Rite Aid 2016 Annual Report Download - page 142

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 27, 2016, February 28, 2015 and March 1, 2014
(In thousands, except per share amounts)
21. Commitments, Contingencies and Guarantees
Legal Matters
The Company is a party to legal proceedings, investigations and claims in the ordinary course of its
business, including the matters described below. The Company records accruals for outstanding legal
matters when it believes it is probable that a loss will be incurred and the amount can be reasonably
estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect
the amount of any accrual and developments that would make a loss contingency both probable and
reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not
establish an accrued liability.
The Company’s contingencies are subject to significant uncertainties, 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 sealed qui tam lawsuit (‘‘whistleblower’’ action) has been filed and whether
the government agency makes a decision to intervene in the lawsuit following investigation.
As of February 27, 2016, the Company was aware of ten (10) putative class action lawsuits that
were filed by purported Company stockholders, against the Company, its directors (the Individual
Defendants, together with the Company, the Rite Aid Defendants), Walgreens Boots Alliance, Inc.
(‘‘WBA’’) and Victoria Merger Sub Inc., (Victoria) challenging the transactions contemplated by the
Merger agreement between the Company and WBA. Eight (8) of these actions were filed in the Court
of Chancery of the State of Delaware (Smukler v. Rite Aid Corp., et al., Hirschler v. Standley, et al.,
Catelli v. Rite Aid Corp., et al., Orr v. Rite Aid Corp., et al., DePietro v. Standley, et al., Abadi v. Rite Aid
Corp., et al., Mortman v. Rite Aid Corp., et al.). One (1) action was filed in Pennsylvania in the Court of
Common Pleas of Cumberland County (Wilson v. Rite Aid Corp., et al., Sachs Investment Grp., et al. v.
Standley, et al.). The complaints in these nine (9) actions alleged primarily that the Company’s directors
breached their fiduciary duties by, among other things, agreeing to an allegedly unfair and inadequate
price, agreeing to deal protection devices that allegedly prevented the directors from obtaining higher
offers from other interested buyers for the Company and allegedly failing to protect against certain
purported conflicts of interest in connection with the Merger. The Complaints further allege that the
Company, WBA and/or Victoria aided and abetted these alleged breaches of fiduciary duty. The
complaints sought, among other things, to enjoin the closing of the Merger as well as money damages
and attorneys’ and experts’ fees.
On December 23, 2015, the eight (8) Delaware actions were consolidated in an action captioned
In re Rite Aid Corporation Stockholders Litigation, Consol. C.A. No. 11663-CB (the Consolidated
Action). In addition to the claims asserted in the nine (9) complaints discussed above, the operative
pleading in the Consolidated Action also included allegations that the preliminary proxy statement
contained material omissions, including with respect to the process that resulted in the Merger
agreement and the fairness opinion rendered by the Company’s banker. On December 28, 2015, the
plaintiffs in the Consolidated Action filed a motion for expedited proceedings, which the Court orally
142