13. Stock Option and Stock Award Plans

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 2014, 2013 and 2012 include $16,194, $17,717 and $15,861 of compensation costs related to the Company's stock-based compensation arrangements.

In November 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan), under which 10,000 shares of common stock are authorized for the granting of stock options at the discretion of the Board of Directors.

In December 2000, the Company adopted the 2000 Omnibus Equity Plan (the 2000 Plan) under which 22,000 shares of common stock are reserved for granting of restricted stock, stock options, phantom stock, stock bonus awards and other stock awards at the discretion of the Board of Directors.

In February 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan) which was approved by the shareholders under which 20,000 shares of common stock are authorized for granting of stock options at the discretion of the Board of Directors.

In April 2004, the Board of Directors adopted the 2004 Omnibus Equity Plan, which was approved by the shareholders. Under the plan, 20,000 shares of common stock are authorized 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.

In January 2007, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2006 Omnibus Equity Plan. Under the plan, 50,000 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.

In June 2010, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2010 Omnibus Equity Plan. Under the plan, 35,000 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, 28,500 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.

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 shares authorized for issuance for all plans is 62,103 as of March 1, 2014.

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 2014, 2013 and 2012:



Expected stock price volatility(1)	85	%	85	%	79	%
Expected dividend yield(2)	0.00	%	0.00	%	0.00	%
Risk-free interest rate(3)	1.45	%	0.71	%	1.45	%
Expected option life(4)	5.5 years		5.5 years		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 zero percent.
(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.

The weighted average fair value of options granted during fiscal 2014, 2013 and 2012 was $1.91, $0.91 and $0.82, respectively. Following is a summary of stock option transactions for the fiscal years ended March 1, 2014, March 2, 2013 and March 3, 2012:

			Weighted Average Exercise Price Per Share			Aggregate Intrinsic Value

Outstanding at February 26, 2011	74,298		$	2.47
Granted	23,200			1.19
Exercised	(896	)		1.02
Cancelled	(22,804	)		4.31


Outstanding at March 3, 2012	73,798		$	1.52


Granted	12,020			1.32
Exercised	(1,535	)		1.06
Cancelled	(3,283	)		2.08


Outstanding at March 2, 2013	81,000		$	1.48


Granted	4,828			2.76
Exercised	(26,873	)		1.24
Cancelled	(2,989	)		2.46


Outstanding at March 1, 2014	55,966		$	1.65	6.48	$	276,320




Vested or expected to vest at March 1, 2014	51,761		$	1.67	6.38	$	254,692




Exercisable at March 1, 2014	29,881		$	1.77	5.27	$	143,971

As of March 1, 2014, there was $15,251 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 2.32 years.

Cash received from stock option exercises for fiscal 2014, 2013 and 2012 was $33,217, $1,646 and $914, respectively. The income tax benefit from stock options for fiscal 2014, 2013 and 2012 was $23,660, $0 and $0, respectively. The total intrinsic value of stock options exercised for fiscal 2014, 2013 and 2012 was $80,598, $714 and $255, 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 vest in installments up to three years. Beginning in fiscal 2011, stock awards granted to non-employee directors vest 80% in year one, 10% in year two and 10% in year three. Unvested shares are forfeited upon termination of employment. Following is a summary of restricted stock transactions for the fiscal years ended March 1, 2014, March 2, 2013 and March 3, 2012:

			Weighted Average Grant Date Fair Value

Balance at February 26, 2011	7,078		$	1.12
Granted	8,525			1.23
Vested	(3,366	)		1.11
Cancelled	(731	)		1.16


Balance at March 3, 2012	11,506		$	1.20


Granted	5,450			1.31
Vested	(3,917	)		1.18
Cancelled	(362	)		1.26


Balance at March 2, 2013	12,677		$	1.25


Granted	2,743			2.79
Vested	(4,152	)		1.23
Cancelled	(1,212	)		1.48


Balance at March 1, 2014	10,056		$	1.66

At March 1, 2014, there was $9,155 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 1.82 years.

The total fair value of restricted stock vested during fiscal years 2014, 2013 and 2012 was $5,098, $4,623 and $3,724, respectively.