rights under ERISA-covered employee benefit plans as applicable on the
date Employee signs this Agreement, (iii) to the extent prohibited by law, as a whistleblower under the
Sarbanes-Oxley Act or Dodd-Frank Wall Street Reform and Consumer Protection Act, (iv) to interpret or
enforce this Agreement, (v) that may arise after Employee signs this Agreement and (iv) which cannot be
released by private agreement. Nothing in this release generally prevents you from filing a charge or complaint
with or from participating in an investigation or proceeding conducted by the EEOC, NLRB or any other
federal, state or local agency charged with the enforcement of any employment laws, although by signing this
release you waive the right to individual relief based on claims asserted in such a charge or complaint, except
with the NLRB or anywhere else such a waiver is prohibited.
4. The parties agree and acknowledge that this Agreement and the considerations exchanged herein
shall not constitute and shall not be interpreted as an admission on the part of
18
the Company of a violation of any statute, law, or ordinance or of any other wrongdoing by the Company.
5. The parties further agree that this Agreement is in full, complete, and final settlement by you of
any and all claims, actions, causes of action, damages, or costs against the Company resulting from or
pertaining to the Released Claims, your employment with, treatment at, severance from, or separation of
employment from the Company.
6. The parties agree that this Agreement shall supersede and replace any and all prior written or oral
agreements previously entered into between them, which agreements shall be null and void and of no
consequence, except that the parties agree that this paragraph does not apply to any agreements referenced in
this Agreement or to any applicable confidentiality, noncompetition, noninterference, and/or nonsolicitation
agreements.
7. The parties agree that the laws of the Commonwealth of Pennsylvania shall apply to the terms
and conditions of this Agreement, and they consent to the exclusive jurisdiction of the Pennsylvania courts with
respect to the enforcement of this Agreement.
8. You agree not to seek future employment with and waive any and all claims or rights to
reemployment or reinstatement to your former position or any position within the Company or any of its
affiliates.
9. You understand and agree that in the event any claim, suit, or action whatsoever shall be
commenced by you, your heirs, executors, or administrators against the Company, based upon the Released
Claims, this Agreement shall constitute a complete defense to any such claim, suit, or action.
10. Except as specifically set forth herein, you waive any common law and/or statutory right to
recover attorneys’ fees and costs, if any.
11. It is intended that this Agreement, and all payments or income to you contemplated by it, comply
with, or are exempt from, the provisions of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”) and the Treasury Regulations promulgated thereunder. This Agreement shall be construed,
administered, and governed in a manner consistent with this intent. The Company hereby agrees to indemnify
and hold you harmless on an after-tax basis for any federal or state taxes imposed under Code section 409A (or
similar state law) and any interest, penalties, or additions to tax imposed with respect thereto (collectively,
“409A Taxes”) as well as related reasonable out-of-pocket expenses resulting from contesting the imposition of
409A Taxes that result from the payment of, or right to, any amount or property provided for in this Agreement.
Any such indemnity payment shall be made within thirty (30) days of the date you remit the 409A Taxes to the
applicable taxing authority imposing the 409A Taxes.
12. It is agreed that the terms and provisions of this Agreement are to remain strictly confidential and
that any disclosure of the terms of this Agreement by you to any employee or former employee of the Company,
or to any other person, other than your legal counsel, tax advisors, or your immediate family members will
constitute a material breach of this Agreement.
19
13. You agree that you will not make any disparaging statements, oral or written, regarding the
Company to any person, firm or other entity. You further agree, without limiting any other applicable remedies,
that in the event of any breach of this provision, the Company’s obligation to provide any and all consideration
provided for in Paragraph 2 above will terminate. The Company agrees that members of its senior management
team will not disparage you for so long as they remain members of such management team.
14. Regardless of whether you sign this Agreement, and as a condition of receiving the consideration
set forth in Paragraph 2 above, you must return to your supervisor, retaining no copies, all Company property,
including computers, wireless devices, papers, files, documents, reference guides, equipment, keys, access key
tag/card, identification cards, credit cards, software, computer access codes, disks, supplies and institutional
manuals, and you shall not retain any copies, duplicates, reproductions or excerpts of any of the foregoing,
whether in hardcopy or electronic format and are prohibited from using or disclosing confidential and/or
proprietary information which you accrued in the course of your employment with the Company.
15. You agree to make yourself available at mutually agreeable times to cooperate with the
Company with respect to any legal proceedings that the Company believes, in its sole discretion, may be in any
way related to your employment with the Company. Such cooperation encompasses your assistance with
matters preliminary to the investigation of any legal proceedings and assistance during and throughout any
litigation or legal proceeding, including, but not limited to, participating in any fact-finding or investigation,
speaking with the Company’s attorneys, testifying in depositions Upon submission of appropriate
documentation, you shall be reimbursed for reasonable out-of-pocket expenses incurred in rendering such
cooperation, which shall not include any attorneys’ fees, testifying at hearings or at trial, and assisting with any
post-litigation matter or appeal. Nothing in this paragraph should be construed as suggesting or implying in any
way that you should testify untruthfully.
16. No provision of this Agreement shall be construed or enforced in a manner that would prevent
Employee from testifying fully and truthfully under oath in any court, arbitration or administrative agency
proceeding, or from filing a charge or providing complete and truthful information in the course of any
government investigation. No provision of this Agreement shall be construed or enforced in a manner that
would interfere with Employee’s rights under the National Labor Relations Act, if any, to discuss or comment
on terms and conditions of employment.
17. You are advised to consult with an attorney prior to signing this Agreement. You have 21 days
from the Separation Date to consider whether to sign this Agreement (the “Consideration Period”). You must
return this signed Agreement to the Company’s representative set forth below within the Consideration Period
but not prior to the Separation Date. If you sign and return this Agreement before the end of the Consideration
Period, it is because you freely chose to do so after carefully considering its terms. Additionally, you shall have
seven (7) days from the date of the signing of this Agreement to revoke this Agreement by delivering a written
notice of revocation within the seven-day revocation period to the same person as you returned this Agreement.
If the revocation period expires on a weekend or holiday, you will have until the end of the next business day to
revoke. This Agreement will become effective on the eighth day after you sign this Agreement provided you do
not revoke your
20
consent to this Agreement prior to such day. Any modification or alteration of any terms of this Agreement by
you voids this Agreement in its entirety. You agree with the Company that changes, whether material or
immaterial, do not restart the commencement of the Consideration Period.
18. In the event that, any one or more provisions (or portion thereof) of this Agreement is held to be
invalid, unlawful or unenforceable for any reason, the invalid, unlawful or unenforceable provision (or portion
thereof) shall be construed or modified so as to provide the Company with the maximum protection that is
valid, lawful and enforceable, consistent with the intent of the Company and you in entering into this
Agreement. If such provision (or portion thereof) cannot be construed or modified so as to be valid, lawful and
enforceable, that provision (or portion thereof) shall be construed as narrowly as possible and shall be severed
from the remainder of this Agreement (or provision), and the remainder shall remain in effect and be construed
as broadly as possible, as if such invalid, unlawful or unenforceable provision (or portion thereof) had never
been contained in this Agreement.
19. No changes to this Agreement can be effective except by another written agreement signed by
you and by the Company’s authorized representative.
20. You and the Company execute this Agreement voluntarily, with full knowledge of its
significance, and you acknowledge that you have read and fully understand the meaning of this Agreement,
intend to be legally bound by the Agreement, and that no inducement, duress, or coercion caused either party to
enter into this understanding.
PLEASE READ CAREFULLY
1. THIS AGREEMENT CONSTITUTES A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS. IT DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE IT IS
EXECUTED;
2. YOU AGREE THAT YOU ARE WAIVING RIGHTS AND CLAIMS YOU MAY HAVE IN
EXCHANGE FOR CONSIDERATION IN ADDITION TO THINGS OF VALUE TO WHICH YOU ARE
ALREADY ENTITLED;
3. YOU UNDERSTAND THAT YOU HAVE THE RIGHT TO CONSULT WITH AN
ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT;
4. YOU UNDERSTAND THAT YOU HAVE TWENTY-ONE (21) DAYS WITHIN WHICH TO
CONSIDER THIS AGREEMENT;
5. YOU UNDERSTAND THAT YOU HAVE SEVEN (7) DAYS FOLLOWING YOUR
EXECUTION OF THIS AGREEMENT TO REVOKE IT AND THAT THIS AGREEMENT SHALL NOT
BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.
REVOCATION MUST BE IN WRITING AND TIMELY DELIVERED TO: CHIEF ADMINISTRATIVE
OFFICER, RITE AID CORPORATION, 30 HUNTER LANE, CAMP HILL, PENNSYLVANIA, 17011.
21
In witness whereof, the parties hereto have executed this Agreement on the day and date indicated
below.
RITE AID CORPORATION
By:
Its:
Dated:
EXECUTIVE
Dated:
22
November 6, 2019
Exhibit 10.42
Mr. James J. Comitale
Executive Vice President and General Counsel Rite
Aid Corporation
30 Hunter Lane Camp Hill, PA 17011
RE: Agreement dated as of October 26, 2015 by and between Rite Aid Corporation (the "Company") and James J.
Comitale ("Executive"), as amended from time to time (the "Agreement")
Dear Jim:
I am pleased to provide you with this letter in order to update the Agreement to reflect your promotion to the
position of Executive Vice President and General Counsel of the Company, effective September 18, 2019 (the
"Amendment Date"). The accompanying increase in base salary already is effective and has been in place for some time.
In consideration of your appointment and of other good and valuable consideration, the receipt of which is
acknowledged:
1. Section 2.1 ("Position and Duties-Generally") is hereby amended by:
a. deleting the term "Senior Vice President and General Counsel" and replacing it with the term
"Executive Vice President and General Counsel" in the first sentence of Section 2.1;
b. deleting the term "customary for Senior Vice President" and replacing it with the term "customary for
an Executive Vice President" in the first sentence of Section 2.1; and
c. deleting the term "Chief Administrative Officer" and replacing it with the term "Chief Executive
Officer" in the third sentence of Section 2.1.
2. Section 3.1 ("Base Salary") is hereby amended by deleting the amount "three hundred and seventy-five
thousand dollars ($375,000)" and replacing it with the amount "five hundred and sixty-seven thousand
and five hundred dollars ($567,500)".
3. Section 4.5 ("Annual Financial Planning Allowance") is hereby amended by deleting the amount
"$3,000.00" and replacing it with the amount "$5,000.00".
4. Section 5.4(a) ("Definition of Good Reason") is hereby amended by deleting the term "Senior Vice President
and General Counsel" and replacing it with the term "Executive Vice President and General Counsel".
5. The following provision is hereby added to the Agreement as a new Section 7.5:
7.5 Permitted Disclosures. Pursuant to 18 U.S.C. § 1833(b), Executive understands that Executive
will not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade
secret of the Company that (a) is made (i) in confidence to a Federal, State, or local government official, either
directly or indirectly, or to Executive's attorney and (ii) solely for the purpose of reporting or investigating a
suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or
other proceeding. Executive understands that if Executive files a lawsuit for retaliation by the Company for
reporting a suspected violation of law, Executive may disclose the trade secret to Executive's attorney and use the
trade secret information in the court proceeding if Executive (x) files any document containing the trade secret
under seal, and (y) does not disclose the trade secret, except pursuant to court order. Nothing in this Agreement,
or any other agreement that Executive has with the Company, is intended to conflict with 18 U.S.C. § 1833(b) or
create liability for disclosures of trade secrets that are expressly allowed by such section. Further, nothing in this
Agreement or any other agreement that Executive has with the Company shall prohibit or restrict Executive from
(A) making any voluntary disclosure of information or documents concerning possible violations of law to any
governmental agency or legislative body, or any self-regulatory organization, in each case, without advance notice
to the Company; or (B) responding to a valid subpoena, court order or similar legal process; provided, however,
that prior to making any such disclosure pursuant to this Section 7.5, Executive shall provide the Company with
written notice of the subpoena, court order or similar legal process sufficiently in advance of such disclosure to
afford the Company a reasonable opportunity to challenge the subpoena, court order or similar legal process.
If you are in agreement with the changes described in the above paragraphs, please sign both copies of
this letter below where indicated, returning one copy to me and retaining one copy for your records.
[SIGNATURE PAGE FOLLOWS]
2
Sincerely,
Rite Aid Corporation
By: /s/ Jessica Kazmaier
Name: Jessica Kazmaier
Title: Executive Vice President and
Chief Human Resources Officer
Agreed:
/s/ James J. Comitale
James J. Comitale
EMPLOYMENT AGREEMENT
Exhibit 10.43
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of the 12th day of March,
2019 by and between Rite Aid Corporation, a Delaware corporation (the “Company”) and Jessica Kazmaier (the
“Executive”).
WHEREAS, the Company desires to employ Executive and Executive desires to provide the Company
with Executive’s services subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and
agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and Executive (individually a “Party” and together the “Parties”),
intending to be legally bound, agree as follows:
1.
Term of Employment.
The term of Executive’s employment under this Agreement shall commence on March 12, 2019 (the
“Effective Date”) and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending
on the date that is two (2) years following the Effective Date (the “Original Term of Employment”). The
Original Term of Employment shall be automatically renewed for successive one (1) year terms (the “Renewal
Terms”) unless at least one hundred twenty (120) days prior to the expiration of the Original Term of
Employment or any Renewal Term, either Party notifies the other Party in writing that Executive or it is
electing to terminate this Agreement at the expiration of the then current Term of Employment. “Term” shall
mean the Original Term of Employment and all Renewal Terms. For purposes of this Agreement, except as
otherwise provided herein, the phrases “year during the Term” or similar language shall refer to each twelve
(12) month period commencing on the Effective Date or applicable anniversaries thereof.
2.
Position and Duties.
2.1 Generally. During the Term, Executive shall serve as the Senior Vice President and
Chief Human Resources Officer and shall have such officer level duties, responsibilities and authority as are
customary for a Senior Vice President and shall have such other officer level duties, responsibilities and
authorities as shall be assigned by the Company from time to time consistent with such position. Executive shall
devote Executive’s full working time, attention, knowledge and skills faithfully and to the best of Executive’s
ability, to the duties and responsibilities assigned by the Company in furtherance of the business affairs and
activities of the Company and its subsidiaries, affiliates and strategic partners. Executive shall report to the
Chief Executive Officer. Contemporaneously with termination of Executive’s employment with the Company
for any reason, Executive shall automatically resign from all offices and positions Executive holds with the
Company or any subsidiary without any further action on the part of Executive or the Company.
2.2 Other Activities. Anything herein to the contrary notwithstanding, nothing in this
Agreement shall preclude the Executive from engaging in the following activities: (i) serving on the board of
directors of a reasonable number of other corporations or the boards of a reasonable number of trade
associations and/or charitable organizations, subject to the Company’s approval, which shall not be
unreasonably withheld, (ii) engaging in charitable activities and community affairs, and (iii) managing
Executive’s personal investments and affairs, provided that Executive’s activities pursuant to clauses (i), (ii) or
(iii) do not violate Sections 6 or 7 below or materially interfere with the proper performance of Executive’s
duties and responsibilities under this Agreement. Executive shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions, and restrictions as the Company may from time to time establish
for officers of the Company or employees generally.
3.
Compensation.
3.1
Base Salary. During the Term, as compensation for Executive’s services hereunder,
Executive shall receive a salary at the annualized rate of Three Hundred Seventy-Five Thousand Dollars
($375,000) per year (“Base Salary” as may be adjusted from time to time), which shall be paid in accordance
with the Company’s normal payroll practices and procedures, less such deductions or offsets required by
applicable law or otherwise authorized by Executive.
3.2
Annual Performance Bonus. Executive shall participate each fiscal year during the
Term in the Company’s annual bonus plan as adopted and approved by the Board or the Compensation
Committee from time to time. Executive’s annual target bonus opportunity pursuant to such plan (the “Annual
Target Bonus”) shall equal 50% of the Base Salary in effect for Executive as of the beginning of such fiscal
year; provided that for the current fiscal year in which the Effective Date falls, the 50% shall apply beginning
with the fiscal period in which the Effective Date falls, through the balance of such fiscal year. Payment of any
bonus earned shall be made in accordance with the terms of the Company’s annual bonus plan as in effect for
the year for which the bonus is earned.
3.3
Equity Awards. Executive will be eligible to participate during the Term in the
Company’s Long Term Incentive Plan (“LTIP”). Executive’s target long term incentive opportunity shall be
seventy-five percent (75%) of Executive’s Base Salary. In the discretion of the Board, on each regular grant
date occurring during the Term, Executive will be granted long-term incentive awards under the Company’s
2014 Omnibus Equity Plan or any successor plan thereto (the “Equity Plan”), a copy of which Equity Plan has
been filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange
Commission on June 23, 2014, pursuant to the LTIP valued at seventy-five percent (75%) of Base Salary
calculated in a manner consistent with and containing the same terms and conditions as other senior executives
of the Company.
4.
Additional Benefits.
4.1
Employee Benefits. During the Term, Executive shall be eligible to participate in the
employee benefit plans (including, but not limited to medical, dental and life insurance plans, short-term and
long-term disability coverage and 401(k) plans) in which executive employees of the Company are generally
eligible to participate, subject to satisfaction
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of any eligibility requirements and the other generally applicable terms of such plans. Nothing in this
Agreement shall prevent the Company from amending or terminating any employee benefit plans of the
Company from time to time as the Company deems appropriate.
4.2
Expenses. During the Term, the Company shall reimburse Executive for any expenses
reasonably incurred by Executive in furtherance of Executive’s duties hereunder, including without limitation,
travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules
and policies relating thereto as the Company may from time to time adopt or as may be required in order to
permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal
Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in
effect (the “Code”).
4.3
Vacation. Executive shall be entitled to four (4) weeks paid vacation during each year of
the Term.
4.4
Automobile Allowance. During the Term, the Company shall provide Executive with an
automobile allowance of $1.000.00 per month.
4.5
Annual Financial Planning Allowance. During the Term, the Company shall provide
Executive with an annual financial planning allowance in the amount of $3,000.00.
4.6
Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the
full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses,
damages, liabilities or actions (including security holder actions, in respect thereof) relating to or arising out of
the Executive’s employment with and service as an officer of the Company, and (b) pay all reasonable costs,
expenses and attorney’s fees incurred by Executive in connection with or relating to the defense of any such
loss, claim, cost, expense, damage, liability or action, subject to Executive’s undertaking to repay in the event it
is ultimately determined that Executive is not entitled to be indemnified by the Company. Following
termination (except for termination by the Company for Cause) of the Executive’s employment or service with
the Company or any subsidiaries of the Company, the Company shall cause any director and officer liability
insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years
following the date of termination of employment.
5.
Termination.
5.1
Termination of Executive’s Employment by the Company for Cause. The Company
may terminate Executive’s employment hereunder for Cause (as defined below). Such termination shall be
effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the
facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of
such notice in accordance with Section 12 hereof. “Cause,” as determined in reasonable good faith by a
committee comprised of three (3) senior officers (one of which shall be Executive’s supervisor) of the
Company, shall mean: (i) Executive’s gross negligence or willful misconduct in the performance of the duties
or responsibilities of Executive’s position with the Company or any subsidiary, or failure to timely
3
carry out any lawful directive of the Company; (ii) Executive’s misappropriation of any funds or property of the
Company or any subsidiary; (iii) the conduct by Executive which is a material violation of this Agreement or
Company Policy or which materially interferes with the Executive’s ability to perform Executive’s duties; (iv)
the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; (v)
Executive’s misconduct or negligence which damages or injures the Company or the Company’s reputation;
(vi) Executive is convicted of or pleads guilty to a misdemeanor involving moral turpitude or any felony; or
(vii) the use or disclosure to any third party by Executive of any confidential or proprietary information of the
Company or any subsidiary.
5.2
Compensation upon Termination by the Company for Cause or by Executive
without Good Reason. In the event of Executive’s termination of employment (i) by the Company for Cause or
(ii) by Executive voluntarily without Good Reason:
(a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base
Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses
incurred by Executive through the date of notice of such termination, to the extent otherwise provided under
Section 4.2 above, and (iii) all other vested payments and benefits to which Executive may otherwise be entitled
pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such
termination ((i), (ii) and (iii) collectively, the “Accrued Benefits”). All other rights of Executive (and, except as
provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with
Executive’s employment with the Company shall terminate effective as of the date of such termination of
employment and Executive shall not be entitled to any payments or benefits not specifically described in this
subsection (a) or (b) below.
(b) Any portion of any restricted stock or any other equity incentive awards as to which
the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the date
of termination shall be forfeited as of the date of termination date and any portion of Executive’s stock options
that have vested and become exercisable prior to the date of termination shall remain exercisable for a period of
ninety (90) days following the date of termination of employment (or, such later date as may be permitted by
the relevant stock option or equity plan, or, if earlier, until the expiration of the respective terms of the options),
whereupon all such options shall terminate; provided, however, in the event of termination of Executive by the
Company for Cause, any stock options that have not been exercised prior to the date of termination shall
immediately terminate as of such date.
Any termination of Executive’s employment by Executive voluntarily without Good Reason shall be
effective upon a thirty (30) day notice to the Company or such earlier date as the Company determines in its
discretion and designates in writing. A termination of Executive’s employment by the Company for Cause or by
the Executive other than for Good Reason shall not constitute a breach of this Agreement.
5.3
Compensation upon Termination of Executive’s Employment by the Company
Other Than for Cause or by Executive for Good Reason. Executive’s employment hereunder may be
terminated by the Company other than for Cause or by Executive for Good
4
Reason. In the event that Executive’s employment hereunder is terminated by the Company other than for
Cause or by Executive for Good Reason:
(a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) an amount equal
to two (2) times the Executive’s then Base Salary as of the date of termination of employment, such amount
payable in equal installments pursuant to the Company’s standard payroll procedures for management
employees over a period of two (2) years following the date that the release of claims (referred to below)
becomes irrevocable (provided, if as of the date of termination the release of claims could become irrevocable
in either of two taxable years of Executive, payments shall not commence before the first day of the later such
taxable year), and (iii) with respect to health insurance coverage, the cost of COBRA benefits (and equivalent
benefits which shall be provided by the Company following expiration of any COBRA continuation period) to
Executive and her immediate family for a period of two (2) years following the date of termination of
employment, with such COBRA coverage running co-extensively with the reimbursement of such costs.
(b) The stock option awards held by Executive shall vest and become immediately
exercisable and the restrictions with respect to any awards of non-performance based restricted stock
(“Restricted Stock”) shall lapse, in each case to the extent such options would otherwise have become vested
and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company
for a period of two (2) years following the date of termination. Such portion of Executive’s stock options
(together with any portion of Executive’s stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of ninety (90) days following the date of termination
of employment (or, such later date as may be permitted by the relevant stock option or equity plan, or, if earlier,
until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any
remaining portion of Executive’s stock options that have not vested (or deemed to have vested) as of the date of
termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall
not have lapsed as of the date of termination shall be forfeited as of such date.
(c)
If a termination pursuant to Section 5.3 of the Agreement occurs following the start
of the Company’s fiscal year, Executive shall also be entitled to receive, to the extent not previously paid
(which shall be paid at the same time paid to other eligible participants in the bonus plan and following
determination by the Compensation Committee (or the Board) that the Company has achieved or exceeded its
annual performance targets for the fiscal year), a pro rata annual bonus determined by multiplying the
performance level achieved (relative to Executive’s Annual Target Bonus amount) by the fraction (x) the
numerator of which is the number of days between the beginning of the then current fiscal year of the Company
and the date of termination of employment and (y) the denominator of which is 365. Executive shall also
receive any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
(d) All other rights of Executive (and, except as provided in Section 5.6 below, all
obligations of the Company) hereunder or otherwise in connection with Executive’s employment with the
Company shall terminate effective as of the date of such termination of
5
employment and Executive shall not be entitled to any payments or benefits not specifically described in 5.3(a)
through (c).
Any termination of employment pursuant to this Section 5.3 shall be effective upon a thirty (30) day
notice thereof or the Company may elect in its sole discretion to reduce or eliminate the notice period and pay
the Executive’s Base Salary for some or all of the notice period in lieu of notice. A termination of Executive’s
employment by the Company other than for Cause or by the Executive for Good Reason shall not constitute a
breach of this Agreement. To be eligible for the payment, benefits and stock rights described in Section
5.3(a)(ii) and (iii), (b) and (c) above, Executive must execute within sixty (60) days of the date of termination,
not revoke, and abide by a release (which shall be substantially in the form attached hereto as Appendix A) of
all claims, cooperate with the Company in the event of litigation and fully comply with Executive’s obligations
under Sections 6 and 7 below.
5.4
Definition of Good Reason. For purposes of this Agreement, “Good Reason” shall mean
the occurrence of any one of the following:
(a)
the assignment to Executive of any duties or responsibilities materially inconsistent
with Executive’s status and position as Senior Vice President & Chief Human Resources Officer of the
Company or any material adverse change in Executive’s title or reporting relationships; or
in writing; or
(b) any decrease in Executive’s then Base Salary to which Executive has not agreed to
(c)
a material breach by the Company of this Agreement;
provided, however, that the Executive has provided written notice (which shall set forth in reasonable detail the
specific conduct of the Company that constitutes Good Reason and the specific provisions of this Agreement on
which Executive relies) to the Company of the existence of any condition described in any one of the
subparagraphs (a), (b), or (c) within thirty (30) days of the initial existence of such condition, and the Company
has not cured the condition within thirty (30) days of the receipt of such notice. Any termination of employment
by the Executive for Good Reason pursuant to Section 5.3 must occur no later than the date that is the three (3)
month anniversary of the initial existence of the condition giving rise to the termination right.
5.5
Compensation upon Termination of Executive’s Employment by Reason of
Executive’s Death or Total Disability. In the event that Executive’s employment with the Company is
terminated by reason of Executive’s death or Total Disability (as defined below), subject to the requirements of
applicable law:
(a) Executive or Executive’s estate, as the case may be, shall be entitled to receive (i)
the Accrued Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans,
as applicable, in which Executive is a participant and (iii) continued health insurance coverage for Executive
and/or Executive’s immediate family, as applicable (or reimbursement to the Executive for the cost of
purchasing health insurance coverage substantially comparable to the coverage provided by the Company,
excepting
6
payments for such periods that the Company provides such coverage) for a period of one (1) year following the
date of death or Total Disability as the case may be. Executive or Executive’s estate shall also be entitled to
receive, at the same time as is paid to other eligible participants in the bonus plan, following determination by
the Compensation Committee (or the Board) of the Company’s performance under the applicable annual
performance goals for the fiscal year, a pro rata annual bonus determined by multiplying the performance level
achieved (relative to Executive’s Annual Target Bonus amount) by the fraction (x) the numerator of which is
the number of days between the beginning of the then current fiscal year of the Company and the date of
termination of employment and (y) the denominator of which is 365. Executive or Executive’s estate shall also
be entitled to any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
(b) All stock option awards held by Executive shall vest and become immediately
exercisable and the restrictions with respect to any awards of Restricted Stock shall lapse, in each case to the
extent such options would otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of one (1) year following the date of
death or Total Disability as the case may be. Such portion of Executive’s stock options (together with any
portion of Executive’s stock options that have vested and become exercisable prior to the date of termination)
shall remain exercisable for a period of ninety (90) days following the date of termination of employment (or,
such later date as may be permitted by the relevant stock option or equity plan, or, if earlier, until the expiration
of the respective terms of the options), whereupon all such options shall terminate. Any remaining portion of
Executive’s stock options that have not vested (or deemed to have vested) as of the date of termination shall
terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed
(after application of this Section 5.5(b)) as of the date of termination shall be forfeited as of such date.
(c) All other rights of Executive (and, except as provided in Section 5.6 below, all
obligations of the Company) hereunder or otherwise in connection with Executive’s employment with the
Company shall terminate effective as of the date of such termination of employment and Executive shall not be
entitled to any payments or benefits not specifically described in Section 5.5(a) and (b).
“Total Disability” shall mean any physical or mental disability that has prevented Executive from (a)(i)
performing one or more of the essential functions of Executive’s position for a period of not less than ninety
(90) days in any twelve (12) month period and (ii) which is expected to be of permanent or indeterminate
duration but expected to last at least twelve (12) continuous months or result in death of the Executive as
determined (y) by a physician selected by the Company or its insurer or (z) pursuant to the Company’s benefit
programs; or (b) reporting to work for ninety (90) or more consecutive business days and being unable to
engage in any substantial activity.
5.6
Survival. In the event of any termination of Executive’s employment, Executive and the
Company nevertheless shall continue to be bound by the terms and conditions set forth in Section 4.6 and
Sections 5 through 10 hereof, which shall survive the expiration of the Term; provided, however, the
indemnification obligations in Section 4.6 shall not survive
7
expiration of the Term in the event of termination of Executive’s employment by the Company for Cause.
5.7
Change in Control Best Payments Determination. Any other provision of this
Agreement to the contrary notwithstanding, if any portion of any payment or benefit under this Agreement
either individually or in conjunction with any payment or benefit under any other plan, agreement or
arrangement (all such payments and benefits, the “Total Payments”) would constitute an “excess parachute
payment” within the meaning of Internal Revenue Code Section 280G, that is subject to the tax imposed by
Section 4999 of such Code (the “Excise Tax”), then the Total Payments to be made to Executive shall be
reduced, but only to the extent that Executive would retain a greater amount on an after-tax basis than he would
retain absent such reduction, such that the value of the Total Payments that Executive is entitled to receive shall
be $1 less than the maximum amount which the Employee may receive without becoming subject to the Excise
Tax. For purposes of this Section 5.7, the determination of whichever amount is greater on an after-tax basis
shall be (x) based on maximum federal, state and local income and employment tax rates and the Excise Tax
that would be imposed on Executive and (y) made at the Company’s expense by independent accountants
selected by the Company and Executive (which may be the Company’s income tax return preparers if Executive
so agrees) which determination shall be binding on both Executive and the Company. Any such reduction as
may apply under this Section 5 7 shall be applied in the following order: (i) payments that are payable in cash
the full amount of which are treated as parachute payments under Treasury Regulation Section 1.280G-1, Q&A
24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and
benefits due in respect of any equity the full amount of which are treated as parachute payments under Treasury
Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined
under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in
cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts
that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity
valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values
reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next
be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will next be
reduced pro-rata.
5.8
No Other Severance or Termination Benefits. Except as expressly set forth herein,
Executive shall not be entitled to damages or to any severance or other benefits upon termination of
employment with the Company under any circumstances and for any or no reason, including, but not limited to
any severance pay under any Company severance plan, policy or practice.
6.
Protection of Confidential Information.
Executive acknowledges that during the course of Executive’s employment with the Company, its
subsidiaries, affiliates and strategic partners, Executive will be exposed to documents and other information
regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including
without limitation, information about their past, present and future financial condition, pricing strategy, prices,
suppliers, cost
8
information, business and marketing plans, the markets for their products, key personnel, past, present or future
actual or threatened litigation, trade secrets and other intellectual property, current and prospective customer
lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs
and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to
the public (the “Confidential Information”). Executive further acknowledges that the services to be performed
under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition
of the foregoing, the Executive covenants and agrees as follows:
6.1
No Disclosure or Use of Confidential Information. At no time shall Executive ever
divulge, disclose, or otherwise use any Confidential Information (other than as necessary to perform
Executive’s duties under this Agreement and in furtherance of the Company’s best interests), unless and until
such information is readily available in the public domain by reason other than Executive’s disclosure or use
thereof in violation of the first clause of this Section 6.1. Executive acknowledges that Company is the owner
of, and that Executive has not rights to, any trade secrets, patents, copyrights, trademarks, know-how or similar
rights of any type, including any modifications or improvements to any work or other property developed,
created or worked on by Executive during the Term of this Agreement.
6.2
Return of Company Property, Records and Files. Upon the termination of Executive’s
employment at any time and for any reason, or at any other time the Board may so direct, Executive shall
promptly deliver to the Company’s offices in Harrisburg, Pennsylvania all of the property and equipment of the
Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards,
personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda,
customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form
or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners,
successors or assigns, and/or their respective past and present officers, directors, employees or consultants
(collectively, the “Company Property, Records and Files”); it being expressly understood that, upon termination
of Executive’s employment at any time and for any reason, Executive shall not be authorized to retain any of
the Company Property, Records and Files, any copies thereof or excerpts therefrom.
7.
Noncompetition and Other Matters.
7.1
Noncompetition. During the Executive’s employment with the Company or one of its
subsidiaries and during the twelve (12) month period following the termination of Executive’s employment (the
“Restricted Period”), Executive will not directly, or indirectly knowingly cause any other person to, engage in
Competition with the Company or any of its subsidiaries in the Restricted Area (as defined below).
“Competition” shall mean engaging in any activity for a Competitor of the Company or any of its subsidiaries,
whether as a principal, agent, partner, officer, director, employee, independent contractor, investor, consultant
or stockholder (except as a less than five percent (5%) shareholder of a publicly traded company) or otherwise.
A “Competitor” shall mean any individual or entity that engages in the same or similar business as one or more
business units of the Company or its subsidiaries. As of the Effective Date, it is understood that the Company’s
business units include: (1) pharmacy benefits management (“PBM”), including the administration of pharmacy
benefits for businesses, government agencies
9
or health plans; mail order pharmacy; specialty pharmacy and Medicare Part D services; (2) the sale of
prescription drugs either at retail or over the internet; and (3) retail health care (“RediClinic”). It is understood
and agreed that PBM competitors include, but are not limited to, CVS Health, Express Scripts and Catamaran
Corp., as well as health plans or insurers that provide PBM services. It is also understood and agreed that retail
pharmacy competitors include any individual or entity that sells or has imminent plans to sell prescription
drugs, including but not limited to, drugstore companies such as Walgreens Boots Alliance and CVS Health;
mass merchants such as Wal-Mart Stores, Inc. and Target Corp.; and food/drug combinations such as Kroger
Co., Albertsons LLC and Ahold USA. It is understood and agreed that RediClinic competitors include, but are
not limited to, Walgreen’s Take Care Clinics, CVS Health’s Minute Clinics and The Little Clinic. During
Executive’s employment by the Company or one of its subsidiaries and during the Restricted Period, Executive
will not directly, or indirectly knowingly cause any other person to, engage in any activity that involves
providing audit review or other consulting or advisory services with respect to any relationship between the
Company and any third party. The “Restricted Area” means those states within the United States in which the
Company, including its subsidiaries, conducts its business, including the District of Columbia and Puerto Rico.
7.2
Noninterference. During the Restricted Period, Executive shall not, directly or
indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of
the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her
or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners,
successors or assigns for the purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or
sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic
partners, successors or assigns for any other reason.
7.3
Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly,
solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then
under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to
terminate, limit or otherwise modify his, her or its relationship with the Company or its subsidiaries, affiliates,
strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or
its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers,
clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason. During the
Restricted Period, Executive shall not hire, either directly or through any employee, agent or representative, any
field and corporate management employee of the Company or any subsidiary or any such person who was
employed by the Company or any subsidiary within 180 days of such hiring.
7.4
Defend Trade Secrets Act. Pursuant to Section 7 of the Defend Trade Secrets Act of
2016 (which added 18 U.S.C. § 1833(b)), Executive acknowledges that Executive shall not have criminal or
civil liability under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in
confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and (ii)
solely for the purpose
10
of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed
in a lawsuit or other proceeding, if such filing is made under seal. Nothing in this Agreement is intended to
conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by
such Section.
8.
Rights and Remedies upon Breach.
If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above
(the “Restrictive Covenants”), the Company and its subsidiaries, affiliates, strategic partners, successors or
assigns shall have the following rights and remedies, each of which shall be independent of the others and
severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies
available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in
equity.
8.1
Specific Performance. The right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would
not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or
assigns.
8.2
Accounting. The right and remedy to require Executive to account for and pay over to
the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all
compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as a
result of any transaction or activity constituting a breach of any of the Restrictive Covenants.
8.3
Severability of Covenants. Executive acknowledges and agrees that the Restrictive
Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder
of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect without regard
to the invalid portions.
8.4 Modification by the Court. If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court
shall have the power (and is hereby instructed by the parties) to modify or reduce the duration or scope of such
provision, as the case may be (it being the intent of the parties that any such modification or reduction be
limited to the minimum extent necessary to render such provision enforceable), and, in its modified or reduced
form, such provision shall then be enforceable.
8.5
Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to
specifically enforce the Restrictive Covenants by issuing an injunction in aid of arbitration upon the courts of
any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise,
it is the intention of Executive that such determination not bar or in any way affect the right of the Company or
its subsidiaries, affiliates,
11
strategic partners, successors or assigns to the relief provided herein in the courts of any other jurisdiction
within the geographic scope of such covenants, as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
8.6
Extension of Restriction in the Event of Breach. In the event that Executive breaches
any of the provisions set forth in this Section 8, the length of time of the Restricted Period shall be extended for
a period of time equal to the period of time during which Executive is in breach of such provision.
9.
No Violation of Third-Party Rights. Executive represents, warrants and covenants that
Executive:
proprietary rights of any third party (including, without limitation, any third party confidential
relationships, patents, copyrights, mask works, trade secrets, or other proprietary rights);
(i) will not, in the course of employment, infringe upon or violate any
prevent Executive from fulfilling the terms of employment and the obligations of this Agreement;
(ii) is not a party to any conflicting agreements with third parties, which will
information or documents belonging to others and will not disclose to the Company, use, or induce the
Company to use, any confidential or proprietary information or documents of others; and
(iii)does not have in Executive’s possession any confidential or proprietary
have to prior employers or to others relating to confidential information, inventions, discoveries or other
intellectual property which are the property of those prior employers or others, as the case may be.
(iv) agrees to respect any and all valid obligations which Executive may now
Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or
expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be
subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants.
10.
Arbitration.
Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or
assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies
are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out
of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive’s
employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that
employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, shall be submitted to final and binding arbitration in the Commonwealth of Pennsylvania
according to the National Employment Dispute Resolution Rules and procedures of the
12
American Arbitration Association at the time in effect. The Company shall be responsible for any filing,
administrative or arbitrator fees that exceed the amount it would cost to file a claim in a court of competent
jurisdiction in the Commonwealth of Pennsylvania. This arbitration obligation extends to any and all claims that
may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns,
and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of
ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of
good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of
emotional distress, disability, loss of future earnings, and claims under the Pennsylvania Constitution, the
United States Constitution, and applicable state and federal fair employment laws, federal and state equal
employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to,
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With
Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement
Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended,
and any other state or federal law. Executive understands that by entering into this Agreement, Executive is
waiving Executive’s rights to have a court determine Executive’s rights, including under federal, state or local
statutes prohibiting employment discrimination, including sexual harassment and discrimination on the basis of
age, race, color, religion, national origin, disability, veteran status or any other factor prohibited by governing
law. Executive further understands that there is no intent herein to interfere with the Equal Employment
Opportunity Commission’s right to enforce the laws it oversees or your right to file an administrative charge of
employment discrimination or a similar state or local administrative agency.
11.
Assignment.
Neither this Agreement, nor any of Executive’s rights or obligations hereunder, may be assigned or
otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder,
and Executive hereby consents to any such assignment, in whole or in part, (i) to any of the Company’s
subsidiaries, affiliates, or parent corporations; or (ii) to any other successor or assign in connection with the sale
of all or substantially all of the Company’s assets or stock or in connection with any merger, acquisition and/or
reorganization involving the Company.
12.
Notices.
All notices and other communications under this Agreement shall be in writing and shall be given by fax
or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons
named below:
13
If to the Company:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: General Counsel
Fax: (717) 760-7867
If to Executive:
Jessica Kazmaier, at Executive’s last address shown on the payroll records of the
Company.
Any party may change such party’s address for notices by notice duly given pursuant hereto.
13.
General.
13.1 No Offset or Mitigation. The Company’s obligation to make the payments provided for
in, and otherwise to perform its obligations under this Agreement shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the Company may have against the
Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the
Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts,
benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of
this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
13.2 Governing Law. This Agreement is executed in Pennsylvania and shall be governed by
and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving
effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different
state or jurisdiction. Any court action instituted by Executive relating in any way to this Agreement shall be
filed exclusively in state or federal court in the Commonwealth of Pennsylvania and Executive consents to the
jurisdiction and venue of said courts in any action instituted by or on behalf of the Company against Executive.
13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties
relating to Executive’s employment with the Company and cancels and supersedes all agreements,
arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the
Executive and the Company and/or any subsidiary or affiliate.
13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument
executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to
14
be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
13.5 Conflict with Other Agreements. Executive represents and warrants that neither
Executive’s execution of this Agreement nor the full and complete performance of Executive’s obligations
hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any
person or entity.
13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be
binding upon the Company (and its successors and assigns) and Executive and Executive’s heirs, executors and
personal representatives.
13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are
required to be withheld by applicable laws or regulations.
13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this Agreement. If any provision of this
Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect
to the fullest extent consistent with law.
13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not
be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or
equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell,
transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets
of the Executive in the event of insolvency or bankruptcy.
13.10 Survival. This Agreement shall survive the termination of Executive’s employment and
the expiration of the Term to the extent necessary to give effect to its provisions.
13.11 Captions. The section headings contained herein are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.
13.12 Counterparts. This Agreement may be executed by the parties hereto in separate
counterparts; each of which when so executed and delivered shall be an original but all such counterparts
together shall constitute one and the same instrument.
14.
Compliance with Code Section 409A.
(a)
Interpretation: The intent of the parties is that payments and benefits under this
Agreement comply with Section 409A of the Code (“409A”), to the extent subject thereto, and accordingly, to
the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, Executive shall not be considered to have
terminated employment with the
15
Company for purposes of any payments under this Agreement which are subject to 409A until the Executive
has incurred a “separation from service” from the Company within the meaning of 409A. ,
(b) Payment of Benefits: To the extent necessary to avoid adverse tax consequences,
and except as described below, any payment to which Executive becomes entitled under the Agreement, or any
arrangement or plan referenced in this Agreement, that constitutes “deferred compensation” under 409A, and is
(a) payable upon Executive’s termination; (b) at a time when the Executive is a “specified employee” as defined
by 409A shall not be made until the first payroll date after the earliest of: (1) the expiration of the six (6) month
period (the “Deferral Period”) measured from the date of Executive’s “separation from service” within the
meaning of such term under 409A; or (2) the date of Executive’s death.
On the first payroll date after the expiration of the Deferral Period, all payments that would have been
made during the Deferral Period (whether in a single lump sum or in installments) shall be paid as a single lump
sum to Executive or, if applicable, Executive’s beneficiary. This section shall not apply to any payment which
meets the short term deferral exception to 409A or constitutes “separation pay” as described in Treasury
Regulation Section 409A-1(b)(9) (in general, payments (i) that are made on an involuntary separation from
service which (ii) do not exceed the lesser of two (2) times (x) the Executive’s annualized compensation for the
taxable year preceding the year in which the separation from service occurs or (y) the Code Section 401(a)(17)
limit on compensation for the year in which separation from service occurs and (iii) are paid in total by the end
of the second calendar year following the calendar year in which the separation from service occurs).
For purposes of 409A, each payment and each installment described in this Agreement shall be
considered a separate payment from each other payment or installment and to the extent required by 409A, a
payment due upon termination of employment will only be paid upon Executive’s separation from service
within the meaning of such term under 409A.
(c) Reimbursements: To the extent required by 409A, with regard to any provision
that provides for the reimbursement of costs and expenses, or for the provision of in-kind benefits: (i) the right
to such reimbursement or in-kind benefit shall not be subject to liquidation or exchange for another benefit; (ii)
the amount of expenses or in-kind benefits available or paid in one (1) year shall not affect the amount available
or paid in any subsequent year; and (iii) such payments shall be made on or before the last day of the
Executive’s taxable year in which the expense occurred.
16
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first
written above.
RITE AID CORPORATION
/s/ James J. Comitale
By: James J. Comitale
Its: SVP, GENERAL COUNSEL & SECRETARY
EXECUTIVE
/s/ Jessica Kazmaier
Jessica Kazmaier
APPENDIX A TO EMPLOYMENT AGREEMENT
GENERAL RELEASE OF CLAIMS
This General Release of Claims (this “Release”) is made and entered into by [NAME] (“Employee”)
pursuant to Section 5.3 of the Employment Agreement between Employee and Rite Aid Corporation (the
“Company”), dated as of [0] (the “Employment Agreement”).
1.
Release.
(a)
Employee hereby releases, discharges and forever acquits the Company, and its affiliates and
subsidiaries and each of their past, present and future stockholders, members, partners, directors, managers,
employees, agents, attorneys, heirs, legal representatives, successors and assigns, in their personal and
representative capacities (individually, “Company Party,” and collectively, the “Company Parties”), from
liability for, and hereby waives, any and all claims, charges, liabilities, causes of action, rights, complaints,
sums of money, suits, debts, covenants, contracts, agreements, promises, benefits, obligations, damages,
demands or liabilities of every nature, kind and description, in law, equity or otherwise, whether known or
unknown, suspected or unsuspected (collectively, “Claims”) which Employee or Employee’s heirs,
executors, administrators, spouse, relatives, successors or assigns ever had, now have or may hereafter claim to
have by reason of any matter, cause or thing whatsoever: (i) arising from the beginning of time through the date
upon which Employee signs this Release including, but not limited to (A) any such Claims relating in any way
to Employee’s employment relationship with the Company or any other Company Parties, and (B) any such
Claims arising under any federal, state, local or foreign statute or regulation, including, without limitation, the
Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act (the
“ADEA”), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Pennsylvania Human Relations Act, the Pennsylvania Equal Pay
Law and any other federal, state, local or foreign law (statutory, regulatory or otherwise) that may be legally
waived and released; (ii) relating to wrongful employment termination; or (iii) arising under or relating to any
policy, agreement, understanding or promise, written or oral, formal or informal, between the Company or any
of the other Company Parties and Employee, including, without limitation, the Employment Agreement and any
incentive compensation plan or equity plan with any Company Party; provided, however, that nothing in this
release will release or impair any rights that cannot be waived under applicable law, rights to receive the
Accrued Benefits and severance payments and benefits set forth on Section 5.3 of the Employment Agreement,
or any rights to indemnification (the “Excluded Claims”).
(b)
Employee further acknowledges and agrees that, except with respect to the Excluded Claims and
the payments and benefits set forth on Section 5.3 of the Employment Agreement, the Company Parties have
fully satisfied any and all obligations whatsoever owed to Employee arising out of Employee’s employment
with the Company or any other Company Party, and that no further payments or benefits are owed to Employee
by the Company or any other Company Party.
A-1
2.
Attorney Consultation; Voluntary Agreement. Employee acknowledges that (i) the Company has
advised Employee to consult with an attorney of Employee’s own choosing before signing this Release, (ii)
Employee has been given the opportunity to seek the advice of counsel, (iii) Employee has carefully read and
fully understand all of the provisions of this Release, (iv) this Release specifically applies to any rights or
claims Employee may have against the Company Parties pursuant to the ADEA, (v) Employee is entering into
this Release knowingly, freely and voluntarily in exchange for good and valuable consideration to which
Employee is not otherwise entitled, including the severance payments and benefits set forth on Section 5.3 of
the Employment Agreement, and (vi) Employee has the full power, capacity and authority to enter into this
Release.
3.
Review and Revocation Period.
(a)
Employee has twenty-one (21) days following Employee’s receipt of this Release to review its
terms and to reflect upon them and consider whether Employee wants to sign it, although Employee may sign it
sooner; provided, however, that Employee may not sign this Release prior to the last day of Employee’s
employment with the Company. Employee understands and agrees that Employee may consent to this Release
by signing and returning this Release within the applicable time frame to General Counsel, Rite Aid
Corporation at 30 Hunter Lane, Camp Hill, PA 17011 or by e-mail at jcomitale@riteaid.com.
(b)
Employee may revoke Employee’s consent to, and the effectiveness of, this Release within the
seven day period beginning on the date Employee executes this Release (such seven day period being referred
to herein as the “Release Revocation Period”). To be effective, such revocation must be in writing signed by
Employee and delivered to the Company before 11:59 p.m., Eastern Standard time, on the last day of the
Release Revocation Period.
(c)
In the event of such revocation by Employee, this Release shall be of no force or effect, and
Employee will not have any rights and the Company will not have any obligations under Section 5.3 of the
Employment Agreement. Provided that Employee does not revoke Employee’s consent to this Release within
the Release Revocation Period, this Release shall become effective on the eighth (8th) calendar day after the
date upon which Employee executes this Release (the “Release Effective Date”).
4.
No Admissions. Nothing herein shall be deemed to constitute an admission of wrongdoing by
Employee or any of the Company Parties. Neither this Release nor any of its terms may be used as an admission
or introduced as evidence as to any issue of law or fact in any proceeding, suit or action, other than an action to
enforce this Release.
5.
Entire Agreement. This Release sets forth the entire understanding of the parties on the subject
hereof and cancels and supersedes all agreements, arrangements and understandings relating thereto made prior
to the date hereof, written or oral, between Employee and the Company and/or any subsidiary or affiliate;
provided, however, that any post-employment restrictive covenants and confidentiality obligations under the
Employment Agreement shall remain in full force and effect in accordance with their terms.
A-2
IN WITNESS WHEREOF, Employee has signed this Release as of the date indicated below.
[NAME]
[NAME]
Date:
A-3
November 6, 2019
Exhibit 10.44
Ms. Jessica Kazmaier
Executive Vice President and
Chief Human Resources Officer
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
RE: Agreement dated as of March 12, 2019 by and between Rite Aid Corporation (the "Company") and Jessica
Kazmaier (the "Executive"), as amended from time to time (the "Agreement")
Dear Jessica:
I am pleased to provide you with this letter in order to update the Agreement to reflect your promotion to the position of
Executive Vice President and Chief Human Resources Officer of the Company, effective September 18, 2019 (the "Amendment
Date"). The increase in base salary already is effective and has been in place for some time.
In consideration of your appointment and of other good and valuable consideration, the receipt of which is acknowledged:
1. Section 2.1 ("Position and Duties—Generally") is hereby amended by:
a. deleting the term "Senior Vice President and Chief Human Resources Officer" and replacing it with the
term "Executive Vice President and Chief Human Resources Officer" in the first sentence of Section 2.1;
and
b. deleting the term "customary for a Senior Vice President" and replacing it with the term "customary for an
Executive Vice President" in the first sentence of Section 2.1.
2. Section 3.1 ("Base Salary") is hereby amended by deleting the amount "Three Hundred Seventy-Five Thousand
Dollars ($375,000)" and replacing it with the amount "four hundred thousand dollars ($400,000)".
3. Section 4.5 ("Annual Financial Planning Allowance") is hereby amended by deleting the amount "$3,000.00" and
replacing it with the amount "$5,000.00".
4. Section 5.4(a) ("Definition of Good Reason") is hereby amended by deleting the term "Senior Vice President &
Chief Human Resources Officer" and replacing it with the term "Executive Vice President and Chief Human
Resources Officer".
If you are in agreement with the changes described in the above paragraphs, please sign both copies of this letter below where
indicated, returning one copy to me and retaining one copy for your records.
[SIGNATURE PAGE FOLLOWS]
Sincerely,
Rite Aid Corporation
/s/ James J. Comitale
Name: James J. Comitale
Title: Executive Vice President and General Counsel
Agreed:
/s/ Jessica Kazmaier
Jessica Kazmaier
Exhibit 10.45
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 7th day of December 2018 by and
between Rite Aid Corporation, a Delaware corporation (the "Company") and Justin Mennen ("Executive").
EMPLOYMENT AGREEMENT
WHEREAS, the Company desires to employ Executive and Executive desires to provide the Company with Executive's
services subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company
and Executive (individually a "Party" and together the "Parties"), intending to be legally bound, agree as follows:
1. Term of Employment.
The term of Executive's employment under this Agreement shall commence on January 2, 2019 (the "Effective Date")
and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is two (2) years
following the Effective Date (the "Original Term of Employment"). The Original Term of Employment shall be automatically
renewed for successive one (1) year terms (the "Renewal Terms") unless at least one hundred twenty (120) days prior to the
expiration of the Original Term of Employment or any Renewal Term, either Party notifies the other Party in writing that Executive
or it is electing to terminate this Agreement at the expiration of the then current Term of Employment. "Term" shall mean the
Original Term of Employment and all Renewal Terms. For purposes of this Agreement,
except as otherwise provided herein, the phrases "year during the Term" or similar language shall refer to each twelve (12) month
period commencing on the Effective Date or applicable anniversaries thereof.
2. Position and Duties.
2.1 Generally. During the Term, Executive shall serve as the Senior Vice President and Chief Information Officer and
shall have such officer level duties, responsibilities and authority as are customary for a Senior Vice President and shall have such
other officer level duties, responsibilities and authorities as shall be assigned by the Company from time to time consistent with
such position. Executive shall devote Executive's full working time, attention, knowledge and skills faithfully and to the best of
Executive's ability, to the duties and responsibilities assigned by the Company in furtherance of the business affairs and activities of
the Company and its subsidiaries, affiliates and strategic partners. Executive shall report to Senior Executive Vice President, Chief
Administrative Officer and Chief Financial Officer. Contemporaneously with termination of Executive's employment with the
Company for any reason, Executive shall automatically resign from all offices and positions Executive holds with the Company or
any subsidiary without any further action on the part of Executive or the Company.
2.2 Other Activities. Anything herein to the contrary notwithstanding, nothing in this Agreement shall preclude the
Executive from engaging in the following activities: (i) serving on the board of directors of a reasonable number of other
corporations or the boards of a reasonable number of trade associations and/or charitable organizations, subject to the Company's
approval, which shall not be unreasonably withheld, (ii) engaging in charitable activities and community affairs, and (iii) managing
Executive's personal investments and affairs, provided that Executive's activities pursuant to clauses (i), (ii) or (iii) do not violate
Sections 6 or 7 below or materially interfere with the proper performance of Executive's duties and responsibilities under this
Agreement. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and
restrictions as the Company may from time to time establish for officers of the Company or employees generally.
3. Compensation.
3.1 Base Salary. During the Term, as compensation for Executive's services hereunder, Executive shall receive a
salary at the annualized rate of Five Hundred Thousand Dollars ($500,000) per year ("Base Salary" as may be adjusted from time
to time), which shall be paid in accordance with the Company's normal payroll practices and procedures, less such deductions or
offsets required by applicable law or otherwise authorized by Executive.
3.2 Annual Performance Bonus. Executive shall participate each fiscal year during the Term in the Company's annual
bonus plan as adopted and approved by the Board or the Compensation Committee from time to time. Executive's annual target
bonus opportunity pursuant to such plan (the "Annual Target Bonus") shall equal 50% of the Base Salary in effect for Executive as
of the beginning of such fiscal year; provided that for the current fiscal year in which the Effective Date falls , the 50% shall apply
beginning with the fiscal period in which the Effective Date falls, through the balance of such fiscal year. Payment of any bonus
1
earned shall be made in accordance with the terms of the Company's annual bonus plan as in effect for the year for which the
bonus is earned.
3.3 Equity Awards. Executive will be eligible to participate during the Term in the Company's Long Term Incentive
Plan ("LTIP"). Executive's target long term incentive opportunity shall be one-hundred percent ( l 00%) of Executive's Base Salary.
In the discretion of the Board, on each regular grant date occurring during the Term, Executive will be granted long- term incentive
awards under the Company's 2014 Omnibus Equity Plan or any successor plan thereto (the "Equity Plan"), a copy of which Equity
Plan has been filed as Exhibit l 0.1 to the Company's current report on Form 8-K filed with the Securities and Exchange
Commission on June 23, 2014, pursuant to the LTIP valued at one-hundred percent (100%) of Base Salary calculated in a manner
consistent with and containing the same terms and conditions as other senior executives of the Company.
4. Additional Benefits.
4.1 Employee Benefits. During the Term, Executive shall be eligible to participate in the employee benefit plans
(includjng, but not limited to medical, dental and life insurance plans, short-term and long-term disability coverage, the
Supplemental Executive Retirement Plan and 40l(k) plans) in which executive employees of the Company are generally eligible to
participate, subject to satisfaction of any eligibility requirements and the other generally applicable terms of such plans. Nothing in
this Agreement shall prevent the Company from amending or terminating any employee benefit plans of the Company from time to
time as the Company deems appropriate.
4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably incurred by
Executive in furtherance of Executive's duties hereunder, including without limitation, travel, meals and accommodations, upon
submission of vouchers or receipts and in compliance with such rules and policies relating thereto as the Company may from time to
time adopt or as may be required in order to permit such payments to be taken as proper deductions by the Company or any
subsidiary under the Internal Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or
hereafter in effect (the " ode").
4.3 Vacation. Executive shall be entitled to four (4) weeks paid vacation during each year of the Term.
4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile allowance of
$1 , 000.00 per month.
4.5 Annual Financial Planning Allowance. During the Term, the Company shall provide Executive with an annual
financial planning allowance in the amount of $3,000.00.
4.6 Housing and Travel Allowance. The Company shall provide Executive with a Housing and Travel Allowance in
the amount of Four Thousand Dollars ($4,000.00) per month for the first six (6) months of the Original Term of Employment. The
provisions of Section 14(c) shall apply to any payments or reimbursements made under this section 4.6.
4.7 Relocation. Executive shall relocate his primary residence to the greater Harrisburg area by September 1st 2019.
Executive shall be eligible to participate in the Company's Level 1 relocation plan for executives.
4.8 Indemnification. The Company shall (a) indemnify and hold Executive harmless , to the full extent permitted
under applicable law, for, from and against any and all losses claims costs expenses, damages , liabilities or actions (including
security holder actions, in respect thereof) relating to or arising out of the Executive's employment with and service as an officer of
the Company, and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to
the defense of any such loss, claim, cost, expense, damage, liability or action, subject to Executive's undertaking to repay in the
event it is ultimately determined that Executive is not entitled to be indemnified by the Company. Following termination (except
for termination by the Company for Cause) of the Executive's employment or service with the Company or any subsidiaries of the
Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such
termination to remain in effect for six (6) years following the date of termination of employment.
5. Termination.
5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate Executive's
employment hereunder for Cause (as defined below). Such termination shall be effected by written notice thereof delivered by the
Company to Executive, indicating in reasonable detail the facts and circumstances alleged to provide a basis for such termination,
and shall be effective as of the date of such notice in accordance with Section 12 hereof. "Cause," as determined in reasonable good
faith by a committee comprised of three (3) senior officers (one of which shall be Executive's supervisor) of the Company, shall
2
mean: (i) Executive's gross negligence or willful misconduct in the performance of the duties or responsibilities of Executive's
position with the Company or any subsidiary, or failure to timely carry out any lawful directive of the Company; (ii) Executive's
misappropriation of any funds or property of the Company or any subsidiary; (iii) the conduct by Executive which is a material
violation of this Agreement or Company Policy or which materially interferes with the Executive's ability to perform Executive's
duties; (iv) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; (v) Executive's
misconduct or negligence which damages or injures the Company or the Company's reputation; (vi) Executive is convicted of or
pleads guilty to a misdemeanor involving moral turpitude or any felony; or (vii) the use or disclosure to any third party by
Executive of any confidential or proprietary information of the Company or any subsidiary.
5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason. In the
event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily without Good
Reason:
(a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through the
effective date of such termination, (ii) reimbursement for reasonable and necessary expenses incurred by Executive through the date
of notice of such termination, to the extent otherwise provided under Section 4.2 above, and (iii) all other vested payments and
benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement through
the effective date of such termination ((i), (ii) and (iii) collectively, the "Accrued Benefits"). All other rights of Executive (and,
except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's
employment with the Company shall terminate effective as of the date of such termination of employment and Executive shall not
be entitled to any payments or benefits not specifically described in this subsection (a) or (b) below.
(b) Any portion of any restricted stock or any other equity incentive awards as to which the restrictions have
not lapsed or as to which any other conditions shall not have been satisfied prior to the date of termination shall be forfeited as of
the date of termination date and any portion of Executive's stock options that have vested and become exercisable prior to the
date of termination shall remain exercisable for a period of ninety (90) days following the date of termination of employment (or,
such later date as may be permitted by the relevant stock option or equity plan, or, if earlier, until the expiration of the respective
terms of the options), whereupon all such options shall terminate; provided, however, in the event of termination of Executive by
the Company for Cause, any stock options that have not been exercised prior to the date of termination shall immediately terminate
as of such date.
Any termination of Executive's employment by Executive voluntarily without Good Reason shall be effective upon a
thirty (30) day notice to the Company or such earlier date as the Company determines in its discretion and designates in writing. A
termination of Executive's employment by the Company for Cause or by the Executive other than for Good Reason shall not
constitute a breach of this Agreement.
5.3 Compensation upon Termination of Executive's Employment by the Company Other Than for Cause or by
Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other than for Cause or by
Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the Company other than for
Cause or by Executive for Good Reason:
(a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) an amount equal to two (2) times the
Executive's then Base Salary as of the date of termination of employment, such amount payable in equal installments pursuant to the
Company's standard payroll procedures for management employees over a period of two (2) years following the date that the release
of claims (referred to below) becomes irrevocable (provided, if as of the date of termination the release of claims could become
irrevocable in either of two taxable years of Executive, payments shall not commence before the first day of the later such taxable
year), and (iii) with respect to health insurance coverage, the cost of COBRA benefits (and equivalent benefits which shall be
provided by the Company following expiration of any COBRA continuation period) to Executive and his immediate family for a
period of one (I) year following the date of termination of employment, with such COBRA coverage running co- extensively with
the reimbursement of such costs.
(b) The stock option awards held by Executive shall vest and become immediately exercisable and the
restrictions with respect to any awards of non-performance based restricted stock ("Restricted Stock") shall lapse, in each case to the
extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive
remained in the employ of the Company for a period of one (I) year following the date of termination. Such portion of Executive's
stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of
termination) shall remain exercisable for a period of ninety (90) days following the date of termination of employment (or, such
later date as may be permitted by the relevant stock option or equity plan, or, if earlier, until the expiration of the respective terms of
the options), whereupon all such options shall terminate. Any remaining portion of Executive's stock options that have not vested
3
(or deemed to have vested) as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to
which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date.
(c) If a termination pursuant to Section 5.3 of the Agreement occurs following the start of the Company's fiscal
year, Executive shall also be entitled to receive, to the extent not previously paid (which shall be paid at the same time paid to other
eligible participants in the bonus plan and following determination by the Compensation Committee (or the Board) that the
Company has achieved or exceeded its annual perfonnance targets for the fiscal year), a pro rata annual bonus determined by
multiplying the performance level achieved (relative to Executive's Annual Target Bonus amount) by the fraction (x) the numerator
of which is the number of days between the beginning of the then current fiscal year of the Company and the date of termination of
employment and (y) the denominator of which is 365. Executive shall also receive any unpaid annual bonus earned for any
completed fiscal year preceding the date of termination.
(d) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the
date of such termination of employment and Executive shall not be entitled to any payments or benefits not specifically described in
5.3(a) through (c).
Any termination of employment pursuant to this Section 5.3 shall be effective upon a thirty (30) day notice thereof or the
Company may elect in its sole discretion to reduce or eliminate the notice period and pay the Executive's Base Salary for some or
all of the notice period in lieu of notice. A termination of Executive's employment by the Company other than for Cause or by the
Executive for Good Reason shall not constitute a breach of this Agreement. To be eligible for the payment, benefits and stock
rights described in Section 5.3(a)(ii) and (iii), (b) and (c) above, Executive must execute within sixty (60) days of the date of
termination, not revoke, and abide by a release (which shall be substantially in the form attached hereto as Appendix A) of all
claims, cooperate with the Company in the event of litigation and fully comply with Executive's obligations under Sections 6 and
7 below.
5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any
one of the following:
(a) the assignment to Executive of any duties or responsibilities materially inconsistent with Executive's status
and position as Senior Vice President and Chief Information Officer of the Company or any material adverse change in Executive's
title or reporting relationships; or
(b) any decrease in Executive's then Base Salary to which Executive has not agreed to in writing; or
(c) a material breach by the Company of this Agreement;
provided, however, that the Executive has provided written notice (which shall set forth in reasonable detail the specific conduct of
the Company that constitutes Good Reason and the specific provisions of this Agreement on which Executive relies) to the
Company of the existence of any condition described in any one of the subparagraphs (a), (b), or (c) within thirty (30) days of
the initial existence of such condition, and the Company has not cured the condition within thirty (30) days of the receipt of such
notice. Any termination of employment by the Executive for Good Reason pursuant to Section 5.3 must occur no later than the date
that is the three (3) month anniversary of the initial existence of the condition giving rise to the termination right.
5.5 Compensation upon Termination of Executive's Employment bv Reason of Executive's Death or Total
Disability. In the event that Executive's employment with the Company is terminated by reason of Executive's death or Total
Disability (as defined below), subject to the requirements of applicable law:
(a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued Benefits, (ii)
any other benefits payable under the then current disability and/or death benefit plans, as applicable, in which Executive is a
participant and (iii) continued health insurance coverage for Executive and/or Executive's immediate family, as applicable (or
reimbursement to the Executive for the cost of purchasing health insurance coverage substantially comparable to the coverage
provided by the Company, excepting payments for such periods that the Company provides such coverage) for a period of one (1)
year following the date of death or Total Disability as the case may be. Executive or Executive's estate shall also be entitled to
receive, at the same time as is paid to other eligible participants in the bonus plan, following determination by the Compensation
Committee (or the Board) of the Company's performance under the applicable annual performance goals for the fiscal year, a pro
rata annual bonus determined by multiplying the performance level achieved (relative to Executive's Annual Target Bonus amount)
by the fraction (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the
4
Company and the date of termination of employment and (y) the denominator of which is 365. Executive or Executive's estate
shall also be entitled to any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
(b) All stock option awards held by Executive shall vest and become immediately exercisable and the
restrictions with respect to any awards of Restricted Stock shall lapse, in each case to the extent such options would otherwise have
become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for
a period of one (1) year following the date of death or Total Disability as the case may be. Such pot1ion of Executive's stock
options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of
termination) shall remain exercisable for a period of ninety (90) days following the date of termination of employment (or, such
later date as may be permitted by the relevant stock option or equity plan, or, if earlier, until the expiration of the respective terms
of the options), whereupon all such options shall terminate. Any remaining portion of Executive's stock options that have not
vested (or deemed to have vested) as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as
to which the restrictions shall not have lapsed (after application of this Section 5.5(b)) as of the date of termination shall be
forfeited as of such date.
(c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company)
hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such
termination of employment and Executive shall not be entitled to any payments or benefits not specifically described in Section
5.5(a) and (b).
"Total Disability" shall mean any physical or mental disability that has prevented Executive from (a)(i) performing one or
more of the essential functions of Executive's position for a period of not less than ninety (90) days in any twelve (12) month
period and (ii) which is expected to be of permanent or indeterminate duration but expected to last at least twelve (12) continuous
months or result in death of the Executive as determined (y) by a physician selected by the Company or its insurer or (z) pursuant
to the Company's benefit programs; or (b) reporting to work for ninety (90) or more consecutive business days and being unable
to engage in any substantial activity.
5.6 Survival. In the event of any termination of Executive's employment, Executive and the Company nevertheless
shall continue to be bound by the terms and conditions set forth in Section 4.6 and Sections 5 through 10 hereof, which shall survive
the expiration of the Term; provided, however, the indemnification obligations in Section 4.6 shall not survive expiration of the
Term in the event of termination of Executive's employment by the Company for Cause.
5.7 Change in Control Best Payments Determination. Any other provision of this Agreement to the contrary
notwithstanding, if any portion of any payment or benefit under this Agreement either individually or in conjunction with any
payment or benefit under any other plan, agreement or arrangement (all such payments and benefits, the "Total Payments") would
constitute an "excess parachute payment" within the meaning of Internal Revenue Code Section 280G, that is subject to the tax
imposed by Section 4999 of such Code (the "Excise Tax"), then the Total Payments to be made to Executive shall be reduced, but
only to the extent that Executive would retain a greater amount on an after-tax basis than he would retain absent such reduction,
such that the value of the Total Payments that Executive is entitled to receive shall be
$1 less than the maximum amount which the Employee may receive without becoming subject to the Excise Tax. For purposes of
this Section 5.7, the determination of whichever amount is greater on an after-tax basis shall be (x) based on maximum federal,
state and local income and employment tax rates and the Excise Tax that would be imposed on Executive and (y) made at the
Company's expense by independent accountants selected by the Company and Executive (which may be the Company's income
tax return preparers if Executive so agrees) which determination shall be binding on both Executive and the Company. Any such
reduction as may apply under this Section 5 7 shall be applied in the following order: (i) payments that are payable in cash the full
amount of which are treated as parachute payments under Treasury Regulation Section l.280G-1, Q&A 24(a) will be reduced (if
necessary, to zero), with amounts that are payable last reduced first; (ii) payments and benefits due in respect of any equity the
full amount of which are treated as parachute payments under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest
values reduced first (as such values are determined under Treasury Regulation Section l.280G-l, Q&A 24) will next be reduced;
(iii) payments that are payable in cash that are valued at less than full value under Treasury Regulation Section I .280G- l, Q&A
24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity
valued at less than full value under Treasury Regulation Section 1.2800-1, Q&A 24, with the highest values reduced first (as such
values are determined under Treasury Regulation Section l.2800-l, Q&A 24) will next be reduced; and (v) all other non-cash
benefits not otherwise described in clauses (ii) or (iv) will next be reduced pro-rata.
5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not be
entitled to damages or to any severance or other benefits upon termination of employment with the Company under any
circumstances and for any or no reason, including, but not limited to any severance pay under any Company severance plan, policy
or practice.
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6. Protection of Confidential Information.
Executive acknowledges that during the course of Executive's employment with the Company, its subsidiaries, affiliates and
strategic partners, Executive will be exposed to documents and other information regarding the confidential affairs of the Company,
its subsidiaries, affiliates and strategic partners, including without limitation, information about their past, present and future
financial condition, pricing strategy, prices, suppliers, cost information, business and marketing plans, the markets for their products,
key personnel, past, present or future actual or threatened litigation, trade secrets and other intellectual property, current and
prospective customer lists, operational methods, acquisition plans, prospects, plans for future development and other business
affairs and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to the public
(the "Confidential Information"). Executive further acknowledges that the services to be performed under this Agreement are of a
special, unique, unusual, extraordinary and intellectual character. In recognition of the foregoing, the Executive covenants and
agrees as follows:
6.1 No Disclosure or Use of Confidential lnformation. At no time shall Executive ever divulge, disclose, or
otherwise use any Confidential Information (other than as necessary to perform Executive's duties under this Agreement and in
furtherance of the Company's best interests), unless and until such information is readily available in the public domain by reason
other than Executive's disclosure or use thereof in violation of the first clause of this Section 6.1. Executive acknowledges that
Company is the owner of, and that Executive has not rights to, any trade secrets, patents, copyrights, trademarks, know-how or
similar rights of any type, including any modifications or improvements to any work or other property developed, created or
worked on by Executive during the Term of this Agreement.
6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at any time
and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the Company's offices in
Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries, affiliates and strategic partners
(including any cell phones, pagers, credit cards, personal computers, etc.) and any and all documents, records, and files, including
any notes, memoranda, customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy
form or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners, successors or
assigns, and/or their respective past and present officers, directors, employees or consultants (collectively, the "Company Property,
Records and Files"); it being expressly understood that, upon termination of Executive's employment at any time and for any
reason, Executive shall not be authorized to retain any of the Company Property, Records and Files, any copies thereof or excerpts
therefrom.
7. Noncompetition and Other Matters.
7.1 Noncompetition. During the Executive's employment with the Company or one of its subsidiaries and during the
twelve (12) month period following the termination of Executive's employment (the "Restricted Period"), Executive will not
directly, or indirectly knowingly cause any other person to, engage in Competition with the Company or any of its subsidiaries in the
Restricted Area (as defined below). "Competition" shall mean engaging in any activity for a Competitor of the Company or any of
its subsidiaries, whether as a principal, agent, partner, officer, director, employee, independent contractor, investor, consultant or
stockholder (except as a less than five percent (5%) shareholder of a publicly traded company) or otherwise. A "Competitor" shall
mean any individual or entity that engages in the same or similar business as one or more business units of the Company or its
subsidiaries. As of the Effective Date, it is understood that the Company's business units include: (1) pharmacy benefits management
("PBM"), including the administration of pharmacy benefits for businesses, government agencies or health plans; mail order
pharmacy; specialty pharmacy and Medicare Part D services; (2) the sale of prescription drugs either at retail or over the internet;
and (3) retail health care ("RediClinic"). It is understood and agreed that PBM competitors include, but are
not limited to, CVS Health, Express Scripts and Catamaran Corp., as well as health plans or insurers that provide PBM services. It
is also understood and agreed that retail pharmacy competitors include any individual or entity that sells or has imminent plans to
sell prescription drugs, including but not limited to, drugstore companies such as Walgreens Boots Alliance and CVS Health; mass
merchants such as Wal-Mart Stores, Inc. and Target Corp.; and food/drug combinations such as Kroger Co., Albertsons LLC and
Ahold USA. It is understood and agreed that RediClinic competitors include, but are not limited to, Walgreen's Take Care Clinics,
CVS Health's Minute Clinics and The Little Clinic. During Executive's employment by the Company or one of its subsidiaries
and during the Restricted Period, Executive will not directly, or indirectly knowingly cause any other person to, engage in any
activity that involves providing audit review or other consulting or advisory services with respect to any relationship between the
Company and any third party. The "Restricted Area" means those states within the United States in which the Company,
including its subsidiaries, conducts its business, including the District of Columbia and Puerto Rico.
7.2 Noninterference. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or
attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its subsidiaries, affiliates,
strategic partners, successors or assigns to terminate his, her or its employment or other relationship with the Company or its
6
subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of associating with any competitor of the Company
or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or
sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors
or assigns for any other reason.
7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or attempt
to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, to terminate, limit or otherwise modify his, her or its relationship with the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the purpose of associating with any competitor of
the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers, clients,
vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns for any reason. During the Restricted Period, Executive shall not hire, either
directly or through any employee, agent or representative, any field and corporate management employee of the Company or any
subsidiary or any such person who was employed by the Company or any subsidiary within 180 days of such hiring.
7.4 Defend Trade Secrets Act. Pursuant to Section 7 of the Defend Trade Secrets Act of 2016 (which added 18 U.S.C.
§ 1833(b)), Executive acknowledges that Executive shall not have criminal or civil liability under any federal or state trade secret
law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either
directly or indirectly, or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B)
is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Nothing in this
Agreement is intended to conflict with 18 U.S.C. § l 833(b) or create liability for disclosures of trade secrets that are expressly
allowed by such Section.
8. Rights and Remedies upon Breach.
If Executive breaches , or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the "Restrictive
Covenants"), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have the following rights
and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition
to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, strategic partners,
successors or assigns at law or in equity.
8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court
of competent jurisdiction by injunctive decree or otherwise, it being agreed that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns and
that money damages would not provide an adequate remedy to the Company or its subsidi aries, affiliates, strategic partners,
successors or assigns.
8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies, accruals,
increments or other benefits derived or received by Executive as a result of any transaction or activity constituting a breach of any of
the Restrictive Covenants.
8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable
and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full force and effect without regard to the invalid portions.
8.4 Modification by the Court. If any court determines that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration or scope of such provision, such court shall have the power (and is hereby instructed by the
parties) to modify or reduce the duration or scope of such provision, as the case may be (it being the intent of the parties that any
such modification or reduction be limited to the minimum extent necessary to render such provision enforceable), and, in its
modified or reduced form, such provision shall then be enforceable.
8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to specifically enforce the
Restrictive Covenants by issuing an injunction in aid of arbitration upon the courts of any jurisdiction within the geographic scope
of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason
of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any way affect the
right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts
of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective
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jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent
covenants.
8.6 Extension of Restriction in the Event of Breach. In the event that Executive breaches any of the provisions set
forth in this Section 8, the length of time of the Restricted Period shall be extended for a period of time equal to the period of time
during which Executive is in breach of such provision.
9. No Violation of Third-Party Rights. Executive represents, warrants and covenants that Executive:
(i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third party
(including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade secrets, or other
proprietary rights);
(ii) is not a party to any conflicting agreements with third parties, which will prevent Executive from fulfilling
the terms of employment and the obligations of this Agreement;
(iii) does not have in Executive's possession any confidential or proprietary information or documents
belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or proprietary
information or documents of others; and
(iv) agrees to respect any and all valid obligations which Executive may now have to prior employers or to
others relating to confidential information, inventions, discoveries or other intellectual property which are the property of those
prior employers or others, as the case may be.
Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of any kind
(including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a breach by Executive
of the foregoing representations, warranties, and covenants.
10. Arbitration.
Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or Executive to
specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that
any and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company or any subsidiary, affiliate or strategic partner, the
termination of that employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, shall be submitted to final and binding arbitration in the Commonwealth of Pennsylvania according to the
National Employment Dispute Resolution Rules and procedures of the American Arbitration Association at the time in effect. The
Company shall be responsible for any filing, administrative or arbitrator fees that exceed the amount it would cost to file a claim in a
court of competent jurisdiction in the Commonwealth of Pennsylvania. This arbitration obligation extends to any and all claims that
may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends
to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor
market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty,
fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the
Pennsylvania Constitution, the United States Constitution, and applicable state and federal fair employment laws, federal and state
equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil
Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, as
amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Age
Discrimination in Employment Act of 1967, as amended, and any other state or federal law. Executive understands that by entering
into this Agreement, Executive is waiving Executive's rights to have a court determine Executive's rights, including under federal,
state or local statutes prohibiting employment discrimination, including sexual harassment and discrimination on the basis of age,
race, color, religion, national origin, disability, veteran status or any other factor prohibited by governing law. Executive further
understands that there is no intent herein to interfere with the Equal Employment Opportunity Commission's right to enforce the laws
it oversees or your right to file an administrative charge of employment discrimination or a similar state or local administrative
agency.
11. Assignment.
Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise subject to
hypothecation by Executive. The Company may assign its rights and obligations hereunder, and Executive hereby consents to any
8
such assignment, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent corporations; or (ii) to any other
successor or assign in connection with the sale of all or substantially all of the Company's assets or stock or in connection with any
merger, acquisition and/or reorganization involving the Company.
12. Notices.
All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or
twenty-four (24) hours after transmission of a fax to the respective persons named below:
If to the Company:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: General Counsel
Fax: (717) 760-7867
If to Executive: Justin Mennen, at Executive's last address shown on the payroll records of the Company.
Any party may change such party's address for notices by notice duly given pursuant hereto.
13. General.
13.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise to
perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement
or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of
the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment.
13.2 Governing Law. This Agreement is executed in Pennsylvania and shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles
thereof which might refer such interpretations to the laws of a different state or jurisdiction. Any court action instituted by
Executive relating in any way to this Agreement shall be filed exclusively in state or federal court in the Commonwealth of
Pennsylvania and Executive consents to the jurisdiction and venue of said courts in any action instituted by or on behalf of the
Company against Executive.
13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to Executive's
employment with the Company and cancels and supersedes all agreements, arrangements and understandings relating thereto made
prior to the date hereof, written or oral, between the Executive and the Company and/or any subsidiary or affiliate.
13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the case of a
waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision
hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of
any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
13.5 Conflict with Other Agreements. Executive represents and warrants that neither Executive's execution of this
Agreement nor the full and complete performance of Executive's obligations hereunder will violate or conflict in any respect with
any written or oral agreement or understanding with any person or entity.
13.6 Successors and Assig11s. This Agreement shall inure to the benefit of and shall be binding upon the Company
(and its successors and assigns) and Executive and Executive's heirs, executors and personal representatives.
9
13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts
payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or
regulations.
13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in
part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent consistent with law.
13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated,
assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by
law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void.
Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy.
13.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of the Term
to the extent necessary to give effect to its provisions.
13.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement.
13.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts; each of which when
so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument.
14. Compliance with Code Section 409A.
(a) Interpretation: The intent of the parties is that payments and benefits under this Agreement comply with
Section 409A of the Code ("409A"), to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement
shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary,
Executive shall not be considered to have terminated employment with the Company for purposes of any payments under this
Agreement which are subject to 409A until the Executive has incurred a "separation from service" from the Company within the
meaning of 409A. .
(b) Payment of Benefits: To the extent necessary to avoid adverse tax consequences, and except as described
below, any payment to which Executive becomes entitled under the Agreement, or any arrangement or plan referenced in this
Agreement, that constitutes "deferred compensation" under 409A, and is (a) payable upon Executive's termination; (b) at a time
when the Executive is a "specified employee" as defined by 409A shall not be made until the first payroll date after the earliest of:
(I) the expiration of the six (6) month period (the "Deferral Period") measured from the date of Executive's "separation from service"
within the meaning of such term under 409A; or (2) the date of Executive's death.
On the first payroll date after the expiration of the Deferral Period, all payments that would have been made during the
Deferral Period (whether in a single lump sum or in installments) shall be paid as a single lump sum to Executive or, if applicable,
Executive's beneficiary. This section shall not apply to any payment which meets the short term deferral exception to 409A or
constitutes "separation pay" as described in Treasury Regulation Section 409A-I (b)(9) (in general, payments (i) that are made on an
involuntary separation from service which (ii) do not exceed the lesser of two (2) times (x) the Executive's annualized compensation
for the taxable year preceding the year in which the separation from service occurs or (y) the Code Section 40I(a)(l 7) limit on
compensation for the year in which separation from service occurs and (iii) are paid in total by the end of the second calendar year
following the calendar year in which the separation from service occurs).
For purposes of 409A, each payment and each installment described in this Agreement shall be considered a separate
payment from each other payment or installment and to the extent required by 409A, a payment due upon termination of
employment will only be paid upon Executive's separation from service within the meaning of such term under 409A.
(c) Reimbursements: To the extent required by 409A, with regard to any provision that provides for the
reimbursement of costs and expenses, or for the provision of in- kind benefits: (i) the right to such reimbursement or in-kind benefit
shall not be subject to liquidation or exchange for another benefit; (ii) the amount of expenses or in-kind benefits available or paid
in one (I) year shall not affect the amount available or paid in any subsequent year; and (iii) such payments shall be made on or
before the last day of the Executive's taxable year in which the expense occurred.
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IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first written above.
RITE AID CORPORATION
/s/ James J. Comitale
By: James J. Comitale
Its: SVP, General Counsel and Secretary
EXECUTIVE
/s/ Justin Mennen
Justin Mennen
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Appendix A to Employment Agreement
Date
Name
Address
City, State Zip
Dear [Name]:
Re: Severance Agreement and General Release
We are interested in resolving cooperatively your separation of employment with Rite Aid Corporation (the "Company"),
which will take place on [DATE], (your "Separation Date"). Toward this end, we propose the following Severance Agreement,
which includes a General Release.
Whereas, the Company has previously entered into an employment agreement with you, dated [DATE] (the "Employment
Agreement"), which contains among other things, certain provisions regarding severance compensation payable upon termination
of your employment with the Company under certain circumstances. Other than what is expressly set forth herein, the terms and
conditions of the Employment Agreement shall remain in full force and effect.
The terms and conditions set forth in Paragraph 1 below will apply regardless of whether you decide to sign this Severance
Agreement and General Release. However, you will not be eligible to receive the payments and benefits set forth in Paragraph 2
below unless you sign on or after the Separation Date and do not revoke this Severance Agreement and General Release, within
the time period specified below.
You may consider for twenty-one (21) days whether you wish to sign this Severance Agreement and General Release
starting on the Separation Date. Since this Severance Agreement and General Release ("Agreement") is a legal document, you are
advised to review it with an attorney prior to signing it.
1. General Terms of Termination. As noted above, whether or not you sign this Agreement:
(a) Your last day of employment with the Company is your Separation Date. You will be paid for all time worked up
to and including your termination.
(b) You will be paid for earned but unused vacation days and any properly documented reasonable expenses incurred
in connection with your employment through your Separation Date.
(c) Except as contemplated by the Employment Agreement, your eligibility to participate in all other group benefits
except Company sponsored health insurance including medical, dental, vision and prescription as an employee of the Company will
end on the last day of the calendar month in which separation occurs.
(d) You acknowledge (i) receipt of all compensation and benefits due through the Separation Date as a result of services
performed for the Company with the receipt of a final paycheck, except as provided in this Agreement; (ii) you have reported to the
Company any and all work-related injuries incurred during employment; (iii) the Company properly provided any leave of absence
because of your or your family member's health condition and you have not been subjected to any improper treatment, conduct or
actions due to a request for or taking such leave; and (iv) you have provided the Company with written notice of any and all concerns
regarding suspected ethical and compliance issues or violations on the part of the Company or any of the Released Parties.
2. Separation Payment. Except with respect to the Accrued Benefits as defined in the Employment Agreement, if
you sign this Agreement, agreeing to be bound by the General Release in Paragraph 3 below and the other terms and conditions of
this Agreement described below, and comply with the requirements of this Paragraph 2 (other than the Accrued Benefits), you will
receive the compensation and benefits as contemplated by the Employment Agreement. You will not be eligible for the payment and
benefits described in this Paragraph 2 unless: (i) you sign this Agreement no later than twenty-one (21) days after you receive it,
promptly return the Agreement to the Company after you sign it, and do not timely revoke it; and (ii) you have returned all
Company property and documents in accordance with Paragraph 15 below.
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3. General Release. In consideration of the benefits provided by the Company, you personally and for your heirs,
executors, administrators, successors and assigns, fully, finally and forever release and discharge the Company and its parents,
subsidiaries, and affiliates, as well as their respective successors, assigns, officers, owners, directors, agents, representatives,
attorneys, and employees (collectively, the "Released Parties"), of and from all claims, demands, actions, causes of action, suits,
damages, losses, and expenses, of any and every nature whatsoever, (a) as a result of actions or omissions occurring through the date
Employee signs this Agreement or (b) arising at any time under or relating to any agreements between you and any Releasee
exisiting as of the Separation Date. Specifically included in this waiver and release are, among other things, any and all claims under
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the
Pennsylvania Human Relations Act, or any other federal, state or local statute, rule, ordinance, or regulation, as well as any claims
under common law for tort, contract, or wrongful discharge (the "Released Claims"). The above release does not waive claims (i) for
unemployment or workers' compensation benefits, (ii) for vested rights under ERISA-covered employee benefit plans as applicable
on the date Employee signs this Agreement, (iii) to the extent prohibited by law, as a whistleblower under the Sarbanes-Oxley Act or
Dodd-Frank Wall Street Reform and Consumer Protection Act, (iv) to interpret or enforce this Agreement, (v) that may arise after
Employee signs this Agreement and (iv) which cannot be released by private agreement. Nothing in this release generally prevents
you from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the EEOC, NLRB
or any other federal, state or local agency charged with the enforcement of any employment laws, although by signing this release
you waive the right to individual relief based on claims asserted in such a charge or complaint, except with the NLRB or anywhere
else such a waiver is prohibited.
4. The parties agree and acknowledge that this Agreement and the considerations exchanged herein shall not constitute
and shall not be interpreted as an admission on the part of the Company of a violation of any statute, law, or ordinance or of any
other wrongdoing by the Company.
5. The parties further agree that this Agreement is in full, complete, and final settlement by you of any and all claims,
actions, causes of action, damages, or costs against the Company resulting from or pertaining to the Released Claims, your
employment with, treatment at, severance from, or separation of employment from the Company.
6. The parties agree that this Agreement shall supersede and replace any and all prior written or oral agreements
previously entered into between them, which agreements shall be null and void and of no consequence, except that the parties agree
that this paragraph does not apply to any agreements referenced in this Agreement or to any applicable confidentiality ,
noncompetition, noninterference, and/or nonsolicitation agreements.
7. The parties agree that the laws of the Commonwealth of Pennsylvania shall apply to the terms and conditions of
this Agreement, and they consent to the exclusive jurisdiction of the Pennsylvania courts with respect to the enforcement of this
Agreement.
8. You agree not to seek future employment with and waive any and all claims or rights to reemployment or
reinstatement to your former position or any position within the Company or any of its affiliates.
9. You understand and agree that in the event any claim, suit, or action whatsoever shall be commenced by you, your
heirs, executors, or administrators against the Company, based upon the Released Claims, this Agreement shall constitute a
complete defense to any such claim, suit, or action.
10. Except as specifically set forth herein, you waive any common law and/or statutory right to recover attorneys' fees
and costs, if any.
11. It is intended that this Agreement, and all payments or income to you contemplated by it, comply with, or are
exempt from, the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations promulgated thereunder. This Agreement shall be construed, administered, and governed in a manner consistent with
this intent.
12. It is agreed that the terms and provisions of this Agreement are to remain strictly confidential and that any
disclosure of the terms of this Agreement by you to any employee or former employee of the Company, or to any other person,
other than your legal counsel, tax advisors, or your immediate family members will constitute a material breach of this Agreement.
13. You agree that you will not make any disparaging statements, oral or written, regarding the Company to any
person, firm or other entity. You further agree, without limiting any other applicable remedies, that in the event of any breach of
this provision, the Company's obligation to provide any and all consideration provided for in Paragraph 2 above will terminate. The
13
Company agrees that members of its senior management team will not disparage you for so long as they remain members of such
management team.
14. Regardless of whether you sign this Agreement, and as a condition of receiving the consideration set forth in
Paragraph 2 above, you must return to your supervisor, retaining no copies, all Company property, including computers, wireless
devices, papers, files, documents, reference guides, equipment, keys, access key tag/card, identification cards, credit cards, software,
computer access codes, disks, supplies and institutional manuals, and you shall not retain any copies, duplicates, reproductions or
excerpts of any of the foregoing, whether in hardcopy or electronic format and are prohibited from using or disclosing confidential
and/or proprietary information which you accrued in the course of your employment with the Company.
15. You agree to make yourself available at mutually agreeable times to cooperate with the Company with respect to
any legal proceedings that the Company believes, in its sole discretion, may be in any way related to your employment with the
Company. Such cooperation encompasses your assistance with matters preliminary to the investigation of any legal proceedings and
assistance during and throughout any litigation or legal proceeding, including, but not limited to, participating in any fact-finding or
investigation, speaking with the Company's attorneys, testifying in depositions Upon submission of appropriate documentation, you
shall be reimbursed for reasonable out-of-pocket expenses incurred in rendering such cooperation, which shall not include any
attorneys' fees, testifying at hearings or at trial, and assisting with any post- litigation matter or appeal. Nothing in this paragraph
should be construed as suggesting or implying in any way that you should testify untruthfully.
16. No provision of this Agreement shall be construed or enforced in a manner that would prevent Employee from
testifying fully and truthfully under oath in any court, arbitration or administrative agency proceeding, or from filing a charge or
providing complete and truthful information in the course of any government investigation. No provision of this Agreement shall be
construed or enforced in a manner that would interfere with Employee's rights under the National Labor Relations Act, if any, to
discuss or comment on terms and conditions of employment.
17. You are advised to consult with an attorney prior to signing this Agreement. You have 21 days from the Separation
Date to consider whether to sign this Agreement (the "Consideration Period"). You must return this signed Agreement to the
Company's representative set forth below within the Consideration Period but not prior to the Separation Date. If you sign and
return this Agreement before the end of the Consideration Period, it is because you freely chose to do so after carefully considering
its terms. Additionally, you shall have seven (7) days from the date of the signing of this Agreement to revoke this Agreement by
delivering a written notice of revocation within the seven-day revocation period to the same person as you returned this Agreement.
If the revocation period expires on a weekend or holiday, you will have until the end of the next business day to revoke. This
Agreement will become effective on the eighth day after you sign this Agreement provided you do not revoke your consent to this
Agreement prior to such day. Any modification or alteration of any terms of this Agreement by you voids this Agreement in its
entirety. You agree with the Company that changes, whether material or immaterial, do not restart the commencement of the
Consideration Period.
18. In the event that, any one or more provisions (or portion thereof) of this Agreement is held to be invalid, unlawful
or unenforceable for any reason, the invalid, unlawful or unenforceable provision (or portion thereof) shall be construed or modified
so as to provide the Company with the maximum protection that is valid, lawful and enforceable, consistent with the intent of the
Company and you in entering into this Agreement. If such provision (or portion thereof) cannot be construed or modified so as to be
valid, lawful and enforceable, that provision (or portion thereof) shall be construed as narrowly as possible and shall be severed from
the remainder of this Agreement (or provision), and the remainder shall remain in effect and be construed as broadly as possible, as
if such invalid, unlawful or unenforceable provision (or portion thereof) had never been contained in this Agreement.
19. No changes to this Agreement can be effective except by another written agreement signed by you and by the
Company's authorized representative.
20. You and the Company execute this Agreement voluntarily, with full knowledge of its significance, and you
acknowledge that you have read and fully understand the meaning of this Agreement, intend to be legally bound by the
Agreement, and that no inducement, duress, or coercion caused either party to enter into this understanding.
PLEASE READ CAREFULLY
1. THIS AGREEMENT CONSTITUTES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. IT DOES
NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE IT IS EXECUTED;
2. YOU AGREE THAT YOU ARE WAIVING RIGHTS AND CLAIMS YOU MAY HAVE IN EXCHANGE FOR
CONSIDERATION IN ADDITION TO THINGS OF VALUE TO WHICH YOU ARE ALREADY ENTITLED;
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3. YOU UNDERSTAND THAT YOU HAVE THE RIGHT TO CONSULT WITH AN ATTORNEY PRIOR TO
EXECUTING THIS AGREEMENT;
4. YOU UNDERSTAND THAT YOU HAVE TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER
THIS AGREEMENT;
5. YOU UNDERSTAND THAT YOU HAVE SEVEN (7) DAYS FOLLOWING YOUR EXECUTION OF THIS
AGREEMENT TO REVOKE IT AND THAT THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE REVOCATION PERIOD HAS EXPIRED. REVOCATION MUST BE IN WRITING AND TIMELY DELIVERED
TO: CHIEF ADMINISTRATIVE OFFICER, RITE AID CORPORATION, 30 HUNTER LANE, CAMP HILL,
PENNSYLVANIA, 17011.
15
In witness whereof, the parties hereto have executed this Agreement on the day and date indicated below.
RITE AID CORPORATION
By :
Its:
Dated:
EXECUTIVE
Dated:
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Exhibit 10.46
November 6, 2019
Mr. Justin Mennen
Executive Vice President and
Chief Information Officer
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
RE: Agreement dated as of December 7, 2018 by and between Rite Aid Corporation (the
"Company") and Justin Mennen (the "Executive"), as amended from time to time (the
"Agreement")
Dear Justin:
I am pleased to provide you with this letter in order to update the Agreement to reflect your
promotion to the position of Executive Vice President and Chief Information Officer of the Company,
effective September 18, 2019 (the "Amendment Date").
In consideration of your appointment and of other good and valuable consideration, the receipt
of which is acknowledged:
1. Section 2.1 ("Position and Duties-Generally") is hereby amended by:
a. deleting the term "Senior Vice President and Chief Information Officer" and replacing
it with the term "Executive Vice President and Chief Information Officer" in the first
sentence of Section 2.1;
b. deleting the term "customary for a Senior Vice President" and replacing it with the
term "customary for an Executive Vice President" in the first sentence of Section 2.1;
and
c. deleting the term "Senior Executive Vice President, Chief Administrative Officer and
Chief Financial Officer" and replacing it with the term "Chief Executive Officer" in
the third sentence of Section 2.1.
2. Section 4.5 ("Annual Financial Planning Allowance") is hereby amended by deleting
the amount "$3,000.00" and replacing it with the amount "$5,000.00".
3. Section 5.4(a) ("Definition of Good Reason") is hereby amended by deleting the term
"Senior Vice President and Chief Information Officer" and replacing it with the term
"Executive Vice President and Chief Information Officer".
If you are in agreement with the changes described in the above paragraphs, please sign both
copies of this letter below where indicated, returning one copy to me and retaining one copy for your
records.
[SIGNATURE PAGE FOLLOWS]
Sincerely,
Rite Aid Corporation
/s/ James J. Comitale
By:
Name: James J. Comitale
Title: Executive Vice President and General Counsel
Agreed:
/s/ Justin Mennen
Justin Mennen
EMPLOYMENT AGREEMENT
Exhibit 10.47
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of the 28th day of January, 2020
by and between Rite Aid Corporation, a Delaware corporation (the “Company”) and Andre Persaud (“Executive”).
WHEREAS, the Company desires to hire and employ Executive and Executive desires to provide the Company
with Executive’s services subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive (individually a “Party” and together the “Parties”), intending to be legally
bound, agree as follows:
1. Term of Employment.
The term of Executive’s employment under this Agreement shall commence on February 3, 2020 (the “Effective
Date”) and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is
two (2) years following the Effective Date (the “Original Term of Employment”). The Original Term of Employment
shall be automatically renewed for successive one (1) year terms (the “Renewal Terms”) unless at least one hundred
twenty (120) days prior to the expiration of the Original Term of Employment or any Renewal Term, either Party notifies
the other Party in writing that Executive or it is electing to terminate this Agreement at the expiration of the then current
Term of Employment. “Term” shall mean the Original Term of Employment and all Renewal Terms. For purposes of this
Agreement, except as otherwise provided herein, the phrases “year during the Term” or similar language shall refer to
each twelve (12) month period commencing on the Effective Date or applicable anniversaries thereof.
2. Position and Duties.
2.1 Generally. During the Term, Executive shall serve as Executive Vice President, Retail (“EVP, Retail”) of
the Company and shall have such officer level duties, responsibilities and authority as are customary for such position,
and shall have such other officer level duties, responsibilities and authorities as shall be assigned by the Company from
time to time consistent with such position. Executive shall devote Executive’s full working time, attention, knowledge and
skills faithfully and to the best of Executive’s ability, to the duties and responsibilities assigned by the Company in
furtherance of the business affairs and activities of the Company and its subsidiaries, affiliates and strategic partners.
Executive shall report to the Chief Executive Officer of the Company. Contemporaneously with termination of
Executive’s employment with the Company for any reason, Executive shall automatically resign from all offices and
positions Executive holds with the Company or any subsidiary without any further action on the part of Executive or the
Company.
2.2 Other Activities. Anything herein to the contrary notwithstanding, nothing in this Agreement shall
preclude the Executive from engaging in the following activities: (i) serving on
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the board of directors of one (1) other entity or the boards of a reasonable number of trade associations and/or charitable
organizations, in each case subject to the Company’s advance approval which shall not be unreasonably withheld, (ii)
engaging in charitable activities and community affairs, and (iii) managing Executive’s personal investments and affairs,
provided that Executive’s activities pursuant to clauses (i), (ii) or (iii) do not violate Sections 6 or 7 below or materially
interfere with the proper performance of Executive’s duties and responsibilities under this Agreement. Executive shall at
all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as the Company
may from time to time establish for officers of the Company or employees generally.
3. Compensation.
3.1 Base Salary. During the Term, as compensation for Executive’s services hereunder, Executive shall
receive a salary at the annualized rate of four hundred and seventy-five thousand dollars ($475,000) per year, subject to
annual review for increase by the Board of Directors of the Company (the “Board”) or its designee (“Base Salary” as may
be adjusted from time to time), which shall be paid in accordance with the Company’s normal payroll practices and
procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive.
3.2 Annual Performance Bonus. Executive shall participate each fiscal year during the Term in the annual
bonus plan for each fiscal year, as applicable, as adopted and approved by the Company from time to time. Executive’s
annual target bonus opportunity pursuant to such plan (the “Annual Target Bonus”) shall equal 50% of the Base Salary in
effect for Executive as of the beginning of such fiscal year; provided that for the current fiscal year in which the Effective
Date falls, the 50% shall apply beginning with the fiscal period (month) in which the Effective Date falls, through the
balance of such fiscal year. Payment of any annual performance bonus earned shall be made in accordance with the terms
of the Company’s annual bonus plan as in effect for the year for which the bonus is earned.
3.3 Equity Awards.
(a) Participation in the LTIP. Executive will be eligible to participate during the Term in the Rite
Aid Corporation 2014 Omnibus Equity plan and any successor plan (the “LTIP”). Executive’s target long term incentive
opportunity under the LTIP shall be one hundred and twenty-five percent (125%) of Executive’s Base Salary. In the
discretion of the Board, on each regular grant date occurring during the Term, Executive will be granted long-term
incentive awards under the LTIP valued at target at one hundred and twenty-five percent (125%) of Base Salary
calculated in a manner consistent with and containing the same terms and conditions as other senior executives of the
Company generally, which shall be in the sole discretion of the Board.
(b) Inducement Award of Restricted Stock. As an inducement to commence serving as EVP,
Retail of the Company, on the Effective Date, Executive will be granted a number of shares of restricted Rite Aid
Common Stock (the “Inducement Restricted Stock”), par value $1.00 per share (“Rite Aid Stock”) determined by dividing
$225,000 by the closing price of a share of Rite Aid Stock on the Effective Date. The vesting restrictions on the
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Inducement Restricted Stock shall lapse as to one-third (1/3) of the shares on each of the first three (3) anniversaries from
the Effective Date, subject only to continued service on each applicable vesting date, and the award of Inducement
Restricted Stock shall otherwise be subject to the terms of the LTIP and the award agreement provided to Executive.
4. Additional Benefits.
4.1 Employee Benefits. During the Term, Executive shall be eligible to participate in the employee benefit
plans (including, but not limited to medical, dental and life insurance plans, short-term and long-term disability coverage
and 401(k) plans) in which senior executive employees of the Company are generally eligible to participate, subject to
satisfaction of any eligibility requirements and the other generally applicable terms of such plans. Nothing in this
Agreement shall prevent the Company from amending or terminating any employee benefit plans of the Company from
time to time as the Company deems appropriate.
4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably
incurred by Executive in furtherance of Executive’s duties hereunder, including without limitation, travel, meals and
accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto
as the Company may from time to time adopt or as may be required in order to permit such payments to be taken as
proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules
and regulations adopted pursuant thereto now or hereafter in effect (the “Code”).
4.3 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile
allowance of $1,000.00 per month.
4.4 Annual Financial Planning Allowance. During the Term, the Company shall provide Executive with an
annual financial planning allowance in the amount of $5,000.00.
4.5 Travel Stipend and Relocation. During the initial eighteen (18) month period following the Effective
Date, the Company shall provide Executive with a travel stipend in the amount of $5,000 per month for his use in
connection with transportation, commuting and lodging. Following such eighteen (18) month period, Executive shall
participate in the Company’s relocation program for executives, as in effect from time to time, to assist Executive with his
relocation to [the Harrisburg, Pennsylvania area] (including moving and house hunting expenses and other direct costs
incurred in connection with such relocation).
4.6 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent
permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) relating to or arising out of the Executive’s employment with
and service as an officer of the Company, and (b) pay all reasonable costs, expenses and attorney’s fees incurred by
Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action,
subject to Executive’s undertaking to repay in the event it is ultimately determined that Executive is not entitled to be
indemnified by the Company. Following termination (except for termination by the Company for Cause) of the
Executive’s
3
employment or service with the Company or any subsidiaries or affiliates of the Company, the Company shall cause any
director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for
six (6) years following the date of termination of employment.
5. Termination.
5.1 Termination of Executive’s Employment by the Company for Cause. The Company may terminate
Executive’s employment hereunder for Cause (as defined below). Such termination shall be effected by written notice
thereof delivered by the Company to Executive, indicating in reasonable detail the specific facts and circumstances
alleged to provide a basis for such termination and the specific provisions of this Agreement on which the Company
relies, and shall be effective as of the date of such notice in accordance with Section 12 hereof. “Cause” shall mean (i)
Executive’s willful failure to perform the lawful duties or responsibilities of his position with the Company or any
subsidiary, or failure to timely carry out any lawful and reasonable directive of the Chief Executive Officer of Rite Aid;
(ii) Executive’s misappropriation of any funds or property of the Company or any subsidiary; (iii) conduct by Executive
which is a violation of Company policy or which materially interferes with Executive’s ability to perform his duties; (iv)
Executive’s engaging in conduct constituting, or which could reasonably constitute, unlawful harassment or which gives
rise to, or which could reasonably give rise to, an actual or perceived conflict of interest; (v) the commission by Executive
of an act of fraud or dishonesty toward the Company or any subsidiary; (vi) Executive’s willful misconduct or gross
negligence which demonstrably damages or injures the Company or the Company’s reputation; (vii) Executive is
convicted of or pleads guilty to a misdemeanor involving moral turpitude or any felony; or (viii) the use or imparting by
Executive of any confidential or proprietary information of the Company or any subsidiary or any other violation of an
agreement with the Company (including this Agreement) providing for confidentiality, non-competition and other
restrictive covenants.
5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason.
In the event of Executive’s termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily
without Good Reason:
(a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through
the effective date of such termination, (ii) reimbursement for expenses incurred by Executive through the date of notice of
such termination, to the extent otherwise provided under Section 4.2 above, and (iii) all other vested payments and
benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement
through the effective date of such termination ((i), (ii) and (iii) collectively, the “Accrued Benefits”). All other rights of
Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder in connection with
Executive’s employment with the Company shall terminate effective as of the date of such termination of employment
and Executive shall not be entitled to any payments or benefits not specifically described in this subsection (a) or (b)
below.
(b) Any portion of any restricted stock or any other equity incentive awards as to which the
restrictions have not lapsed or as to which any other conditions set forth in this
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Agreement or the applicable award agreement shall not have been satisfied prior to the date of termination shall be
forfeited as of the date of termination date and any portion of Executive’s stock options that have vested and become
exercisable prior to the date of termination shall remain exercisable for a period of ninety (90) days following the date of
termination of employment (or, such later date as may be permitted by the relevant stock option or equity plan, or, if
earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate; provided,
however, in the event of termination of Executive by the Company for Cause, any stock options that have not been
exercised prior to the date of termination shall immediately terminate as of such date.
Any termination of Executive’s employment by Executive voluntarily without Good Reason shall be effective
upon a thirty (30) day notice to the Company or such earlier date as the Company determines in its discretion and
designates in writing. A termination of Executive’s employment by the Company for Cause or by the Executive other than
for Good Reason shall not constitute a breach of this Agreement.
5.3 Compensation upon Termination of Executive’s Employment by the Company Other Than for
Cause or by Executive for Good Reason. Executive’s employment hereunder may be terminated by the Company other
than for Cause or by Executive for Good Reason. In the event that Executive’s employment hereunder is terminated by
the Company other than for Cause or by Executive for Good Reason:
(a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) an amount equal to two (2)
times the Executive’s then Base Salary as of the date of termination of employment, such amount payable in equal
installments pursuant to the Company’s standard payroll procedures for management employees over a period of two (2)
years following the date that the release of claims (referred to below) becomes irrevocable (provided, if as of the date of
termination the release of claims could become irrevocable in either of two taxable years of Executive, payments shall not
commence before the first day of the later such taxable year), and (iii) with respect to health insurance coverage, the cost
of COBRA benefits to Executive and his immediate family for a period of eighteen (18) months following the date of
termination of employment, with such COBRA coverage running coextensively with the reimbursement of such costs.
(b) The stock option awards held by Executive shall vest and become immediately exercisable and
the restrictions with respect to any awards of non-performance based restricted stock (“Restricted Stock”) shall lapse, in
each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of one (1) year following the date of
termination. Such portion of Executive’s stock options (together with any portion of Executive’s stock options that have
vested and become exercisable prior to the date of termination) shall remain exercisable for a period of ninety (90) days
following the date of termination of employment (or, such later date as may be permitted by the relevant stock option or
equity plan, or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall
terminate. Any remaining portion of Executive’s stock options that have not vested (or deemed to have vested) as of the
date of termination shall terminate as of
5
such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination
shall be forfeited as of such date.
(c) If a termination pursuant to Section 5.3 of the Agreement occurs following the start of the
Company’s fiscal year, Executive shall also be entitled to receive, to the extent not previously paid (which shall be paid at
the same time paid to other eligible participants in the bonus plan and following determination by the Compensation
Committee (or the Board) that the Company has achieved or exceeded its annual performance targets for the fiscal year), a
pro rata annual bonus determined by multiplying the performance level achieved (relative to Executive’s Annual Target
Bonus amount) by the fraction (x) the numerator of which is the number of days between the beginning of the then current
fiscal year of the Company and the date of termination of employment and (y) the denominator of which is 365. Executive
shall also receive any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
(d) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder in connection with Executive’s employment with the Company shall terminate effective as of the
date of such termination of employment and Executive shall not be entitled to any payments or benefits not specifically
described in 5.3(a) through (c).
Any termination of employment pursuant to this Section 5.3 shall be effective upon a thirty (30) day notice
thereof or the Company may elect in its sole discretion to reduce or eliminate the notice period and pay Executive’s Base
Salary for some or all of the notice period in lieu of notice. A termination of Executive’s employment by the Company
other than for Cause or by the Executive for Good Reason shall not constitute a breach of this Agreement. To be eligible
for the payment, benefits and stock rights described in Section 5.3(a)(ii) and (iii), (b) and (c) above, Executive must
execute within sixty (60) days of the date of termination, not revoke, and abide by a release (which shall be substantially
in the form attached hereto as Appendix A) of all claims, cooperate with the Company in the event of litigation and fully
comply with Executive’s obligations under Sections 6 and 7 below.
5.4 Definition of Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence
of any one of the following:
(a) the assignment to Executive of any duties or responsibilities materially inconsistent with
Executive’s status and position as EVP, Retail of the Company or any material adverse change in Executive’s title or
reporting relationships; or
(b) any decrease in Executive’s then Base Salary to which Executive has not agreed to in writing; or
(c) a material breach by the Company of this Agreement;
provided, however, that Executive has provided written notice (which shall set forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason and the specific provisions of this Agreement on which Executive
relies) to the Company of the existence of any condition described in any one of the subparagraphs (a), (b), or (c) within
thirty (30) days of the initial existence of such condition, and the Company has not cured the condition
6
within thirty (30) days of the receipt of such notice. Any termination of employment by Executive for Good Reason
pursuant to Section 5.3 must occur no later than the date that is the three (3) month anniversary of the initial existence of
the condition giving rise to the termination right.
5.5 Compensation upon Termination of Executive’s Employment by Reason of Executive’s Death or
Total Disability. In the event that Executive’s employment with the Company is terminated by reason of Executive’s
death or Total Disability (as defined below), subject to the requirements of applicable law:
(a) Executive or Executive’s estate, as the case may be, shall be entitled to receive (i) the Accrued
Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in
which Executive is a participant and (iii) continued health insurance coverage for Executive and/or Executive’s immediate
family, as applicable (or reimbursement to the Executive for the cost of purchasing health insurance coverage
substantially comparable to the coverage provided by the Company, excepting payments for such periods that the
Company provides such coverage) for a period of one (1) year following the date of death or Total Disability as the case
may be. Executive or Executive’s estate shall also be entitled to receive, at the same time as is paid to other eligible
participants in the bonus plan, following determination by the Compensation Committee (or the Board) of the Company’s
performance under the applicable annual performance goals for the fiscal year, a pro rata annual bonus determined by
multiplying the performance level achieved (relative to Executive’s Annual Target Bonus amount) by the fraction (x) the
numerator of which is the number of days between the beginning of the then current fiscal year of the Company and the
date of termination of employment and (y) the denominator of which is 365. Executive or Executive’s estate shall also be
entitled to any unpaid annual bonus earned for any completed fiscal year preceding the date of termination.
(b) All stock option awards held by Executive shall vest and become immediately exercisable and
the restrictions with respect to any awards of Restricted Stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the
employ of the Company for a period of one (1) year following the date of death or Total Disability as the case may be.
Such portion of Executive’s stock options (together with any portion of Executive’s stock options that have vested and
become exercisable prior to the date of termination) shall remain exercisable for a period of ninety (90) days following the
date of termination of employment (or, such later date as may be permitted by the relevant stock option or equity plan, or,
if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any
remaining portion of Executive’s stock options that have not vested (or deemed to have vested) as of the date of
termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have
lapsed (after application of this Section 5.5(b)) as of the date of termination shall be forfeited as of such date.
(c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder in connection with Executive’s employment with the Company shall terminate effective as of the
date of such termination of employment and
7
Executive shall not be entitled to any payments or benefits not specifically described in Section 5.5(a) and (b).
“Total Disability” shall mean any physical or mental disability that has prevented Executive from (a)(i)
performing one or more of the essential functions of Executive’s position for a period of not less than ninety (90) days in
any twelve (12) month period and (ii) which is expected to be of permanent or indeterminate duration but expected to last
at least twelve (12) continuous months or result in death of the Executive as determined (y) by a physician selected by the
Company or its insurer or (z) pursuant to the Company’s benefit programs; or (b) reporting to work for ninety (90) or
more consecutive business days and being unable to engage in any substantial activity.
5.6 Survival. In the event of any termination of Executive’s employment or expiration of the Term,
Executive and the Company nevertheless shall continue to be bound by the terms and conditions of this Agreement,
including without limitation, those set forth in Section 4.6 and Sections 5 through 10 hereof, which shall survive the
expiration of the Term, to the extent necessary to enable them to enforce their respective rights pursuant to the Agreement.
5.7 Change in Control Best Payments Determination. Any other provision of this Agreement to the
contrary notwithstanding, if any portion of any payment or benefit under this Agreement either individually or in
conjunction with any payment or benefit under any other plan, agreement or arrangement (all such payments and benefits,
the “Total Payments”) would constitute an “excess parachute payment” within the meaning of Internal Revenue Code
Section 280G, that is subject to the tax imposed by Section 4999 of such Code (the “Excise Tax”), then the Total
Payments to be made to Executive shall be reduced, but only to the extent that Executive would retain a greater amount on
an after-tax basis than he would retain absent such reduction, such that the value of the Total Payments that Executive is
entitled to receive shall be $1 less than the maximum amount which the Executive may receive without becoming subject
to the Excise Tax. For purposes of this Section 5.7, the determination of whichever amount is greater on an after-tax basis
shall be (x) based on maximum federal, state and local income and employment tax rates and the Excise Tax that would
be imposed on Executive and (y) made at the Company’s expense by independent accountants selected by the Company
and Executive (which may be the Company’s income tax return preparers if Executive so agrees) which determination
shall be binding on both Executive and the Company. Any such reduction as may apply under this Section 5.7 shall be
applied in the following order: (i) payments that are payable in cash the full amount of which are treated as parachute
payments under Treasury Regulation Section 1.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts
that are payable last reduced first; (ii) payments and benefits due in respect of any equity the full amount of which are
treated as parachute payments under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced
first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii)
payments that are payable in cash that are valued at less than full value under Treasury Regulation Section 1.280G-1,
Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect
of any equity valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values
reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced;
and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will next be reduced pro-rata.
8
5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not
be entitled to damages or to any severance or other benefits upon termination of employment with the Company under any
circumstances and for any or no reason, including, but not limited to any severance pay under any Company severance
plan, policy or practice.
6. Protection of Confidential Information.
Executive acknowledges that during the course of Executive’s employment with the Company, its subsidiaries,
affiliates and strategic partners, Executive will be exposed to documents and other information regarding the confidential
affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation, information about
their past, present and future financial condition, pricing strategy, prices, suppliers, cost information, business and
marketing plans, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade
secrets, and other intellectual property, current and prospective customer lists, operational methods, acquisition plans,
prospects, plans for future development and other business affairs and information about the Company and its
subsidiaries, affiliates and strategic partners not readily available to the public (the “Confidential Information”).
Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing, Executive covenants and agrees as follows:
6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever divulge, disclose, or
otherwise use any Confidential Information (other than as necessary to perform his duties under this Agreement and in
furtherance of the Company’s best interests), unless and until such information is readily available in the public domain
by reason other than Executive’s disclosure or use thereof in violation of the first clause of this Section 6.1. Executive
acknowledges that Company is the owner of, and that Executive has no rights to, any trade secrets, patents, copyrights,
trademarks, know-how or similar rights of any type, including any modifications or improvements to any work or other
property developed, created or worked on by Executive during his employment with the Company.
6.2 Return of Company Property, Records and Files. Upon the termination of Executive’s employment at
any time and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the
Company’s offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries,
affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all
documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents,
including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the
Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present
officers, directors, employees or consultants (collectively, the “Company Property, Records and Files”); it being expressly
understood that, upon termination of Executive’s employment at any time and for any reason, Executive shall not be
authorized to retain any of the Company Property, Records and Files, any copies thereof or excerpts therefrom. Executive
further agrees that Executive shall permanently delete any Company Property, Records and Files which cannot be
returned to the
9
Company in their entirety (including any such Company Property, Records or Files on a cloud storage system).
7. Noncompetition and Other Matters.
7.1 Noncompetition. During Executive’s employment with the Company and during the twelve (12) month
period following the termination of Executive’s employment with the Company for any reason (the “Restricted Period”),
Executive will not, directly or indirectly, engage in Competition with the Company or any of its subsidiaries in the
Restricted Area (as defined below). “Competition” shall mean engaging in any activity for a Competitor of the Company
or any of its subsidiaries, with or without compensation, whether as a principal, agent, partner, officer, director, employee,
advisor, independent contractor, investor, consultant or stockholder (except as a less than five percent (5%) shareholder of
a publicly traded company) or otherwise. A “Competitor” shall mean any person, corporation or other entity and its
parents, subsidiaries, affiliates and assigns, (collectively, a “Person”) that engages, or is preparing to engage, in the same
or substantially similar business as one or more business units of the Company or its subsidiaries. As of the Effective
Date, it is understood that the Company’s business units include: (1) pharmacy benefits management (“PBM”), including
the administration of pharmacy benefits for businesses, government agencies or health plans; mail order pharmacy;
specialty pharmacy and Medicare Part D services; (2) the sale of prescription drugs either at retail or over the internet; and
(3) retail health care (“RediClinic”). It is understood and agreed that PBM competitors include, but are not limited to,
CVS Health, Express Scripts and Optum, as well as health plans or insurers that provide PBM services. It is also
understood and agreed that retail pharmacy competitors include any individual or entity that sells or has imminent plans to
sell prescription drugs, including but not limited to, drugstore companies such as Walgreens Boots Alliance and CVS
Health; mass merchants such as Wal-Mart Stores, Inc. and Target Corp.; and food/drug combinations such as Kroger Co.,
Albertsons LLC and Ahold USA. It is understood and agreed that RediClinic competitors include, but are not limited to,
Walgreen’s Take Care Clinics, CVS Health’s Minute Clinics and The Little Clinic. During Executive’s employment by
the Company or one of its subsidiaries and during the Restricted Period, Executive will not directly or indirectly, engage
in any activity that involves providing audit review or other consulting or advisory services with respect to any
relationship between the Company and any third party. The “Restricted Area” means those states within the United States
in which the Company, including its subsidiaries, maintains retail stores, including the District of Columbia and Puerto
Rico if applicable.
7.2 Noninterference. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce,
or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its
subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or other
relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of
associating with any Competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or
otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason.
10
7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce,
or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate, limit or otherwise modify
his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the
purpose of associating with any Competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or
assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate
his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any
reason. During the Restricted Period, Executive shall not hire, either directly or through any employee, agent or
representative, any person known by Executive to be (or to have been) a field and corporate management employee of the
Company or any subsidiary or any such person who was employed by the Company or any subsidiary within 180 days of
such hiring.
7.4 Permitted Disclosures. Pursuant to 18 U.S.C. § 1833(b), Executive understands that Executive will not
be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret of the
Company that (a) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or
to Executive’s attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is
made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Executive understands
that if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may
disclose the trade secret to Executive’s attorney and use the trade secret information in the court proceeding if Executive
(x) files any document containing the trade secret under seal, and (y) does not disclose the trade secret, except pursuant to
court order. Nothing in this Agreement, or any other agreement that Executive has with the Company, is intended to
conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by such
section. Further, nothing in this Agreement or any other agreement that Executive has with the Company shall prohibit or
restrict Executive from (A) making any voluntary disclosure of information or documents concerning possible violations
of law to any governmental agency or legislative body, or any self-regulatory organization, in each case, without advance
notice to the Company; or (B) responding to a valid subpoena, court order or similar legal process; provided, however,
that prior to making any such disclosure pursuant to this Section 1.3(B), Executive shall provide the Company with
written notice of the subpoena, court order or similar legal process sufficiently in advance of such disclosure to afford the
Company a reasonable opportunity to challenge the subpoena, court order or similar legal process.
7.5 Non-Disparagement. During the Term and at all times thereafter, regardless of the reason for
termination, Executive will not make any negative comments or disparaging remarks, in writing, orally or electronically
(“Disparaging Remarks”), about the Company, its affiliates and subsidiaries, and their respective products and services.
The Company shall not make, and shall instruct the members of its senior management team not to make, for as long as
such individuals remain employed with the Company, any Disparaging Remarks about Executive; provided, however, that
nothing in this Section 7.5 shall prohibit the Company or Executive from (a) making truthful and accurate statements or
disclosures that are required by applicable law or legal process; (b) making any voluntary disclosure of information or
documents concerning possible violations of law to any governmental agency or legislative
11
body, or any self-regulatory organization; or (c) exercising protected rights to the extent that such rights, by law, cannot
be waived by agreement.
8. Rights and Remedies upon Breach.
If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the
“Restrictive Covenants”), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have
the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of
which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns at law or in equity:
8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by
any court of competent jurisdiction by injunctive decree or otherwise (without the necessity of posting a bond), it being
agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company
or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an
adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns.
8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity
constituting a breach of any of the Restrictive Covenants.
8.3 Extension of Restriction in the Event of Breach. In the event that Executive breaches any of the
provisions set forth in this Section 8, the right and remedy is to extend the length of time of the Restricted Period for a
period of time equal to the period of time during which Executive was or is in breach of such provision.
8.4 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to specifically
enforce the Restrictive Covenants by issuing an injunction in aid of arbitration upon the courts of any jurisdiction within
the Restricted Area. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in
any way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief
provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
8.5 Reasonableness; Severability; Modification. Executive acknowledges and agrees that the Restrictive
Covenants are reasonable and necessary given Executive’s position of trust and confidence within the Company and
Executive’s significant access to confidential information. Executive further agrees that the Restrictive Covenants are
valid in geographic and temporal scope and in all other respects. If any provision of the Restrictive Covenants is held to
12
be excessively broad as to duration, activity or subject, it is the desire of the Company and Executive that such provisions
be construed by limiting and reducing them so as to be enforceable to the maximum extent allowed by applicable law and
then fully enforced as so modified. In the event that any one or more of the provisions shall be held to be invalid, illegal
or unenforceable, it is the desire of the Company and Executive that the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. If any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full force and effect without regard to the invalid portions.
9. No Violation of Third-Party Rights. Executive represents, warrants and covenants that Executive:
(i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third
party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade
secrets, or other proprietary rights);
(ii) is not a party to any conflicting agreements with third parties, which will prevent Executive from
fulfilling the terms of employment and the obligations of this Agreement;
(iii) does not have in Executive’s possession any confidential or proprietary information or documents
belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or
proprietary information or documents of others; and
(iv) agrees to respect any and all valid obligations which Executive may now have to prior employers
or to others relating to confidential information, inventions, discoveries or other intellectual property which are the
property of those prior employers or others, as the case may be.
Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of
any kind (including, without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Executive of the foregoing representations, warranties, and covenants.
10. Arbitration.
Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or
Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise
available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this
Agreement, or any dispute that relates in any way, in whole or in part, to Executive’s employment with the Company or
any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the
parties or their subsidiaries, affiliates, strategic partners, successors or assigns, shall be submitted to final and binding
arbitration in the Commonwealth of Pennsylvania according to the National Employment Dispute Resolution Rules and
procedures of the American Arbitration Association at the time in effect. The Company shall be responsible for
13
any filing, administrative or arbitrator fees that exceed the amount it would cost to file a claim in a court of competent
jurisdiction in the Commonwealth of Pennsylvania. The arbitrator shall have the authority to award the prevailing party all
or any portion of its expense of arbitration, including fees and disbursements of legal counsel, if the arbitrator determines
such award to be equitable. This arbitration obligation extends to any and all claims that may arise by and between the
parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to, without
limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market,
breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty,
fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and
claims under the Pennsylvania Constitution, the United States Constitution, and applicable state and federal fair
employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the
Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and any other state or federal law. Executive understands that by entering into this Agreement, Executive is
waiving Executive’s rights to have a court determine Executive’s rights, including under federal, state or local statutes
prohibiting employment discrimination, including sexual harassment and discrimination on the basis of age, race, color,
religion, national origin, disability, veteran status or any other factor prohibited by governing law. Executive further
understands that there is no intent herein to interfere with the Equal Employment Opportunity Commission’s right to
enforce the laws it oversees or Executive’s right to file an administrative charge of employment discrimination or a
similar state or local administrative agency.
11. Assignment.
Neither this Agreement, nor any of Executive’s rights or obligations hereunder, may be assigned or otherwise
subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, and Executive
hereby consents to any such assignment, in whole or in part, (i) to any of the Company’s subsidiaries, affiliates, or parent
corporations (provided that such assignment shall not relieve the Company of any of its obligations owed to Executive
hereunder); or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company’s
assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company, provided that
such successor expressly assumes all of the Company’s obligations under this Agreement.
12. Notices.
All notices and other communications under this Agreement shall be: (i) in writing; (ii) delivered personally, by
fax, by electronic mail, by courier service, or by certified or registered mail, first class postage prepaid and return receipt
requested; (iii) deemed to have been received on the date of delivery or, if sent by certified or registered mail, on the third
(3rd) business day after the mailing thereof, or if sent by fax, twenty-four (24) hours after transmission of a fax; and (iv)
addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with
the terms hereof):
14
If to the Company:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: General Counsel
Fax: (717) 760-7867
Email: jcomitale@riteaid.com
If to Executive:
Andre Persaud, at Executive’s last address shown on the payroll records of the Company.
Any party may change such party’s address for notices by notice duly given pursuant hereto.
13. General.
13.1 No Offset or Mitigation. The Company’s obligation to make the payments provided for in, and
otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against Executive or others whether in respect of
claims made under this Agreement or otherwise. In no event shall Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided
to Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether
Executive obtains other employment.
13.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with
the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles thereof which might
refer such interpretations to the laws of a different state or jurisdiction. Any court action instituted by Executive or the
Company relating in any way to this Agreement shall be filed exclusively in state or federal court in the Commonwealth
of Pennsylvania and Executive and the Company consent to the jurisdiction and venue of said courts in any action
instituted by or on behalf of the Company or Executive against the other.
13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to
Executive’s employment with the Company and cancels and supersedes all agreements, arrangements and understandings
relating thereto made prior to the date hereof, written or oral, between Executive and the Company and/or any subsidiary
or affiliate.
13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the
case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any
party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to
15
be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
13.5 Conflict with Other Agreements. Executive represents and warrants that neither Executive’s execution
of this Agreement nor the full and complete performance of Executive’s obligations hereunder will violate or conflict in
any respect with any written or oral agreement or understanding with any person or entity.
13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the
Company (and its successors and assigns) and Executive and Executive’s heirs, executors and personal representatives.
13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from
amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this
Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with
law.
13.9 No Assignment. The rights and benefits of Executive under this Agreement may not be anticipated,
assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the
same shall be void. Payments hereunder shall not be considered assets of Executive in the event of insolvency or
bankruptcy.
13.10 Captions. The section headings contained herein are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
13.11 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts; each of
which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the
same instrument.
14. Compliance with Code Section 409A.
(a) Interpretation: The intent of the parties is that payments and benefits under this Agreement
comply with Section 409A of the Code (“409A”), to the extent subject thereto, and accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything
contained herein to the contrary, Executive shall not be considered to have terminated employment with the Company for
purposes of any payments under this Agreement which are subject to 409A until Executive has incurred a “separation
from service” from the Company within the meaning of 409A.
16
(b) Payment of Benefits: To the extent necessary to avoid adverse tax consequences, and except as
described below, any payment to which Executive becomes entitled under the Agreement, or any arrangement or plan
referenced in this Agreement, that constitutes “deferred compensation” under 409A, and is (a) payable upon Executive’s
termination; (b) at a time when Executive is a “specified employee” as defined by 409A shall not be made until the first
payroll date after the earliest of: (1) the expiration of the six (6) month period (the “Deferral Period”) measured from the
date of Executive’s “separation from service” within the meaning of such term under 409A; or (2) the date of Executive’s
death.
On the first payroll date after the expiration of the Deferral Period, all payments that would have been made
during the Deferral Period (whether in a single lump sum or in installments) shall be paid as a single lump sum to
Executive or, if applicable, Executive’s beneficiary. This section shall not apply to any payment which meets the short
term deferral exception to 409A or constitutes “separation pay” as described in Treasury Regulation Section 409A-1(b)(9)
(in general, payments (i) that are made on an involuntary separation from service which (ii) do not exceed the lesser of
two (2) times (x) Executive’s annualized compensation for the taxable year preceding the year in which the separation
from service occurs or (y) the Code Section 401(a)(17) limit on compensation for the year in which separation from
service occurs and (iii) are paid in total by the end of the second calendar year following the calendar year in which the
separation from service occurs).
For purposes of 409A, each payment and each installment described in this Agreement shall be considered a
separate payment from each other payment or installment and to the extent required by 409A, a payment due upon
termination of employment will only be paid upon Executive’s separation from service within the meaning of such term
under 409A.
(c) Reimbursements: To the extent required by 409A, with regard to any provision that provides for
the reimbursement of costs and expenses, or for the provision of in-kind benefits: (i) the right to such reimbursement or
in-kind benefit shall not be subject to liquidation or exchange for another benefit; (ii) the amount of expenses or in-kind
benefits available or paid in one (1) year shall not affect the amount available or paid in any subsequent year; and (iii)
such payments shall be made on or before the last day of Executive’s taxable year in which the expense occurred.
17
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first
written above.
RITE AID CORPORATION
/s/ James J. Comitale
Name: James J. Comitale
Title: EVP, General Counsel & Secretary
EXECUTIVE
/s/ Andre Persaud
Andre Persaud
18
APPENDIX A TO EMPLOYMENT AGREEMENT
Form of Severance Agreement and Release
This Agreement (this “Agreement”) confirms the terms of the separation of employment of [NAME] (“you”) from Rite
Aid Corporation, a Delaware corporation (the “Company,” and together with you, the “Parties”). Capitalized terms not
otherwise defined herein will have the meanings attributed to them in your employment agreement with the Company,
effective as of [DATE] (the “Employment Agreement”).
1. Separation Date. Your last day of employment with the Company will be [DATE] (the “Separation
Date”) and as of such date you shall cease to be employed by the Company in any capacity and you will automatically
resign from all positions you then hold with the Company and its subsidiaries, including as a member of the Board of
Directors of Rite Aid Corporation or Board of Directors of any of the Company’s subsidiaries to the extent applicable. You
agree to execute any additional documents required or requested by the Company to effectuate your resignations from such
positions. You agree that, following the Separation Date, you will not represent yourself to be associated in any ongoing
capacity with the Company or any of its subsidiaries or affiliates.
2. Accrued Benefits; Severance.
(a) Whether or not this Agreement becomes effective pursuant to its terms, the Company
will pay you the amount of accrued but unpaid base salary through the Separation Date and reimburse you for reasonable
expenses incurred by you in furtherance of your duties through the date of notice of your termination of employment in
accordance with Company policies, less all applicable withholdings and deductions.1
(b) Provided that this Agreement becomes effective pursuant to its terms and you remain in
compliance with this Agreement, and with the Restrictive Covenants, at all times, the Company will pay and provide you
with the benefits, at the time and in the form, set forth in Section 5.3 of the Employment Agreement, less all applicable
withholdings and deductions.2
3. Release.
(a) You hereby release, discharge and forever acquit the Company, and its parent, affiliates
and subsidiaries and each of their respective past, present and future stockholders, members, partners, directors,
managers, employees, agents, attorneys, heirs, legal representatives, and each of the successors and assigns of the
foregoing, in their personal and representative capacities (individually, “Company Party,” and collectively, the “Company
1 In addition, the actual Release will include a specific list of vested benefits under employee benefit plans to be excluded from the Release
requirement.
2 The actual Release will contain an appendix setting forth all of the entitlements that apply upon termination pursuant to the Employment, and
the Employment Agreement will be terminated/superseded pursuant to Section 14 below.
Parties”), from liability for, and hereby waive, any and all claims, charges, liabilities, causes of action, rights, complaints,
sums of money, suits, debts, covenants, contracts, agreements, promises, benefits, obligations, damages, demands or
liabilities of every nature, kind and description, in law, equity or otherwise, whether known or unknown, suspected or
unsuspected (collectively, “Claims”) which you or your heirs, executors, administrators, spouse, relatives, successors or
assigns ever had, now have or may hereafter claim to have by reason of any matter, cause or thing whatsoever: (i) arising
from the beginning of time through the date upon which you sign this Agreement including, but not limited to (A) any
such Claims relating in any way to your employment relationship with the Company or any other Company Parties, and
(B) any such Claims arising under any federal, state, local or foreign statute or regulation, including, without limitation,
the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act (the
“ADEA”), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Pennsylvania Human Relations Act, the Pennsylvania Equal Pay Law and
any other federal, state, local or foreign law (statutory, regulatory or otherwise) that may be legally waived and released;
(ii) relating to wrongful employment termination; or (iii) arising under or relating to any policy, agreement, understanding
or promise, written or oral, formal or informal, between the Company or any of the other Company Parties and you,
including, without limitation, the Employment Agreement and any incentive compensation plan or equity plan with any
Company Party. Notwithstanding the above, this release does not extend to (I) claims for Accrued Benefits; (II) claims
for worker’s compensation benefits or for an occupational disease; (III) any whistleblower claims arising under the
Sarbanes-Oxley Act or Dodd-Frank Wall Street Reform and Consumer Protection Act; (IV) claims to require the
Company to honor its commitments set forth in this Agreement; (V) claims to interpret or to determine the scope,
meaning or effect of this Agreement; (VII) claims for indemnification and officers and directors liability insurance
coverage under the Employment Agreement, the Company’s charter, by-laws or applicable law, as applicable; and/or
(VIII) claims that cannot be waived as a matter of law pursuant to federal, state, or local law (collectively, clauses (I)
through (VIII) are the “Excluded Claims”).
(b) You further acknowledge and agree that, except with respect to the Accrued Benefits, the
Company Parties have fully satisfied any and all obligations whatsoever owed to you arising out of your employment with
the Company or any other Company Party, and that no further payments or benefits are owed to you by the Company or
any other Company Party.
4. Attorney Consultation; Voluntary Agreement.
(a) You acknowledge that (i) the Company has advised you to consult with an attorney of
your own choosing before signing this Agreement, (ii) you have been given the opportunity to seek the advice of counsel,
(iii) you have carefully read and fully understand all of the provisions of this Agreement, including the release in Section
3 (the “Release”), (iv) the Release specifically applies to any rights or claims you may have against the Company Parties
pursuant to the ADEA, (v) you are entering into this Agreement knowingly, freely and voluntarily in exchange for good
and valuable consideration to which you are not otherwise entitled and (vi) you have the full power, capacity and
authority to enter into this Agreement.
5. Review and Revocation Period.
(a) You have twenty-one (21) days following your receipt of this Agreement (the
“Consideration Period”) to review its terms, including the Release, and to reflect upon them and consider whether you
want to sign it, although you may sign it sooner; provided, however, that you may not sign this Agreement prior to the
Separation Date. You acknowledge and agree that changes to this Agreement, whether material or immaterial, do not
restart the running of the Consideration Period. You understand and agree that you may consent to this Agreement,
including the Release, by signing and returning this Agreement within the applicable time frame to General Counsel, Rite
Aid Corporation, 30 Hunter Lane, Camp Hill, PA 17011 or by e-mail at jcomitale@riteaid.com.
(b) You may revoke your consent to the Release within the seven day period beginning on
the date you execute this Agreement (such seven day period being referred to herein as the “Release Revocation Period”).
To be effective, such revocation must be in writing signed by you and delivered to the Company at the above address
before 11:59 p.m., Eastern Standard time, on the last day of the Release Revocation Period.
(c) In the event of such revocation by you, the Release shall be of no force or effect, and you
will not have any rights and the Company will not have any obligations under Section 2(b) of this Agreement. Provided
that you do not revoke your consent to the Release within the Release Revocation Period, the Release shall become
effective on the eighth (8th) calendar day after the date upon which you execute this Agreement (the “Release Effective
Date”).
6. Restrictive Covenants. You acknowledge and agree that the Restrictive Covenants, and any other
written restrictive covenants and confidentiality agreements in effect with the Company, are incorporated herein by
reference and fully made a part hereof for all purposes and remain in full force and effect.
7. Cooperation. You agree that, at mutually agreeable times, you will meet with representatives of
the Company, or its respective parent or subsidiary company representatives and provide any information you acquired
during the course of your employment relating in any way to any legal disputes involving the Company. You further agree
that you will cooperate fully with the Company relating to any such litigation matter or other legal proceeding in which you
were involved or on which you have knowledge by virtue of your employment with the Company, including any existing
or future litigation or other legal proceeding involving the Company, whether administrative, civil or criminal in nature in
which and to the extent the Company deems your cooperation necessary. You will be entitled to reimbursement by the
Company of reasonable costs and expenses incurred by you in connection with complying with your obligations under this
Section 7.
8. Non-Disparagement. You agree that you will not make any negative comments or disparaging
remarks, in writing, orally or electronically (“Disparaging Remarks”), about the Company or any of the other Company
Parties and their respective products and services. The Company agrees to instruct members of its senior management team
not to, for as long as such individuals remain affiliated with the Company, make any Disparaging Remarks about you;
provided, however, that nothing in this Section 8 shall prohibit you from (a) making truthful and accurate statements or
disclosures that are required by applicable law or legal process;
(b) making any voluntary disclosure of information or documents concerning possible violations of law to any
governmental agency or legislative body, or any self-regulatory organization; or (c) exercising protected rights to the
extent that such rights, by law, cannot be waived by agreement.
9. No Admission. Nothing herein will be deemed to constitute an admission of wrongdoing by you
or any of the Company Parties. Neither this Agreement nor any of its terms may be used as an admission or introduced as
evidence as to any issue of law or fact in any proceeding, suit or action, other than an action to enforce this Agreement.
10. Counterparts. This Agreement may be executed in counterparts, and each counterpart, when so
executed and delivered, will be deemed to be an original and both counterparts, taken together, will constitute one and the
same Agreement. A faxed or .pdf-ed signature will operate the same as an original signature.
11. Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the
Company and any successor organization which shall succeed to the Company by acquisition, merger, consolidation or
operation of law, or by acquisition of assets of the Company and any assigns. You may not assign this Agreement, provided
that in the event of your death prior to receiving all of the payments provided by Section 2 of this Agreement, any remaining
payments will be made to your estate.
12. Severability; Blue-Penciling. The provisions of this Agreement are severable and the invalidity of
any one or more provisions will not affect the validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in
part because of the scope thereof, the Parties hereto agree that said court in making such determination shall have the power
to reduce the scope of such provision to the extent necessary to make it enforceable, and that this Agreement in its reduced
form shall be valid and enforceable to the full extent permitted by law.
13. Governing Law. This Agreement will be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to any conflict of law principles thereof that would give rise to the
application of the laws of any other jurisdiction.
14. Entire Agreement/No Oral Modifications. This Agreement constitutes the entire agreement
between you and any of the Company Parties with respect to the subject matter hereof and supersedes all prior discussions,
negotiations, representations, arrangements or agreements relating thereto, whether written or oral, including but not limited
to the Employment Agreement, provided, however, that Sections 6 and 7 of the Employment Agreement shall remain in
effect for the duration and on the terms set forth therein. You represent that in executing this Agreement, you have not
relied on any representation or statement not set forth herein. No amendment or modification of this Agreement shall be
valid or binding on the Parties unless in writing and signed by both Parties.
* * *
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the dates indicated below.
Rite Aid Corporation
[Executive Name]
By:
Name:
Title:
Date:
[Executive Name]
Date:
EMPLOYMENT AGREEMENT
Exhibit 10.48
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 12th day of December,
2019 by and between RxOptions, LLC, a Ohio limited liability company and its affiliates operating the
EnvisionRxOptions business (the "Company") and Dan Robson ("Executive").
WHEREAS, the Company desires to employ Executive and Executive desires to provide the Company with
Executive's services subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive (individually a "Party" and together the "Parties"), intending to be legally
bound, agree as follows:
1. Term of Employment.
The term of Executive's employment under this Agreement shall commence on December 16, 2019 (the
"Effective Date") and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date
that is two (2) years following the Effective Date (the "Original Term of Employment"). The Original Term of
Employment shall be automatically renewed for successive one (1) year terms (the "Renewal Terms") unless at least one
hundred twenty (120) days prior to the expiration of the Original Term of Employment or any Renewal Term, either Party
notifies the other Party in writing that Executive or it is electing to terminate this Agreement at the expiration of the then
current Term of Employment. "Term" shall mean the Original Term of Employment and all Renewal Terms. For purposes
of this Agreement, except as otherwise provided herein, the phrases "year during the Term" or similar language shall refer
to each twelve (12) month period commencing on the Effective Date or applicable anniversaries thereof.
2. Position and Duties.
2.1 Generally. During the Term, Executive shall serve as the President of the Company and shall have such
officer level duties, responsibilities and authority as are customary for such position, and shall have such other officer
level duties, responsibilities and authorities as shall be assigned by the Company from time to time consistent with such
position. Executive shall devote Executive's full working time, attention, knowledge and skills faithfully and to the best of
Executive's ability, to the duties and responsibilities assigned by the Company in furtherance of the business affairs and
activities of the Company and its subsidiaries, affiliates and strategic partners. Executive shall report to the Chief
Executive Officer of Rite Aid Corporation ("Rite Aid"). Contemporaneously with termination of Executive's employment
with the Company for any reason, Executive shall automatically resign from all offices and positions Executive holds with
the Company or any subsidiary without any further action on the part of Executive or the Company.
2.2 Other Activities. Anything herein to the contrary notwithstanding, nothing in this Agreement shall
preclude the Executive from engaging in the following activities: (i) serving on the board of directors of one (1) other
entity or the boards of a reasonable number of trade associations and/or charitable organizations, in each case subject to
the Company's advance approval which shall not be unreasonably withheld, (ii) engaging in charitable activities and
community affairs, and (iii) managing Executive's personal investments and affairs, provided that Executive's activities
pursuant to clauses (i), (ii) or (iii) do not violate Sections 6 or 7 below or materially interfere with the performance of
Executive's duties and responsibilities under this Agreement. Executive shall at all times be subject to, observe and carry
out such written rules, regulations, policies, directions, and restrictions as the Company may from time to time establish
for officers of the Company or employees generally.
3. Compensation.
3.1 Base Salary. During the Term, as compensation for Executive's services hereunder, Executive shall
receive a salary at the annualized rate of five hundred and fifty thousand dollars ($550,000) per year, subject to annual
review for increase by the Board of Directors of Rite Aid (the "Rite Aid Board") or its designee ("Base Salary" as may be
adjusted from time to time), which shall be paid in accordance with the Company's normal payroll practices and
procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive.
3.2 Annual Performance Bonus. Executive shall participate each fiscal year during the Term in the
EnvisionRxOptions Calendar Year Bonus Plan for each fiscal year, as applicable, as adopted and approved by the
Company from time to time. Executive's annual target bonus opportunity pursuant to such plan (the "Annual Target
Bonus") shall equal 100% of the Base Salary in effect for Executive as of the beginning of such fiscal year; provided that
for the current fiscal year in which the Effective Date falls, the 100% shall apply beginning with the fiscal period (month)
in which the Effective Date falls, through the balance of such fiscal year. Payment of any annual performance bonus
earned shall be made in accordance with the terms of the Company's annual bonus plan as in effect for the year for which
the bonus is earned.
3.3 Eguitv Awards.
(a) Participation in the LTIP. Executive will be eligible to participate during the Term in the Rite
Aid Corporation 2014 Omnibus Equity plan and any successor plan (the "LTIP"). Executive's target long term incentive
opportunity under the LTIP shall be two hundred percent (200%) of Executive's Base Salary. In the discretion of the Rite
Aid Board, on each regular grant date occurring during the Term, Executive will be granted long-term incentive awards
under the LTIP valued at target at two hundred percent (200%) of Base Salary calculated in a manner consistent with and
containing the same terms and conditions as other senior executives of Rite Aid and the Company generally, which shall
be in the sole discretion of the Board.
(b) Inducement Award of Restricted Stock. As an inducement to commence serving as President
of the Company, on the Effective Date, Executive will be granted a number of shares of restricted Rite Aid Common
Stock (the "Inducement Restricted
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Stock"), par value $1.00 per share ("Rite Aid Stock") determined by dividing $500,000 by the closing price of a share of
Rite Aid Stock on the Effective Date. The vesting restrictions on the Inducement Restricted Stock shall lapse as to one-
third (1/3) of the shares on each of the first three (3) anniversaries from the Effective Date, subject only to continued
service on each applicable vesting date, and the award of Inducement Restricted Stock shall otherwise be evidenced by the
inducement award agreement and shall be subject to the terms of the LTIP.
4. Additional Benefits.
4.1 Employee Benefits. During the Term, Executive shall be eligible to participate in the employee benefit
plans (including, but not limited to medical, dental and life insurance plans, short-term and long-term disability coverage
and 401(k) plans) in which senior executive employees of the Company are generally eligible to participate, subject to
satisfaction of any eligibility requirements and the other generally applicable terms of such plans. Nothing in this
Agreement shall prevent the Company from amending or terminating any employee benefit plans of the Company from
time to time as the Company deems appropriate.
4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably
incurred by Executive in furtherance of Executive's duties hereunder, including without limitation, travel, meals and
accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto
as the Company may from time to time adopt or as may be required in order to permit such payments to be taken as
proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules
and regulations adopted pursuant thereto now or hereafter in effect (the "Code").
4.3 Vacation. Executive shall be entitled to four (4) weeks paid vacation during each year of the Term.
4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile
allowance of $1,000.00 per month.
4.5 Annual Financial PJanning Allowance. During the Term, the Company shall provide Executive with an
annual financial planning allowance in the amount of $5,000.00.
4.6 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent
permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) relating to or arising out of the Executive's employment with
and service as an officer of the Company, and (b) pay all reasonable costs, expenses and attorney's fees incurred by
Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action,
subject to Executive's undertaking to repay in the event it is ultimately determined that Executive is not entitled to be
indemnified by the Company. Following termination of the Executive's employment or service with the Company or any
subsidiaries or affiliates of the Company, the Company shall cause any director and officer liability insurance policies
applicable to the Executive prior to such termination to remain in effect for six (6) years following the date of termination
of employment.
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5. Termination.
5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate
Executive's employment hereunder for Cause (as defined below). Such termination shall be effected by written notice
thereof delivered by the Company to Executive, indicating in reasonable detail the specific facts and circumstances
alleged to provide a basis for such termination and the specific provisions of this Agreement on which the Company
relies, and shall be effective as of the date of such notice in accordance with Section 12 hereof. "Cause" shall mean (i)
Executive's willful failure to perform the lawful duties or responsibilities of his position with the Company or any
subsidiary, or failure to timely carry out any lawful and reasonable directive of the Chief Executive Officer of Rite Aid;
(ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the conduct by
Executive which is a material violation of a written Company policy or which materially interferes with Executive's
ability to perform his duties; (iv) Executive's engaging in conduct constituting, or which could reasonably constitute,
unlawful harassment or which gives rise to, or which could reasonably give rise to, an actual or perceived conflict of
interest; (v) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary with
respect to any material matter; (vi) Executive's willful misconduct or gross negligence which demonstrably damages or
injures the Company or the Company's reputation; (vii) Executive is convicted of or pleads guilty to a felony; or (viii) the
use or imparting by Executive of any confidential or proprietary information of the Company or any subsidiary or any
other violation of an agreement with the Company providing for confidentiality, non-competition and other restrictive
covenants.
5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason.
In the event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily
without Good Reason:
(a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through
the effective date of such termination, (ii) reimbursement for expenses incurred by Executive through the date of notice of
such termination, to the extent otherwise provided under Section 4.2 above, and (iii) all other vested payments and
benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement
through the e±foctive date of such termination ((i), (ii) and (iii) collectively, the "Accrued Benefits"). All other rights of
Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder in connection with
Executive's employment with the Company shall terminate effective as of the date of such termination of employment and
Executive shall not be entitled to any payments or benefits not specifically described in this subsection (a) or (b) below.
(b) Any portion of any restricted stock or any other equity incentive awards as to which the
restrictions have not lapsed or as to which any other conditions set forth in this Agreement or the applicable award
agreement shall not have been satisfied prior to the date of termination shall be forfeited as of the date of termination date
and any portion of Executive's stock options that have vested and become exercisable prior to the date of termination shall
remain exercisable for a period of ninety (90) days following the date of termination of employment (or, such later date as
may be permitted by the relevant stock option or equity plan, or, if earlier, until the expiration of the respective terms of
the options), whereupon all such
4
options shall terminate; provided, however, in the event of termination of Executive by the Company for Cause, any stock
options that have not been exercised prior to the date of termination shall immediately terminate as of such date.
Any termination of Executive's employment by Executive voluntarily without Good Reason shall be effective
upon a thirty (30) day notice to the Company or such earlier date as the Company determines in its discretion and
designates in writing. A termination of Executive's employment by the Company for Cause or by the Executive other than
for Good Reason shall not constitute a breach of this Agreement.
5.3 Compensation upon Termination of Executive's Employment by tlte Company Other Than for
Cause or by Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other
than for Cause or by Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the
Company other than for Cause or by Executive for Good Reason:
(a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) an amount equal to one (1)
times the Executive's then Base Salary as of the date of termination of employment, such amount payable in equal
installments pursuant to the Company's standard payroll procedures for management employees over a period of one (1)
year following the date that the release of claims (referred to below) becomes irrevocable (provided, if as of the date of
termination the release of claims could become irrevocable in either of two taxable years of Executive, payments shall not
commence before the first day of the later such taxable year), and (iii) with respect to health insurance coverage, the cost
of COBRA benefits to Executive and his immediate family for a period of one (1) year following the date of termination
of employment, with such COBRA coverage running coextensively with the reimbursement of such costs.
(b) The stock option awards held by Executive shall vest and become immediately exercisable and
the restrictions with respect to any awards of non-performance based restricted stock ("Restricted Stock") shall lapse, in
each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of one (1) year following the uale of
Lermination. Such portion of Executive's stock options (together with any portion of Executive's stock options that have
vested and become exercisable prior to the date of termination) shall remain exercisable for a period of ninety (90) days
following the date of termination of employment (or, such later date as may be permitted by the relevant stock option or
equity plan, or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall
terminate. Any remaining portion of Executive's stock options that have not vested (or deemed to have vested) as of the
date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not
have lapsed as of the date of termination shall be forfeited as of such date.
(c) If a termination pursuant to Section 5.3 of the Agreement occurs following the start of the
Company's fiscal year, Executive shall also be entitled to receive, to the extent not previously paid (which shall be paid at
the same time paid to other eligible participants in the bonus plan and following determination by the Compensation
Committee (or the Rite Aid Board) that the Company has achieved or exceeded its annual performance targets for the
fiscal
5
year), a pro rata annual bonus determined by multiplying the performance level achieved (relative to Executive's Annual
Target Bonus amount) by the fraction (x) the numerator of which is the number of days between the beginning of the then
current fiscal year of the Company and the date of termination of employment and (y) the denominator of which is 365.
Executive shall also receive any unpaid annual bonus earned for any completed fiscal year preceding the date of
termination.
(d) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder in connection with Executive's employment with the Company shall terminate effective as of the
date of such termination of employment and Executive shall not be entitled to any payments or benefits not specifically
described in 5.3(a) through (c).
Any termination of employment pursuant to this Section 5.3 shall be effective upon a thirty (30) day notice
thereof or the Company may elect in its sole discretion to reduce or eliminate the notice period and pay Executive's Base
Salary for some or all of the notice period in lieu of notice. A termination of Executive's employment by the Company
other than for Cause or by the Executive for Good Reason shall not constitute a breach of this Agreement. To be eligible
for the payment, benefits and stock rights described in Section 5.3(a)(ii) and (iii), (b) and (c) above, Executive must
execute within sixty (60) days of the date of termination, not revoke, and abide by a release (which shall be substantially
in the form attached hereto as Appendix A) of all claims, reasonably cooperate with the Company in the event of litigation
and fully comply with Executive's obligations under Sections 6 and 7 below.
5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence
of any one of the following:
(a) the assignment to Executive of any duties or responsibilities materially inconsistent with
Executive's status and position as President of the Company or any material adverse change in Executive's title or reporting
relationships; or
(b) any decrease in Executive's then Base Salary to which Executive has not agreed to in writing; or
(c) a material breach by the Company of this Agreement; provided, however, that Executive has
provided written notice (which shall set forth in reasonable detail the specific conduct of the Company that constitutes Good
Reason and the specific provisions of this Agreement on which Executive relies) to the Company of the existence of any
condition described in any one of the subparagraphs (a), (b), or (c) within thirty (30) days of the initial existence of such
condition, and the Company has not cured the condition within thirty (30) days of the receipt of such notice. Any termination
of employment by Executive for Good Reason pursuant to Section 5.3 must occur no later than the date that is the three (3)
month anniversary of the initial existence of the condition giving rise to the termination right.
5.5 Compensation upon Termiuati.on of Executive' Employment by Reason of Executive's Death or
Total Disability. In the event that Executive's employment with the
6
Company is terminated by reason of Executive's death or Total Disability (as defined below), subject to the requirements
of applicable law:
(a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued
Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in
which Executive is a participant and (iii) continued health insurance coverage for Executive and/or Executive's immediate
family, as applicable (or reimbursement to the Executive for the cost of purchasing health insurance coverage
substantially comparable to the coverage provided by the Company, excepting payments for such periods that the
Company provides such coverage) for a period of one (1) year following the date of death or Total Disability as the case
may be. Executive or Executive's estate shall also be entitled to receive, at the same time as is paid to other eligible
participants in the bonus plan, following determination by the Compensation Committee (or the Rite Aid Board) of the
Company's performance under the applicable annual performance goals for the fiscal year, a pro rata annual bonus
determined by multiplying the performance level achieved (relative to Executive's Annual Target Bonus amount) by the
fraction (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the
Company and the date of termination of employment and (y) the denominator of which is 365. Executive or Executive's
estate shall also be entitled to any unpaid annual bonus earned for any completed fiscal year preceding the date of
termination.
(b) All stock option awards held by Executive shall vest and become immediately exercisable and
the restrictions with respect to any awards of Restricted Stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the
employ of the Company for a period of one (1) year following the date of death or Total Disability as the case may be.
Such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and
become exercisable prior to the date of termination) shall remain exercisable for a period of ninety (90) days following the
date of termination of employment (or, such later date as may be permitted by the relevant stock option or equity plan, or,
if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any
remaining portion of Executive's stock options that have not vested (or deemed to have vested) as of the date of
termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have
lapsed (after application of this Section 5.5(b)) as of the date of termination shall be forfeited as of such date.
(c) If a termination pursuant to Section 5.5 of the Agreement occurs following the start of the
Company's fiscal year, Executive shall also be entitled to receive, to the extent not previously paid (which shall be paid at
the same time paid to other eligible participants in the bonus plan and following determination by the Compensation
Committee (or the Rite Aid Board) that the Company has achieved or exceeded its annual performance targets for the
fiscal year), a pro rata annual bonus determined by multiplying the performance level achieved (relative to Executive's
Annual Target Bonus amount) by the fraction (x) the numerator of which is the number of days between the beginning of
the then current fiscal year of the Company and the date of termination of employment and (y) the denominator of which
is 365. Executive shall also receive any unpaid annual bonus earned for any completed fiscal year preceding the date of
Executive's death or Total Disability.
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(d) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder in connection with Executive's employment with the Company shall terminate effective as of the
date of such termination of employment and Executive shall not be entitled to any payments or benefits not specifically
described in Section 5.5(a) through (c).
"Total Disability" shall mean any physical or mental disability that has prevented Executive from (a)(i)
performing one or more of the essential functions of Executive's position for a period of not less than ninety (90) days in
any twelve (12) month period and (ii) which is expected to be of permanent or indeterminate duration but expected to last
at least twelve (12) continuous months or result in death of the Executive as determined (y) by a physician selected by the
Company or its insurer or (z) pursuant to the Company's benefit programs; or (b) reporting to work for ninety (90) or more
consecutive business days and being unable to engage in any substantial activity.
5.6 Survival. In the event of any termination of Executive's employment, Executive and the Company
nevertheless shall continue to be bound by the terms and conditions set forth in Section 4.6 and Sections 5 through 10
hereof, which shall survive the expiration of the Term.
5.7 Change in Control Best Payments Determination. Any other provision of this Agreement to the
contrary notwithstanding, if any portion of any payment or benefit under this Agreement either individually or in
conjunction with any payment or benefit under any other plan, agreement or arrangement (all such payments and benefits,
the "Total Payments") would constitute an "excess parachute payment" within the meaning of Internal Revenue Code
Section 280G, that is subject to the tax imposed by Section 4999 of such Code (the "Excise Tax"), then the Total
Payments to be made to Executive shall be reduced, but only to the extent that Executive would retain a greater amount on
an after-tax basis than he would retain absent such reduction, such that the value of the Total Payments that Executive is
entitled to receive shall be $1 less than the maximum amount which the Employee may receive without becoming subject
to the Excise Tax. For purposes of this Section 5.7, the determination of whichever amount is greater on an after-tax basis
shall be (x) based on maximum federal, state and local income and employment tax rates and the Excise Tax that would
be imposed on Executive and (y) made at the Company's expense by independent accountants selected by the Company
and Executive (which may be the Company's income tax return preparers if Executive so agrees) which determination
shall be binding on both Executive and the Company. Any such reduction as may apply under this Section 5.7 shall be
applied in the following order: (i) payments that are payable in cash the full amount of which are treated as parachute
payments under Treasury Regulation Section l.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts
that are payable last reduced first; (ii) payments and benefits due in respect of any equity the full amount of which are
treated as parachute payments under Treasury Regulation Section l .280G-1, Q&A 24(a), with the highest values reduced
first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii)
payments that are payable in cash that are valued at less than full value under Treasury Regulation Section l .280G-1,
Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect
of any equity valued at less than full value under Treasury Regulation Section l.280G-1, Q&A 24, with the highest values
reduced first (as such values are determined
8
under Treasury Regulation Section 1.2800-1, Q&A 24) will next be reduced; and (v) all other non-cash benefits not
otherwise described in clauses (ii) or (iv) will next be reduced pro-rata.
5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not
be entitled to damages or to any severance or other benefits upon termination of employment with the Company under any
circumstances and for any or no reason, including, but not limited to any severance pay under any Company severance
plan, policy or practice.
6. Protection of Confidential Information.
Executive acknowledges that during the course of Executive's employment with the Company, its subsidiaries,
affiliates and strategic partners, Executive will be exposed to documents and other information regarding the confidential
affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation, information about
their past, present and future financial condition, pricing strategy, prices, suppliers, cost information, business and
marketing plans, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade
secrets, and other intellectual property, current and prospective customer lists, operational methods, acquisition plans,
prospects, plans for future development and other business affairs and information about the Company and its
subsidiaries, affiliates and strategic partners not readily available to the public (the "Confidential Information"). Executive
further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing, Executive covenants and agrees as follows:
6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever divulge, disclose, or
otherwise use any Confidential Information (other than as necessary to perform his duties under this Agreement and in
furtherance of the Company's best interests), unless and until such information is readily available in the public domain by
reason other than Executive's disclosure or use thereof in violation of the first clause of this Section 6.1. Executive
acknowledges that Company is the owner of, and that Executive has no rights to, any trade secrets, patents, copyrights,
trademarks, know-how or similar rights of any type, including any modifications or improvements to any work or other
property developed, created or worked on by Executive during his employment with the Company.
6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at
any time and for any reason, or at any other time the Rite Aid Board may so direct, Executive shall promptly deliver to the
Company's offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries,
affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all
documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents,
including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the
Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present
officers, directors, employees or consultants (collectively, the "Company Property, Records and Files"); it being expressly
understood that, upon termination of Executive's employment at any time and for any reason, Executive shall not be
authorized to retain any of the Company Property, Records
9
and Files, any copies thereof or excerpts therefrom. Executive further agrees that Executive shall permanently delete any
Company Property, Records and Files which cannot be returned to the Company in their entirety (including any such
Company Property, Records or Files on a cloud storage system).
7. Noncompetition and Other Matters.
7.1 Noncompetition. During Executive's employment with the Company and during the twelve (12) month
period following the termination of Executive's employment with the Company for any reason (the "Restricted Period"),
Executive will not, directly or indirectly, engage in Competition with the Company or any of its subsidiaries in the
Restricted Area (as defined below). "Competition" shall mean engaging in any activity for a Competitor of the Company
or any of its subsidiaries, with or without compensation, whether as a principal, agent, partner, officer, director, employee,
advisor, independent contractor, investor, consultant or stockholder (except as a less than five percent (5%) shareholder of
a publicly traded company) or otherwise. A "Competitor" shall mean any person, corporation or other entity and its
parents, subsidiaries, affiliates and assigns, (collectively, a "Person") that engages, or is preparing to engage, in the same
or substantially similar business as one or more business units of the Company or its subsidiaries. As of the Effective
Date, it is understood that the Company's business units include: (1) pharmacy benefits management ("PBM"), including
the administration of pharmacy benefits for businesses, government agencies or health plans; mail order pharmacy;
specialty pharmacy and Medicare Part D services; (2) the sale of prescription drugs either at retail or over the internet; and
(3) retail health care ("RediClinic"). It is understood and agreed that PBM competitors include, but are not limited to, CVS
Health, Express Scripts and Optum, as well as health plans or insurers that provide PBM services. It is also understood
and agreed that retail pharmacy competitors include any individual or entity that sells or has imminent plans to sell
prescription drugs, including but not limited to, drugstore companies such as Walgreens Boots Alliance and CVS Health;
mass merchants such as Wal- Mart Stores, Inc. and Target Corp.; and food/drug combinations such as Kroger Co.,
Albertsons LLC and Ahold USA. It is understood and agreed that RediClinic competitors include, but are not limited to,
Walgreen's Take Care Clinics, CVS Health's Minute Clinics and The Little Clinic. During Executive's employment by the
Company or one of its subsidiaries and during the Restricted Period, Executive will not directly or indirectly, engage in
any activity that involves providing audit review or other consulting or advisory services with respect to any relationship
between the Company and any third party. The "Restricted Area" means those states within the United States in which the
Company, including its subsidiaries, conducts its business, including the District of Columbia and Puerto Rico.
7.2 Noninterference. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce,
or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its
subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or other
relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of
associating with any Competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or
otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason.
10
7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce,
or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the
Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate, limit or otherwise modify
his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the
purpose of associating with any Competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or
assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate
his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any
reason. During the Restricted Period, Executive shall not hire, either directly or through any employee, agent or
representative, any person known by Executive to be (or to have been) a field and corporate management employee of the
Company or any subsidiary or any such person who was employed by the Company or any subsidiary within 180 days of
such hiring.
7.4 Permitted Disclosures. Pursuant to 18 U.S.C. § 1833(b), Executive understands that Executive will not
be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret of the
Company that (a) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or
to Executive's attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is
made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Executive understands that
if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may
disclose the trade secret to Executive's attorney and use the trade secret information in the court proceeding if Executive
(x) files any document containing the trade secret under seal, and (y) does not disclose the trade secret, except pursuant to
court order. Nothing in this Agreement, or any other agreement that Executive has with the Company, is intended to
conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by such
section. Further, nothing in this Agreement or any other agreement that Executive has with the Company shall prohibit or
restrict Executive from (A) making any voluntary disclosure of information or documents concerning possible violations
of law to any governmental agency or legislative body, or any self-regulatory organization, in each case, without advance
notice to the Company; or (B) responding to a valid subpoena, court order or similar legal process; provided, however,
that prior to making any such disclosure pursuant to this Section l .3(B), Executive shall provide the Company with
written notice of the subpoena, court order or similar legal process sufficiently in advance of such disclosure to afford the
Company a reasonable opportunity to challenge the subpoena, court order or similar legal process.
8. Right s and Remedies upon Breach.
If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the
"Restrictive Covenants"), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have
the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of
which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns at law or in equity:
11
8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by
any court of competent jurisdiction by injunctive decree or otherwise (without the necessity of posting a bond), it being
agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company
or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an
adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns.
8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity
constituting a breach of any of the Restrictive Covenants.
8.3 Extension of Restriction in the Event of Breach. In the event that Executive breaches any of the
provisions set forth in this Section 8, the right and remedy is to extend the length of time of the Restricted Period for a
period of time equal to the period of time during which Executive was or is in breach of such provision.
8.4 Enforceabilitv in Jurisdictions. Executive intends to and hereby confers jurisdiction to specifically
enforce the Restrictive Covenants by issuing an injunction in aid of arbitration upon the courts of any jurisdiction within
the Restricted Area. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any
way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief
provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
8.5 Reasonableness; Severability; Modification. Executive acknowledges and agrees that the Restrictive
Covenants are reasonable and necessary given Executive's position of trust and confidence within the Company and
Executive’s significant access to Confidential Information. Executive further agrees that the Restrictive Covenants are
valid in geographic and temporal scope and in all other respects. If any provision of the Restrictive Covenants is held to
be excessively broad as to duration, activity or subject, it is the desire of the Company and Executive that such provisions
be construed by limiting and reducing them so as to be enforceable to the maximum extent allowed by applicable law and
then fully enforced as so modified. In the event that any one or more of the provisions shall be held to be invalid, illegal or
unenforceable, it is the desire of the Company and Executive that the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full
force and effect without regard to the invalid portions.
12
9. No Violation of Third-Partv Rights. Executive represents, warrants and covenants that Executive:
(i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third
party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade
secrets, or other proprietary rights);
(ii) is not a party to any conflicting agreements with third parties, which will prevent Executive from
fulfilling the terms of employment and the obligations of this Agreement;
(iii) does not have in Executive's possession any confidential or proprietary information or documents
belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or
proprietary information or documents of others; and
(iv) agrees to respect any and all valid obligations which Executive may now have to prior employers
or to others relating to confidential information, inventions, discoveries or other intellectual property which are the
property of those prior employers or others, as the case may be.
Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of
any kind (including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Executive of the foregoing representations, warranties, and covenants.
10. Arbitration.
Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or
Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise
available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this
Agreement, or any dispute that relates in any way, in whole or in part, to Executive's employment with the Company or
any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the
parties or their subsidiaries, affiliates, strategic partners, successors or assigns, shall be submitted to final and binding
arbitration in the Commonwealth of Pennsylvania according to the National Employment Dispute Resolution Rules and
procedures of the American Arbitration Association at the time in effect. The Company shall be responsible for any filing,
administrative or arbitrator fees that exceed the amount it would cost to file a claim in a court of competent jurisdiction in
the Commonwealth of Pennsylvania. This arbitration obligation extends to any and all claims that may arise by and
between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to,
without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor
market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary
duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and
claims under the Pennsylvania Constitution, the United States Constitution, and applicable state and federal fair
13
employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the
Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and any other state or federal law. Executive understands that by entering into this Agreement, Executive is
waiving Executive's rights to have a court determine Executive's rights, including under federal, state or local statutes
prohibiting employment discrimination, including sexual harassment and discrimination on the basis of age, race, color,
religion, national origin, disability, veteran status or any other factor prohibited by governing law. Executive further
understands that there is no intent herein to interfere with the Equal Employment Opportunity Commission's right to
enforce the laws it oversees or your right to file an administrative charge of employment discrimination or a similar state
or local administrative agency.
11. Assignment.
Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise
subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, and Executive
hereby consents to any such assignment, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent
corporations; or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company's
assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company.
12. Notices.
All notices and other communications under this Agreement shall be: (i) in writing; (ii) delivered personally, by
fax, by electronic mail, by courier service, or by certified or registered mail, first class postage prepaid and return receipt
requested; (iv) deemed to have been received on the date of delivery or, if sent by certified or registered mail, on the third
(Yd) business day after the mailing thereof, or if sent by fax, twenty-four (24) hours after transmission of a fax; and (iv)
addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with
the terms hereof):
If to the Company:
RxOptions, LLC
c/o Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: General Counsel
Fax: (717) 760-7867
Email: jcomitale@riteaid.com
If to Executive:
Dan Robson, at Executive's last address shown on the payroll records of the
Company.
14
Any party may change such party's address for notices by notice duly given pursuant hereto.
13. General.
13.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise
to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or
other claim, right or action that the Company may have against the Executive or others whether in respect of claims made
under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the
Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether
the Executive obtains other employment.
13.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Ohio without giving effect to conflicts of laws principles thereof which might refer such
interpretations to the laws of a different state or jurisdiction. Any court action instituted by Executive or the Company
relating in any way to this Agreement shall be filed exclusively in state or federal court in the State of Ohio and Executive
and the Company consent to the jurisdiction and venue of said courts in any action instituted by or on behalf of the
Company or Executive against the other.
13.3 Ent i.re Agreement. This Agreement and the inducement award agreement sets forth the entire
understanding of the parties relating to Executive's employment with the Company and cancels and supersedes all
agreements, arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the
Executive and the Company and/or any parent, subsidiary or affiliate.
13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the
case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any
party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
13.5 Conflict with Other Agreements. Executive represents and warrants that neither Executive's execution
of this Agreement nor the full and complete performance of Executive's obligations hereunder will violate or conflict in
any respect with any written or oral agreement or understanding with any person or entity.
13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the
Company (and its successors and assigns) and Executive and Executive's heirs, executors and personal representatives.
15
13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from
amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
13.8 Severabilitv. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this
Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with
law.
13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated,
assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the
same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or
bankruptcy.
13.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of
the Term to the extent necessary to give effect to its prov1s10ns.
13.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
13.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts; each of
which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the
same instrument.
14. Compliance with Code Section 409A.
(a) Interpretation: The intent of the parties is that payments and benefits under this Agreement
comply with Section 409A of the C:ocie ("409A"), to the extent subject thereto, and accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything
contained herein to the contrary, Executive shall not be considered to have terminated employment with the Company for
purposes of any payments under this Agreement which are subject to 409A until the Executive has incurred a "separation
from service" from the Company within the meaning of 409A.,
(b) Payment of Benefits: To the extent necessary to avoid adverse tax consequences, and except as
described below, any payment to which Executive becomes entitled under the Agreement, or any arrangement or plan
referenced in this Agreement, that constitutes "deferred compensation" under 409A, and is (a) payable upon Executive's
termination; (b) at a time when the Executive is a "specified employee" as defined by 409A shall not be made until the
first payroll date after the earliest of: (1) the expiration of the six (6) month period (the "Deferral Period") measured from
the date of Executive's "separation from service" within the meaning of such term under 409A; or (2) the date of
Executive's death.
16
On the first payroll date after the expiration of the Deferral Period, all payments that would have been made
during the Deferral Period (whether in a single lump sum or in installments) shall be paid as a single lump sum to
Executive or, if applicable, Executive's beneficiary. This section shall not apply to any payment which meets the short
term deferral exception to 409A or constitutes "separation pay" as described in Treasury Regulation Section 409A-l(b)(9)
(in general, payments (i) that are made on an involuntary separation from service which (ii) do not exceed the lesser of
two (2) times (x) the Executive's annualized compensation for the taxable year preceding the year in which the separation
from service occurs or (y) the Code Section 401(a)(l 7) limit on compensation for the year in which separation from
service occurs and (iii) are paid in total by the end of the second calendar year following the calendar year in which the
separation from service occurs).
For purposes of 409A, each payment and each installment described in this Agreement shall be considered a
separate payment from each other payment or installment and to the extent required by 409A, a payment due upon
termination of employment will only be paid upon Executive's separation from service within the meaning of such term
under 409A.
(c) Reimbursements: To the extent required by 409A, with regard to any provision that provides for
the reimbursement of costs and expenses, or for the provision of in- kind benefits: (i) the right to such reimbursement or
in-kind benefit shall not be subject to liquidation or exchange for another benefit; (ii) the amount of expenses or in-kind
benefits available or paid in one (1) year shall not affect the amount available or paid in any subsequent year; and (iii)
such payments shall be made on or before the last day of the Executive's taxable year in which the expense occurred.
17
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first
written above.
RXOPTIONS, LLC c/o RITE AID CORPORATION
/s/ James J. Comitale
Name: James J. Comitale
Title:EVP, General Counsel & Secretary
EXECUTIVE
/s/ Dan Robson
Dan Robson
APPENDIX A TO EMPLOYMENT AGREEMENT
Form of Severance Agreement and Release
This Agreement (this " Agreement") confirms the terms of the separation of employment of [NAME] ("you") from
RxOptions, LLC, a Ohio limited liability company and its affiliates operating the EnvisionRxOptions business (the
"Company," and together with you, the "Parties"). Capitalized terms not otherwise defined herein will have the meanings
attributed to them in your employment agreement with the Company, effective as of [DATE] (the
"Employment Agreement").
1. Separation Date. Your last day of employment with the Company will be [DATE] (the
"Separation Date") and as of such date you shall cease to be employed by the Company in any capacity and you will
automatically resign from all positions you then hold with the Company and its subsidiaries, including as a member of the
Board of Directors of Rite Aid Corporation or Board of Directors of any of the Company's subsidiaries to the extent
applicable. You agree to execute any additional documents required or requested by the Company to effectuate your
resignations from such positions. You agree that, following the Separation Date, you will not represent yourself to be
associated in any ongoing capacity with the Company or any of its subsidiaries or affiliates.
2. Accrued Benefits; Severance.
(a) Whether or not this Agreement becomes effective pursuant to its terms, the Company
will pay you the amount of accrued but unpaid base salary through the Separation Date and reimburse you for reasonable
expenses incurred by you in furtherance of your duties through the date of notice of your termination of employment in
accordance with Company policies, less all applicable withholdings and deductions.1
(b) Provided that this Agreement becomes effective pursuant to its terms and you remain in
compliance with this Agreement, and with the Restrictive Covenants, at all times, the Company will pay and provide you
with the benefits, at the time and in the form, set forth in Section 5.3 of the Employment Agreement, less all applicable
,vithholdings and deductions.
3. Release.
(a) You hereby release, discharge and forever acquit the Company, and its parent, affiliates
and subsidiaries and each of their respective past, present and future stockholders, members, partners, directors, managers,
employees, agents, attorneys, heirs, legal representatives, and each of the successors and assigns of the foregoing, in their
personal and representative capacities (individually, "Company Party," and collectively, the "Company Parties"), from
liability for, and hereby waive, any and all claims, charges, liabilities, causes of
1
In addition, the actual Release will include a specific list of vested benefits under employee benefit plans to be excluded from
the Release requirement.
action, rights, complaints, sums of money, suits, debts, covenants, contracts, agreements, promises, benefits, obligations,
damages, demands or liabilities of every nature, kind and description, in law, equity or otherwise, whether known or
unknown, suspected or unsuspected (collectively, "Claims") which you or your heirs, executors, administrators, spouse,
relatives, successors or assigns ever had, now have or may hereafter claim to have by reason of any matter, cause or thing
whatsoever: (i) arising from the beginning of time through the date upon which you sign this Agreement including, but
not limited to (A) any such Claims relating in any way to your employment relationship with the Company or any other
Company Parties, and (B) any such Claims arising under any federal, state, local or foreign statute or regulation,
including, without limitation, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers
Benefit Protection Act (the "ADEA''), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of
1990, the Employee Retirement Income Security Act of 1974, the Pennsylvania Human Relations Act, the Pennsylvania
Equal Pay Law and any other federal, state, local or foreign law (statutory, regulatory or otherwise) that may be legally
waived and released; (ii) relating to wrongful employment termination; or (iii) arising under or relating to any policy,
agreement, understanding or promise, written or oral, formal or informal, between the Company or any of the other
Company Parties and you, including, without limitation, the Employment Agreement and any incentive compensation
plan or equity plan with any Company Party. Notwithstanding the above, this release does not extend to (I) claims for
Accrued Benefits; (II) claims for worker's compensation benefits or for an occupational disease; (III) any whistleblower
claims arising under the Sarbanes-Oxley Act or Dodd-Frank Wall Street Reform and Consumer Protection Act; (IV)
claims to require the Company to honor its commitments set forth in this Agreement [or the Employment Agreement]; (V)
claims to interpret or to determine the scope, meaning or effect of this Agreement [or the Employment Agreement]2; (VII)
claims for indemnification and officers and directors liability insurance coverage under the Employment Agreement, the
Company's charter, by-laws or applicable law, as applicable; and/or (VIII) claims that cannot be waived as a matter of law
pursuant to federal, state, or local law (collectively, clauses (I) through (VIII) are the "Excluded Claims").
(b) You further acknowledge and agree that, except with respect to the Accrued Benefits, the
Company Parties have fully satisfied any and all obligations whatsoever owed to you arising out of your employment with
the Company or any other Company Party, and that no further payments or benefits are owed to you by the Company or
any other Company Party.
4. Attorney Consultation; Voluntary Agreement.
(a) You acknowledge that (i) the Company has advised you to consult with an attorney of
your own choosing before signing this Agreement, (ii) you have been given the opportunity to seek the advice of counsel,
(iii) you have carefully read and fully understand all of the provisions of this Agreement, including the release in Section
3 (the " Release"), (iv) the Release specifically applies to any rights or claims you may have against the Company
2
Employment, and the Employment Agreement will be terminated/superseded pursuant to Section 14 below.
The actual Release will contain an appendix setting forth all of the entitlements that apply upon termination pursuant to the
Parties pursuant to the ADEA, (v) you are entering into this Agreement knowingly, freely and voluntarily in exchange for
good and valuable consideration to which you are not otherwise entitled and (vi) you have the full power, capacity and
authority to enter into this Agreement.
5. Review and Revocation Period.
(a) You have twenty-one (21) days following your receipt of this Agreement (the
"Consideration Period") to review its terms, including the Release, and to reflect upon them and consider whether you
want to sign it, although you may sign it sooner; provided, however, that you may not sign this Agreement prior to the
Separation Date. You acknowledge and agree that changes to this Agreement, whether material or immaterial, do not
restart the running of the Consideration Period. You understand and agree that you may consent to this Agreement,
including the Release, by signing and returning this Agreement within the applicable time frame to General Counsel, Rite
Aid Corporation, 30 Hunter Lane, Camp Hill, PA 17011 or by e-mail at jcomitale@riteaid.com.
(b) You may revoke your consent to the Release within the seven day period beginning on
the date you execute this Agreement (such seven day period being referred to herein as the "Release Revocation Period").
To be effective, such revocation must be in writing signed by you and delivered to the Company at the above address
before 11:59 p.m., Eastern Standard time, on the last day of the Release Revocation Period.
(c) In the event of such revocation by you, the Release shall be of no force or effect, and you
will not have any rights and the Company will not have any obligations under Section 2(b) of this Agreement. Provided
that you do not revoke your consent to the Release within the Release Revocation Period, the Release shall become
effective on the eighth (8th) calendar day after the date upon which you execute this Agreement (the "Release Effective
Date").
6. Restrictive Covenants. You acknowledge and agree that the Restrictive Covenants, and any
other written restrictive covenants and confidentiality agreements in effect with the Company, are incorporated herein by
reference and fully made a part hereof for all purposes and remain in full force and effect.
7. Cooperation. You agree that, at mutually agreeable times, you will meet with representatives of
the Company, or its respective parent or subsidiary company representatives and provide any information you acquired
during the course of your employment relating in any way to any legal disputes involving the Company. You further agree
that you will cooperate fully with the Company relating to any such litigation matter or other legal proceeding in which
you were involved or on which you have knowledge by virtue of your employment with the Company, including any
existing or future litigation or other legal proceeding involving the Company, whether administrative, civil or criminal in
nature in which and to the extent the Company deems your cooperation necessary. You will be entitled to reimbursement
by the Company of reasonable costs and expenses incurred by you in connection with complying with your obligations
under this Section 7.
8. Non-Disparagement. You agree that you will not make any negative comments or disparaging
remarks, in writing, orally or electronically ("Disparaging Remarks"), about the Company or any of the other Company
Parties and their respective products and services. The Company agrees to instruct members of its senior management
team not to, for as long as such individuals remain affiliated with the Company, make any Disparaging Remarks about
you; provided, however, that nothing in this Section 8 shall prohibit you from (a) making truthful and accurate statements
or disclosures that are required by applicable law or legal process; (b) making any voluntary disclosure of information or
documents concerning possible violations of law to any governmental agency or legislative body, or any self-regulatory
organization; or (c) exercising protected rights to the extent that such rights, by law, cannot be waived by agreement.
9. No Admission. Nothing herein will be deemed to constitute an admission of wrongdoing by you
or any of the Company Parties. Neither this Agreement nor any of its terms may be used as an admission or introduced as
evidence as to any issue of law or fact in any proceeding, suit or action, other than an action to enforce this Agreement.
10. Counterparts. This Agreement may be executed in counterparts, and each counterpart, when so
executed and delivered, will be deemed to be an original and both counterparts, taken together, will constitute one and the
same Agreement. A faxed or .pdf-ed signature will operate the same as an original signature.
11. Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the
Company and any successor organization which shall succeed to the Company by acquisition, merger, consolidation or
operation of law, or by acquisition of assets of the Company and any assigns. You may not assign this Agreement,
provided that in the event of your death prior to receiving all of the payments provided by Section 2 of this Agreement,
any remaining payments will be made to your estate.
12. Severability; Blue-Penciling. The provisions of this Agreement are severable and the invalidity of
any one or more provisions will not affect the validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in
parl because of the scope thereof, the Parties hereto agree that said court in making such determination shall have the
power to reduce the scope of such provision to the extent necessary to make it enforceable, and that this Agreement in its
reduced form shall be valid and enforceable to the full extent permitted by law.
13. Governing Law. This Agreement will be governed by and construed in accordance with the laws
of the State of Ohio, without regard to any conflict of law principles thereof that would give rise to the application of the
laws of any other jurisdiction.
14. Entire Agreement/No Oral Modifications. This Agreement constitutes the entire agreement
between you and any of the Company Parties with respect to the subject matter hereof and supersedes all prior
discussions, negotiations, representations, arrangements or agreements relating thereto, whether written or oral, including
but not limited to the Employment Agreement, provided, however, that Sections 6 and 7 of the Employment Agreement
shall remain in effect for the duration and on the terms set forth therein. You represent that in executing this Agreement,
you have not relied on any representation or statement not set forth herein. No amendment or modification of this
Agreement shall be valid or binding on the Parties unless in writing and signed by both Parties.
* * *
Company
(Name in which such subsidiary conducts business if other than corporate name):
112 Burleigh Avenue Norfolk, LLC
1515 West State Street Boise, Idaho, LLC
1740 Associates, LLC
4042 Warrensville Center Road—Warrensville Ohio, Inc.
5277 Associates, Inc.
5600 Superior Properties, Inc.
Advance Benefits, LLC
Apex Drug Stores, Inc.
Ascend Health Technology, LLC
Broadview and Wallings—Broadview Heights Ohio, Inc.
Design Rx, LLC
Design Rxclusives, LLC
Design Rx Holdings, LLC
Drug Palace, Inc.
Eckerd Corporation
EDC Drug Stores, Inc.
England Street—Asheland Corporation
Envision Insurance Company
Envision Medical Solutions, LLC
Envision Pharmaceutical Holdings LLC
Envision Pharmaceutical Services, LLC
Envision Pharmaceutical Services, LLC
EnvisionRx Puerto Rico, Inc.
First Florida Insurers of Tampa, LLC
GDF, Inc.
Genovese Drug Stores, Inc.
Gettysburg and Hoover-Dayton, Ohio LLC
Grand River & Fenkell, LLC
Harco, Inc.
Health Dialog Services Corporation
Hunter Lane, LLC
ILG – 90 B Avenue Lake Oswego, LLC
JCG (PJC) USA, LLC
JCG Holdings (USA), Inc.
K&B Alabama Corporation
K&B Louisiana Corporation
K&B Mississippi Corporation
K&B Services, Incorporated
K&B Tennessee Corporation
K&B Texas Corporation
K&B, Incorporated
Lakehurst and Broadway Corporation
Laker Software, LLC
LMW – 90B Avenue Lake Oswego Inc.
Maxi Drug North, Inc.
Maxi Drug South, L.P.
Maxi Drug, Inc.
Maxi Green, Inc.
MedTrak Services, L.L.C.
Munson & Andrews, LLC
Name Rite, LLC
Orchard Pharmaceutical Services, LLC
Exhibit 21
State of
Incorporation
or Organization
Virginia
Delaware
Michigan
Ohio
Washington
Ohio
Florida
Michigan
Delaware
Ohio
Wyoming
Wyoming
Delaware
Maine
Delaware
North Carolina
Virginia
Ohio
Florida
Delaware
Nevada
Ohio
Delaware
Florida
Maryland
Delaware
Ohio
Delaware
Alabama
Delaware
Delaware
Delaware
Delaware
Delaware
Alabama
Louisiana
Mississippi
Louisiana
Tennessee
Texas
Delaware
New Jersey
Minnesota
Delaware
Delaware
Delaware
Delaware
Vermont
Missouri
Delaware
Delaware
Ohio
Company
(Name in which such subsidiary conducts business if other than corporate name):
P.J.C. Distribution, Inc.
P.J.C. Realty Co., Inc.
PDS-1 Michigan, Inc.
Perry Distributors, Inc.
Perry Drug Stores Inc.
PJC Lease Holdings, Inc.
PJC Manchester Realty LLC
PJC of Massachusetts, Inc.
PJC of Rhode Island, Inc.
PJC of Vermont, Inc.
PJC Realty MA, Inc.
PJC Revere Realty LLC
PJC Special Realty Holdings, Inc.
RCMH, LLC
RDS Detroit, Inc.
READ’s Inc.
RediClinic Associates, Inc.
RediClinic LLC
RediClinic of Dallas Forth-Worth, LLC
RediClinic of DC, LLC
RediClinic of DE, LLC
RediClinic of MD, LLC
RediClinic of PA, LLC
RediClinic of VA, LLC
RediClinic US, LLC
Richfield Road – Flint, Michigan, LLC
Rite Aid Drug Palace, Inc.
Rite Aid Hdqtrs. Corp.
Rite Aid Hdqtrs. Funding, Inc.
Rite Aid Lease Management Company
Rite Aid of Connecticut, Inc.
Rite Aid of Delaware, Inc.
Rite Aid of Georgia, Inc.
Rite Aid of Indiana, Inc.
Rite Aid of Kentucky, Inc.
Rite Aid of Maine, Inc.
Rite Aid of Maryland, Inc.
Rite Aid of Michigan, Inc.
Rite Aid of New Hampshire, Inc.
Rite Aid of New Jersey, Inc.
Rite Aid of New York, Inc.
Rite Aid of North Carolina, Inc.
Rite Aid of Ohio, Inc.
Rite Aid of Pennsylvania, LLC
Rite Aid of South Carolina, Inc.
Rite Aid of Tennessee, Inc.
Rite Aid of Vermont, Inc.
Rite Aid of Virginia, Inc.
Rite Aid of Washington, D.C., Inc.
Rite Aid of West Virginia, Inc.
Rite Aid Online Store Inc.
Rite Aid Payroll Management Inc.
Rite Aid Realty Corp.
Rite Aid Rome Distribution Center, Inc.
State of
Incorporation
or Organization
Delaware
Delaware
Michigan
Michigan
Michigan
Delaware
Delaware
Massachusetts
Rhode Island
Vermont
Massachusetts
Delaware
Delaware
Texas
Michigan
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Michigan
Delaware
Delaware
Delaware
California
Connecticut
Delaware
Georgia
Indiana
Kentucky
Maine
Maryland
Michigan
New Hampshire
New Jersey
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Vermont
Virginia
Washington DC
West Virginia
Delaware
Delaware
Delaware
New York
Company
(Name in which such subsidiary conducts business if other than corporate name):
Rite Aid Specialty Pharmacy LLC
Rite Aid Transport, Inc.
Rite Investments Corp.
Rite Investments Corp., LLC
Rx Choice, Inc.
Rx Initiatives, LLC
Rx Options, LLC
The Jean Coutu Group (PJC) USA, Inc.
The Lane Drug Company
Thrift Drug Inc.
Thrifty Corporation
Thrifty PayLess, Inc.
State of
Incorporation
or Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Utah
Ohio
Delaware
Ohio
Delaware
California
California
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-61734, 333-107824,
333-124725, 333-146531, 333-167720, 333-182320, 333-196904 and 333-08071 on Form S-8 of our reports dated
April 27, 2020, relating to the financial statements and financial statement schedule of Rite Aid Corporation and
subsidiaries, and the effectiveness of Rite Aid Corporation and subsidiaries’ internal control over financial reporting,
appearing in this Annual Report on Form 10-K of Rite Aid Corporation for the year ended February 29, 2020.
Exhibit 23
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 27, 2020
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Heyward Donigan, President and Chief Executive Officer, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rite Aid Corporation (the “Registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (“the Exchange Act”)) and internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board
of directors:
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: April 27, 2020
By:/s/ HEYWARD DONIGAN
Heyward Donigan
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Matthew C. Schroeder, Executive Vice President and Chief Financial Officer, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rite Aid Corporation (the “Registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (“the Exchange Act”)) and internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board
of directors:
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: April 27, 2020
By:/s/ MATTHEW C. SCHROEDER
Matthew C. Schroeder
Executive Vice President and Chief Financial Officer
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32
In connection with the Annual Report on Form 10-K of Rite Aid Corporation (the “Company”) for the annual
period ended February 29, 2020 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Heyward Donigan, as President and Chief Executive Officer of the Company, and Matthew C. Schroeder, as
Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ HEYWARD DONIGAN
Name: Heyward Donigan
Title: President and Chief Executive Officer
Date: April 27, 2020
/s/ MATTHEW C. SCHROEDER
Name: Matthew C. Schroeder
Title: Executive Vice President and Chief Financial Officer
Date: April 27, 2020