Company Name: Rite Aid Corp.
Public Availability Date: March 16, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 19, 2006
BY HAND DELIVERY
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
RE: Rite Aid Corporation - Omission of Shareholder Proposal Pursuant
to Rule
14a-8
Ladies and Gentlemen:
On behalf of our client, Rite Aid Corporation, a Delaware corporation (the
"Company"), we are submitting this letter pursuant to Rule 14a-8(j) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
respectfully request that the Staff of the Division of Corporation Finance (the
"Staff") of the Securities and Exchange Commission (the "Commission") concur
with the Company's view that, for the reasons stated below, the stockholder
proposal (the "Proposal") submitted by Mike Goldberg (the "Proponent") may
properly be omitted from the proxy materials (the "Proxy Materials") to be
distributed by the Company in connection with its 2006 annual meeting of
stockholders (the "2006 Annual Meeting").
The Company intends to file its definitive Proxy Materials for the 2006 Annual
Meeting on or about May 17, 2006. Pursuant to Rule 14a-8(j)(2), enclosed
herewith are six copies of each of (i) this letter and (ii) a letter dated
December 11, 2005, which is attached hereto as Exhibit A, from the Proponent
with the Proposal attached. In accordance with Rule 14a-8(j), a copy of this
submission is being sent simultaneously to the Proponent.
I. The Proposal
On December 21, 2005, the Company received the Proposal for inclusion in its
Proxy Materials. The text of the Proposal and supporting statement is reprinted
below as it was submitted to the Company:
PROPOSAL:
The stock holders request the Board exercise its authority to start maximizing
stockholder value. This can be done by either making the changes necessary to
improve operating performance or finding a buyer who can give full value for
Rite Aid.
DISCUSSION:
Five plus years after Rite Aid almost fell into bankruptcy, the companies
recovery has stalled. Rite Aid not been able to improve its competitive position
relative to its two major competitors and is in fact falling further behind by
most measures. Rite Aids operating performance in the areas of same store sales
increases, sales per square foot and scripts filled per store have not improved
at the same rate as the two major competitors. It is falling further and further
behind by all operating measurements and its stock price reflects this
performance. The stock price has not been at $6.00/share (in 11/03) for two
years although the DOW and S&P 500 are up 8% & 17% respectfully. It is oblivious
to even the most casual observer that the current situation cannot be allowed to
continue. It is the Boards duty to takes what ever steps are necessary to either
improve the relative operating performance of the company or to sell the company
to the highest bidder(s).
II. The Company May Exclude the Proposal and the Supporting Statement Pursuant
to Rule 14a-8(i)(7) Because the Proposal Concerns the Ordinary Business
Operations of the Company
Rule 14a-8(i)(7) of the Exchange Act allows a company to omit from its proxy
materials a shareholder proposal and any statement in support thereof "[i]f the
proposal deals with a matter relating to the company's ordinary business
operations." The Commission has provided the following guidance with respect to
the purpose and application of Rule 14a-8(i)(7):
The general underlying policy of this exclusion is consistent with the policy of
most state corporate laws: to confine the resolution of ordinary business
problems to management and the board of directors, since it is impracticable for
shareholders to decide how to solve such problems at an annual shareholders
meeting.... Certain tasks are so fundamental to management's ability to run a
company on a day-to-day basis that they could not, as a practical matter, be
subject to direct shareholder oversight.
Release No. 34-40018 (May 21, 1998). The ordinary business rule operates to
exclude shareholder proposals that "deal with ordinary business matters of a
complex nature that shareholders, as a group, would not be qualified to make an
informed judgment on, due to their lack of business expertise and their lack of
intimate knowledge of the issuer's business." Release No. 34-12999 (Nov. 22,
1976); see also Release No. 34-40018 (May 21, 1998). The exclusion recognizes
that management has special expertise and is more qualified than shareholders to
make most business decisions. For these reasons, the ordinary business exclusion
seeks to preserve the board's delegation to management of the power over
day-to-day matters and recognizes that under most states' laws (including the
laws of the State of Delaware under which the Company is incorporated) the
opportunity for shareholder participation in corporate decisionmaking is
generally limited to extraordinary corporate transactions.
Accordingly, under current Staff application of the rule, a shareholder proposal
may be excluded if it involves business matters that are non-extraordinary and
the proposal does not implicate any significant social policy issues or other
considerations. The Proposal requests that the Board "start maximizing
stockholder value" by either "making the changes necessary to improve operating
performance or finding a buyer who can give full value for Rite Aid." Thus, the
text of the Proposal on its face would cover ordinary business matters as well
as extraordinary corporate transactions. Within the scope of the Proposal, the
Board of Directors and management of the Company could seek to maximize
stockholder value by improving operating performance through any number of
actions short of an extraordinary corporate transaction.
Moreover, the breadth of the Proposal's mandate intrudes upon ordinary business
matters that are reserved for management and the board of directors under
applicable corporate law. The Company is a Delaware corporation, and under the
Delaware General Corporation Law ("DGCL"), the board of directors has the
authority to conduct the ordinary business of the corporation. Pursuant to
Section 141(a) of the DGCL, "[t]he business and affairs of every corporation
organized under [the DGCL] shall be managed by or under the direction of a board
of directors, except as may be otherwise provided in [the DGCL] or in its
certificate of incorporation." The Company's Restated Certificate of
Incorporation does not contain any limitations on the Board's authority to so
manage the Company and instead provides in Article EIGHTH that "[t]he management
of the business and the conduct of the affairs of the corporation ... shall be
vested in its Board of Directors."
It is precisely the role of the Board of Directors of the Company to oversee the
management and operation of the Company in ordinary business areas, including
the area of operating performance. The Board could take a number of actions to
maximize stockholder value short of a sale of the Company or other extraordinary
corporate transaction. For example, to improve operating performance the Board
of Directors could reduce discretionary spending, minimize corporate overhead,
sell or shut down underperforming or high-expense stores, restructure
management, develop initiatives that could generate new earnings or undertake
other performance-improvement initiatives. None of these alternatives would
require a stockholder vote under the DGCL or involve any extraordinary corporate
transaction, and all would impact the Company's operating performance and
thereby potentially increase stockholder value. In addition, determining which,
if any, of these actions would be the optimal strategy for improving operating
performance and stockholder value would require an intimate knowledge of the
Company's business and operations. This determination is exactly the kind of
complex ordinary business problem that management and boards of directors are
better positioned to address than stockholders and that the ordinary business
rule is intended to exclude from stockholder action. It is in the stockholders'
interests that the Board exercise its business judgment in making decisions
regarding how best to maximize operating performance, taking into account all
relevant factors.
Where a proposal relates to a board of directors' selection of business policies
to enhance financial performance, the Staff has repeatedly taken the position
that such proposals relate to ordinary business operations and are excludable
under Rule 14a-8(i)(7). According to the Staff, "[t]he determination of whether,
and what, steps should be taken to enhance the financial performance of the [c]ompany,
including the sale of corporate assets" is a matter relating to the conduct of
the company's ordinary business operations. Ohio Edison Co. (Feb. 3, 1989); see
also SunSource Inc. (Mar. 31, 2000) (permitting exclusion of a proposal
requesting the creation of a special committee with the specific goal of
maximizing stockholder value as relating to ordinary business matters); Tremont
Corp. (Feb. 25, 1997) (permitting exclusion of a proposal requesting that the
board instruct management to prepare a plan to narrow the gap between the value
of the company's shares and the value of its underlying assets as relating to
the conduct of the company's ordinary business operations); Novametrix Medical
Systems, Inc. (June 12, 1996) (permitting exclusion of a proposal requesting the
board to take the steps to initiate a program to maximize stockholder value as
relating to ordinary business matters); Integrated Circuits Inc. (Dec. 27, 1988)
(permitting exclusion of a proposal relating to the engagement of an investment
banker to make recommendations to maximize stockholder value as relating to the
implementation of the Company's strategies, an ordinary business matter). In
issuing no-action letters in the foregoing cases, the Staff implicitly
recognized that maximizing stockholder value implicates a myriad of ordinary
business operations. For instance, the salaries and incentives paid to a
company's employees, the size of its workforce, the training of its salespeople,
its product pricing, the size and duration of promotional campaigns, the details
of its financing, and other such considerations all affect the Company's costs,
expenses, profitability and prospects, which in turn affect the Company's stock
price.
In addition, when a shareholder proposal appears to relate in part to
non-extraordinary matters that constitute part of the company's ordinary
business operations - even though, in some cases, the proposals suggest both
ordinary and extraordinary courses of action - the Staff has consistently
granted no-action relief pursuant to Rule 14a-8(i)(7). In numerous cases, the
Staff has permitted exclusion of proposals that sought to have the board of
directors appoint a special committee or retain the services of an independent
third party for the general purpose of exploring ways to enhance stockholder
value, including the sale of the company or other extraordinary transaction,
finding that such proposals relate to both extraordinary and non-extraordinary
matters. See, e.g., First Charter Corp. (Jan. 18, 2005); Medallion Financial
Corp. (May 11, 2004); BKF Capital Group, Inc. (Feb. 27, 2004); Telular Corp.
(Dec. 5, 2003); Archon Corp. (Mar. 10, 2003); Lancer Corp. (Mar. 13, 2002);
E*Trade Group, Inc. (Oct. 31, 2000); NACCO Industries Inc. (Mar. 29, 2000);
Sears, Roebuck & Co. (Feb. 7, 2000). In each of these cases, the consideration
of alternatives to enhance or maximize stockholder value was found to involve
ordinary business concerns that are incident to a board's managerial powers and
such proposals were, therefore, excludable even though they also included the
consideration of an extraordinary transaction. In this case, ordinary business
concerns - improving operating performance - are central to the Proposal.
The Proposal does not focus only on extraordinary corporate transactions such as
a spin-off, sale of all or substantially all assets, merger or liquidation.
Instead, the Proposal expressly presents a non-extraordinary matter - "making
the changes necessary to improve operating performance" - as an alternative
means to increasing stockholder value. Moreover, when the Proposal and
supporting statement are read together, it is apparent that the primary focus of
the Proposal is on improving the operating performance of the Company. The
supporting statement highlights several metrics of the Company's operating
performance and attributes the Company's current stock price to the Company's
alleged failure to improve its operating performance relative to its
competitors. The supporting statement urges the Board to take "whatever steps
are necessary" to improve the Company's operating performance, a matter which
could be addressed predominately or entirely through non-extraordinary means
within the scope of the Proposal. Because the Proposal clearly contemplates and
urges non-extraordinary corporate transactions, the Proposal relates to the
Company's ordinary business operations and the Company should be permitted to
omit it from its Proxy Materials pursuant to Rule 14a-8(i)(7).
Furthermore, if any portion of a proposal relates to a company's ordinary
business activities, the Staff has consistently permitted companies to exclude
the entire proposal from its proxy materials. In E*Trade Group, Inc. (Oct. 31,
2000), the Staff permitted the exclusion of a proposal to establish a
"shareholder value committee" to advise the board on mechanisms for enhancing
shareholder value. The Staff found that two of the four suggested mechanisms for
increasing stockholder value related to ordinary business affairs. Id. In
addition to the "[m]erger or outright sale of the company" the proposal
identified alternative mechanisms for increasing stockholder value, including
"[p]ossible reductions in staff to improve earnings performance" and the
"[d]ismissal and replacement of Executive Officers (CEO, COO, CFO etc.)." Id. In
its no-action response, the Staff specifically identified these alternative
mechanisms as relating to ordinary business operations and permitted the
exclusion of the entire proposal on these grounds. Id. As was the case in
E*Trade, the alternative mechanism for increasing stockholder value in the
instant Proposal - "improv[ing] operating performance" - likewise relates to the
Company's ordinary business operations and the entire Proposal should,
therefore, be excludable under Rule 14a-8(i)(7). See also Associated Estates
Realty Corp. (Mar. 23, 2000) (permitting exclusion of a proposal relating to
both officer compensation and the adoption of a business plan to increase
stockholder value, which plan included the disposition of non-core businesses
and assets, an ordinary business matter); Wal-Mart Stores, Inc. (Mar. 15, 1999)
(permitting exclusion of entire proposal where only one out of five matters in
the proposal concerned the ordinary business operations of the company).
While the Staff has a practice of issuing no-action responses that permit
shareholders to make revisions that are minor in nature and do not alter the
substance of the proposal, the Staff has stated that this practice is meant "to
deal with proposals that generally comply with the substantive requirements of
the rule, but contain some relatively minor defects that are easily corrected."
Staff Legal Bulletin No. 14 (July 13, 2001). As discussed above, the Proposal
focuses on ordinary business matters and any revisions to the Proposal to shift
its focus away from ordinary business matters would necessarily be substantive
and not minor in nature. Moreover, the Staff has specifically advised that "it
has not been the Division's practice to permit revisions under Rule
14a-8(i)(7)." E*Trade Group, Inc. (Oct. 31, 2000). Accordingly, the Staff has
concurred in the omission of proposals that, while in part may appear to address
matters outside the scope of ordinary business, also relate to a company's
ordinary business operations.
III. Conclusion
For the reasons stated above, the Company believes that the Proposal and its
supporting statement intrude upon the Board's statutory authority to manage the
business and affairs of the Company under applicable law and relate to ordinary
business matters. As a consequence, the Company believes that the Proposal and
its supporting statement may properly be omitted from the Proxy Materials
pursuant to Rule 14a-8(i)(7), and we respectfully request that the Staff concur
with the Company's view on this basis.
Should the Staff disagree with our conclusions regarding the omission of the
Proposal, or should any additional information be desired in support of our
position, we would appreciate the opportunity to confer with the Staff
concerning these matters prior to the issuance of the Staff's response. Please
do not hesitate to contact the undersigned at (202) 371-7233.
Very truly yours,
/s/
Marc S. Gerber
Attachments
cc: Mike Goldberg
16318 Clearcrest
Houston, TX 77059
[INQUIRY LETTER]
Rite Aid Corp.
P.O. Box 3165
Harrisburg, Pa. 17105
Attn: R. B. Sari
Dear Sir:
Attached is a revised proxy proposal per your comments. A separate letter from
my broker is being sent directly to you.
Thank you for your attention to this matter.
/s/
Mike Goldberg
16318 Clearcrest
Houston, Tx 77059
281-280-0666
[INQUIRY LETTER]
12/11/2005
Rite Aid Corp.
30 Hunter Lane
Camp Hill PA 17011
Attn: Corp. Secretary
Dear Sirs:
I wish to have a stockholders proposal added to the proxy statement. Under
separate cover is a letter from my broker certifying that I have had a $2000
position in the stock for in excess of one year.
I have not sold the stock since it was purchased and will continue to hold it
till the stockholders meeting. I attend the annual meeting which I will attend
to speak in favor of the proposal. These actions should meet the legal
requirements for a stockholder proposal.
If there is any question please contact me immediately for clarification or
additional documentation.
PROPOSAL:
The stock holders request the Board exercise its authority to start maximizing
stockholder value. This can be done by either making the changes necessary to
improve operating performance or finding a buyer who can give full value for
Rite Aid.
DISCUSSION:
Five plus years after Rite Aid almost fell into bankruptcy, the companies
recovery has stalled. Rite Aid not been able to improve its competitive position
relative to its two major competitors and is in fact falling further behind by
most measures. Rite Aids operating performance in the areas of same store sales
increases, sales per square foot and scripts filled per store have not improved
at the same rate as the two major competitors. It is falling further and further
behind by all operating measurements and its stock price reflects this
performance. The stock price has not been at $6.00/share (in 11/03) for two
years although the DOW and S&P 500 are up 8% & 17% respectfully. It is oblivious
to even the most casual observer that the current situation cannot be allowed to
continue. It is the Boards duty to takes what ever steps are necessary to either
improve the relative operating performance of the company or to sell the company
to the highest bidder(s).
/s/
Mike Goldberg
16318 Clearcrest
Houston, Tx 77059
[STAFF REPLY LETTER]
March 16, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Rite Aid Corporation Incoming letter dated January 19, 2006
The proposal requests that the board use its authority to maximize stockholder
value by either making changes necessary to improve operating performance or
finding a buyer for the company.
There appears to be some basis for your view that Rite Aid may exclude the
proposal under rule 14a-8(i)(7), as relating to Rite Aid's ordinary business
operations. We note that the proposal appears to relate to both extraordinary
transactions and non-extraordinary matters. Accordingly, we will not recommend
enforcement action to the Commission if Rite Aid omits the proposal from its
proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Timothy Geishecker
Attorney-Adviser
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