Subsequent Events

6 Months Ended

Sep. 02, 2023

Subsequent Events.

Subsequent Events

16. Subsequent Events

Commitments, Contingencies and Guarantees

Certain litigation matters occurred during the twenty-six week period ended September 2, 2023 or prior, but had subsequent updates through the issuance of this report. See further discussion in Note 14.

Restructuring Term Sheet

On October 15, 2023, the Company Parties reached an agreement in principle with the Consenting Noteholders on the terms of a financial and operational restructuring, the material terms of which are set forth in the Restructuring Term Sheet.

Under the Restructuring Term Sheet, the Consenting Noteholders have agreed, subject to certain terms and conditions, to support the Restructuring of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to the Plan to be filed in the Chapter 11 Cases. Capitalized terms used but not otherwise defined in this “Restructuring Term Sheet” section of this Current Report on Form 10-Q have the meanings given to them in the Restructuring Term Sheet and the Plan, as applicable. Elixir Insurance (“EI”) was excluded from the Chapter 11 filing.

The Plan will be based on the restructuring transactions set forth in the Restructuring Term Sheet (such transactions described in, and in accordance with the Restructuring Agreement and the Term Sheet, the “Restructuring Transactions”), which, among other things, contemplates:

● each holder of a claim on account of the DIP ABL Facility shall receive, in full satisfaction of its claim, (a) in the event of a Plan Restructuring, its allocated share of the Exit ABL Facility, or (b) in the event of a Credit Bid Transaction or an Alternative Sale Transaction, either, at the DIP ABL Lenders’ discretion, (i) payment in full, in Cash, or (ii) its allocated share of the Exit ABL Facility;

● each holder of a claim on account of the DIP FILO Facility shall receive, in full satisfaction of its claim, (a) in the event of a Plan Restructuring, its allocated share of the Exit FILO Term Loan Facility, or (b) in the event of a Credit Bid Transaction or an Alternative Sale Transaction, either, at the DIP FILO Lenders’ discretion, (i) payment in full, in Cash, or (ii) its allocated share of the Exit FILO Term Loan Facility;

● each holder of a DIP Term Loan Claim shall receive, in full and final satisfaction of its claim, payment in full, in Cash;

● to the extent any allowed ABL Facility Claim remains outstanding on the Effective Date, each holder of an ABL Facility claim shall receive, in full and final satisfaction of its claim, either payment in full, in Cash, or reinstatement of the Allowed ABL Facility Claim under the Exit ABL Facility;

● to the extent any allowed FILO Term Loan Facility Claim remains outstanding on the Effective Date, each holder of a FILO Term Loan Facility Claim shall receive, in full and final satisfaction of its claim, either payment in full, in Cash, of all ABL Facility Claims, or reinstatement of the Allowed FILO Term Loan Facility Claims under the FILO Term Loan Facility;

● each holder of an allowed Senior Secured Notes Claim, in full satisfaction of its claim, shall receive (a) in the event of a Plan Restructuring, [(i) 100% of the common equity (the “New Common Stock”) of New Rite Aid, subject to dilution by the Management Incentive Plan, and any equity-linked securities issued to the holders of allowed General Unsecured Claims, plus (ii) its pro rata share of the takeback facility, if applicable; or (b) in the event the Restructuring Transaction is not a Plan Restructuring, [its pro rata share of the Distributable Proceeds, if any, pursuant to the Waterfall Recovery]];

● each holder of an allowed General Unsecured Claim, in full satisfaction of its claim, subject to (A) the DIP Term Loan Claims, the ABL Facility Claims, and the FILO Term Loan Facility Claims being satisfied in full, in Cash, or such other treatment acceptable to the DIP Lenders and / or the ABL Lenders and the FILO Lenders, as applicable, in their sole discretion, and (B) the satisfaction of any Allowed Adequate Protection Claims, shall receive [[__]% of an equity-linked instrument in New Rite Aid (form and terms to be determined), calculated as of the Effective Date and equal to the product of a formula calculated as the (midpoint value of owned real estate not encumbered prior to the Petition Date, less the costs and expenses to be paid by, or estimated to be paid by, the Debtors’ Estates to administer the Chapter 11 Cases) divided by (the sum of the numerator plus the total amount (including principal and accrued but unpaid interest) of the equitized Senior Secured Notes Claims)];

● each Intercompany Claim shall be, at the option of the Debtors, reinstated, set off, settled, distributed, contributed, cancelled, or released without any distribution on account of such Intercompany Claim, or such other treatment as is reasonably determined by the Debtors;

● each Intercompany Interest shall be, at the option of the Debtors, reinstated, set off, settled, distributed, contributed, cancelled, or released without any distribution on account of such Intercompany Interest, or such other treatment as is reasonably determined by the Debtors;

● all Existing Equity Interests in Rite Aid will be cancelled and extinguished, and Holders of Existing Equity Interests in Rite Aid shall receive no recovery on account of such Interests; and

● Section 510(b) Claims shall be discharged, cancelled, released, and extinguished without any distribution to Holders of such Claims.

The Restructuring Term Sheet contains milestones for the progress of the Chapter 11 Cases (the “Milestones”), which include the dates by which the Debtors are required to, among other things, obtain certain orders of the Court and consummate the Debtors’ emergence from bankruptcy. Among other dates set forth in the Restructuring Term sheet, the agreement contemplates that the Court shall have entered an order confirming the Plan no later than [__] months after the Petition Date.

Although the Company intends to pursue the Restructuring as contemplated by the Restructuring Term Sheet, there can be no assurance that the Company will be successful in entering into a Restructuring Support Agreement on the terms set forth in the Restructuring Term Sheet and the terms of the Restructuring Support Agreement and Plan may be subject to material change. In addition, the transactions contemplated by the Restructuring Term Sheet are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated on the expected terms, if at all.

The Company has significant deferred tax assets, including NOLs. The impact of the Restructuring on the Company’s NOLs will depend on whether the Restructuring is structured as (i) a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company, (ii) a recapitalization of the Company, or (iii) some other alternative structure. If structured as a taxable disposition, the Company anticipates that NOLs of the Company (if any) remaining after the Restructuring will not be available to the Company after consummating the Restructuring. If structured as a recapitalization, the Company anticipates that it will experience an ownership change, and thus NOLs of the Company (if any) remaining after the Restructuring will be subject to limitation, such that the Company may not derive all of the benefits of any such remaining NOLs after consummating the Restructuring. However, the application of the rules under IRC Section 382(l)(5) could mitigate such limitation and protect the continued existence of the Company’s NOLs. There is uncertainty as to whether the Company would qualify for the benefits of IRC 382(l)(5). As stated previously in the income tax footnote, the Company will continue to monitor all available evidence related to deferred tax assets for which future realization is uncertain.

The transactions contemplated by the Restructuring Term Sheet are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated.

Chapter 11 Restructuring

Voluntary Petitions for Reorganization

To implement the Plan, on the Petition Date, the Company Parties filed the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. Each Company Party will continue to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the

caption In re Rite Aid Corporation, et al., Case No. 23-18993 (MBK). Documents filed on the docket of and other information related to the Chapter 11 Cases are available at https://restructuring.ra.kroll.com/RiteAid. Documents and other information available on such website are not part of this document and shall not be deemed incorporated by reference in this document. To ensure the Company Parties’ ability to continue operating in the ordinary course of business and minimize the effect of the Restructuring on the Company Parties’ customers and employees, the Company Parties filed with the Bankruptcy Court motions seeking a variety of “first-day” relief, including authority to pay employee wages and benefits, and pay vendors and suppliers for all goods and services, each of which was approved on an interim basis by the Bankruptcy Court. In addition, the Company filed with the Bankruptcy Court (a) a motion seeking approval of the DIP Financing in the form of the DIP Credit Agreements (as defined and described below), and (b) a motion seeking approval of certain procedures relating to the marketing and auction (if necessary) of all or some of the Company’s assets. At the Debtors’ “first day hearing” on October 16, 2023, the Bankruptcy Court approved all first day relief from the bench, pending entry of the revised forms of order. The Company filed the revised forms of order to the Bankruptcy Court immediately following the first day hearing, and the Company expects that the Bankruptcy Court will enter the orders approving the first day relief in the immediate term.

Effect of Chapter 11 Cases & Automatic Stay on Pre-Petition Debt Obligations

The commencement of the Chapter 11 Cases above constituted an event of default that accelerated substantially all of the Company’s obligations under the documents governing the Existing Credit Facilities, the Guaranteed Notes, and the Unguaranteed Notes, among others. Indeed, the Company’s debt instruments and agreements described within this Quarterly Report provide that, as a result of the commencement of the Chapter 11 Cases, the principal amount, together with accrued and unpaid fees and interest thereon, and in the case of the indebtedness outstanding under the senior notes, premium, if any, thereon, shall be immediately due and payable. Accordingly, all long-term debt was classified as current on the unaudited condensed consolidated balance sheet as of September 2, 2023. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 Cases and the creditors’ rights in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code.

Additionally, in connection with the Chapter 11 Cases, the Company has incurred, and expects to continue to incur, significant professional fees and other costs in connection with the Chapter 11 Cases. There can be no assurance that the Company’s current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of the Plan.

McKesson Corporation

On October 14, 2023, McKesson Corporation (“McKesson”) sent notice to the Company purporting to terminate the Eleventh Amendment to Supply Agreement by and between Rite Aid Corporation and McKesson Corporation, dated as of February 28, 2019 (the “McKesson Corporation Supply Agreement”) based on the occurrence of a termination event. The Company and McKesson have negotiated an agreement in principle to ensure no disruption to the Company’s business and operations, which agreement in principle includes a reservation of rights for both parties as to the purported termination. To the extent such agreement in principle is not executed, is not approved by the Bankruptcy Court, or is approved but subsequently terminates, the Company would vigorously contest such purported termination as null, void, and without effect. Subsequently, to the extent (a) such termination is not rescinded or (b) the

Company does not prevail as to the invalidity of the termination event, the termination of the McKesson Corporation Supply Agreement may result in a material adverse impact on the Company’s business and operations.

Elixir Stalking Horse APA

On October 15, 2023, Hunter Lane, LLC, a subsidiary of the Company, and certain of Hunter Lane, LLC’s subsidiaries (collectively, the “Sellers”) entered into an asset purchase agreement (the “Elixir Stalking Horse APA”) with a buyer, MedImpact Healthcare Systems, Inc. (the “Buyer”), pursuant to which the Buyer has agreed to purchase, subject to the terms and conditions contained therein, substantially all of the assets of the Sellers, which, collectively constitute the “Elixir Assets.” The Sellers are Debtors in the Chapter 11 Cases.

The acquisition of the Elixir Assets by the Buyer pursuant to the Elixir Stalking Horse APA is subject to approval of the Bankruptcy Court and one or more auctions, if necessary, to solicit higher or otherwise better bids. On October 15, 2023, the Debtors filed a motion (the “Bidding Procedures Motion”) seeking approval of, among other things, certain marketing, auction, and bidding procedures (“Bidding Procedures”), pursuant to which the Debtors will solicit and select the highest or otherwise best offer(s) for the sale or sales of the Elixir Assets and the Debtors’ retail asset portfolio. The Bidding Procedures Motion additionally seeks Bankruptcy Court approval of the Elixir Stalking Horse APA and designation of the Buyer as the “stalking horse” bidder for the Elixir Assets. The Debtors anticipate that the Bankruptcy Court will enter an order approving the relief requested in the Bidding Procedures Motion after a hearing scheduled for October 16. 2023.

In accordance with the Bidding Procedures, if the Debtors receive any higher or otherwise better bids by November 16, 2023, the Debtors expect to conduct an auction for the Elixir Assets by November 20, 2023. As the stalking horse bidder, the Buyer’s offer to purchase the Elixir Assets, as set forth in the Elixir Stalking Horse APA, serves as the minimum or bid floor on which the Debtors, their creditors, other stakeholders, and other bidders may rely. Other interested bidders will be permitted to participate in the auction for the Elixir Assets, if, in accordance with the Bidding Procedures, such interested bidders submit qualifying offers that are higher or otherwise better than the stalking horse bid.

Under the terms of the Elixir Stalking Horse APA, the Buyer has agreed, subject to Bankruptcy Court approval and absent any higher or otherwise better bid, to acquire the Elixir Assets from the Sellers for $575 million (the “Purchase Price”), subject to certain adjustments in accordance with the terms and conditions of the Elixir Stalking Horse APA, plus the assumption of specified liabilities related to the Elixir Assets. If the Sellers receive a better or otherwise higher bid and the Bankruptcy Court approves the Sellers’ consummation of an alternative sale of the Elixir Assets to any purchaser other than the Buyer, the Sellers will pay the Buyer a break-up fee and reimbursement of certain expenses associated with the negotiation, drafting, and execution of the Elixir Stalking Horse APA, not to exceed 3.5% of the Purchase Price in the aggregate, subject to approval by the Bankruptcy Court.

Adoption of Accounting Standards Codification ("ASC") 852 - Reorganizations

For periods occurring after the Petition Date, the Company will adopt Financial Accounting Standards Board ASC Topic 852 - Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business.

The Company is currently assessing whether or not it qualifies for fresh start accounting upon emergence from Chapter 11. If the Company were to meet the requirements to adopt the fresh start accounting rules, its assets and liabilities would be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on its unaudited condensed consolidated balance sheets.

Shareholder Matters

On September 28, 2023, the Company received a written notification (the “Notice”) from the NYSE stating that the Company is no longer in compliance with NYSE continued listing standards set forth in Section 802.01B (the “Minimum Market Capitalization Standard”) and Section 802.01C (the “Minimum Stock Price Standard”) of the NYSE’s Listed Company Manual due to the fact that (i) the Company’s average total market capitalization over a consecutive 30 trading-day period was less than $50,000 and, at the same time, its stockholders’ equity was less than $50,000; and (ii) the average closing price of the Company’s common stock was less than $1.00 per share over a consecutive 30 trading-day period.

In accordance with the NYSE’s rules, on October 12, 2023, the Company provided the NYSE with notice of its receipt of the notification and of its current intention to pursue measures to cure the deficiencies. The Company has six months from receipt of the notice to regain compliance with the NYSE’s Minimum Stock Price Standard, or until the Company’s next annual meeting of stockholders if stockholder approval is required, and eighteen months from receipt of the notice to regain compliance with the NYSE’s Minimum Market Capitalization Standard. The Company has forty-five days from receipt of the Notice to submit a business plan that demonstrates compliance with the Minimum Market Capitalization Standard within such eighteen months cure period. Upon receipt of such plan, the NYSE would have up to forty-five days to review and determine whether the Company has made a reasonable demonstration of its ability to come into conformity with the relevant standards within the cure period. The NYSE may either accept the plan, at which time the Company would be subject to ongoing quarterly monitoring for compliance with the plan, or the NYSE may not accept the plan and the Company would be subject to suspension and delisting proceedings (earlier than the cure periods noted above).

On October 16, 2023, the NYSE announced that it had determined to commence proceedings to delist the Company’s common stock from the NYSE. Trading in the Company’s common stock was immediately suspended. The NYSE reached its decision that the Company’s common stock is no longer suitable for listing pursuant to the NYSE Listed Company Manual Section 802.01D after the Company’s October 16, 2023 disclosure that the Company commenced the Chapter 11 Cases. The Company expects that such delisted securities may be subject to trading in the OTC market.