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<SEC-DOCUMENT>/in/edgar/work/20000711/0000928385-00-001875/0000928385-00-001875.txt : 20000920
<SEC-HEADER>0000928385-00-001875.hdr.sgml : 20000920
ACCESSION NUMBER:		0000928385-00-001875
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20000226
FILED AS OF DATE:		20000711

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			RITE AID CORP
		CENTRAL INDEX KEY:			0000084129
		STANDARD INDUSTRIAL CLASSIFICATION:	 [5912
]		IRS NUMBER:				231614034
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0302
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-K
			SEC ACT:		
			SEC FILE NUMBER:	001-05742
			FILM NUMBER:		671407
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		30 HUNTER LANE
				CITY:			CAMP HILL OWN
				STATE:			PA
				ZIP:			17011
				BUSINESS PHONE:		7177612633
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		PO BOX 3165
					CITY:			HARRISBURG
					STATE:			PA
					ZIP:			17105
</MAIL-ADDRESS>

					FORMER COMPANY:	
						FORMER CONFORMED NAME:	LEHRMAN LOUIS & CO
						DATE OF NAME CHANGE:	19680510
</FORMER-COMPANY>

						FORMER COMPANY:	
							FORMER CONFORMED NAME:	RACK RITE DISTRIBUTORS
							DATE OF NAME CHANGE:	19680510
</FORMER-COMPANY>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   FORM 10-K

  [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For The Fiscal Year Ended February 26, 2000

                                      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)

<TABLE>
<S>                                            <C>
                  Delaware                                       23-1614034
       (State or other jurisdiction of                        (I.R.S. Employer
       incorporation or organization)                       Identification No.)

   30 Hunter Lane, Camp Hill, Pennsylvania                         17011
  (Address of principal executive offices)                       (Zip Code)
</TABLE>

      Registrant's telephone number, including area code: (717) 761-2633

         Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
             Title of each class                 Name of each exchange on which registered
             -------------------                 -----------------------------------------
<S>                                            <C>
        Common Stock, $1.00 par value                     New York Stock Exchange
                                                           Pacific Stock Exchange
</TABLE>

  Securities registered pursuant to Section 12(g) of the Act: None

  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. [X] Yes  [_] No

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

  The aggregate market value of the voting 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 June 30, 2000 was
approximately $846,587,542. For purposes of this calculation, executive
officers, directors and 5% shareholders are deemed to be affiliates of the
company.

  As of June 30, 2000, the registrant had outstanding 329,491,633 shares of
Common Stock, par value $1.00 per share.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>         <S>                                                           <C>
 Cautionary Statement Regarding Forward-Looking Statements...............    1

 PART I

    Item 1.  Business...................................................     2
    Item 2.  Properties.................................................    13
    Item 3.  Legal Proceedings..........................................    14
    Item 4.  Submission of Matters to a Vote of Security Holders........    16

 PART II

    Item 5.  Market for Registrant's Common Equity and Related
             Shareholder Matters........................................    16
    Item 6.  Selected Financial Data....................................    18
    Item 7.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations..................................    20
    Item 7A. Quantitative and Qualitative Disclosures About Market
             Risk.......................................................    33
    Item 8.  Financial Statements and Supplementary Data................    34
    Item 9.  Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure...................................    34

 PART III

    Item 10. Directors and Executive Officers of the Registrant.........    35
    Item 11. Executive Compensation.....................................    38
    Item 12. Security Ownership of Certain Beneficial Owners and
             Management.................................................    46
    Item 13. Certain Relationships and Related Transactions.............    47

 PART IV

    Item 14. Exhibits, Financial Statement Schedules and Reports on Form
             8-K........................................................    49

    Signatures...........................................................  S-1

    Financial Statements.................................................  F-1

</TABLE>
<PAGE>

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

  This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are 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 the future prospects,
developments and business strategies of Rite Aid Corporation.

  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:

  .  Our high level of indebtedness and our ability to refinance our
     substantial debt obligations which mature in August and September 2002;

  .  Our ability to make interest and principal payments on our debt and
     satisfy the other covenants contained in our credit facilities and other
     debt agreements;

  .  Our ability to improve the operating performance of our existing stores,
     and, in particular, our new and relocated stores in accordance with our
     new management's long term strategy;

  .  The outcomes of pending lawsuits and governmental investigations, both
     civil and criminal, involving our financial reporting and other matters;

  .  The sale of PCS Health Systems, Inc. and other assets which we are
     currently negotiating but which may not be consummated;

  .  Competitive pricing pressures, continued consolidation of the drugstore
     industry, third-party prescription reimbursement levels, regulatory
     changes governing pharmacy practices, general economic conditions and
     inflation, interest rate movements, access to capital and merchandise
     supply constraints; and

  .  Our failure to develop, implement and maintain reliable and adequate
     internal accounting systems and controls.

  Rite Aid undertakes no obligation to revise the forward-looking statements
included in this report to reflect any future events or circumstances. The
company's 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 section entitled "Factors Affecting Our Future Results"
below.

                                       1
<PAGE>

                                    PART I

ITEM 1. Business

  We are the second largest retail drugstore chain in the United States based
on store count, serving customers in 30 states across the country and in the
District of Columbia. As of June 30, 2000, we operated 3,776 stores and had a
first or second place market position in 34 of the 65 major U.S. metropolitan
markets in which we operated. We operate in two business segments: the retail
drug segment and the pharmacy benefit management ("PBM") segment.

  Retail Drug Segment. Through our retail drug segment, we sell prescription
drugs and a wide assortment of general merchandise. Prescription drug sales
represented approximately 58.4% of our total sales during our fiscal year
ended February 26, 2000 ("fiscal 2000"). Our drugstores filled over 190
million prescriptions during fiscal 2000. Our drugstores also offer non-
prescription health and personal care items, cosmetics, household items,
beverages, convenience foods, greeting cards, one-hour photo development,
seasonal merchandise and numerous other everyday and convenience products,
which we refer to as our "front-end products."

  PBM Segment. Rite Aid owns PCS Health Systems, Inc. ("PCS"), one of the
country's largest pharmacy benefits managers, or PBMs. Through PCS, we provide
pharmacy benefit management services to employers, insurance carriers and
managed care companies. During fiscal 2000, PCS processed approximately 300
million prescriptions, served more than 1,200 health plan sponsors and
assisted, through its customers, approximately 50 million people with their
pharmaceutical needs. We are currently involved in negotiations concerning the
possible sale of PCS and an agreement could be announced at any time. However,
there can be no assurance that an agreement will be signed or, if it is, that
any sale will be consummated. If no sale transaction is available on terms we
consider acceptable, we intend to continue to own and operate PCS.

  Our headquarters is 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 and the Pacific Stock Exchange under the
trading symbol "RAD."

Recent Events

  On October 18, 1999, Rite Aid announced that Martin L. Grass had resigned
his positions as chairman of the board and chief executive officer of the
company. On October 27, 1999, Rite Aid completed the sale of $300 million of
convertible preferred stock to an affiliate of Leonard Green & Partners, L.P.
Following the investment, Leonard I. Green joined Rite Aid's board of
directors and became a member of its executive committee. On November 15,
1999, Mr. Green became the chairman of the board.

  On December 5, 1999, a new executive management team, led by Robert G.
Miller, was hired to address and resolve the business, operational and
financial challenges confronting the company. Mr. Miller also succeeded Mr.
Green as the chairman of the board of directors. The new management team,
which has 94 years of collective experience in retail businesses, consists of:

  .  Robert G. Miller, Chairman of the Board and Chief Executive Officer;

  .  Mary Sammons, President, Chief Operating Officer and Board Member;

  .  David Jessick, Chief Administrative Officer and Senior Executive Vice
     President; and

  .  John Standley, Chief Financial Officer and Executive Vice President.

  Upon arrival, the new management team began to address the immediate
operational and liquidity problems that confronted Rite Aid. We believe that
these short term challenges have now been substantially resolved. New
management has also developed a long term operational plan that seeks to
capitalize on the substantial investment that Rite Aid has made in its store
base and distribution facilities. By significantly scaling back our new store
development program and focusing our resources on the successful operation of
existing stores, new

                                       2
<PAGE>

management intends to increase prescription drug and front-end sales and
restore the profitability of our operations. New management is also developing
a comprehensive plan to strengthen the company's internal accounting systems
and controls. We believe that the successful implementation of these plans
will allow Rite Aid to meet the continuing challenges that it faces.

The Initial Problems

  At the time of their arrival, the new management team faced a series of
immediate challenges. These included:

  .  Deteriorating Store Operations. Rite Aid experienced substantial
     operational difficulties during fiscal 2000. The principal problem was a
     decline in customer traffic and revenues due to inventory shortages,
     reduced advertising and uncompetitive prices on front-end products. By
     November 1999, our out-of-stock level had reached 29% and many popular
     products were not available in our stores. This situation resulted from
     liquidity constraints and concerns, tighter vendor credit terms
     resulting from disputes over payments for outdated or damaged
     merchandise and a delay in the opening of Rite Aid's new distribution
     center in Perryman, MD which caused delays in the shipment of seasonal
     merchandise. During fiscal 2000, Rite Aid also suspended its practice of
     circulating regular newspaper advertising supplements. This disrupted
     customer traffic and adversely affected revenues. In order to offset the
     effects of these actions, former management raised the prices of front-
     end products above competitive levels. Customers rejected the higher
     prices and revenues continued to decline.

  .  Restatements of Financial Statements. On June 1, 1999, Rite Aid filed
     its Annual Report on Form 10-K for the fiscal year ended February 27,
     1999 ("fiscal 1999"). In that filing, Rite Aid restated its consolidated
     financial statements for the fiscal years ended February 28, 1998
     ("fiscal 1998") and March 1, 1997, as well as the interim periods in
     fiscal 1999 and 1998. The restatement followed discussions between Rite
     Aid and the Staff of the Securities and Exchange Commission (the "SEC")
     concerning the Staff's review of Rite Aid's filed registration
     statement. On October 11, 1999, following further discussions with the
     Staff, Rite Aid announced that it would again restate previously
     reported interim and annual financial statements. In its quarterly
     report for the second quarter of fiscal 2000, filed on November 2, 1999,
     Rite Aid restated its interim financial statements for the thirteen
     weeks ended May 29, 1999, the thirteen and twenty-six weeks ended August
     29, 1998 and its balance sheet as of February 27, 1999. At that time,
     Rite Aid indicated that additional adjustments to its financial
     statements might be necessary. On November 11, 1999, KPMG LLP resigned
     as Rite Aid's auditor and withdrew its report on the company's
     consolidated financial statements for the three-year period ended
     February 27, 1999.

  .  Deteriorating Financial Position. From February 1995 through February
     2000, Rite Aid spent $1.9 billion to build, renovate or relocate its
     stores and $1.5 billion to acquire PCS. These expenditures, together
     with the substantial amounts paid to acquire 1,639 stores during the
     same period substantially increased Rite Aid's level of debt and placed
     a significant strain on its short term liquidity position. The problems
     were exacerbated by the inability to complete a public offering of
     equity securities to repay the $1.3 billion short-term credit facility,
     which had been established to support the commercial paper issuances
     used to acquire PCS and which was due in October 1999. In June 1999,
     Rite Aid borrowed $300.0 million from one of its banks under a demand
     note because it had issued the maximum amount of commercial paper that
     was permitted under its credit facilities. In September 1999, Rite Aid
     informed its banks that it anticipated being in default on various
     covenants under certain of its credit facilities and in October 1999,
     Standard & Poor's and Moody's downgraded Rite Aid's credit rating.
     Following these events, Rite Aid lost access to the commercial paper
     market. On October 27, 1999, in connection with the preferred stock
     investment by an affiliate of Leonard Green & Partners, L.P., Rite Aid's
     banks agreed to restructure its $2.3 billion of credit facilities and
     the $300.0 million demand note. This resulted in an extension of the
     $1.3 billion PCS acquisition credit facility (the "PCS credit
     facility"), the $1.0 billion credit facility (the "RCF credit
     facility"), the $300.0 million demand note and certain other
     indebtedness, but only until November 1, 2000.

                                       3
<PAGE>

New Management's Response

  Since arriving, Rite Aid's new management team has taken a series of steps to
address the serious problems that confronted the company in December 1999.
These have included:

  .  Stabilizing our Store Operations. Since their arrival, new management
     has:

    -- reduced the out-of-stock level in its distribution facilities from
       29% in November 1999 to 11% for the week ended July 6, 2000;

    -- significantly curtailed new store growth by reducing the number of
       new and relocated stores planned for fiscal 2001 and 2002 from
       approximately 150 each year to approximately 85 and 100 for the
       respective years;

    -- strengthened vendor relationships by substantially resolving the
       major vendor disputes that had arisen during fiscal 1999 and 2000;

    -- reduced the prices of key front-end products, including many popular
       health and beauty aid products, by approximately 15%;

    -- sold $300 million in retail value of discontinued product at a
       substantial discount;

    -- established a 52-week national advertising program highlighting key
       product categories as well as vendor cooperative events;

    -- established and executed effective product promotional programs; and

    -- reorganized management structure to focus specifically on critical
       functions, such as store operations, pharmacy operations, managed
       care and customer service.

     These actions have begun to improve our operating results. For the four
     weeks ended April 22, 2000, the five weeks ended May 27, 2000, and the
     four weeks ended June 24, 2000, we reported increases in same store
     sales of 7.1%, 6.6% and 9.7%, respectively, over the same periods in the
     prior year. These increases compare favorably to February and March
     2000, when our same store sales increases were 3.4% and 4.8%,
     respectively.

  .  Re-Auditing our Financial Statements and Restoring Credibility in our
     Financial Reporting. Following the resignation of KPMG LLP and the
     withdrawal of their report, new management acted to identify, assess and
     resolve Rite Aid's financial reporting issues. This process included a
     re-evaluation of the accounting issues identified before December 1999
     as well as an investigation and restatement of financial statements for
     fiscal 1999 and 1998 and the first two quarters of fiscal 2000.
     Following the arrival of our new management team we:

    -- engaged Deloitte & Touche LLP, through our audit committee, as our
       independent public accounting firm to audit our financial statements
       for fiscal 2000 and our restated financial statements for fiscal 1999
       and 1998;

    -- engaged the law firm of Swidler Berlin Shereff Friedman LLP ("Swidler
       Berlin"), through our audit committee, to conduct an investigation of
       the company's reporting and accounting practices and Swidler Berlin
       retained Deloitte & Touche LLP to assist them with forensic
       accounting;

    -- determined, based on new management's assessment of the situation,
       not to make any further periodic filings with the SEC until the
       review of the company's books and records was finished and a new
       audit had been completed;

    -- retained Arthur Andersen LLP to assist us in a reconciliation of Rite
       Aid's books and records which was completed in July 2000; and

    -- began to develop a plan to strengthen the company's internal
       accounting systems and controls.

     This process concluded with the preparation of the financial statements
     contained in this annual report. In addition, the Swidler Berlin firm
     conveyed the results of its investigation to the audit committee and to
     management and were considered in connection with the preparation and
     restatement of financial statements. There is a summary of the principal
     accounting issues addressed in the restatement of the financial
     statements for fiscal 1999 and 1998 under the caption "--Restatement of
     Historical Financial Statements." See also notes 22 and 24 of the notes
     to consolidated financial statements.

                                       4
<PAGE>

  .  Stabilizing our Financial Condition and Liquidity. New management has
     addressed Rite Aid's immediate liquidity needs and stabilized its
     financial condition through a series of refinancing transactions
     completed in June 2000. Since December 1999, Rite Aid has:

    -- obtained consents from its various lenders and bondholders to
       postpone the required filing dates under its debt agreements for the
       third quarter and full year fiscal 2000 SEC reports until July 11,
       2000;

    -- entered into a new $1.0 billion senior secured credit facility that
       matures in August 2002, including a $500.0 million term loan that
       was used to refinance our $300.0 million receivables securitization
       facility, pay transaction fees and provide funds for general
       corporate purposes and a $500.0 million revolving credit facility;

    -- obtained an extension of the maturity dates on the outstanding debt
       under our PCS credit facility and our RCF credit facility until
       August 2002;

    -- exchanged $374.3 million of our outstanding notes due in December
       2000 and 2001 for $374.3 million of our notes due in September 2002;

    -- exchanged $284.8 million of our outstanding loans for 51.8 million
       shares of Rite Aid common stock and $274.8 million of our
       outstanding loans for an equivalent amount of secured exchange debt
       due August 2002;

    -- obtained the agreement of two financial institutions to purchase
       $93.2 million of our notes due September 2002 when our 5.5% notes
       mature in December 2000; and

    -- exchanged $177.8 million in principal amount of our 5.25%
       convertible subordinated notes due 2002 for 17.8 million shares of
       common stock.

  Rite Aid continues to be highly leveraged and the covenants of our new
   senior secured credit facility and our existing facilities place
   constraints on our operations. However, as a result of the actions
   described above, we believe that Rite Aid now has the financial flexibility
   and liquidity necessary to execute its long term business strategy.

Our Long Term Strategy

  New management's long term strategic plan will scale back our new store
development program and focus on enhancing the performance of our existing
store base. We intend to improve the performance of our existing stores by (1)
capitalizing on our substantial investments in our stores and distribution
facilities; (2) enhancing our customer and employee relationships; and (3)
improving our product offerings in the stores. We will also build a
comprehensive plan to establish and maintain an adequate and reliable system
of controls.

  Capitalize on Investments in Store Base and Distribution Facilities. Over
the last five years, we have opened 537 new stores, relocated 967 stores,
generally to larger or free-standing sites, remodeled 253 stores and closed
1,039 stores. We also acquired 1,639 stores during the same period. All of our
stores are now integrated into a common information system. Our investments
have given us one of the most modern store bases in the industry, with 36% of
our stores at June 30, 2000 having been constructed or relocated since the
beginning of fiscal 1998. We have also made significant improvements to our
distribution network to support these new stores, including the opening of two
new high capacity distribution centers and the closure of two older centers.
It generally takes two to four years for our new and relocated stores to
develop the critical mass of customers necessary to achieve profitability.
Because of the large percentage of our stores which have been built or
remodeled in the last three years, attracting more customers is a key
component of our long term strategy.

  Enhance Customer and Employee Relationships. We have initiated various
promotional programs that are designed to improve our image with customers.
These include the weekly distribution of a nationwide advertising circular to
announce vendor promotions, weekly sales items and, in our expanded test
market, Rite Aid's customer reward program, "Rite Rewards." Through the use of
technology and attention to customers' needs and preferences, we are
increasing efforts to identify inventory and product categories to enable us
to offer more personalized products and services to customers. We are
developing employee-training programs to improve

                                       5
<PAGE>

customer service and educate our employees about the products we offer. We are
also developing new employee programs that create compensatory and other
incentives for employees to provide customers with quality service and to
promote Rite Aid's private label brands.

  Improve Product Offerings. In recent years Rite Aid has added popular and
profitable product departments, such as our General Nutrition Companies, Inc.
("GNC") stores-within-Rite Aid-stores and one-hour photo development
departments. We are continuing to develop ideas for new product departments
and have begun to implement plans to expand the categories of front-end
products that we sell in our larger west coast stores. Another important focus
of our new management team is to increase our offerings and sales of private
label Rite Aid brand products by identifying leading product categories that
we can bring to market under our private label brands. We also want to
increase our sales of generic prescription drugs, which provide the same
desired medical benefits as brand name prescription drugs but provide cost
savings to us and our customers. As private label and generic prescription
drugs generate higher margins than branded label, we expect that increases in
the sales of these products would enhance our profitability. We believe that
the addition of new departments and increases in offerings of products and
services are integral components of our strategy to distinguish Rite Aid from
other national drugstore chains.

  Build an Adequate and Reliable Financial Reporting System. Following our
comprehensive review of Rite Aid's books and records, new management concluded
it was first necessary to stabilize our accounting systems and procedures and
then to develop, implement and maintain appropriate improvements to assure
that we have adequate and reliable accounting systems and controls. The
company retained Arthur Andersen LLP to provide accounting support to assist
Rite Aid's financial personnel with the resources required to support the
audit of the company's financial statements. New management's long term
strategy includes the development of a comprehensive plan to address the
integrity and reliability of Rite Aid's reporting of financial information.
Accordingly, new management will undertake the first step of this long term
plan by developing policies and procedures that establish a foundation for its
financial and accounting functions, support ongoing improvements and provide
mechanisms for directing, controlling and monitoring our accounting and
financial organization. New management expects that Arthur Andersen LLP will
continue to provide assistance as needed until we are able to operate an
adequate and reliable system of internal accounting controls without outside
support.

Current Challenges and Risks

  .  Financial Challenges. We have a high level of debt. In June 2000, new
     management completed a restructuring of our indebtedness, which extended
     the maturities of a significant amount of our indebtedness until at
     least August 2002 and provides us with additional borrowing capacity. We
     will continue to have significant debt service obligations going forward
     and we will be constrained by:

    -- interest payment obligations with respect to a total of $5.6 billion
       of borrowings and $1.1 billion of capital leases outstanding at June
       24, 2000;

    -- the financial covenants in our debt agreements, which must be
       satisfied in order for us to continue borrowing funds under our
       revolving credit facility and may limit our operating flexibility;
       and

    -- interest rate fluctuations in respect of our floating-rate
       indebtedness.

    Our ability to refinance our substantial indebtedness before August
    2002 will depend, in part, on our ability to execute our long term
    strategy and attract more customers to our new and relocated stores.

  .  Operational Challenges. Our modern, fully-integrated store base allows
     us to focus on the challenges of improving our store operations and
     increasing store productivity. In responding to the operational issues
     that confronted us during fiscal 2000, new management instituted a
     number of initiatives to improve store performance. To further improve
     our operating performance, we will need to:

    -- attract customers through new product offerings and better services;

    -- price our products competitively;

    -- resolve any issues that may arise with our suppliers; and

    -- improve the image of our pharmacies.

  .  Other Risks. In addition to the foregoing, our business is subject to
     other risks including:

    -- pending lawsuits against us as well as civil and criminal
       investigations by various governmental agencies, including the SEC
       and the United States Attorney;

                                       6
<PAGE>

    -- our ability to develop, implement and maintain reliable and adequate
       accounting systems and controls;

    -- our reliance on third-party suppliers;

    -- changes in third-party reimbursement levels for prescription drugs;

    -- our dependence upon key personnel;

    -- competition in our markets; and

    -- our ability to adhere to governmental regulations with respect to
       our pharmacy business.

    We describe these risks in greater detail under "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors
Affecting Our Future Prospects."

Restatement of Historical Financial Statements

  The financial statements for fiscal 1998 and fiscal 1999 and the summarized
information for the first two quarters of fiscal 2000 included in this report
have been restated to reflect various adjustments. The aggregate effect of
these adjustments on the historical financial statements was to reduce net
income by $493.8 million and $535.9 million for fiscal 1998 and fiscal 1999.
On an aggregate basis, the adjustments for fiscal 1998 and 1999 reduced Rite
Aid's retained earnings at February 27, 1999 by $1.6 billion.

  The principal adjustments to Rite Aid's fiscal 1998 and fiscal 1999
financial statements are summarized as follows:

Inventory/Cost of Goods Sold

  The restated financial statements reflect adjustments to inventory and cost
of goods sold related primarily to reversals of unearned vendor allowances
previously recorded as a reduction to cost of goods sold, to correctly
applying the retail method of accounting, recording writedowns for slow moving
and obsolete inventory, recognizing certain selling costs including
promotional markdowns and shrink in the period in which they were incurred,
accruing for inventory cut-off, and to reflect vendor allowances in the
inventory balances.

Property, Plant and Equipment

  The restated financial statements reflect adjustments to charge certain
items previously capitalized to expense in the period in which they were
incurred. Such items include certain costs for repairs and maintenance,
interest, and internal software expenditures. The adjustments also include
increases to depreciation expense to reverse the effects of retroactive
changes made to the useful lives of certain assets and to depreciate assets
misclassified as construction in-progress.

Lease Obligations

  The restated financial statements reflect the sale-leaseback of certain
stores as financing transactions. Such transactions had previously been
accounted for as sales with corresponding operating leases. The adjustment to
correct these items resulted in the reversal of the asset sales and the
establishment of lease obligations. In addition, certain leases previously
accounted for as operating leases were determined to be capital leases.

Purchase Accounting

  The company acquired Thrifty PayLess, Inc. in fiscal 1997 and Harco Inc. and
K&B Inc. in fiscal 1998. Certain liabilities associated with these
acquisitions that had previously been established with a corresponding
increase to goodwill have been either reduced or eliminated to correctly
reflect the fair value of the assets and liabilities acquired at the date of
acquisition.

                                       7
<PAGE>

Accruals for Operating Expense

  The restated financial statements reflect adjustments to expense certain
operating costs in the period in which they were incurred and to record a
corresponding liability for those items not paid at the end of the period.
Such costs primarily consisted of payroll, vacation pay, incentive
compensation, executive retirement plans, scheduled rent increases, and
certain insurance claims.

Exit Costs and Impairment of Operating and Other Assets

  The restated financial statements include adjustments to appropriately
reflect charges related to store closures in the period in which the decision,
and ability, to close a store had been made. Other charges not related to
exiting stores and gains from the sale of certain assets previously recorded
against the store exit liability have been reflected as income or expense in
the period in which they were incurred or realized. Adjustments have also been
made to record impairment charges for stores and other assets in the period in
which the impairment occurred. The company also determined that its previous
method of evaluating assets for impairment at a market level was not
appropriate, and that the evaluation should occur at the store level because
this is the lowest level of independent cash flows ascertainable.

  For additional information, see note 24 of the notes to consolidated
financial statements.

Description of Business

Retail Drug Segment

  Rite Aid's stores sell prescription drugs and a wide assortment of general
merchandise, including over-the-counter drugs, health and personal care items,
cosmetics, greeting cards, household items, convenience foods, photo
development services and seasonal merchandise. We distinguish our stores from
other national chain drugstores in part through the Rite Aid private label
brands, our "stores-within-Rite Aid stores" program with GNC and by our
Internet presence through our website and the drugstore.com website.

  Products and Services. During fiscal 2000, sales of prescription drugs
represented approximately 58.4% of our total sales. Rite Aid has derived
revenues of $7.8 billion, $6.7 billion and $5.7 billion, respectively, from
prescription drug sales for each of its last three fiscal years. Rite Aid
sells approximately 20,000 different types of non-prescription, or front-end,
products. No single front-end product category contributed significantly to
Rite Aid's sales during fiscal 2000 although certain front-end product classes
contributed notably to Rite Aid's sales. Our principal classes of products are
the following:

<TABLE>
<CAPTION>
                                                                     FY 2000
                                                                  Percentage of
       Product Class                                              Sales/Revenues
       -------------                                              --------------
   <S>                                                            <C>
   Prescription drugs............................................      58.4%
   Vitamins and mineral supplements..............................       2.0
   Cosmetics.....................................................       3.0
   Seasonal......................................................       2.0
   Photo Development.............................................       2.0
   Beer, wine and liquor.........................................       3.0
   Greetings cards...............................................       2.0
</TABLE>

  Rite Aid offers over 1,500 products under the Rite Aid private label brand,
which contributed approximately 9.2% of our front-end sales in fiscal 2000.
During fiscal 2000, Rite Aid added 80 products under its private label. One of
new management's goals is to increase sales and the number of private label
brand products we offer.

  In June 1999, Rite Aid acquired a 22% stake in drugstore.com, an online
source for health, beauty and pharmacy products, for cash of $8.1 million and
the company's agreement to provide access to the company's pharmacy networks
and insurance coverages, advertising contracts and exclusivity agreements. In
connection with this investment, Rite Aid and drugstore.com entered into a 10-
year exclusive strategic alliance pursuant to which drugstore.com became the
exclusive customer online link for prescriptions and other products and
services offered at all Rite Aid retail drugstores. The agreement gave Rite
Aid an immediate presence in the Internet drugstore business and resulted in
one of the first online pharmacies. We are focusing on leveraging our

                                       8
<PAGE>

relationship with drugstore.com to increase online sales and to generate
higher in-store sales to online customers who select in-store order pick-up.
At June 30, 2000, we owned approximately 18% of drugstore.com.

  On January 7, 1999, Rite Aid announced a strategic alliance with GNC under
which Rite Aid agreed to open, own and operate a minimum of 1,500 GNC "stores-
within-Rite Aid-stores" across the country over a period of approximately four
years. GNC is a leading nationwide retailer of vitamin and mineral supplements
and personal care, fitness and other health-related products. As of June 30,
2000, we built 400 GNC stores-within-Rite Aid-stores. We plan to open 500 GNC
departments in our stores during fiscal 2001.

  Rite Aid Stores

  In February 1995, Rite Aid initiated a campaign to expand and modernize its
store base. During fiscal 1995, Rite Aid acquired 312 stores located in the
midwest and northeast regions in three acquisition transactions for a total
cost of approximately $175.7 million. In fiscal 1997, Rite Aid acquired
Thrifty PayLess, a drugstore chain with 1,006 stores located on the west
coast, for approximately $1.5 billion. In the same year, Rite Aid acquired
Taylor Drug Stores and Concord Drugs, Inc. for an aggregate cost of $33.6
million. In fiscal 1998, Rite Aid acquired the K&B, Incorporated and Harco,
Inc. chains, with 186 and 146 stores, respectively, for a total cost of
$335.0 million, net of cash acquired. These stores were located in the
southern region of the United States. In February 1999, Rite Aid acquired
Edgehill Drugs, Inc., which had 25 stores in Maryland and Delaware, for $25.0
million in cash. As of June 30, 2000, we had fully integrated these acquired
stores into our operations.

  Rite Aid also has been modernizing its storebase. Rite Aid began opening
prototype stores in 1995 that include features that we believe increase
customer satisfaction, including drive-through pharmacies, one-hour film
developing departments, 24-hour stores and a layout that is designed to be
attractive to our customers.

  During fiscal 2000, Rite Aid opened 77 new stores, relocated 178 stores,
remodeled 14 stores and closed 181 stores. On a regular basis throughout the
year, we evaluate the performance of our stores. Stores that are redundant,
underperforming or otherwise unsuitable are closed or relocated. Our current
plan for fiscal 2001 is to open approximately 12 new stores, relocate 73
stores and close 53 stores.

  As of June 30, 2000, Rite Aid operated 3,776 retail drugstores in the
eastern, southern and western regions of the United States and the District of
Columbia. Rite Aid's strategy is to locate its stores at convenient locations
in fast-growing metropolitan areas. As of June 30, 2000, Rite Aid has a first
or second place market position in 34 of the 65 major U.S. metropolitan
markets in which it operates.

  The table below identifies the number of stores by state as of June 30,
2000(/1/):

<TABLE>
<CAPTION>
                         Store
State                    Count
- -----                    -----
<S>                      <C>
Alabama.................  118
Arizona.................    3
California..............  624
Colorado................   46
Connecticut.............   50
Delaware................   26
District of Columbia....    7
Georgia.................   36
Idaho...................   23
Indiana.................   36
Kentucky................  129
Louisiana...............  103
Maine...................   85
Maryland................  166
Michigan................  353
Mississippi.............   35
</TABLE>
<TABLE>
<CAPTION>
                          Store
State                     Count
- -----                     -----
<S>                       <C>
Nevada...................    37
New Hampshire............    40
New Jersey...............   186
New York.................   397
Ohio.....................   292
Oregon...................    75
Pennsylvania.............   378
Tennessee................    54
Texas....................     5
Utah.....................    30
Vermont..................    13
Virginia.................   166
Washington...............   146
West Virginia............   116
Wyoming..................     1
                          -----
 Total................... 3,776
</TABLE>

                                       9
<PAGE>

- --------
(1) As of February 26, 2000, we operated 3,802 stores throughout 31 states,
    including the District of Columbia.

  Technology. All of our stores are connected to a common information system
and network which can be expanded to accommodate new stores. Additionally,
each Rite Aid store employs point-of-sale technology that facilitates
inventory replenishment, sales analysis and recognition of customer trends.
Our pharmacies employ technology that enables us to fill prescriptions with
increased accuracy and efficiency. In 1998, we began purchasing ScriptPro
units, which can be linked to the pharmacist's computer to fill and label
prescription drug orders. As of June 30, 2000 we had installed ScriptPro units
in 845 of our stores and plan to install approximately 150 additional units in
fiscal 2001. Our customers may also order prescription refills over the
Internet through drugstore.com or through our telephonic rapid automated
refill systems.

  Suppliers. During fiscal 2000, we purchased approximately 87% of the dollar
volume of our prescription drugs from a single supplier, McKesson HBOC, Inc.
("McKesson"), pursuant to a long term supply contract which expires in April
2000, subject to a three year renewal at Rite Aid's option. Pursuant to the
contract, McKesson has agreed to sell to Rite Aid all of its branded
pharmaceutical products on an exclusive basis and generic pharmaceutical
products on a non-exclusive basis. If Rite Aid's relationship with McKesson
were disrupted, we could have difficulty filling prescriptions, which would
negatively affect our business. Rite Aid purchases its non-pharmaceutical
merchandise from numerous manufacturers and wholesalers. Rite Aid believes
that competitive sources are readily available for substantially all of the
non-prescription merchandise we carry and that the loss of any one supplier
would not have a material effect on Rite Aid's business.

  Rite Aid sells private label and co-branded products that generally are
supplied by numerous competitive sources. The Rite Aid and GNC co-branded
PharmAssure(R) vitamin and mineral supplement products and the GNC branded
vitamin and mineral supplement products that we sell in our stores are
manufactured and developed by GNC as are the Rite Aid brand vitamin and
mineral and supplements.

  Customers. During fiscal 2000, Rite Aid served an average of 1.8 million
customers per day. The loss of any one customer would not have a material
adverse impact on the results of the operations of our retail drugstore
segment. No single customer accounts for more than 10% of the total sales of
our retail drug segment.

  Competition. Based on the number of stores as of the end of fiscal 2000,
Rite Aid is the second largest retail drugstore chain in the United States. We
compete directly with national chain drugstores, including CVS and Walgreen.
The retail drugstore industry is highly competitive, with retail drugstore
chains not only facing competition within the industry, but also from mail
order pharmacies and other retail outlets offering pharmacy services,
including Internet-based outlets. Rite Aid competes on the basis of store
location and convenient access, customer service and product selection and
price.

  Employees. As of February 26, 2000, Rite Aid employed 77,258 employees in
the retail drug segment. Approximately 13% of these employees are pharmacists.
Rite Aid believes that its relationships with the employees in the retail drug
segment are good.

  Working Capital. Rite Aid generally finances its inventory and capital
expenditure requirements with internally generated funds and borrowings. We
expect to use borrowings to finance inventories and to support our continued
growth. The majority of our front-end sales are in cash. Third-party insurance
programs, which typically settle in fewer than 30 days, accounted for 87.8% of
our pharmacy sales and 47.8% of our revenues in fiscal 2000. Our customer
returns are not significant.

  Seasonality. Rite Aid's retail drug segment does not experience significant
fluctuations in results of operations as the result of seasonality.

  Research and Development Rite Aid's retail drug segment does not make
significant expenditures for research and development. In fiscal 2000,
however, Rite Aid spent approximately $10.8 million in connection with the
development of the PharmAssure co-brand and other private label products. In
addition, we expended $500,000 to develop store floor plan prototypes and to
formulate marketing plans for our operating regions and on a nationwide basis.

                                      10
<PAGE>

  Licenses, Trademarks and Patents. The Rite Aid name is our most significant
trademark and the most important factor in marketing our stores and private
label products. We hold licenses to sell beer, wine and liquor; cigarettes and
lottery tickets. Additionally, we hold licenses granted to us by the Nevada
Gaming Commission. We also hold licenses to operate our pharmacies and our
distribution facilities. Together, these licenses are material to our
operations.

PBM Segment

  Our pharmacy benefit management segment, or PBM segment, offers pharmacy
benefit management services to employers, managed care companies (HMOs) and
insurance carriers for management of the wide variety of pharmacy benefit
programs that our customers may offer to their employees or members. PCS also
provides mail order pharmacy services. Rite Aid entered into the pharmacy
benefit management business with the acquisition of PCS from Eli Lilly and
Company in January 1999. PCS is the nation's second largest pharmacy benefits
manager, providing pharmacy related services to approximately 50 million
people in the United States during fiscal 2000.

  The Company is currently in negotiations concerning the possible sale of
PCS. The negotiations are on-going and an agreement could be announced at any
time. No agreement has been reached at the time of this filing. No assurance
can be given that an agreement will be reached or that, if an agreement is
entered into, that a sale of PCS will be completed. If no sale transaction is
available on terms we consider acceptable, we intend to continue to own and
operate PCS. Based on the current negotiations, we expect to incur a
substantial loss upon the commitment to sell PCS compared to the acquisition
cost of $1.5 billion. See "Management's Discussion of Results of Operations
and Financial Condition -- General."

  PCS Services. PCS does business nationwide and offers its customers a
variety of pharmacy network choices, depending on a customer's needs in
serving its own employees or members. The networks can be broad, where
participating pharmacies may number more than 55,000, or narrow, where
participating pharmacies may be limited to a particular group or even a single
pharmacy. PCS manages its customer pharmacy benefits programs by providing
participants with access to electronic claims adjudication when purchasing
drugs from network pharmacies. The network pharmacy communicates with PCS to
verify plan coverage, plan benefits and participant cost share amounts. PCS
manages the information technologies and data used in these transactions and
also manages the billing and payment aspects of the claim by the pharmacy for
payment by PCS's customer. PCS managed approximately 300 million prescription
claims during fiscal 2000.

  PCS also develops formularies that promote the reduction of prescription
drug costs for its pharmacy benefits plan customers. Formularies are lists of
preferred drugs that PCS designs with its customers for the administration of
the client's prescription drug benefit plan. The use of a formulary can reduce
drug costs by promoting generic or less costly drugs that provide and maintain
the desired medical effect of more costly drugs.

  In addition, PCS operates a mail order pharmacy for the participants in its
customers' prescription drug benefit plans. PCS fills mail order prescriptions
with drugs from its own inventory. During fiscal 2000, PCS processed an
aggregate of approximately 30,000 prescriptions a day from its two mail order
facilities in Birmingham, Alabama and Fort Worth, Texas. PCS intends to expand
its Internet operations in order to facilitate prescription ordering online.

  PCS derives its revenues through contractual arrangements with its
customers, pharmacies and drug manufacturers. These contracts provide PCS with
revenues for pharmacy benefit management services, including claims processing
services and services related to the negotiation and implementation of drug
pricing arrangements with drug manufacturers.

  Technology. PCS is focusing on the development of its Internet capabilities,
including its website, PCSRx.com. PCSRx is linked to the drugstore.com website
and to the intranets of many of its customers. PCS also is seeking to increase
its efficiency and reduce the costs of its operations through increased use of
the Internet.

                                      11
<PAGE>

  Customers. PCS has several large customers. No single customer is
responsible for 10% or more of PCS's consolidated revenues. The loss of any
single large customer, however, could have a material adverse effect on the
PBM segment.

  Competition. Competition in the PBM industry is intense. PCS competes with
numerous PBMs, including Merck-Medco Managed Care, a subsidiary of Merck &
Co., Inc., and Express Scripts, Inc., an affiliate of NYLIFE HealthCare
Management, Inc. PCS also competes with smaller companies, including Caremark
International, Inc. and Advance Paradigm, Inc. PCS competes on the basis of
its ability to provide high quality, cost-effective and reliable PBM services
that can meet the wide-ranging needs of its customer base.

  Employees. At February 26, 2000, PCS employed 3,560 people. PCS is dependent
on its information technology employees and its technology and information
systems. Rite Aid believes its relationship with the PBM segment's employees
is good.

  Working Capital. PCS generally finances its inventory and capital
expenditure requirements with cash generated from operations. The majority of
PCS's prescription drug sales are collected through third parties with
payments received by PCS, in most cases, within 30 days of the sale. PCS
maintains approximately two weeks of inventory to fill its mail order
prescription sales.

  Licenses, Trademarks and Patents. PCS's name and its website address,
www.PCSRx.com are its most valuable license and trademark. PCS otherwise does
not rely on any licenses, trademarks or patents.

Regulation

  Rite Aid's pharmacies and pharmacists must be licensed by the appropriate
state boards of pharmacy. Our pharmacies and distribution centers are also
registered with the Federal Drug Enforcement Administration. Applicable
licensing and registration requirements require our compliance with various
state statutes, rules and/or regulations. If Rite Aid were to violate any
applicable statute, rule or regulation, our licenses and registrations could
be suspended or revoked.

  In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the
state level. Such legislative initiatives include prescription drug benefit
proposals for Medicare participants. Also, in recent years both the federal
and state authorities have proposed and have passed new legislation that
imposes on healthcare providers, including pharmacies, significant additional
obligations concerning the protection of confidential patient medical records
and information. Although Rite Aid is well positioned to respond to these
developments, Rite Aid cannot predict the outcome or effect of legislation
resulting from these reform efforts.

  PCS is required to comply with various regulations including the Robinson-
Patman Act and various anti-remuneration laws under Medicare and Medicaid. PCS
also is subject to mail pharmacy regulation with respect to its mail service
pharmacies in Fort Worth, Texas and Birmingham, Alabama that may require PCS
to be registered or licensed in states where PCS delivers pharmaceuticals. In
addition, PCS is subject to consumer practice laws and network access
legislation, which may require PCS to admit retail pharmacies to, or maintain
pharmacies within, its pharmacy networks under certain circumstances, and to
comply with licensure and registration laws as applicable under state law.
PCS's business is also subject to the Employee Retirement Income Security Act
of 1974 ("ERISA"). Certain legislation at both the state and federal level is
developing or pending that may relate to PCS's business, such as legislation
that allows plan members to use non-network providers, and that concerns the
confidentiality of patient medical records. Rite Aid cannot predict how PCS
would be affected if any pending legislation concerning its business were
enacted in the future. PCS may be required to comply with other regulations or
legislation as enacted or made applicable to it from time to time.

                                      12
<PAGE>

ITEM 2. Properties

  We own our corporate headquarters, which is located in a 205,000 square foot
building at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. We lease a 99,000
square foot building near Harrisburg, Pennsylvania for use by additional
administrative personnel. We lease most of our drugstore facilities under non-
cancellable leases, many of which have original terms of 15 to 20 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 Rite Aid's
leases contain renewal options, some of which involve rent increases.

  As of June 30, 2000, Rite Aid had 3,776 retail drugstores, of which 3,476
were leased. The overall average size of each store in the Rite Aid chain is
12,600 square feet. The stores on the east coast average 9,500 square feet per
store. The west coast stores average 21,300 square feet per store. The
southern stores average 12,100 square feet per store.

  Rite Aid operates the following distribution centers and overflow storage
locations, which it owns or leases as noted:

<TABLE>
<CAPTION>
                                                                     Approximate
                                                            Owned or   Square
     Location                                                Leased    Footage
     --------                                               -------- -----------
     <S>                                                    <C>      <C>
     Rome, New York........................................   Owned    291,000
     Utica, New York(1)....................................  Leased    106,800
     Poca, West Virginia...................................   Owned    280,000
     South Nitro, West Virginia(1).........................  Leased     50,000
     Perryman, Maryland....................................  Leased    875,000
     Tuscaloosa, Alabama...................................   Owned    285,000
     Cottondale, Alabama(1)................................  Leased    104,832
     Pontiac, Michigan.....................................   Owned    370,000
     Ogden, Utah(2)........................................   Owned    638,000
     Woodland, California(1)...............................   Owned    500,000
     Woodland, California..................................  Leased    200,000
     Wilsonville, Oregon...................................  Leased    500,000
     Lancaster, California.................................  Leased    930,000
</TABLE>
    --------
    (1) Overflow storage locations.
    (2) The Ogden, Utah distribution center was sold on March 23, 2000.
        Stores serviced by the Ogden distribution center are now being
        served by a new distribution center in Lancaster, California.

  The terms of the leases for distribution centers range from five to 22
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.

  On a regular basis and as part of our normal business, we evaluate store
performance and may close or relocate a store if the store is redundant,
underperforming or otherwise deemed unsuitable. When we close or relocate a
leased store, we often continue to have leasing obligations, in which case
Rite Aid usually attempts to sublease the former store. As of February 26,
2000, Rite Aid subleased approximately 5,811,993 square feet of space as a
result of closing or relocating stores and an additional 7,611,674 square feet
of space in closed stores was not subleased.

  Rite Aid owns a 52,200 square foot ice cream manufacturing facility located
in El Monte, California.

  Through PCS, Rite Aid also owns a 363,000 square foot building and leases an
additional 140,000 square feet of office space for the general offices and
headquarters of PCS. Also through PCS, Rite Aid leases a 93,800

                                      13
<PAGE>

square foot mail order facility in Fort Worth, Texas and owns a 112,000 square
foot mail order facility in Birmingham, Alabama.

ITEM 3. Legal Proceedings

  Federal investigations

  There are currently pending federal governmental investigations, both civil
and criminal, by the SEC and the United States Attorney, involving our
financial reporting and other matters. Rite Aid is cooperating fully with the
SEC and the United States Attorney. Also, as previously discussed, Rite Aid's
audit committee engaged the law firm of Swidler Berlin Shereff Friedman LLP to
conduct an independent investigation of those matters. The results of Swidler
Berlin's investigation have been conveyed to the audit committee and to
management and were considered in connection with the preparation and
restatement of the financial statements.

  The U.S. Department of Labor has commenced an investigation of matters
relating to Rite Aid's employee benefit plans, including its principal 401(k)
plan which permitted employees to purchase Rite Aid common stock. Purchases of
Rite Aid common stock under the plan were suspended in October 1999. Rite Aid
is cooperating fully with the Department of Labor.

  These federal investigations are ongoing and we cannot predict their
outcomes. If Rite Aid were convicted of any crime, certain contracts and
licenses that are material to our operations may be revoked, which would have
a material adverse effect on our results of operations and financial
condition. In addition, substantial penalties, damages or other monetary
remedies assessed against Rite Aid could also have a material adverse effect
on our results of operation and financial condition.

  Stockholder litigation


  Rite Aid, its former chief executive officer Martin Grass, its former
president Timothy Noonan, its former chief financial officer Frank Bergonzi,
and its former auditor KPMG LLP, have been sued in a number of actions, most
of which purport to be class actions, brought on behalf of shareholders who
purchased Rite Aid securities on the open market between May 2, 1997 and
November 10, 1999. With one exception, the cases have been consolidated in the
U.S. District Court for the Eastern District of Pennsylvania, where plaintiffs
have filed a third amended complaint and have been given leave of court to
file a fourth amended complaint on or before August 10, 2000. Most of the
existing complaints assert claims against defendants under Sections 10 and 20
of the Securities Exchange Act of 1934, as amended, based upon the allegation
that Rite Aid's financial statements for its 1997, 1998 and 1999 fiscal years
fraudulently misrepresented its financial position and results of its
operations for those periods, among other allegations. Two actions also assert
claims against defendants under Section 18 of the Exchange Act and one action
asserts claims under the Florida Securities Act and Florida common law, all
based upon similar allegations.

  If any of these cases were to result in a substantial monetary judgment
against Rite Aid, or is settled on unfavorable terms, Rite Aid's results of
operation and financial position could be materially adversely affected.

  Certain of Rite Aid's former officers (Martin L. Grass, Timothy J. Noonan
and Frank Bergonzi), certain of its current and former directors (Alex Grass,
Philip Neivert, Franklin C. Brown, Leonard I. Green, Leonard N. Stern and
Nancy A. Lieberman), its former auditor, KPMG LLP, and Rite Aid as nominal
defendant, have been sued by Rite Aid shareholders derivatively on behalf of
Rite Aid in derivative actions brought in the U.S. District Court for the
Eastern District of Pennsylvania and the Chancery Court of the State of
Delaware. The derivative complaints purport to assert claims on behalf of Rite
Aid against the defendants for violation of duties asserted to be owed by such
defendants to Rite Aid, based upon allegations similar to those contained in
the complaints in the securities cases described above. The time for
defendants to respond to the derivative complaints has not yet run. Rite Aid
has made no determination yet as to how it will respond to the derivative
complaints and is unable to predict the ultimate outcome of this litigation.

                                      14
<PAGE>

  Drug pricing and reimbursement matters

  Civil proceedings are continuing involving Rite Aid's pricing-related
practices for prescription drugs. On September 22, 1999, the Florida Attorney
General filed a complaint against Rite Aid in the Second District, Leon
County, alleging violations of the Florida Deceptive and Unfair Trade
Practices Act and the state RICO statute. Rite Aid no longer operates any
retail drugstores in Florida. In essence, Florida asserted that Rite Aid's
former practice of allowing its pharmacists the discretion to charge non-
uniform prices through the use of positive overrides for cash purchases of
prescription drugs was unlawful. Rite Aid discontinued its use of this policy
in June 1998 throughout its retail drugstores. On February 18, 2000, the
reviewing Florida state court dismissed with prejudice the Florida Attorney
General's complaint. On May 5, 2000, the same court denied Florida's motion to
rehear the case and affirmed the initial decision on the merits, but granted
Florida's motion to amend its complaint. On July 5, 2000, Rite Aid filed a
motion to dismiss the amended complaint.

  The filing of the complaint by the Florida Attorney General, and Rite Aid's
press release issued in conjunction therewith, precipitated the filing of
purported federal class actions in Alabama and California and purported state
class actions in New Jersey, New York, Oregon, and Pennsylvania. All of the
class actions are based on facts essentially identical to those contained in
the Florida complaint and none specify damages. Rite Aid has asserted in court
filings that its imposition of positive overrides was a legitimate utilization
of non-uniform pricing similarly engaged in by many other sectors of retail
commerce. Rite Aid filed motions to dismiss each of the uncertified class
action complaints for failure to state a claim for which relief could be
granted. Rite Aid's arguments have prevailed in each of the cases in which a
court decision has been rendered thus far. On December 27, 1999, the United
States District Court for the Northern District of Alabama dismissed the
federal RICO claims against Rite Aid with prejudice and the plaintiffs later
filed an appeal with the Eleventh Circuit. That appeal is currently pending.
On May 21, 2000, an Oregon state court judge granted Rite Aid's motion to
dismiss the purported class action there with prejudice. On June 12, 2000, the
United States District Court for the Central District of California dismissed
that case and on June 27, 2000, a New Jersey state court dismissed that class
action there. Motions to dismiss the state class actions in New York and
Pennsylvania are currently pending.

  Rite Aid believes that all of the positive override lawsuits are without
merit under applicable state consumer protection laws and/or state or federal
RICO statutes. As a result, Rite Aid intends to continue to vigorously defend
each of the pending actions and does not anticipate, if fully adjudicated,
that any of the lawsuits will result in an award of damages and/or civil
penalties. However, such an outcome for each of the actions cannot be assured
and a ruling against Rite Aid could have a material adverse effect on the
financial position and operations of the company as well as necessitate
substantial additional expenditures to cover legal costs as it pursues all
available defenses.

  Rite Aid has also recently been notified that it is being investigated by
multiple state attorneys general for its reimbursement practices relating to
partially-filled prescriptions and fully-filled prescriptions that are not
picked up by ordering customers. We are supplying similar information with
respect to these matters to the Department of Justice. Rite Aid believes that
these investigations are similar to investigations which were, and are being,
undertaken with respect to the practices of others in the retail drug
industry. Rite Aid also believes that its existing policies and procedures
fully comply with the requirement of applicable law and intends to fully
cooperate with these investigations. We cannot, however, predict their
outcomes at this time.

  If any of these cases result in a substantial monetary judgment against Rite
Aid or is settled on unfavorable terms, Rite Aid's results of operations and
financial position could be materially adversely affected.

  PCS legal proceedings

  In November 1999, PCS received a subpoena from the Office of Inspector
General of the Department of Health and Human Services ("OIG"). The subpoena
requests general information about PCS's formulary programs and rebate
practices and makes no allegation of any wrongdoing by PCS. PCS is fully
cooperating

                                      15
<PAGE>

with the inquiry and believes that no regulatory action will be taken by OIG
against PCS that will have a material adverse effect on PCS's business. Rite
Aid cannot predict the outcome of this matter.

  In January 1998, a purported class action was brought against PCS by a
participant in a plan managed by PCS in the federal district court in New
Jersey. The plaintiff alleged that PCS is an ERISA fiduciary and that, as such,
breached its fiduciary obligations under ERISA and that PCS received improper
kickbacks and rebates from certain drug manufacturers. PCS believes that the
plaintiff's action is without merit and is vigorously defending this action.
Rite Aid cannot predict the outcome of this action.

  Other

  In addition, Rite Aid is subject from time to time to lawsuits arising in the
ordinary course of business. In the opinion of management, these matters are
covered adequately by insurance or, if not so covered, are without merit or are
of such nature or involve such amounts as would not have a material adverse
effect on Rite Aid's financial condition, cash flow or results of operations if
decided adversely. Rite Aid, regardless of insurance coverage, does not believe
that it has a material, estimable, and probable liability in regard to these
claims and lawsuits as of February 26, 2000 or July 11, 2000.

ITEM 4. Submission of Matters to a Vote of Security Holders

  No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
                                    PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

  Rite Aid's common stock is listed on the New York and Pacific Stock Exchanges
under the symbol RAD. On June 30, 2000, Rite Aid had approximately 11,660
record shareholders. Quarterly high and low stock prices, based on the New York
Stock Exchange composite transactions, together with dividend information are
shown below:

<TABLE>
<CAPTION>
   Fiscal                                    Quarter   High     Low   Dividend
   ------                                    ------- -------- ------- --------
   <S>                                       <C>     <C>      <C>     <C>
   2000.....................................  First  41 3/4   21       $.1150
                                             Second  26 15/16 17 1/2   $.1150
                                              Third  21 1/16  4 1/2    $.1150
                                             Fourth  13 1/4   6 3/8    $  -- (1)
   1999.....................................  First  36 9/16  29 3/4   $.1075
                                             Second  45 1/8   34 5/8   $.1075
                                              Third  41 9/16  33 9/16  $.1075
                                             Fourth  51 1/8   39 9/16  $.1150
</TABLE>
- --------
(1) No dividend was declared in the fourth quarter of fiscal 2000. Our current
    credit facilities do not allow us to pay dividends.

  Sales of unregistered securities On October 27, 1999, Rite Aid issued and
sold to Green Equity Investors III, L.P. 3,000,000 shares of Rite Aid's series
A cumulative convertible pay-in-kind preferred stock ("series A preferred
stock"), at a purchase price of $100.00 per share, for an aggregate purchase
price of $300.0 million. The series A preferred stock had an 8% cumulative pay-
in-kind dividend paid quarterly. On December 10, 1999, Green Equity Investors
III, L.P. exchanged all of its series A preferred stock for 3,000,000 shares of
Rite Aid's series B cumulative convertible pay-in-kind preferred stock ("series
B preferred stock"). The series B preferred stock has the same terms as the
series A preferred stock, except that the series B preferred stock will vote
with the holders of Rite Aid common stock and each holder of series B preferred
stock will have one vote for each share of the common stock issuable upon
conversion of the holder's series B preferred stock. When issued, the series B
preferred stock was convertible into shares of Rite Aid common stock at a
conversion price of $11.00 per share subject to adjustment: (1) to any price
that is lower than the then current conversion price at

                                       16
<PAGE>

which Rite Aid issues common stock prior to October 27, 2000; or (2) on March
1, 2002, to the lowest average price, but not less than $7.50, of Rite Aid's
common stock during any consecutive three-month period from October 27, 1999
through February 28, 2001, if such average price is lower than the then current
conversion price or, if not lower, to $11.50. As a result of the exchange of
Rite Aid's bank debt for shares of Rite Aid common stock at an exchange rate of
$5.50 per share, as discussed below, the conversion price for the series B
preferred stock was adjusted to $5.50 per share.

  On October 27, 1999, Rite Aid issued a warrant to J.P. Morgan Ventures
Corporation, an affiliate of J. P. Morgan, to purchase 2,500,000 shares of Rite
Aid common stock. The exercise price for the common stock is $11.00 per share,
subject to certain adjustments. The warrant expires on September 23, 2002. The
warrant was issued in connection with the extension and restructuring of Rite
Aid's banking facilities. J. P. Morgan is one of Rite Aid's principal lenders.

  On June 14, 2000, certain lenders, including J.P. Morgan Ventures
Corporation, exchanged $284.8 million of their loans under the PCS credit
facility and the $300.0 million demand note into 51,785,434 shares of Rite Aid
common stock at an exchange rate of $5.50 per share.

  On June 14, 2000, Rite Aid issued $374.3 million of 10.5% senior secured
notes due 2002 in exchange for $52.5 million of Rite Aid's outstanding 5.5%
notes due 2000 and $321.8 million of Rite Aid's outstanding 6.7% notes due
2001. Also, Rite Aid entered into an agreement with J.P. Morgan and a financial
institution under which they agreed to purchase $93.2 million of the 10.5%
senior secured notes due 2002 when the 5.5% notes that remain outstanding
mature in December 2000.

  The series A preferred stock, the series B preferred stock, the warrant, the
10.5% senior secured notes due 2002, and the Rite Aid common stock issued in
exchange for certain Rite Aid private bank debt were issued in transactions
exempt from registration in reliance on Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").

  On June 26, 2000, the holders of $177.8 million principal amount of Rite
Aid's outstanding 5.25% convertible subordinated notes due 2002 exchanged these
notes for 17,779,000 shares of Rite Aid's common stock. The common stock was
issued in a privately negotiated transaction exempt from registration in
reliance on Section 3(a)(9) of the Securities Act.

                                       17
<PAGE>

ITEM 6. Selected Financial Data

  The following selected financial data of Rite Aid should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited consolidated financial
statements appearing on pages F-1 through F-39. Selected financial data is
presented for three fiscal years. The company's financial statements for
fiscal years ending February 27, 1999 and February 28, 1998 have been
restated. These restatements supercede the prior restatements of such periods
announced in June and November 1999. Substantial time, effort and expense was
required over a six month period to review, assess, reconcile, prepare, and
audit financial statements for fiscal 2000, fiscal 1999 and fiscal 1998. Rite
Aid believes it would require an unreasonable effort and expense to conduct a
similar process to restate fiscal years 1997 and 1996 and that it is unlikely
that periods prior to March 1, 1997 could be restated. Therefore, financial
data for fiscal years 1997 and 1996 have not been restated and should not be
relied upon. For a further discussion of the restatement see "Business--
Restatement of Historical Financial Statements" and note 24 of the notes to
consolidated financial statements.

<TABLE>
<CAPTION>
                                                  February 27,     February 28,
                                  February 26,        1999             1998
                                      2000       (52 weeks)(1)    (52 weeks)(2)
                                   (52 weeks)   (as restated)(3) (as restated)(3)
                                  ------------  ---------------- ----------------
                                     (In thousands, except per share amounts)
<S>                               <C>           <C>              <C>
Summary of Operations:
REVENUES........................  $14,681,442     $12,782,890      $11,533,423
COSTS AND EXPENSES:
  Cost of goods sold, including
   occupancy costs..............   11,412,774       9,743,835        8,603,318
  Selling, general and
   administrative expenses......    3,712,279       3,144,134        2,835,395
  Gain on sale of stores........      (80,109)            --           (52,261)
  Goodwill amortization.........       56,832          29,227           26,480
  Store closing, impairment and
   other charges................      163,185         192,551          148,560
  Interest expense..............      520,336         277,226          209,152
  Share of loss from equity
   investment...................       11,893             448            1,886
                                  -----------     -----------      -----------
                                   15,797,190      13,387,421       11,772,530
                                  -----------     -----------      -----------
  Loss before income taxes......   (1,115,748)       (604,531)        (239,107)
INCOME TAX EXPENSE (BENEFIT) ...            8        (182,049)         (52,916)
                                  -----------     -----------      -----------
  Loss before cumulative effect
   of accounting change.........   (1,115,756)       (422,482)        (186,191)
  Cumulative effect of
   accounting change, net of
   income tax benefit of $22,760
   .............................      (27,300)            --               --
                                  -----------     -----------      -----------
    Net loss....................  $(1,143,056)    $  (422,482)     $  (186,191)
                                  -----------     -----------      -----------
BASIC AND DILUTED LOSS PER SHARE
 ...............................
  Loss before cumulative effect
   of accounting change.........  $     (4.34)    $     (1.64)     $     (0.74)
  Cumulative effect of
   accounting change, net.......  $     (0.11)    $       --       $       --
                                  -----------     -----------      -----------
    Net loss....................  $     (4.45)    $     (1.64)     $     (0.74)
                                  ===========     ===========      ===========
</TABLE>

- --------
(1) PCS was acquired on January 22, 1999.
(2) K&B and Harco Stores were acquired in August 1998.
(3) See note 24 of the notes to consolidated financial statements for a
    description of the adjustments resulting from the restatements.


                                      18
<PAGE>

<TABLE>
<CAPTION>
                                                February 27,     February 28,
                                 February 26,       1999             1998
                                     2000      (52 weeks)(1)    (52 weeks)(2)
                                  (52 weeks)  (as restated)(3) (as restated)(3)
                                 ------------ ---------------- ----------------
                                    (Dollars in thousands except dividends)
<S>                              <C>          <C>              <C>
Year-End Financial Position:
  Working capital (deficit).....   $ 893,053     $ (787,926)      $1,247,622
  Property, plant and equipment
   (net)........................   3,629,919      3,645,099        2,453,754
  Total debt (4)................   6,608,901      5,914,771        3,125,161
  Total assets..................  10,807,854     10,512,540        7,398,250
  Redeemable preferred stock....      19,457         23,559              --
  Stockholders' equity..........     431,508      1,350,585        1,870,759
Other Data:
  Cash dividends declared per
   common share.................  $    .4375     $    .4375       $    .4075
  Basic weighted average
   shares.......................     259,139        258,516          250,659
  Diluted weighted average
   shares.......................     259,139        258,516          250,659
  Number of retail drugstores...       3,804          3,821            3,975
  Number of employees...........      77,258         89,900           83,000
</TABLE>

- --------
(4) Includes capital lease obligations of $1.1 billion, $1.1 billion and $612
    million as of February 26, 2000, February 27, 1999 and February 28, 1998,
    respectively.

                                       19
<PAGE>

ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

  The Management's Discussion and Analysis of Results of Operations for the
years ended February 27, 1999 and February 28, 1998 presented below reflects
certain restatements to Rite Aid's previously reported results of operations
for these periods. See "Business--Restatement of Historical Financial
Statements" and note   of the notes to consolidated financial statements for a
discussion of these restatements.

Overview

  Management believes that the following matters should be considered in
connection with the discussion of results of operations and financial
condition.

  Maturing Store Base. Since the beginning of fiscal 1998, Rite Aid has built
376 new stores, relocated 727 stores and closed 791 stores. These new and
relocated stores represent approximately 29% of Rite Aid's total stores at
June 30, 2000. The new and relocated stores opened in recent years are
generally larger, free standing stores with higher operating expenses than our
older stores. New stores generally do not become profitable until a critical
mass of customers is developed. Relocated stores also must attract additional
customers to achieve comparable profitability to the store that was replaced.
We believe that the period of time required for a new store to achieve
profitable operations is generally between two to four years. This period can
vary significantly based on the location of a particular store and on other
factors, including the investments made in purchasing prescription files for
the location and advertising. Our recent liquidity constraints have limited
our ability to purchase prescription files and make other investments to
promote the development of our new and relocated stores. We believe that our
relatively high percentage of new and relocated stores is a significant factor
in our recent operating results. As new management continues to implement its
long term strategy, it will scale back Rite Aid's new store construction
program and focus on making the operations of its existing base of new and
relocated stores profitable. Management believes that as these newer stores
mature they should gain the critical mass of customers needed for profitable
operations. This continuing maturation should positively affect Rite Aid's
operating performance in future periods. If we are not able to improve the
performance of these new and relocated stores it will adversely affect our
ability to restore the profitability of our operations.

  Reclassification of Lease Obligations. In connection with the restatement of
Rite Aid's operating results for fiscal 1999 and 1998, certain store leases
that had previously been classified as operating leases have now been
classified as capital leases. As a result of this restatement, our property,
plant and equipment and total debt balances at February 26, 2000 were
increased by $987.0 million and $1,072.3 million, respectively. The change in
classification of these lease obligations will result in an allocation of
depreciation charges to cost of goods sold and selling, general and
administrative expense. In addition, a portion of the lease payments will be
included in interest expense..

  Substantial Investigation Expenses. The company has incurred substantial
costs in connection with the process of reviewing, reconciling and restating
its books and records, the investigation of its prior accounting practices and
the preparation of its audited financial statements. Included in these
expenses are the costs of the Deloitte & Touche LLP audit, the investigation
by Swidler Berlin, assisted by Deloitte & Touche LLP and the costs of
retaining Arthur Andersen LLP to assist management in reviewing and
reconciling its books and records. Management currently estimates that these
costs will total approximately $50.0 million, of which $10.1 million was
incurred in fiscal 2000, $19.5 million was incurred in first fiscal quarter of
fiscal 2001, and the balance is expected to be incurred in the second quarter
of fiscal 2001 and thereafter. Rite Aid anticipates that it will continue to
incur significant legal and other expenses in connection with the ongoing
litigation and investigations to which it is subject.

  Possible Sale of PCS. We have had discussions with several parties and are
currently negotiating seriously with one interested party concerning a sale of
PCS. At the date of this filing no agreement has been reached. No assurance
can be given that an agreement will be reached or that, if it is, that any
sale will be consummated. If no sale transaction is available on terms we
consider acceptable, we intend to continue to own and operate PCS. Based on
current negotiations, it is likely that Rite Aid would recognize a significant
loss upon the commitment to sell. In addition, the sale of PCS will result in
a loss of significant tax benefits.

                                      20
<PAGE>

  Dilutive Equity Issuances. In June 2000, Rite Aid completed a series of debt
restructuring transactions as described further below under "--Liquidity and
Capital Resources." In connection with these transactions an aggregate total
of 69,564,434 shares of Rite Aid's common stock were issued in exchange for
$462.6 million principal amount of outstanding indebtedness. In addition,
pursuant to the conversion price adjustment and pay-in-kind dividend
provisions of the convertible preferred stock issued to an affiliate of
Leonard Green and Partners, L.P. in October 1999, 57,571,389 shares of Rite
Aid common stock were issuable upon the conversion of such preferred stock at
June 30, 2000. Giving pro forma effect to these issuances and adjustments, the
basic and fully diluted average shares outstanding at February 26, 2000 would
have increased from 259,139,000 to 347,999,000. In light of our substantial
leverage and liquidity constraints, we will continue to consider opportunities
to use the company's equity securities to discharge debt or other obligations
that may arise. Such issuances may have a dilutive effect on the outstanding
shares of Rite Aid common stock.

  Accounting Systems. Following its review of the company's books and records,
management concluded that further steps were needed to establish and maintain
the adequacy of its internal accounting systems and controls. In connection
with the audit of the company's financial statements, Deloitte & Touche LLP
advised Rite Aid that it believed there were numerous "reportable conditions"
under the standards established by the American Institute of Certified Public
Accountants which relate to the company's accounting systems and controls and
could adversely affect the company's ability to record, process, summarize and
report financial data consistent with the assertions of management in the
financial statements. Management's long term strategy includes a comprehensive
plan to develop, implement and maintain adequate and reliable accounting
systems and controls which address the reportable conditions identified by
Deloitte & Touche LLP.

Results of Operations

Consolidated Revenues
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                            FY 2000      FY 1999      FY 1998
                                          -----------  -----------  -----------
                                                (dollars in thousands)
<S>                                       <C>          <C>          <C>
Sales.................................... $14,681,442  $12,782,890  $11,533,423
Sales growth.............................        14.9%        10.8%           *
Retail drug segment...................... $13,416,747  $12,692,689  $11,533,423
PBM segment.............................. $ 1,264,695  $    90,201  $        **
Store data:
 Total stores (beginning of period)......       3,865        3,970        3,745
 New stores..............................          77          163          132
 Closed stores...........................        (181)        (330)        (280)
 Store acquisitions, net.................          35           62          373
 Relocated stores .......................         178          323          202
 Remodeled stores........................          14          155           84
 Total stores (end of period)............       3,802        3,865        3,970
</TABLE>

- -------------------------------------------------------------------------------
* See "Selected Financial Data" for a discussion of Rite Aid's inability to
  present comparisons to fiscal 1997.
** PCS was acquired on January 28, 1999

  The acquisition of PCS on January 22, 1999 was the primary contributor to
the growth in our consolidated revenues in fiscal 2000 compared to fiscal
1999. The growth in consolidated sales in fiscal 1999 benefitted from full-
year sales of $779.0 million from the Harco, Inc. ("Harco") and K&B, Inc.
("K&B") stores which contributed only $458.2 million of sales in fiscal 1998
following their acquisition on August 27, 1997.

  Because PCS was acquired late in fiscal 1999, there is insufficient
operating data for prior periods to present a meaningful comparison to its
operations in fiscal 2000. PCS derived 59.6% of its total revenues in fiscal
2000 from mail order programs. Revenues from manufacturer programs and claims
processing contributed 18.6% and 15.8%, respectively, of total PCS revenues in
fiscal 2000.

                                      21
<PAGE>

Retail Drug Segment
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                         FY 2000       FY 1999      FY 1998
                                       -----------   -----------  -----------
<S>                                    <C>           <C>          <C>
Sales (thousands)..................... $13,416,747   $12,692,689  $11,533,423
Sales growth..........................         5.8 %         9.9%           *
Same store sales growth...............         7.9 %        15.5%           *
Pharmacy sales growth.................        15.6 %        18.2%           *
Same store pharmacy sales growth......        16.2 %        21.9%           *
Pharmacy as a % of total segment
 sales................................        58.1 %        53.1%        49.2%
Third-party sales as a % of total
 pharmacy sales.......................        87.6 %        85.4%        83.4%
Front-end sales growth................        (2.5)%         0.1%           *
Same store front-end sales growth.....        (2.2)%         6.6%           *
Front-end as a % of total segment
 sales................................        41.3 %        44.8%        48.9%
- ------------------------------------------------------------------------------
</TABLE>
* See "Selected Financial Data" for a discussion of Rite Aid's inability to
  present comparisons to fiscal 1997.

  The 5.8% growth in retail drug segment sales in fiscal 2000 was primarily
due to the continuing strong growth of our pharmacy sales, which more than
offset a decline in our front-end sales. Our retail drug revenues in fiscal
1999 grew 9.9% over the level in fiscal 1998 as a result of strong growth in
pharmacy revenues and a slight increase in front-end sales.

  For fiscal 2000 and fiscal 1999, pharmacy revenues led sales growth with
same-store sales increases of 16.2% and 21.9%, respectively. Our pharmacy
sales growth continued to benefit from our ability to attract and retain
managed care customers, our ongoing program of purchasing prescription files
from independent pharmacies and favorable industry trends. These trends
include an aging American population with many "baby boomers", now in their
fifties, consuming a greater number of prescription drugs. The use of
pharmaceuticals to treat a growing number of healthcare problems and the
introduction of a number of successful new prescription drugs also contribute
to the growing demand for pharmaceutical products.

  Front-end sales, which include all non-prescription sales, such as seasonal
merchandise, convenience items and food and other non-prescription sales,
decreased in fiscal 2000 from the prior year. Our front-end sales were
adversely affected by our elevated levels of out-of-stock merchandise in the
third and fourth quarters of fiscal 2000. Other factors adversely affecting
our front-end sales included the suspension by former management of our
newspaper advertising circular program and their decision to raise front-end
prices to levels that were not competitive. Fiscal 1999 front end sales
increased 0.13% over fiscal 1998, despite a 6.6% increase in same store front-
end sales in those stores which had been open more than one year. Same store
sales growth was driven by strong performance in health and beauty, photo,
seasonal and general merchandise categories. Total front-end sales remained
essentially flat as an increase in the number of closed stores and a decrease
in the number of acquired stores in fiscal 1999 resulted in a net reduction of
105 stores in operation at the end of fiscal 1999 compared to fiscal 1998.

Costs and Expenses
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
                                            FY 2000     FY 1999     FY 1998
                                          -----------  ----------  ----------
<S>                                       <C>          <C>         <C>
Costs of goods sold...................... $11,412,774  $9,743,835  $8,603,318
Gross margin.............................        22.3%       23.8%       25.4%
Selling, general and administrative...... $ 3,712,279  $3,144,134  $2,835,395
Selling, general and administrative as a
 % of revenues...........................        25.3%       24.6%       24.6%
Gain on sale of stores................... $   (80,109) $      --   $  (52,261)
Goodwill amortization.................... $    56,832  $   29,227  $   26,480
Interest expense......................... $   520,336  $  277,226  $  209,152
Closed store, impairment and other
 charges................................. $   163,185  $  192,551  $  148,560
- ------------------------------------------------------------------------------
</TABLE>

                                      22
<PAGE>

Cost of Goods Sold

  Gross margin was 21.9% for fiscal 2000 compared to 23.8% in fiscal 1999.
Gross margins in fiscal 2000 declined from the prior year as a result of the
acquisition of PCS, which operates with lower margins than the retail drug
segment, and the continuing increase in third-party pharmacy sales as a
percentage of total retail drug segment sales. Gross margin declined to 23.8%
in fiscal 1999 from 25.4% in fiscal 1998.

  The decline in gross margin in fiscal 2000 from fiscal 1999 was attributable
to the incurrence of substantial additional costs related to our distribution
facilities and increased store occupancy costs. We incurred significant start-
up costs in fiscal 2000 in connection with the new distribution facility
located in Perryman, Maryland and also in connection with the processing of
merchandise received from our stores for shipment back to our vendors. These
increased costs were partially offset by a substantial credit to cost of goods
sold resulting from the receipt of vendor allowances following a restructuring
of the terms of certain vendor contracts. In fiscal 1999, prior to the
restructuring of the contracts, these vendor allowances were credited to
selling, general and administrative expense. Also partially offsetting the
increases in cost of goods sold in fiscal 1999 were improved store level
margins for front-end and pharmacy sales.

  The decline in gross margin in fiscal 1999 from fiscal 1998 was a result of
a substantial decline in our pharmacy margins. A decline in occupancy costs in
fiscal 1999 was largely offset by increased costs related to our distribution
facilities.

  Also, negatively impacting gross margins in the periods presented was the
continuing industry trend of rising third-party sales coupled with decreasing
margins on third-party reimbursed prescription sales. Third-party prescription
sales typically have lower gross margins than other prescription sales because
they are paid by a person or entity other than the recipient of the prescribed
pharmaceutical and are generally subject to lower negotiated reimbursement
rates in conjunction with a pharmacy benefit plan. Pharmacy sales as a
percentage of total segment sales were 58.1%, 53.1% and 49.2% in fiscal 2000,
1999 and 1998, respectively. The ratios of third-party sales to total pharmacy
sales were 87.6%, 85.4% and 83.4% for fiscal 2000, 1999 and 1998,
respectively, as the percentage of third-party sales continued to grow in each
period.

  The company uses the last-in, first-out (LIFO) method of inventory
valuation. The effective LIFO inflation rates were 1.01486% in fiscal 2000,
1.01594% in fiscal 1999 and 1.00909% in fiscal 1998 which resulted in charges
to cost of goods sold of $34 million in fiscal 2000, $36 million in fiscal
1999 and $7 million in fiscal 1998. The company has changed its method of
accounting for LIFO as of February 26, 2000. See "--Accounting Change."

Selling, General and Administrative Expenses

  Selling, general and administrative expense ("SG&A") was 25.3% of sales in
fiscal 2000, 24.6% of sales in fiscal 1999 and 24.6% of sales in fiscal 1998.
The increase in SG&A as a percentage of revenues in fiscal 2000 is
attributable to a decrease in vendor allowances following the restructuring of
certain vendor contracts as described above, increased accruals for litigation
and other contingencies and a significant increase in legal and other
professional fees. These more than offset the effects of the acquisition of
PCS, which operates with a substantially lower SG&A margin than the retail
drug segment.

Goodwill Amortization

  Goodwill amortization increased during fiscal 2000 over the level recorded
in fiscal 1999 due to the additional goodwill recorded in connection with the
company's acquisition of PCS in January 1999. The increased fiscal 2000
amortization expense attributable to PCS more than offset a slight reduction
in amortization expense for the company's prior acquisitions. Goodwill
amortization expense increased during fiscal 1999

                                      23
<PAGE>

compared to fiscal 1998 due to the amortization of goodwill recorded in
connection with the company's acquisitions of PCS in January 1999, and Harco
and K&B in fiscal 1998. Goodwill amortization expense in fiscal 1999 included
one month of expense associated with PCS and a full year's amortization of the
goodwill recorded in connection with the Harco and K&B acquisitions. Only 26
weeks of goodwill amortization for Harco and K&B was recorded in fiscal 1998.

Interest Expense

  Interest expense was $520.3 million in fiscal 2000 compared to $277.2
million in fiscal 1999 and $209.1 million in fiscal 1998. The substantial
increase in interest expense in fiscal 2000 is due to higher levels of
indebtedness throughout the year. The level of the company's indebtedness
increased in fiscal 2000 primarily as a result of a full year's interest
expense on the $1.3 billion borrowed in January 1999 under the PCS credit
facility and the $300 million of demand note borrowings incurred in June 1999
to supplement cash flows from operating activities and to fund capital
expenditures. The annual weighted average interest rates on our indebtedness
in fiscal 2000, fiscal 1999 and fiscal 1998 were 7.4%, 6.8% and 6.7%,
respectively.

Closed Store, Impairment and Other Charges

  During fiscal 2000, fiscal 1999 and fiscal 1998, the company recorded pre-
tax charges of $163.2 million, $192.5 million and $148.6 million, for the
closing of 181, 330 and 280 stores, respectively.

  Store closings, impairments and other charges consist of:

<TABLE>
<CAPTION>
                                  For the           For the           For the
                                year ended        year ended        year ended
                             February 26, 2000 February 27, 1999 February 28, 1998
                             ----------------- ----------------- -----------------
   <S>                       <C>               <C>               <C>
   Store lease exit costs..      $ 32,724          $104,885          $ 72,118
   Impairment charges......       130,461            87,666            76,442
                                 --------          --------          --------
                                 $163,185          $192,551          $148,650
                                 ========          ========          ========
</TABLE>

These charges are related entirely to operations in the retail drug business
segment.

Income Taxes

  The company had a net loss in fiscal 2000. In addition, as a result of the
restatements of fiscal 1999 and 1998, Rite Aid had net losses in fiscal 1998
and fiscal 1999. Tax benefits of $52.9 million, $182.0 million and $18.2
million have been reflected for fiscal 2000, fiscal 1999 and fiscal 1998,
respectively. The full benefit of the net operating losses ("NOLs") generated
in each period has been partially offset by a valuation allowance based on
management's determination that, based on available evidence, it is more
likely than not that some of the deferred tax assets will not be realized. The
company expects to file amended tax returns and utilize the NOL's against
taxable income in prior years to the maximum extent possible. Approximately
$147.6 million is currently expected to be recovered through carryback claims.
See note 11 of the notes to consolidated financial statements.

Liquidity and Capital Resources

  The company has two primary sources of liquidity: cash provided by
operations and the revolving credit facility under our new senior secured
credit facility. We may also generate liquidity from the sale of assets,

                                      24
<PAGE>

including sale- leaseback transactions. During fiscal 2000 and the fiscal
quarter ended May 27, 2000, cash provided by operations was not sufficient to
fund our working capital requirements, which have included the substantial
accounting and legal costs incurred in connection with the review and
reconciliation of our books and records, the restatement of our financial
statements for fiscal 1999, fiscal 1998 and the audit of our financial
statements for fiscal 2000, fiscal 1999 and fiscal 1998. As a result, we have
supplemented our cash from operations with borrowings under our credit
facilities. Our principal uses of cash are to provide working capital for
operations, service our obligations to pay interest and principal on our debt,
and to provide funds for capital expenditures.

Credit Facilities and Debt Restructuring

  In June 2000, we completed a major financial restructuring that extended the
maturity dates of a substantial amount of our debt until at least August 2002
and converted a portion of our debt to equity. These refinancing transactions
are described below.

  New Senior Secured Credit Facility. We entered into a new $1.0 billion
syndicated senior secured credit facility with a syndicate of banks led by
Citibank N.A., as agent. The new facility matures on August 1, 2002, and
consists of a $500.0 million term loan facility and a $500.0 million revolving
credit facility. We used the term facility to terminate our accounts
receivable securitization facility and repurchase $300.0 million of unpaid
receivables thereunder, to fund $66.4 million of transaction costs relating to
our financial restructuring and to provide $133.6 million of cash that will be
available for general corporate purposes. The revolving facility provides us
with borrowings for working capital requirements, capital expenditures and
general corporate purposes. Borrowings under the facilities generally bear
interest either at LIBOR plus 3.0%, if we choose to make LIBOR borrowings, or
at 2.0% plus Citibank's base rate. For additional information about the
interest rates applicable to our credit facilities, see "--Quantitative and
Qualitative Disclosures about Market Risks" below.

  We are required to pay fees of 0.50% per annum on the daily unused amount of
the commitment. Substantially all of our wholly-owned subsidiaries guaranteed
our obligations under the senior secured credit facility. These subsidiary
guarantees are secured by a first priority lien on the inventory, accounts
receivable, intellectual property and some of the real estate assets of the
subsidiary guarantors. Our direct obligations under the senior credit facility
are unsecured.

  The senior secured credit facility contains customary covenants, which place
restrictions on the assumption of debt, the payment of dividends, mergers,
liens and sale and leaseback transactions. The facility requires us to meet
various financial ratios and limits our capital expenditures. These ratios and
capital expenditure limits are subject to adjustment if we sell PCS. These
covenants require us to maintain a minimum interest coverage ratio of .75:1
(.72:1 if PCS is sold) for the quarter ended August 26, 2000, increasing to
1.40:1 (1.40:1 if PCS is sold) for the four quarter period ending June 1,
2002, and a minimum fixed charge coverage ratio of .88:1 (.88:1 if PCS is
sold) for the quarter ended August 26, 2000, increasing to 1.20:1 (1.19:1 if
PCS is sold) for the four quarter period ending June 1, 2002. We also must
maintain consolidated EBITDA (as defined in the senior secured credit
facility) of no less than $104.0 million ($81.0 million if PCS is sold) for
the quarter ended August 26, 2000, increasing to $894.0 million ($720.0
million if PCS is sold) for the four quarter period ending June 1, 2002. In
addition, our capital expenditures are limited to $70.0 million ($64.0 million
if PCS is sold) for the fiscal quarter ended August 26, 2000, increasing to
$265.0 million ($243.0 million if PCS is sold) for the four quarter period
ending June 1, 2002.

  The facility provides for customary events of default, including nonpayment,
misrepresentation, breach of covenants and bankruptcy. It is also an event of
default if any event occurs that enables, or which with the giving of notice
or the lapse of time would enable, the holder of Rite Aid debt to accelerate
the maturity of debt equaling $25.0 million or more.

  Our ability to borrow under the senior secured credit facility is based on a
specified borrowing base consisting of eligible accounts receivable and
inventory. At June 24, 2000, the $500.0 million term loan was fully drawn. We
had no outstanding borrowings under the revolving facility at June 24, 2000;
however, $39.8 million of the availability was being utilized to support trade
letters of credit.


                                      25
<PAGE>

  Other Existing Facilities. We extended to August 2002 the maturity date of
our existing syndicated credit facilities, which consist of the RCF credit
facility and the PCS credit facility. Borrowings under the PCS credit facility
bear interest at LIBOR plus 3.25% and borrowings under the RCF credit facility
bear interest at LIBOR plus 3.75%. The interest rate on our borrowings under
these facilities will increase by 0.50% per annum if we have not received, and
applied to reduce principal, at least $500.0 million of net proceeds from
asset sales prior to November 1, 2000. These credit facilities contain
restrictive covenants which place restrictions on the assumption of debt, the
payment of dividends, mergers, liens and sale-leaseback transactions. These
credit facilities also require us to satisfy financial covenants which are
generally slightly less restrictive than the covenants in the new senior
secured credit facility. The facilities also limit the amount of our capital
expenditures to $70.0 million for the quarter ended August 26, 2000,
increasing to $265.0 million for the four quarters ending June 1, 2002. Any
net proceeds realized from a sale of PCS must be applied first to reduce the
outstanding balances of the PCS credit facility and then to reduce the then
outstanding balance of the RCF credit facility. The amounts repaid with the
proceeds of asset sales may not be reborrowed. The PCS credit facility
continues to be secured by a first lien on the stock of PCS and the RCF credit
facility continues to be secured by a first lien on the stock of drugstore.com
and a second lien on the stock of PCS. At June 24, 2000 we had $1.9 billion of
borrowings outstanding under these credit facilities. These facilities are
also guaranteed and secured as described below.

  Exchange Offers. In June 2000, we completed the exchange of $52.5 million of
our 5.5% notes due 2000 and $321.8 million of our 6.7% notes due 2001 for an
aggregate of $374.3 million of our new 10.5% senior secured notes due 2002.
After the exchange, $147.5 million of the 5.5% notes due 2000 and
$28.2 million of the 6.7% notes due 2001 remained outstanding. In connection
with the exchange, we entered into a forward purchase agreement to sell $93.2
million of our 10.5% senior secured notes due 2002 to certain banks. The
proceeds from such sale will permit us to repay approximately $93.2 million of
the 5.5% notes due 2000 when they mature in December of this year. The
remaining 5.5% notes due in December 2000 and 6.7% notes due 2001 will be
retired with Rite Aid's general corporate funds.

  Exchange of Debt for Equity and Exchange Debt. As part of our restructuring,
certain affiliates of J.P. Morgan, which had lent us $300.0 million under a
demand note in June 1999 and was also a lender under the RCF and PCS credit
facilities, together with certain other lenders under the two credit
facilities, agreed to exchange a portion of their loans for a new secured
exchange debt obligation and common stock. This resulted in a total of $284.8
million of debt under these facilities, including $200 million of the
outstanding principal of the demand note, being exchanged for common stock at
a price of $5.50 per share. An additional $274.8 million of borrowings under
the facilities were exchanged for the exchange debt, including the entire
remaining principal amount of the J.P. Morgan demand note. The terms of the
exchange debt are substantially the same as the terms of our RCF and PCS
credit facilities and the interest rate is currently LIBOR plus 3.25%. The
lenders of the exchange debt have the same collateral as they did with respect
to their loans under the credit facilities or demand note, as applicable, and
also received a first lien on our prescription files.

  In addition, on June 26, 2000, we issued 17.8 million shares of our common
stock in exchange for $177.8 million in principal amount of our 5.25%
convertible subordinated notes due 2002.

  Synthetic Leases. As part of our restructuring, we amended our existing
guarantees of two synthetic lease transactions to provide substantially the
same terms as the terms of our RCF and PCS credit facilities.

  Second Priority Collateral. In connection with modifications to the existing
syndicated credit facilities, the exchange for exchange debt and the
guarantees of the synthetic lease transactions, substantially all of our
wholly-owned subsidiaries guaranteed our obligations thereunder on a second
priority basis. These subsidiary guarantees are secured by a second priority
lien on the inventory, accounts receivable, intellectual property and some of
the real estate assets of the subsidiary guarantors. Except to the extent
previously secured, our direct obligations under those facilities and
guarantees remain unsecured.


                                      26
<PAGE>

  Commercial Paper. Until September 24, 1999, the company issued commercial
paper supported by unused credit commitments to supplement cash generated by
operations. Since the loss of our investment grade rating in fiscal 2000, we
are no longer able to issue commercial paper. Outstanding commercial paper of
the company
amounted to $192.0 million at February 26, 2000, $1,783.1 million at
February 27, 1999 and $400.0 million at February 28, 1998. During fiscal 2000,
the reduction of commercial paper was achieved through borrowings on our lines
of credit. All remaining commercial paper obligations were repaid in March
2000.

  The increase in commercial paper in 1999 was due to the acquisition of PCS
in January 1999, which accounted for approximately $1.5 billion of the total
outstanding commercial paper at the end of fiscal 1999. Offsetting the
increase were net proceeds received from the issuance of $700.0 million in
long-term debt in December 1998 and net proceeds from the issuance of $200.0
million dealer remarketable securities in September 1998. Reductions in
commercial paper during 1998 were achieved through the issuance of $650.0
million of our 5.25% convertible subordinated notes in the third quarter of
fiscal 1998.

  Debt Capitalization. The following table sets forth our debt capitalization
(in millions) at June 24, 2000, following the completion of the restructuring
transactions described above:

<TABLE>
<CAPTION>
                                                                         As of
                                                                        June 24,
                                                                          2000
                                                                        --------
   <S>                                                                  <C>
   Secured Debt:
    Senior facility(1).................................................  $  500
    PCS facility.......................................................   1,142
    RCF facility.......................................................     730
    10.5% senior secured notes due 2002(2).............................     374
    Exchange debt......................................................     275
    Prudential note....................................................      31
    Other..............................................................      16

   Lease Financing Obligations.........................................   1,074

   Other Senior Debt:
    5.5% notes due 2000................................................     147
    6.7% notes due 2001................................................      28
    6.0% notes due 2005................................................     200
    7.625% notes due 2005..............................................     200
    7.125% notes due 2007..............................................     350
    6.125% notes due 2008..............................................     150
    6.0% Drs SM due 2003...............................................     200
    6.875% Senior debentures due 2013..................................     200
    7.7% notes due 2027................................................     300
    6.875% debentures due 2028.........................................     150

   Subordinated Debt:
    5.25% convertible subordinated notes due 2002(3)...................     650
                                                                         ------
       Total Debt......................................................  $6,717
                                                                         ======
</TABLE>
- --------
(1) Proceeds from the term loan portion of the senior facility were used to
    repay the $300.0 million outstanding balance of our receivables
    securitization facility, to pay approximately $66.4 million of expenses in
    connection with the refinancing transactions and to provide $133.6 million
    of incremental cash on our balance sheet. No borrowings under the
    revolving credit portion of the senior facility were outstanding at June
    24, 2000; however, $39.8 million of availability was being utilized to
    support trade letters of credit. The receivables securitization facility
    was an off-balance sheet liability and therefore was not included in the
    company's balance sheet in prior periods.

(2) Outstanding amount of 10.5% Senior secured notes due 2002 at June 24, 2000
    does not include $93.2 million of such notes which are held by a special
    purpose subsidiary of the company and are subject to a forward purchase
    commitment by certain financial institutions. The proceeds from the sale
    of these notes will be used to retire an equivalent amount of the
    remaining 5.5% notes due 2000 upon their maturity in December 2000. The
    remaining 5.5% notes due 2000 will be retired with the company's general
    corporate funds.
(3) Outstanding principal amount was reduced to $472.2 million with the
    exchange offer for common stock consummated on June 26, 2000, pursuant to
    which $177.8 million principal amount of these notes were exchanged for
    common stock.

                                      27
<PAGE>

Net Cash Provided by Operations

  The company used $349.3 million of cash to fund operations in fiscal 2000.
Operating cash flow was negatively impacted by $501.8 million of interest
payments. Operating cashflow benefited from an increase in other liabilities
partially offset by an increase in current assets.

  In fiscal 1999, the company generated $151.9 million of cash flow from
operations. Operating cash flow was negatively impacted by an increase in
accounts receivable and a decrease in accounts payable, which was mostly
offset by a corresponding decline in inventory.

  Fiscal 1998 operating cash flow of $558.1 million benefited from a $287.0
million reduction of accounts receivable. This reduction resulted from the
sale of accounts receivable through our accounts receivable securitization
program. Operating cash flows benefited from the utilization of accounts
payable to substantially finance the increase in inventories.

  Cash used for investing activities was $508.1 million, $2,829.3 million and
$1,050.0 million for fiscal years 2000, 1999 and 1998, respectively. Cash used
for store construction and relocations amounted to $453.6 million for fiscal
2000, $1,347.1 million for fiscal 1999 and $700.2 for fiscal 1998. In
addition, cash of $1,390.6 million was used to acquire PCS in the prior fiscal
year and $335.0 million was used to acquire K&B and Harco in fiscal 1998.

  Cash provided by financing activities was $945.8 million for fiscal 2000,
$2,679.6 million for fiscal 1999 and $573.8 million for fiscal 1998. Increased
bank borrowings, which replaced our commercial paper program and the sale of
$300 million of preferred stock were the main financing activities during
fiscal 2000. In fiscal 1999, the Company signed commercial paper to finance
the acquisition of PCS. Also during fiscal 1999 net proceeds were received
from the issuance of $700.0 million in long-term debt and $200.0 million of
dealer unmarketable securities. Through the issuance of $650.0 million of
convertible subordinated notes in fiscal 1998, reductions in outstanding
commercial paper were made. Supplemental cash provided by financing activities
were proceeds received from store sale and leaseback transactions of $74.9
million, $505.0 million and $358.8 million for fiscal year 2000, 1999 and
1998, respectively.

Capital Expenditures

  Rite Aid plans to make total capital expenditures of approximately $260.0
million during fiscal 2001. Such expenditures consist of approximately $162.0
million related to new store construction, store relocation and other store
construction projects. An additional $57.0 million will be dedicated to other
store improvement activities including the purchase of Script Pro machines and
the purchase of script files from independent pharmacists. Management expects
that these capital expenditures will be financed primarily with cash flow from
operations and borrowings under our new revolving credit facility.

  We are highly leveraged. Based upon current levels of operations and
expected improvements in our operating performance, management believes that
cash flow from operations, together with available borrowings under the new
senior secured credit facility and its other sources of liquidity (including
asset sales) will be adequate to meet anticipated requirements for working
capital, debt service and capital expenditures until August 2002, when $3.1
billion of our indebtedness matures, including the revolving credit facility
under the new senior secured credit facility. Our ability to replace,
refinance or otherwise extend these obligations will depend in part on our
ability to successfully execute our long-term strategy and improve the
operating performance of our stores. For a discussion of factors that could
affect our current assessment, see "--Factors Affecting Our Future Prospects"
below.

Accounting Change

  In the fourth quarter of fiscal 2000, we changed our application of the
last-in, first-out ("LIFO") method of accounting by restructuring our LIFO
pool structure through a combination of certain geographic pools. The
reduction in the number of LIFO pools was made to more closely align the LIFO
pool structure to store

                                      28
<PAGE>

merchandise categories. The effect of this change in fiscal 2000 was to
decrease our earnings by $6.8 million (net of tax effect of $9.6 million), or
$.03 per diluted common share. The cumulative effect of the accounting change
was a charge of $27.3 million (net of tax effect of $18.2 million), or $.11
per diluted common share. The pro forma effect of this accounting change would
have been a reduction in net income of $6.4 million, net of income tax benefit
of $6.4 million or $.02 per diluted common share, and $12.6 million net of
income tax benefit of $8.4 million or $.05 per diluted common share, for
fiscal 1999 and 1998, respectively.

Recent Accounting Pronouncements

  In November 1999, the SEC issued Staff Accounting Bulliten (SAB) 101,
"Revenue Recognition." This Bulletin sets forth the SEC Staff's position
regarding the point at which it is appropriate for a registrant to recognize
revenue. The Staff believes that revenue is realizable and earned when all of
the following criteria are met:

  .  persuasive evidence of an arrangement exists;

  .  delivery has occurred or service has been rendered;

  .  the seller's price to the buyer is fixed or determinable; and

  .  collectibility is reasonably assured.

The Company uses the above criteria to determine whether revenue can be
recognized, and therefore believes that the issuance of SAB 101 does not have
a material impact on the Company's financial statements.

  In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133). This statement, which
establishes the accounting and financial reporting requirements for derivative
instruments, requires companies to recognize derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
In May 1999, the FASB delayed the implementation date for this statement by
one year. We expect to adopt SFAS No. 133 in 2002. The company is evaluating
the effects that the adoption of SFAS 33 may have on consolidated financial
statements.

Factors Affecting Our Future Prospects

                   Risks Related to Our Financial Condition

  We are highly leveraged. Our substantial indebtedness may severely limit
cash flow available for our operations and could adversely effect our ability
to service debt or obtain additional financing if necessary.

  As of June 24, 2000, Rite Aid had $5.6 billion of outstanding indebtedness
for borrowed money and $1.1 billion of capital leases (including current
maturities but excluding letters of credit) and $429.3 million of stockholders
equity. As of the same date we had additional borrowing capacity under our
revolving credit facility of $460.2 million. On a pro forma basis, giving
effect to the debt restructuring transactions completed in June 2000, our
earnings would have been insufficient to cover our fixed charges for the year
ended February 28, 2000, by $1.1 billion. Our earnings for fiscal 2000
included non-cash charges of $697.8 million. Based on the indebtedness
outstanding, at June 24, 2000 (and then current interest rates) our annualized
interest expense would be approximately $574.0 million. Our high level of
indebtedness will have consequences on our operations. Among other things, our
indebtedness will:

  .  limit our ability to obtain additional financing;

  .  limit our flexibility in planning for, or reacting to, changes in our
     business and the industry;

  .  place us at a competitive disadvantage relative to our competitors with
     less debt;

  .  render us more vulnerable to general adverse economic and industry
     conditions; and

  .  require us to dedicate a substantial portion of our cash flow to service
     our debt.

                                      29
<PAGE>

  A substantial portion of our indebtedness matures in August and September,
2002. Our ability to refinance this indebtedness will be substantially
dependent on our ability to improve our operating performance.

  Approximately $3.8 billion of our indebtedness at June 24, 2000 will mature
in August and September 2002. In order to satisfy these maturing obligations,
we will need to refinance the obligations, sell assets to satisfy them or seek
postponement of the maturity dates from our existing lenders. Our ability to
successfully accomplish any of these alternative transactions will be
substantially dependent on the successful execution of our long term strategic
plan and the resulting improvements in our operating performance.

  The interest rate on certain of our outstanding indebtedness is based upon
floating interest rates. If interest rates increase, our interest payment
obligations will increase.

  Approximately $2.7 billion of our outstanding indebtedness as of June 24,
2000 bears an interest rate that varies depending upon LIBOR. If we borrow
additional amounts under our senior secured facility, the interest rate on
those borrowings will vary depending upon LIBOR. If LIBOR rises, the interest
rates on this outstanding debt also increases. An increase in LIBOR therefore
would increase our interest payment obligations under these outstanding loans
and have a negative effect on our cash flow and financial condition.

  The covenants in our outstanding indebtedness impose restrictions that may
limit our operating and financial flexibility.

  The covenants in the instruments governing our outstanding indebtedness
restrict our ability to incur liens and debt, pay dividends, make redemptions
and repurchases of capital stock, make loans, investments and capital
expenditures, prepay, redeem or repurchase debt, engage in mergers,
consolidations, asset dispositions, sale-leaseback transactions and affiliate
transactions, change our business, amend certain debt and other material
agreements, issue and sell capital stock of subsidiaries, make distributions
from subsidiaries and grant negative pledges to other creditors.

  Moreover, if we are unable to meet the terms of the financial covenants or
if we breach of any of these covenants, then a default could result under one
or more of these agreements. A default, if not waived by our lenders, could
result in the acceleration of our outstanding debt and cause our debt to
become immediately due and payable. If such acceleration occurs, we would not
be able to repay our debt and it is unlikely that we would be able to borrow
sufficient additional funds to refinance such debt. Even if new financing is
made available to us, it may not be available on terms acceptable to us.

                        Risks Related to Our Operations

  Major lawsuits have been brought against us and certain of our subsidiaries,
and there are currently pending both civil and criminal investigations by the
U.S. Securities and Exchange Commission and the United States Attorney's
Office. Any criminal conviction against the company may result in the loss of
licenses that are material to the conduct of our business, which would have a
negative effect on our financial condition and results of operations.

  There are currently pending both civil and criminal governmental
investigations by the SEC and the United States Attorney concerning our
financial reporting and other matters. An investigation has also been
commenced by the Department of Labor concerning our employee benefit plans.
These investigations are ongoing and we cannot predict their outcomes.

  Lawsuits have been filed against us, as well as certain of our past and
present officers and directors. Class action lawsuits have been filed in which
the plaintiffs allege numerous violations of the securities laws; we cannot
predict the outcome of these cases.

  Suits in six states are outstanding alleging that our pricing practices
violated applicable consumer protection laws and racketeering laws. Cases
against us regarding consumer protection and racketeering allegations have
been dismissed in the state courts of Florida, Oregon and New Jersey and in
the federal courts in Alabama and

                                      30
<PAGE>

California, but we cannot predict the outcome of an appeal, if any, nor can we
predict the outcome of any of the other cases in other jurisdictions.

  In addition, given the size and nature of our business, we are subject from
time to time to various lawsuits which, depending on their outcome, may have a
negative impact on our results of operations and financial condition.

  We are substantially dependent on a single supplier of pharmaceutical
products and our other suppliers to sell products to us on satisfactory terms.

  We obtain approximately 87% of our pharmaceutical supplies from a single
supplier, McKesson, pursuant to a long-term supply contract. Pharmacy sales
represented approximately 58.4% of our total sales during fiscal 2000, and
therefore our relationship with McKesson is important to us. Any significant
disruptions in our relationships with our suppliers, particularly our
relationship with McKesson, would make it difficult for us to continue to
operate our business, and would have a material adverse effect on our results
of operations and financial condition.

  Several of our executive officers have joined Rite Aid very recently. We
cannot assure you that management will be able to successfully manage our
business or successfully implement our strategic plan.

  Since December 1999, we have hired a new management team, including Robert
G. Miller as chief executive officer and chairman. Our management team has
considerable experience in the retail industry. Nonetheless, we cannot assure
you that management will be able to successfully manage our business or
successfully implement our strategic business plan.

  We are now depending on our new management team, and the loss of their
services could have a material adverse effect on our business and the results
of our operations or financial condition.

  The success of our business is materially dependent upon the continued
services of our chairman and chief executive officer, Mr. Miller, and the
other members of our new management team. The loss of Mr. Miller or other key
personnel due to death, disability or termination of employment could have a
material adverse effect on the results of our operations or financial
condition, or both. Additionally, we cannot assure you that we will be able to
attract or retain other skilled personnel in the future.

  We are currently in negotiations to sell PCS but our efforts may not be
successful.

  We acquired PCS for approximately $1.5 billion in January 1999. The
acquisition was financed exclusively with short-term debt. In the third
quarter of fiscal 2000, Rite Aid solicited indications of interest for the
possible sale of PCS to address its short-term liquidity problems. The
indications of interest received at that time were not deemed adequate and the
receipt by PCS and another major participant in the PBM industry of a subpoena
regarding certain customary business practices further complicated the efforts
to sell PCS. In connection with the debt restructuring completed in June 2000,
Rite Aid negotiated with its lenders to retain the ability to continue to own
and operate PCS. Following the completion of the refinancing, with the
flexibility to reject inadequate offers, management reopened discussions with
several parties concerning the possible sale of PCS. We are currently
negotiating seriously with one interested party; however, no agreement has
been entered into. While an agreement to sell PCS could be announced at any
time, it is also possible that our current negotiations will not lead to an
agreement and we will continue to own and operate PCS. Based on proposals
currently under discussion, we expect to incur a substantial loss upon a
commitment to sell of PCS. See "Management's Discussion of Results of
Operations and Financial Condition -- General."

  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.

  Our operations during the fiscal year ended February 26, 2000 were adversely
affected by a number of factors, including our financial difficulties,
inventory shortages, allegations of violations of the law, including drug
pricing issues, problems with suppliers and uncertainties regarding Rite Aid's
ability to produce audited

                                      31
<PAGE>

financial statements. To improve operations, new management developed and has
been implementing a business strategy to improve the pricing of products,
provide more consistent advertising through weekly, national circulars,
eliminate problems with shortages of inventory and out-dated inventory,
resolve all issues with our vendors, develop programs intended to enhance
customer relationships and provide better service and continue to improve our
stores and the product offerings within our stores. If we are not successful
in our efforts to implement our business strategy, or if our business strategy
is not effective we may not be able to improve our operations. Failure to
improve operations would adversely affect our ability to make principal or
interest payments on our debt.

  The additional unregistered shares of Rite Aid common stock that we issued
may depress the market price of Rite Aid common stock because we have has
agreed to register those shares under the Securities Act to enable the holders
of the shares to sell them.

  In connection with the refinancing of our debt, we agreed to register the
51,785,434 shares of Rite Aid common stock that it issued to the lenders under
its RCF credit facility, PCS credit facility and demand note. In addition, we
have agreed to register the 57,571,389 shares of Rite Aid common stock
underlying (as of June 30, 2000) the series B convertible preferred stock that
it issued in October 1999 and the 2,500,000 shares of Rite Aid common stock
underlying the warrant issued to J.P. Morgan Ventures Corporation in October
1999. The possible public sale of such large numbers of shares may have an
adverse effect on the market price of Rite Aid's common stock.

                         Risks Related to our Industry

  The markets in which we operate are very competitive and further increased
competition could adversely affect us.

  We face intense competition with local, regional and national companies,
including other drug store chains, independent drug stores, Internet retailers
and mass merchandisers. 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. In addition, we may be at a competitive
disadvantage because we are more highly leveraged than our competitors. We
believe that the continued consolidation of the drugstore industry will
further increase competitive pressures in the industry. As competition
increases in the markets in which we operate, a significant increase in
general pricing pressures could occur which would require us to increase our
sales volume and to sell higher margin products and services in order to
remain competitive. 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.

  Changes in third-party reimbursement levels for prescription drugs could
reduce our margins and have a material adverse effect on our business.

  We are reimbursed by third-party payors for approximately 87% of all of the
prescription drugs that we sell. These third-party payors could reduce the
levels at which they will reimburse us for the prescription drugs that we
provide to their members. Furthermore, if Medicare is reformed to include
prescription benefits, Medicare may cover some of the prescription drugs that
we now sell at retail prices, and we may be reimbursed at prices lower than
our current retail prices. If third-party payors reduce their reimbursement
levels or if Medicare covers prescription drugs at reimbursement levels lower
than our current retail prices our margins on these sales would be reduced,
and the profitability of our business could be adversely affected.

  We are subject to governmental regulations, procedures and requirements; our
noncompliance or their significant change could hurt our business, the results
of our operations or our financial condition.

  Our pharmacy business is subject to several federal, state, and local
regulations. These include local registrations of pharmacies in the states
where our pharmacies are located, applicable Medicare and Medicaid
regulations, and prohibitions against paid referrals of patients. Failure to
properly adhere to these and other applicable regulations could result in the
imposition of civil and criminal penalties and could adversely affect the
continued operation of our business. Furthermore, our pharmacies could be
affected by federal and state reform

                                      32
<PAGE>

programs, such as health care reform initiatives which could, in turn,
negatively affect our business. The passing of these initiatives or any new
federal or state programs could adversely affect our business and results of
operations.

  Certain risks are inherent in the provision of pharmacy services, and 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 health care products. Although we maintain
professional liability and errors and omissions liability 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 maintain this
insurance on acceptable terms in the future.

  Any adverse change in general economic conditions can adversely affect
consumer-buying practices and reduce our sales of front-end products, which
are our higher margin products.

  If the economy slows down and unemployment increases or inflationary
conditions worry consumers, consumers will decrease their purchases,
particularly of products other than pharmaceutical products that they need for
health reasons. We make a higher profit on our sales of front-end products
than we do on sales of pharmaceutical products. Therefore, any decrease in our
sales of front-end products will decrease our profitability.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risks

  Rite Aid's 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. The
company's major market risk exposure is changing interest rates. Increases in
interest rates would increase the company's interest expense. Since the end of
fiscal 1999, Rite Aid's primary risk exposure has not changed. The company
enters into debt obligations to support capital expenditures, acquisitions,
working capital needs and general corporate purposes. The company's 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 the Company's 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 26, 2000.

<TABLE>
<CAPTION>
                                                                                                 Fair Value
                                                                                                     at
                                                                                                February 26,
                          2001     2002       2003       2004     2005   Thereafter    Total        2000
                         -------  -------  ----------  --------  ------  ----------  ---------- ------------
                                                       (Debt in thousands of dollars)
<S>                      <C>      <C>      <C>         <C>       <C>     <C>         <C>        <C>          <C>
Long-term debt,
 including Current
 portion
  Fixed rate............ $76,086  $29,879  $1,121,490  $200,678  $2,289  $1,553,816  $2,984,238  $1,959,252
  Average Interest
   Rate.................    6.43%    6.77%       7.46%     6.01%  11.86%       7.00%
  Variable Rate.........      --       --   2,480,495        --      --          --   2,480,495   2,480,495
  Average Interest
   Rates................      --       --        9.38%       --      --          --
</TABLE>

  In June 2000, Rite Aid refinanced certain variable- and fixed-rate
obligations maturing in fiscal years 2001 and 2002 and entered into an
interest rate swap that fixes the LIBOR component of $500.0 million of Rite
Aid's variable-rate debt at 7.083% for a two year period. In July 2000, Rite
Aid entered into an additional interest rate swap that fixes the LIBOR
component of an additional $500.0 million of variable rate debt at 6.946% for
a two year period. As a result of these financing activities, Rite Aid's ratio
of variable rate exposure changed from 37.7% as of February 26, 2000 to 27.3%
as of July 10, 2000.

  Our ability to satisfy our 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

                                      33
<PAGE>

obligations on our outstanding indebtedness and if we cannot borrow or obtain
equity financing to satisfy those obligations, our business and results of
operations will be materially adversely affected. We cannot assure you that
any such borrowing or equity financing could be successfully completed.

  As of June 24, 2000, Rite Aid had three credit facilities: the new $1.0
billion senior secured credit facility entered into on June 14, 2000, and the
RCF credit facility and PCS credit facility. In addition, it had fixed-rate
obligations in the amount of $4.0 billion and exchange debt in the amount of
$274.8 million. In March 2000, all remaining commercial paper obligations were
repaid. The ratings on these credit facilities and obligations as of June 24,
2000 were as follows: the $1.0 billion RCF facility: B by Standard and Poor's
and B2 by Moody's; the $1 billion senior secured credit facility: BB- by
Standard & Poor's and Ba3 by Moody's; the $1.3 billion PCS facility: B by
Standard & Poor's and B2 by Moody's; the fixed-rate obligations: B- by
Standard & Poor's and Caa1 by Moody's; and the exchange debt is not rated yet.
The interest rates on the variable-rate borrowings are as follows: the $1.0
billion RCF revolving credit facility: LIBOR plus 3.75%, the $1.0 billion
senior secured credit facility: LIBOR plus 3.00%, and the $1.3 billion PCS
facility and the exchange debt: LIBOR plus 3.25%.

  Further downgrades of Rite Aid's credit ratings would not impact the rate on
the borrowings under the credit facilities. The interest rate on the RCF and
PCS credit facilities and the exchange debt is subject to a 0.50% per annum
increase if we have not received $500 million of net proceeds from asset sales
by November 1, 2000.

  Changes in one month LIBOR affect Rite Aid's cost of borrowings because the
interest rate on Rite Aid's variable-rate obligations is based on LIBOR. If
the market rates of interest for one month LIBOR change by 10% (approximately
60 basis points) as compared to the LIBOR rate of 5.91% and 6.65% as of
February 26, 2000 and June 24, 2000, respectively, Rite Aid's annual interest
expense would change by approximately $14.9 million and $16.1 million,
respectively, based upon Rite Aid's variable-rate debt outstanding of
approximately $2.5 billion and $2.7 billion as of February 26, 2000 and June
24, 2000, respectively.

  A change in interest rates generally does not impact 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 impacted by changes in interest rates. This
impact would be realized in the periods subsequent to the periods when the
debt matures.

ITEM 8. Financial Statements and Supplementary Data

  Rite Aid's Consolidated Financial Statements and notes thereto are included
elsewhere in this annual report on Form 10-K and incorporated herein by
reference. See Item 14 of Part IV.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

  On November 19, 1999, Rite Aid filed a Current Report on Form 8-K disclosing
the resignation of its former auditors, KPMG LLP and the withdrawal of their
report on the company's financial statements. On December 6, 1999, Rite Aid
amended the Form 8-K dated November 19, 1999 to file a letter by KPMG LLP
concerning the disclosure in the Form 8-K. On December 10, 1999, Rite Aid
filed a Current Report on Form 8-K to announce that it had retained Deloitte &
Touche LLP to audit and report on the Company's consolidated balance sheets as
of February 27, 1999 and February 28, 1998 and, the related consolidated
statements of income, stockholders equity, and cash flows for each of the
years in the three year period ended February 27, 1999. Deloitte & Touche LLP
would also audit the Company's consolidated financial statements for the
fiscal year ending February 20, 2000.

                                      34
<PAGE>

                                   PART III

ITEM 10. Directors and Executive Officers of Registrant

  The tables set forth below include certain information regarding Rite Aid's
directors and executive officers as of June 30, 2000.

  (a) Directors of Registrant

<TABLE>
<CAPTION>
   Name                      Age             Position with Rite Aid
   ----                      ---             ----------------------
<S>                          <C> <C>
Robert G. Miller............  56 Chairman and Chief Executive Officer
William J. Bratton..........  51 Director
Alfred M. Gleason...........  69 Director
Alex Grass..................  72 Director
Leonard I. Green............  66 Director
Nancy A. Lieberman..........  43 Director
Philip Neivert..............  73 Director
Mary F. Sammons.............  53 Director, President and Chief Operating Officer
Stuart M. Sloan.............  56 Director
Jonathan D. Sokoloff........  42 Director
Leonard N. Stern............  62 Director
Preston Robert Tisch........  73 Director
Gerald Tsai, Jr. ...........  70 Director
</TABLE>

  Robert G. Miller has been chairman and chief executive officer since
December 5, 1999. Previously, Mr. Miller served as vice chairman and chief
operating officer of The Kroger Company, a retail food company. Mr. Miller
joined Kroger in May 1999, when The Kroger Company acquired Fred Meyer, Inc.,
a food, drug and general merchandise chain. From 1991 until the acquisition,
he served as chief executive officer of Fred Meyer, Inc.

  William J. Bratton, is, and has been, a self-employed consultant since March
31, 2000. From January 1998 to March 2000, Mr. Bratton was president and chief
operating officer of Carco Group, Inc., a provider of employment background
screening services. From April 1996 through 1997, he was vice chairman of
First Security Services Corporation, and president of its subsidiary, First
Security Consulting, Inc. Mr. Bratton was Police Commissioner of the City of
New York from 1994 through April 1996. Mr. Bratton has been a member of Rite
Aid's board since July 1997.

  Alfred M. Gleason is currently a self-employed consultant. Mr. Gleason
served as the president of the Port of Portland Commission in Portland,
Oregon, from October 1995 until June 1999. From 1985 until 1995, Mr. Gleason
held several positions with PacifiCorp, including chief executive officer,
president and director. PacifiCorp is the parent company of Pacific Power &
Light, Utah Power & Light and Pacific Telecom, Inc. Mr. Gleason served as a
director of Fred Meyer, Inc. until June 1999. Mr. Gleason has been a member of
Rite Aid's board since January 20, 2000.

  Alex Grass is, and has been, the chief executive officer of Fleer/Skybox
International since February 1999. Mr. Grass is also the managing partner of
Oak Hall Industries, L.P., and Sera-Tec Biologicals L.P., positions he has
held since 1996 and 1995, respectively. Mr. Grass has been a member of Rite
Aid's board since the founding of the company in 1968.

  Leonard I. Green has been an executive officer of Leonard Green & Partners,
L.P., an affiliate of Green Equity Investors III, L.P., since its formation in
1994. Mr. Green has also been, individually or through a corporation, a
partner in a merchant banking firm affiliated with Leonard Green & Partners,
L.P., since its inception in 1989. Mr. Green is also a director of
Communications & Power Industries, Inc., Liberty Group

                                      35
<PAGE>

Publishing, Inc. and Dollar Financial Group, Inc. Mr. Green was elected as a
director pursuant to the October 1999 agreement of Green Equity Investors III,
L.P. to purchase 3,000,000 shares of preferred stock of Rite Aid. Mr. Green
has been a member of Rite Aid's board since October 1999.

  Nancy A. Lieberman has been a partner in the law firm of Skadden, Arps,
Slate, Meagher & Flom LLP since 1987. Skadden, Arps, Slate, Meagher & Flom LLP
provides legal services to Rite Aid. Ms. Lieberman has been a member of Rite
Aid's board since June 1996.

  Philip Neivert is a private investor whose operations are based in
Rochester, New York. Mr. Neivert has been a member of Rite Aid's board since
1969.

  Mary F. Sammons has been president and chief operating officer and a member
of Rite Aid's board since December 5, 1999. From April 1999 to December 1999,
Ms. Sammons served as president and chief executive officer of Fred Meyer
Stores, Inc., a subsidiary of The Kroger Company. From January 1998 to April
1999, Ms. Sammons served as president and chief executive officer of Fred
Meyer Stores, Inc., a subsidiary of Fred Meyer, Inc. From 1985 through 1997,
Ms. Sammons held several senior level positions with Fred Meyer Inc., the last
that of executive vice president. Ms. Sammons is also a director of
drugstore.com and of the National Association of Chain Drug Stores.

  Stuart M. Sloan has been a principal of Sloan Capital Companies, a private
investment company since 1984. Mr. Sloan was also the chairman of the board of
directors from 1986 to 1998 and the chief executive officer from 1991 to 1996
of Quality Food Centers, Inc., a supermarket chain. He currently serves on the
board of directors of Anixter International Corporation. Mr. Sloan was elected
to Rite Aid's board effective June 19, 2000.

  Jonathan D. Sokoloff has been an executive officer of Leonard Green &
Partners, L.P., an affiliate of Green Equity Investors III, L.P. since its
formation in 1994. Since 1990, Mr. Sokoloff has also been a partner in a
merchant banking firm affiliated with Leonard Green & Partners, L.P. Mr.
Sokoloff is also a director of Twinlab Corporation, Diamond Triumph Auto
Glass, Inc., Dollar Financial Group, Inc. and Gart Sports Company. Mr.
Sokoloff was elected as a director pursuant to the October 1999 agreement of
Green Equity Investors III, L.P. to purchase 3,000,000 shares of preferred
stock of Rite Aid. Mr. Sokoloff has been a member of Rite Aid's board since
October 1999.

  Leonard N. Stern is chairman of the board and chief executive officer of The
Hartz Group, Inc. and affiliated companies, a position he has held since 1970.
These companies are engaged in the businesses of the manufacture and sale of
pet supplies, ownership and operation of hotels, real estate development and
investing. Rite Aid purchases pet supplies from Hartz Mountain, Inc. Mr. Stern
is also a director of Homes for the Homeless, a nonprofit organization. Mr.
Stern has been a member of Rite Aid's board since 1986.

  Preston Robert Tisch has been co-chairman of Loews Corporation since
October 18, 1994. Loews Corporation is a holding company with interests
through its subsidiaries in selling insurance products, producing and selling
cigarettes, operating hotels, drilling for offshore oil and gas and
distributing watches and clocks. Mr. Tisch was co-chief executive officer of
Loews Corporation between October 18, 1994 and January 1, 1999. In addition,
since March 1991 he has been chairman of the board of the N.Y. Giants
Football, Inc. Rite Aid purchased tobacco products from Lorillard Tobacco
Company, an indirectly wholly-owned subsidiary of Loews Corporation, during
fiscal year 2000. Mr. Tisch is also a director of Loews Corporation, CNA
Financial Corporation, Bulova Corporation and Hasbro, Inc. Mr. Tisch has been
a member of Rite Aid's board since 1988.

  Gerald Tsai, Jr. is currently the chairman of Satmark Media Group, an ATM
advertising company. Previously, Mr. Tsai was a private investor. From
February 1993 to October 1997, Mr. Tsai was chairman and chief executive
officer of Delta Life Corporation. Mr. Tsai is also a director of Saks
Incorporated, Triarc Companies, Sequa Corporation, Zenith National Insurance
Corp., IP*Network and United Rentals, Inc. Mr. Tsai has been a member of Rite
Aid's board since 1987.

                                      36
<PAGE>

  (b) Executive Officers of Registrant

<TABLE>
<CAPTION>
   Name                  Age                      Position with Rite Aid
   ----                  ---                      ----------------------
<S>                      <C> <C>
Robert G. Miller*.......  56 Chairman and Chief Executive Officer
Mary F. Sammons*........  53 Director, President and Chief Operating Officer
David R. Jessick........  46 Senior Executive Vice President and Chief Administrative Officer
Elliot S. Gerson........  58 Senior Executive Vice President and General Counsel
John T. Standley........  37 Executive Vice President and Chief Financial Officer
James P. Mastrian.......  59 Executive Vice President--Marketing
Christopher Hall........  35 Senior Vice President and Chief Accounting Officer
</TABLE>
- --------
* Mr. Miller's and Ms. Sammons' backgrounds are set forth above under the
  caption "Directors of Registrant."

  David R. Jessick has been senior executive vice president and chief
administrative officer since December 5, 1999. From 1997 to July 1999, Mr.
Jessick served as executive vice president of finance and investor relations
of Fred Meyer, Inc. From 1979 to 1997, Mr. Jessick held several senior
management positions at Thrifty PayLess Holdings, Inc., a west coast-based
drugstore chain which had annual sales of $5.0 billion before being acquired
by Rite Aid in 1996. Mr. Jessick was executive vice president and chief
financial officer of Thrifty PayLess Holdings, Inc. before Thrifty PayLess was
acquired by Rite Aid.

  Elliot S. Gerson is senior executive vice president and general counsel of
Rite Aid. He has held those positions since October 1999 and July 1997,
respectively. Mr. Gerson also served as secretary from July 1997 to May 2000.
Mr.  Gerson joined Rite Aid in November 1995 as senior vice president and
assistant chief legal counsel. Prior to joining Rite Aid, Mr. Gerson was a
partner in the law firm of Bolger, Picker, Hankin & Tannenbaum from May 1993
to November 1995.

  John T. Standley has been executive vice president and chief financial
officer since December 5, 1999. Previously, he was executive vice president
and chief financial officer of Fleming Companies, Inc., a food marketing and
distribution company from May 1999 to December 1999. Between July 1998 and May
1999, Mr. Standley was senior vice president and chief financial officer of
Fred Meyer, Inc. Mr. Standley served as chief financial officer of Ralphs
Grocery Company between January 1997 and July 1998 and of Food 4 Less between
January 1997 to July 1998. Mr. Standley also served in an executive position
at Smith's Food & Drug from May 1996 to February of 1997 and as chief
financial officer of Smitty's Supervalue, Inc. from December 1994 to May 1996.

  James P. Mastrian has been executive vice president, marketing since
November 15, 1999. Mr. Mastrian was also executive vice president, category
management of Rite Aid from July 1998 to November 1999. Mr. Mastrian was
senior executive vice president, merchandising and marketing of OfficeMax from
June 1997 to July 1998 and executive vice president, marketing of Revco D.S.,
Inc. from September 1990 to June 1997.

  Christopher Hall has been senior vice president and chief accounting officer
since January 25, 2000. From April 1999 to January 2000. Mr. Hall was
executive vice president and chief financial officer at Golden State Foods.
Between July 1998 and March 1999, Mr. Hall served as senior vice president of
finance at Ralphs Grocery Company. Mr. Hall joined Ralphs Grocery as vice
president of accounting in June 1995.

  (c) Section 16(a) Beneficial Ownership Reporting Compliance

  Section 16(a) of the Exchange Act requires Rite Aid's executive officers,
directors and 10% stockholders to file reports of initial beneficial ownership
and reports of changes in beneficial ownership with the SEC and the New York
Stock Exchange. Such persons are required by SEC regulations to furnish the
company with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such forms furnished to Rite Aid, the company has
determined that during the fiscal year ended February 26, 2000, no persons
subject to Section 16(a) reporting submitted late filings under Section 16(a)
of the Exchange Act.


                                      37
<PAGE>

ITEM 11. Executive Compensation

                          Summary Compensation Table

  The following table provides a summary of compensation paid during the last
three fiscal years to Rite Aid's current chief executive officer, the former
chief executive officer who served in that position until October 18, 1999,
the former interim chief executive officer, the four most highly compensated
executive officers who were serving as executive officers at the end of fiscal
year 2000 and two executive officers who would have been among the four most
highly compensated executive officers if they had been employed by Rite Aid at
the end of fiscal year 2000:

<TABLE>
<CAPTION>
                                            Annual Compensation              Long-Term Compensation
                                    ----------------------------------- ----------------------------------------
                                                                                       Securities
                                                                        Restricted     Underlying
                             Fiscal                      Other Annual     Stock          Option          LTIP     All Other
Name and Principal Position   Year  Salary(4)  Bonus(1) Compensation(2)   Awards       Grants/SARs    Payouts(3) Compensation
- ---------------------------  ------ ---------- -------- --------------- ----------     -----------    ---------- ------------
<S>                          <C>    <C>        <C>      <C>             <C>            <C>            <C>        <C>
Robert G. Miller(5)..         2000  $  232,307    $          $          $4,950,000(6)   3,000,000        $--      $ 600,000(14)
 Chairman & Chief
 Executive Officer
Martin L. Grass(7)...         2000     807,870     --                                                     --
 Former Chairman &            1999   1,000,000     --          --              --       1,000,000(11)     --
 Former                       1998   1,000,000 898,000         --              --             --          --          2,000
 Chief Executive
 Officer

Timothy J.                    2000     702,542     --                                     300,000         --
 Noonan(8)...........         1999     700,000     --          --              --         650,000         --
 Former Interim Chief         1998     700,000 628,600         --              --             --          --          2,000
 Executive Officer,
 Former President &
 Former
 Chief Operating
 Officer
James P. Mastrian....         2000     425,000 125,000         --              --         600,000         --
 Executive Vice               1999     266,538 145,900         --              --                         --
 President--Marketing         1998         --      --          --              --                         --
Elliot S. Gerson.....         2000     408,393 100,000         --              --         770,000         --
 Senior Executive             1999     375,000     --          --              --                         --
 Vice President &             1998     330,000     --          --              --                         --
 General Counsel
Mary F. Sammons......         2000     203,076     --          --        1,650,000(12)  2,000,000         --        200,000(15)
 Director, President
 & Chief Operating
 Officer
David R. Jessick.....         2000     158,461     --          --          825,000(13)  1,000,000         --        150,000(16)
 Senior Executive
 Vice President &
 Chief Administrative
 Officer

Franklin C.                   2000     503,589     --          --              --       1,165,000         --
 Brown(9)............         1999     500,000     --          --              --         300,000         --
 Former Vice Chairman         1998     500,000 336,825         --              --             --          --          2,000

Beth J. Kaplan(10)...         2000     428,615 151,600         --              --             --          --
 Former Senior                1999     400,000 151,600         --              --         300,000(11)     --
 Executive                    1998     400,000 269,460         --              --             --          --
 Vice President--
 Marketing
</TABLE>
- --------
 (1) Represents annual performance bonuses determined by the Compensation
     Committee of the Board under the Annual Performance-Based Incentive
     Program. Bonuses for Martin Grass, Timothy Noonan, Franklin Brown and
     Beth Kaplan were paid in the fiscal year following the fiscal year in
     which they were earned.
 (2) Did not exceed, for each named officer, the lesser of $50,000 or 10% of
     such officer's total annual salary and bonus for such year.

                                      38
<PAGE>

 (3) Excludes payments purportedly owed for fiscal 1999 pursuant to Rite Aid's
     Long-Term Incentive Plan. The company's restatement of its financial
     statements for fiscal years 1998 and 1999, included in this report,
     suggests that the stock performance tied to such payments would never
     have been achieved had Rite Aid issued timely financial statements for
     fiscal years 1998 and 1999 that complied with generally accepted
     accounting principles. Therefore, any payments purportedly owed pursuant
     to the Long-Term Incentive Plan would never have been earned and were not
     made. Ms. Kaplan has asserted that Rite Aid should have paid to her the
     amount owed under the Long-Term Incentive Plan based upon the company's
     actual stock performance.
 (4) Includes for Mr. Miller, Ms. Sammons and Mr. Jessick fiscal 2000: for Mr.
     Miller, amounts contributed by Rite Aid under the Supplemental Deferred
     Compensation Plan, a non-qualified plan under which the members of the
     new executive management receive fully vested contributions of deferred
     compensation each month; and for the other named executive officers,
     amounts contributed under the Rite Aid defined contribution plan.
 (5) Mr. Miller became chief executive officer of Rite Aid on December 5,
     1999.
 (6) Mr. Miller was awarded 600,000 shares of Rite Aid common stock on
     December 5, 1999, the effective date of his employment agreement with
     Rite Aid. The transfer of these shares is restricted. The restrictions on
     the restricted shares lapse in thirty-six equal monthly installments
     commencing one month from the date of grant, unless accelerated under
     certain circumstances. Mr. Miller has the right to vote the shares of
     restricted stock and to receive any dividends paid on such shares. As of
     February 26, 2000, the restrictions on 33,333 shares had lapsed and the
     remaining 566,667 restricted shares had a market value of $4,108,335.
 (7) Mr. Grass resigned as chairman of the board and chief executive officer
     on October 18, 1999.
 (8) Mr. Noonan served as interim chief executive officer from October 18,
     1999 until December 5, 1999. Mr. Noonan also served as president and
     chief operating officer until December 5, 1999, and retired from Rite Aid
     on February 25, 2000.
 (9) Mr. Brown resigned as an employee on February 25, 2000 and as a member of
     the board on May 29, 2000.
(10) Ms. Kaplan resigned as senior executive vice president of marketing on
     November 15, 1999.
(11) The options for these shares expired 90 days after Mr. Grass and Ms.
     Kaplan ceased being employed with the company.
(12) On December 5, 1999, pursuant to her employment agreement with the
     company, Ms. Sammons was awarded 200,000 shares of restricted common
     stock of Rite Aid. The restrictions on those shares lapse in thirty-six
     equal monthly installments commencing one month from the date of grant,
     unless accelerated upon a change of control of the company. Ms. Sammons
     has the right to vote the restricted shares and to receive dividends paid
     on such shares. As of February 26, 2000, the restrictions on 11,110
     shares had lapsed and the remaining 188,890 shares had a market value of
     $1,369,452.
(13) On December 5, 1999, pursuant to his employment agreement with the
     company, Mr. Jessick was awarded 100,000 shares of restricted common
     stock of Rite Aid. The restrictions on those shares lapse in thirty-six
     equal monthly installments commencing one month from the date of grant,
     unless accelerated upon a change of control of the company. Mr. Jessick
     has the right to vote the restricted shares and to receive dividends paid
     on such shares. As of February 26, 2000, the restrictions on 5,555 shares
     had lapsed and the remaining 94,445 shares had a market value of
     $684,726.
(14) Represents a guaranteed bonus in the amount of $600,000 paid in April
     2000 in respect of calendar year 1999 to compensate Mr. Miller for lost
     bonus opportunities with his prior employer.
(15) Represents a guaranteed bonus in the amount of $200,000 paid in April
     2000 in respect of calendar year 1999 to compensate Ms. Sammons for lost
     bonus opportunities with her prior employer.
(16) Represents a guaranteed bonus in the amount of $150,000 paid in April
     2000 in respect of calendar year 1999.

                                      39
<PAGE>

                              Option Grant Table

  The following table sets forth certain information regarding options granted
during fiscal year 2000 to the persons named in the Summary Compensation
Table:

<TABLE>
<CAPTION>
                                               % of Total
                                                Options
                         Number of Securities  Granted to
                          Underlying Options  Employees in Exercise Expiration    Grant Date
Name                           Granted        Fiscal Year  Price(1)    Date    Present Value(2)
- ----                     -------------------- ------------ -------- ---------- ----------------
<S>                      <C>                  <C>          <C>      <C>        <C>
Robert G. Miller........      3,000,000           16.1%     $7.350   12/05/09    $11,155,200
James P. Mastrian.......         33,546            2.4%       8.00   01/17/10      2,450,021
                                266,454                      5.375   11/10/09
                                150,000                      24.25   06/04/09
Elliot S. Gerson........         26,278            2.9%       8.00   01/17/00      1,573,599
                                508,722                      5.375   11/10/09
Mary F. Sammons.........      2,000,000           10.7%       7.35   12/05/09      8,720,000
David R. Jessick........      1,000,000            5.4%       7.35   12/05/09      4,360,000
Martin L. Grass.........            --             --          --         --             --
Timothy J. Noonan.......        300,000            1.6%      5.375   11/10/09        579,150
Franklin C. Brown.......      1,034,729            6.2%      5.375   11/10/09      2,931,050
                                130,271                      8.000   01/17/10        554,732
Beth J. Kaplan..........            --             --          --         --             --
</TABLE>

- --------
(1) Fair market value on the date of grant. Mr. Miller's option for 3,000,000
    shares, Ms. Sammons' option for 2,000,000 shares and Mr. Jessick's option
    for 1,000,000 shares vest in monthly installments over a 36 month period
    beginning on January 5, 2000. Mr. Mastrian's options vest as follows: An
    option for 150,000 shares granted on July 6, 1998; an option for 150,000
    shares granted on June 4, 1999; an option for 266,454 shares granted on
    November 10, 1999; and an option for 33,546 shares granted on January 17,
    2000, all of which vest in equal amounts beginning on the first
    anniversary of the grant over a four-year period. Mr. Gerson's options
    vest as follows: (i) An option for 100,000 shares granted on November 1,
    1995; an option for 30,000 shares granted on October 16, 1996; an option
    for 208,722 shares granted on November 10, 1999; and an option for 26,278
    shares granted on January 17, 2000, all of which vest in equal amounts
    beginning on the first anniversary of the grant over a four-year period.
    (ii) An option for 30,000 shares granted on October 30, 1996, which shall
    vest in full on October 30, 2001, or earlier, provided the following
    conditions are met: (a) at such time Rite Aid common stock trades at an
    average trading price of $60 per share for 30 consecutive trading days, or
    (b) prior thereto in 1/3 increments when the stock price averages $45,
    $50, and $55 per share for 30 consecutive trading days. (iii) An option
    for 75,000 shares granted on May 12, 1998, of which 50% shall vest on May
    12, 2000 and the remaining 50% on May 12, 2002. (iv) An option for 300,000
    shares granted on November 10, 1999, which vested immediately upon the
    grant date. Mr. Noonan's option grant to purchase up to 300,000 shares of
    Rite Aid common stock vested in its entirety on November 10, 1999, the
    date of grant. Mr. Brown's option grants to purchase up to 1,034,729
    shares of Rite Aid common stock vest as follows: 25% vests on November 10,
    2000; 25% vests on November 10, 2001; 25% vests on November 10, 2002; and
    25% vests on 11/10/2003. Mr. Brown's option grant to purchase up to
    130,271 shares of Rite Aid common stock vests as follows: 25% vests on
    January 17, 2001; 25% vests on January 17, 2002; 25% vests on January 17,
    2003; and 25% vests on January 17, 2004.
(2) The hypothetical present values on the grant date were calculated under
    the Black-Scholes option pricing model which is a mathematical formula
    used to value options traded on stock exchanges. The formula considers a
    number of assumptions in hypothesizing an option's present value.
    Assumptions used to value the options include the stock's expected
    volatility rate of 57.95%, projected dividend yield of 0%, a risk-free
    rate of return ranging from 6.115% to 6.597% and projected time of
    exercise ranging from 3 to 6 years. The ultimate realizable value of an
    option will depend on the actual market value of the company's common
    stock on the date of exercise as compared to the exercise price of the
    option. Consequently, there is no assurance that the hypothetical present
    value of the stock options reflected in this table will be realized.

                                      40
<PAGE>

                   Option Exercises and Year-End Value Table

  The following table summarizes the value at February 26, 2000 of all shares
subject to options granted to the persons named in the Summary Compensation
Table. No options were exercised during fiscal 2000.

<TABLE>
<CAPTION>
                                                     Number of Securities            Value of
                                                    Underlying Unexercised     In-the-Money Options
                            Shares                  Options at Year-End (#)     at Year-End ($)(1)
                         Acquired on     Value     ------------------------- -------------------------
Name                     Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ----                     ------------ ------------ ----------- ------------- ----------- -------------
<S>                      <C>          <C>          <C>         <C>           <C>         <C>
Robert G. Miller........       0          $ 0        166,666     2,833,334     $     0      $     0
James P. Mastrian.......       0            0         37,500       562,500           0      499,601
Elliot S. Gerson........       0            0        452,500       317,500     562,500      391,353
Mary F. Sammons.........       0            0        111,110     1,888,890           0            0
David P. Jessick........       0            0         55,555       944,445           0            0
Martin L. Grass.........       0            0              0             0           0            0
Timothy J. Noonan.......       0            0        625,000       325,000     562,500            0
Franklin C. Brown.......       0            0        150,000     1,315,000           0            0
Beth J. Kaplan..........       0            0              0             0           0            0
</TABLE>
- --------
(1) "In-the-Money" options are options whose base (or exercise) price was less
    than the market price of the common stock on February 26, 2000. The value
    of such options is calculated assuming a stock price of $7.25, which was
    the closing price of the common stock on the New York Stock Exchange on
    February 25, 2000.

The Executive Retirement Plans

  Rite Aid has established the Deferred Compensation Program to provide
retirement benefits to long-term employees who hold a position of vice
president or higher and to select executives who may, pursuant to their
employment agreements, be deemed to be long term employees. Participants
generally are entitled to receive benefits upon retirement after age 65 or
upon death, in which case any length of service requirement is disregarded.
Generally, eligible participants receive an annual benefit, payable monthly
over 15 years, equal to a percentage, ranging from 40% to 60%, of the average
of the highest base annual salaries received over a specified period for each
participant during the ten-year period prior to the date of the event giving
rise to payment of the benefit. The program provides that benefits will not be
paid to employees who terminate employment for any reason other than
retirement, disability or death. Additionally, if, during the time a benefit
is being paid to a former employee, it is determined that the former employee
committed an act that could have resulted in a good cause discharge, the
company will cease paying benefits to the former employee. The retirement
benefit is payable to the executive officers named in the Summary Compensation
Table and, in addition to salary, their benefits are based also on the annual
bonuses they receive. The percentage of the average annual compensation
payable under the program to each of the persons named in the Summary
Compensation Table above is 60%.

Directors' Fees

  In fiscal 2000, Rite Aid's non-employee directors received no compensation.
In fiscal 1999, each of Rite Aid's non-employee directors was granted a
restricted stock award of 2,000 shares of common stock. The award lapses if a
director fails to complete the term for which he or she was elected for any
reason other than death or disability. Directors who are officers and full-
time employees of Rite Aid receive no separate compensation for service as
directors or committee members. Directors are reimbursed for travel and
lodging expenses associated with attending Board meetings.

Employment and Employment-Related Agreements

   On December 5, 1999, Rite Aid entered into employment agreements with the
executive members of the new management team, which include Robert G. Miller,
Mary F. Sammons and David R. Jessick (the "Executives"). Their employment
agreements provide that each Executive's employment with Rite Aid shall
commence on December 5, 1999 and terminate on December 5, 2002 (the
"Employment Period"), but will automatically renew for an additional year on
each anniversary of the effective date of the agreement (a "Renewal Date")
unless either the Executive or Rite Aid provides the other with notice of non-
renewal at least 180 days prior to a Renewal Date, or the agreement is
otherwise terminated.

                                      41
<PAGE>

   Pursuant to their December 5, 1999 individual agreements, Mr. Miller was
appointed chief executive officer and elected as chairman of the board of
directors of Rite Aid. Ms. Sammons was appointed president and chief operating
officer and as a member of Rite Aid's board. Mr. Jessick was appointed senior
executive vice president and chief administrative officer.

  The respective agreements provide each Executive with a base salary and
incentive compensation, including:

     (i) Mr. Miller receives an annual base salary of $1,250,000. To
  compensate Mr. Miller for a lost bonus opportunity, Mr. Miller received a
  $600,000 bonus, and he has the opportunity to receive a bonus that shall
  equal or exceed his annual base salary then in effect if Rite Aid's
  performance meets certain target goals based on the business plan developed
  by the Executives and the Rite Aid board (the "targets").

     (ii) Ms. Sammons receives an annual base salary of $750,000. She
  received a bonus of $200,000 as compensation for lost bonus opportunities
  with her former employer, and may, if Rite Aid's performance meets the
  targets, also receive a target bonus that, if paid, will equal or exceed
  75% of her annual base salary then in effect.

     (iii) Mr. Jessick's annual base salary is $600,000. He was awarded a
  bonus of $150,000 pursuant to his employment agreement. If Rite Aid's
  performance meets the targets, Mr. Jessick will be paid a bonus that will
  equal or exceed 60% of his annual base salary then in effect.

  In addition to the base salary and bonus provisions of the Executives'
employment agreements, Rite Aid established the Special Deferred Compensation
Plan (the "New Plan") for the benefit of select members of its management
team, including Mr. Miller, Ms. Sammons and Mr. Jessick. Under the New Plan,
Rite Aid credits a specific sum to individual accounts established for each of
Mr. Miller, Ms. Sammons and Mr. Jessick. The sums are credited on the first
day of each month during the term of the Executives' Employment Period with
Rite Aid. Each of the Executives is fully vested, at all times, in his or her
account balance. Each month, $20,000 is credited to Mr. Miller's account,
$15,000 is credited to Ms. Sammons' account and $10,000 is credited to Mr.
Jessick's account. Under the New Plan, the Executives will be able to direct
the investment of the amounts credited to their individual accounts by
selecting one or more investment vehicles from a group of "measurement funds"
(meaning mutual fund sub accounts) offered pursuant to the New Plan. The
Executives are currently exploring with Rite Aid which investment vehicles
should be offered under the New Plan. Additionally, although the amounts
credited to their accounts are always fully vested, Mr. Miller, Ms. Sammons
and Mr. Jessick generally may not receive payments from their accounts until
three years after an election to receive a payment.

  Pursuant to their employment agreements, each of Mr. Miller, Ms. Sammons and
Mr. Jessick are also entitled to participate in Rite Aid's fringe benefit and
perquisite programs and savings plans. Benefits provided to each Executive
include receipt of benefits under all applicable welfare benefit plans,
practices, policies and programs of Rite Aid, an annual allowance of $10,000
for financial and tax planning advice, a monthly car allowance of $1,500, use
of Rite Aid's aircraft for business travel, reimbursement for country club
dues, term life and disability insurance and five weeks of vacation.

  On December 5, 1999, Mr. Miller, Ms. Sammons, and Mr. Jessick also received,
pursuant to their employment agreements and individual stock option
agreements, awards of Rite Aid restricted common stock and were granted
options to purchase additional Rite Aid common stock. Mr. Miller was granted
an option to purchase 3,000,000 shares of common stock and was awarded 600,000
shares of restricted common stock. Ms. Sammons was granted an option to
purchase 2,000,000 shares of common stock and was awarded 200,000 shares of
restricted common stock. Mr. Jessick was granted an option to purchase
1,000,000 shares of common stock and was awarded 100,000 shares of restricted
common stock. All of the options granted and restricted common stock awarded
to each of Mr. Miller, Ms. Sammons and Mr. Jessick vest in thirty-six equal
monthly installments commencing one month after December 5, 1999. Upon a
"change in control" (as defined below and in the stock option agreements) of
Rite Aid, however, all of the options vest immediately and become fully
exercisable and the restrictions on the restricted common stock will lapse in
full.

                                      42
<PAGE>

  Pursuant to the grant of stock options and the award of restricted common
stock to each of Mr. Miller, Ms. Sammons and Mr. Jessick, Rite Aid is required
to register, under the Securities Act of 1933, as amended, and under all
applicable state securities laws, all of the options (and all of the common
stock issuable upon exercise of the options) granted to each Executive, as
well as all of the shares of restricted common stock awarded to each
Executive, under his or her employment agreement. Rite Aid is required to
effect this registration as soon as practicable, and to maintain the
effectiveness of such registration until the restricted shares of common stock
and the shares of common stock issuable upon exercise of the options are
freely transferable.

  Mr. Miller's employment agreement provides for him to be based in Portland,
Oregon and that he be provided, for the convenience of Rite Aid, with an
apartment in the vicinity of Rite Aid's corporate headquarters in the
Harrisburg, Pennsylvania area. Ms. Sammons' employment agreement required her
to relocate to the Harrisburg, Pennsylvania area. In connection with her
relocation, Rite Aid paid $12,440 in relocation expenses and paid closing
costs of $11,167.

  Pursuant to his employment agreement, Mr. Miller is entitled to recommend
two persons to serve on the board of directors of Rite Aid. Mr. Miller has
made two board recommendations to date and as a result, Alfred Gleason and
Stuart Sloan were elected to the board in January 2000 and June 2000,
respectively.

  Pursuant to their employment agreements, Rite Aid has agreed to indemnify
each of Mr. Miller, Ms. Sammons and Mr. Jessick against any claim, loss, cost
or similar expense relating to their employment with Rite Aid. Rite Aid has
also agreed to maintain directors' and officers' liability insurance policies
for each of the Executives for a period of six years following the termination
of their employment with Rite Aid.

  Upon written notice, the employment agreements of each of Mr. Miller, Ms.
Sammons and Mr. Jessick are terminable by either Rite Aid or the individual
Executive seeking termination. If the termination is by Rite Aid "without
cause" (as defined in the employment agreements of the Executives) or by an
Executive for "good reason" (as defined in the employment agreements of the
Executives), then each of Mr. Miller, Ms. Sammons and Mr. Jessick shall
receive an amount equal to three times the sum of the individual Executive's
annual base salary and target bonus plus any accrued but unpaid salary and
bonus, with the maximum bonus that the Executive is eligible to earn being
pro-rated through the date of termination. Each Executive shall be entitled to
receive the deferred compensation amounts which would otherwise have been
credited to the Executive pursuant to the New Plan had the Executive continued
employment with Rite Aid through the end of the then-remaining Employment
Period and such amounts sufficient to pay for three years of medical coverage
following the date of termination. In addition, all of the Executive's stock
options will immediately vest and be exercisable for the remainder of their
stated terms, the restrictions on the restricted common stock will immediately
lapse and any performance or other conditions applicable to any other equity
incentive awards will be considered to have been satisfied.

  If Rite Aid terminates any of the Executives "for cause" (as defined in the
employment agreements), Rite Aid shall pay him or her all accrued benefits
within ten days after the date of termination and terminate any portion of any
then-outstanding stock option grant that was not exercised prior to the date
of termination, and any portion of any restricted stock award, or other equity
incentive award, to which the restrictions have not lapsed or as to which any
other conditions were not satisfied prior to the date of termination. Under
the agreement, any termination of employment by an Executive within the six
month period commencing on the date of a change in control of Rite Aid will be
treated as a termination of employment by the Executive for "good reason."
Each employment agreement also provides for certain benefits upon termination
of the Executive by reason of death or disability, by Rite Aid "for cause" or
by the Executive other than for good reason. The employment agreements of each
Executive prohibit the Executive from competing with Rite Aid during his or
her Employment Period and for a period of one year thereafter.

  As defined in the individual stock option and stock award agreements of each
of Mr. Miller, Ms. Sammons, and Mr. Jessick, the term "change in control"
means the occurrence of any one of the following events:

     (i) the acquisition by any person or persons of beneficial ownership of
  25% or more of Rite Aid's then-outstanding voting shares;

                                      43
<PAGE>

     (ii) the change in composition of the board of directors resulting in a
  majority of the directors being directors for less than two years, unless
  the election of each such director was approved by two-thirds of the
  directors who were directors at the beginning of such two-year period;

     (iii) the approval by stockholders of a merger or consolidation
  resulting in Rite Aid's stockholders holding less than 60% of the voting
  shares of the surviving entity; and

     (iv) the approval by stockholders of a plan of liquidation or
  dissolution of Rite Aid, or the sale or disposition to an entity where less
  than 60% of the combined voting shares of Rite Aid do not hold
  substantially the same interests in the other entity.

  Elliot S. Gerson and James P. Mastrian are employed with Rite Aid at will.

  Arrangement with Franklin C. Brown. In recognition of Mr. Brown's employment
with Rite Aid, by agreement dated October 23, 1996, Rite Aid entered into an
Amended and Restated Deferred Compensation Agreement with Franklin C. Brown.
This agreement provides Mr. Brown with retirement benefits that differ from
the retirement benefits provided to other executive officers pursuant to
standard deferred compensation agreements and also provides Mr. Brown with
benefits upon a change in control (as defined hereafter) of Rite Aid. The
agreement provides that upon termination of Mr. Brown's employment with the
company for any reason, he will receive on an annual basis 60% of the sum of
his highest base salary plus the highest bonus that he received over the past
four years, with payment beginning on the first month after Mr. Brown's
termination and continuing through the later of the death of Mr. Brown or 240
months after termination. Upon a "change of control" (as defined in the
agreement) of Rite Aid after the date Mr. Brown's employment agreement
terminates, remaining retirement payments, discounted to present value, may
become immediately due and payable. The agreement also provides that Mr. Brown
will receive life insurance coverage for the rest of his life. All unvested
options held by Mr. Brown terminated upon termination of his employment.

  Employment Agreement of Beth Kaplan. On August 14, 1996, Rite Aid entered
into an employment agreement with Beth Kaplan which commenced on September 9,
1996 and was to terminate on February 27, 1999, providing for her employment
as Executive Vice President--Marketing. Rite Aid takes the position that Ms.
Kaplan's agreement expired on February 27, 1999 pursuant to its terms and was
never renewed, but Ms. Kaplan has asserted that the agreement was effectively
renewed. The agreement provided for a minimum annual base salary of $400,000
and an initial target bonus of 45% of Ms. Kaplan's base salary. Pursuant to
the agreement, Rite Aid also loaned to Ms. Kaplan $1,900,000 on August 28,
1996 for the purpose of allowing Ms. Kaplan to exercise her option to purchase
shares of the capital stock of The Procter & Gamble Co. The amount loaned is
due and payable on August 14, 2000 and bears interest, compounded annually,
from the date advanced at the prime rate of interest announced by Morgan
Guaranty Trust Company of New York from time to time. The employment agreement
also provides that Ms. Kaplan would have received up to 93,029 shares of Rite
Aid's common stock (or their equivalent in cash if the shares are freely
transferable) within 90 days of the end of fiscal 1999 if the increase in the
company's annual earnings per share for fiscal years 1996 through 1999
averaged at least 8% per annum more than the company's earnings per share in
the fiscal year ended March 4, 1995. Ms. Kaplan, pursuant to the employment
agreement, was granted on the date of employment an option to purchase 32,000
shares of the company's common stock, at a price equal to $16.38. The options
were to be exercisable for 10 years from the date of grant in cumulative
annual installments of 25% commencing one year from the date of grant. The
agreement entitled Ms. Kaplan to participate in Rite Aid's Deferred
Compensation Program. The agreement also provided for certain executive
perquisites, such as a new automobile and driver and all related insurance
coverage and, from time to time, use of the corporate jet for business
purposes.

  Ms. Kaplan's employment agreement provides that upon a termination for any
reason or an expiration pursuant to its terms, Ms. Kaplan would be entitled to
all salary due up to the termination or expiration date, any unpaid bonus or
incentive compensation pro-rated up until the date of termination or
expiration, expense reimbursements due and owing to Ms. Kaplan and payment for
accrued vacation as of the termination or expiration date. Ms. Kaplan would
also receive payment of health and medical benefits and life insurance

                                      44
<PAGE>

premiums consistent with the company's prior practice. If Ms. Kaplan's
employment agreement expired pursuant to its terms, Ms. Kaplan would receive
payment pursuant to the Long-Term Incentive Plan of all the shares of common
stock (or the equivalent value if such shares are freely transferable) to
which she was then entitled and all right to the option subject to the terms
of the stock option plan. If Ms. Kaplan was terminated without "cause" (as
defined in the agreement), her option would be deemed fully vested and
exercisable for a period of five years following such termination. The
agreement also prohibited Ms. Kaplan from competing with the company during
the term of her employment and prohibits her from such competition with the
company for a period of one year thereafter.

  Severance Agreement of Timothy J. Noonan. On February 25, 2000, Rite Aid
entered into an Executive Separation Agreement and General Release with
Timothy J. Noonan providing for Mr. Noonan's voluntary resignation from Rite
Aid. The agreement provides Mr. Noonan with severance benefits commencing
February 25, 2000 and ending on February 28, 2002, consisting of an amount
each year equal to his then effective annual base salary, medical benefits,
benefits under the Deferred Compensation Program and other benefits. The
agreement also provided for the termination as of February 25, 2000 of all of
Mr. Noonan's stock options which were then unvested, except for option grants
made on May 12, 1998 relating to the right to later purchase 650,000 shares of
Rite Aid's common stock at a price of $30.75 per share and on November 10,
1999 relating to the right to purchase 300,000 shares of Rite Aid's common
stock at a price of $5.375 per share. The May 12, 1998 grant of options to
purchase 650,000 shares of the company's common stock will continue to vest
and become exercisable in accordance with its terms through the end of the
severance period, whereas any option that vests before the end of the
severance period shall remain exercisable through the later of (i) February
28, 2002 and (ii) 90 days after the date on which the company is first able to
register under the Securities Act shares issuable upon exercise of the option,
but in no event later than the tenth anniversary of the date of grant. Rite
Aid will also provide Mr. Noonan continued medical coverage during the
severance period, applicable employee benefits as of February 25, 2000, and
with customary indemnification and continued insurance with respect to matters
relating to his services as an executive officer of the company.


                                      45
<PAGE>

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Executive Officers and Directors
  The following table sets forth certain information regarding the beneficial
ownership of the outstanding shares of common stock as of June 30, 2000, by
the persons named in the Summary Compensation Table, Rite Aid's directors and
all directors and current executive officers as a group. Each stockholder
possesses sole voting and investment power with respect to the shares listed,
unless otherwise noted:
<TABLE>
<CAPTION>
                                                Number of Shares
                                                 of Common Stock    Percentage
Name                                          Beneficially Owned(1)  of Class
- ----                                          --------------------- ----------
<S>                                           <C>                   <C>
Robert G. Miller.............................       1,984,942(2)        *
William J. Bratton...........................           3,900(3)        *
Elliot S. Gerson.............................         490,000           *
Alfred M. Gleason............................          70,200(4)        *
Alex Grass...................................       2,777,129(5)        *
Leonard I. Green.............................      58,561,789(6)       14.7%
David R. Jessick.............................          36,574           *
Nancy A. Lieberman...........................           7,000(7)        *
James P. Mastrian............................          75,000           *
Philip Neivert...............................       2,869,506(8)        *
Mary F. Sammons..............................       1,316,857(9)        *
Stuart M. Sloan..............................              --           --
Jonathan D. Sokoloff.........................      57,254,527(10)      14.6
Leonard N. Stern.............................          40,000(11)       *
Preston Robert Tisch.........................          10,000(12)       *
Gerald Tsai, Jr..............................           4,000(13)       *
Martin L. Grass..............................       1,148,102(14)       *
Timothy J. Noonan............................         715,959(15)       *
Franklin C. Brown............................       2,725,301(16)       *
Beth J. Kaplan...............................             363           *
Ellioit S. Gerson............................         494,000
David R. Jessick.............................         706,922
James P. Mastrian............................         112,500
All current executive officers and directors
 (23 persons)................................      74,398,786          18.6
</TABLE>
- --------
 (1) Beneficial ownership has been determined in accordance with Rule 13d-3
     under the Securities Exchange Act of 1934, as amended (the "Exchange
     Act"), including options exercisable within 60 days of June 30, 2000.
 (2) This amount includes 774,942 shares of Rite Aid common stock which may be
     acquired beneficially within 60 days by exercising stock options and
     1,100,000 of restricted shares of Rite Aid common stock.
 (3) This amount includes 4,000 restricted shares of Rite Aid common stock and
     400 shares of Rite Aid common stock owned by Mr. Bratton's wife.
 (4) This amount includes 6,000 shares of Rite Aid common stock owned by Mr.
     Gleason's wife.
 (5) This amount includes 137,904 shares of Rite Aid common stock owned by the
     Grass Family Foundation of which Alex Grass is a director, 90,982 shares
     of Rite Aid common stock held in trust for the benefit of Martin L. Grass
     and of which Alex Grass is a trustee, 370,568 shares of Rite Aid common
     stock held in trust for the benefit of Lois Grass and of which trust Alex
     Grass is an alternate trustee, and 1,600,000 shares of Rite Aid common
     stock which may be acquired beneficially within 60 days by exercising
     stock options.
 (6) This amount includes 57,571,389 shares of Rite Aid common stock
     beneficially owned by Green Equity Investors III, L.P., which is
     affiliated with Leonard Green & Partners, L.P., of which Mr. Green is an
     executive officer and equity owner, and 990,000 shares of Rite Aid common
     stock owned by Verdi Group, Inc., over which Mr. Green has beneficial
     ownership and 4,000 restricted shares of Rite Aid common stock.
 (7) This amount includes 4,000 restricted shares of Rite Aid common stock.
 (8) This amount includes 712,778 shares of Rite Aid common stock owned by Mr.
     Neivert's wife. Mr. Neivert disclaims beneficial ownership of these
     shares. This amount also includes 4,000 restricted shares of Rite Aid
     common stock.
 (9) This amount includes 516,857 shares of Rite Aid common stock which may be
     acquired beneficially within 60 days by exercising stock options and
     766,667 shares of restricted shares of Rite Aid common stock.
(10) This amount consists of 56,749,091 shares of Rite Aid common stock
     beneficially owned by Green Equity Investors III, L.P., which is
     affiliated with Leonard Green & Partners, L.P., of which Mr. Sokoloff is
     an executive officer and equity owner.
(11) This amount includes 4,000 restricted shares of Rite Aid common stock.
(12) This amount includes 4,000 restricted shares of Rite Aid common stock.
(13) This amount includes 4,000 restricted shares of Rite Aid common stock.
(14) This amount includes 370,568 shares of Rite Aid common stock held in
     trust for the benefit of Lois Grass of which trust Martin Grass is a
     trustee.
(15) This amount includes 3,552 shares of Rite Aid common stock owned by Mr.
     Noonan's wife and daughter and 625,000 shares of Rite Aid common stock
     which may be acquired beneficially within 60 days by exercising stock
     options. Mr. Noonan disclaims beneficial ownership of these shares owned
     by his wife and daughter.
(16) This amount includes 383,360 shares of Rite Aid common stock owned by Mr.
     Brown's wife.
*Represents less than 1.0% of the outstanding shares as of June 30, 2000.


                                      46
<PAGE>

                        Certain Other Beneficial Owners

  The following table sets forth certain information regarding the holders of
shares of common stock known to Rite Aid to be the beneficial owners of more
than 5% of the outstanding common stock.

<TABLE>
<CAPTION>
                                                  Number of Shares    Percentage
                                                   of Common Stock        of
Name and Address of Beneficial Owners           Beneficially Owned(1)  Class(1)
- -------------------------------------           --------------------- ----------
<S>                                             <C>                   <C>
Green Equity Investors III, L.P. ..............     57,571,389(2)        14.7%
 11111 Santa Monica Boulevard
 Suite 2000
 Los Angeles, California 90025

J.P. Morgan & Co. Incorporated.................     39,380,992(3)        10.2%
 60 Wall Street
 New York, New York 10260

Janus Capital Corporation .....................     24,855,230(4)         6.4%
 100 Fillmore Street #300
 Denver, Colorado 80206
</TABLE>

- --------
(1) Based upon the number of shares outstanding as of June 30, 2000.
(2) Green Equity Investors III, L.P. beneficially owns 57,571,389 shares of
    Rite Aid common stock. This number represents the number of shares
    issuable within 60 days of June 30, 2000 upon the conversion of
    convertible preferred stock.
(3) This amount, as reflected in a report on Schedule 13G dated June 26, 2000
    filed by J.P. Morgan & Co. Incorporated, consists of 39,380,992 shares of
    Rite Aid common stock, of which the reporting person claims sole
    dispositive power over 39,364,792 shares, shared dispositive power over
    13,600 shares, sole voting power over 39,379,392 shares and shared voting
    power over 1,600 shares. The report states that J.P. Morgan Ventures
    Corporation, a subsidiary of J.P. Morgan & Co. Incorporated is the
    beneficial owner of 39,136,363 of the shares.
(4) This amount, as reflected in a report on Schedule 13G dated February 15,
    2000, filed by Janus Capital Corporation, consists of 24,855,230 shares of
    Rite Aid common stock, of which the reporting person claims sole
    dispositive and voting power.

ITEM 13. Certain Relationships and Related Transactions

  Rite Aid leases 43,920 square feet of storage space in a warehouse in Camp
Hill, Pennsylvania, from a partnership in which Alex Grass, a director of Rite
Aid, has a 50% interest. Rent paid by the company under the lease during
fiscal year 2000 was $153,720 plus taxes, water and sewer. Rite Aid believes
that the terms of the lease are at least as favorable as those available from
unrelated third parties.

  On August 28, 1996, the company loaned $1.9 million to Beth J. Kaplan, who
was then the Senior Executive Vice President, Marketing. The loan bears
interest at the prime rate announced from time to time by Morgan Guaranty
Bank. The loan is payable in full on August 14, 2000, together with all
accrued interest. The loan was secured by a pledge of any shares of common
stock issuable upon exercise of options granted to Ms. Kaplan under Rite Aid's
1990 Omnibus Stock Incentive Plan. No shares were issued to Ms. Kaplan under
the Plan. At June 30, 2000, principal under the loan remained at $1.9 million.
Rite Aid has guaranteed loans of $2.5 million and $5.0 million made by a
third-party to Ms. Kaplan. Interest under the loans bear interest at LIBOR
plus 2.0%. Rite Aid purchased both third-party loans from the lender on June
30, 2000 and April 30, 2000, respectively.

  Commencing on January 8, 1999, Rite Aid leased a 10,750 square foot store in
Sinking Springs, Pennsylvania, from Martin L. Grass' brother-in-law, a full-
time real estate developer, at a rent of $17.50 per square foot. Total rent
under the lease paid by Rite Aid during fiscal year 2000 was $188,125. Rite
Aid believes that the terms of the lease are at least as favorable as those
available from unrelated third parties.

  Prior to his resignation on October 18, 1999, Martin L. Grass paid 51% of
the lease cost of a helicopter that Rite Aid leases. Prior to his resignation,
Mr. Grass was permitted unlimited personal use of the helicopter.


                                      47
<PAGE>

  On October 27, 1999, Rite Aid issued a warrant to J.P. Morgan Ventures
Corporation, a subsidiary of J.P. Morgan to purchase 2,500,000 shares of Rite
Aid common stock at an exercise price of $11.00 per share, subject to certain
adjustments. The warrant was issued in connection with the extension and
restructuring of Rite Aid's banking facilities. J.P. Morgan is one of Rite
Aid's lenders. In connection with the issuance of the warrant, J.P. Morgan and
Rite Aid entered into a Registration Rights Agreement (the "Agreement").
Pursuant to the terms of the Agreement, Rite Aid has agreed to register, under
certain circumstances, the Rite Aid common stock issuable upon exercise of the
warrant. Rite Aid will pay all expenses and fees related to any registration.
J.P. Morgan beneficially owns more than 5% of Rite Aid's common stock.

  In June 2000, J.P. Morgan and another financial institution agreed to
purchase $93.2 million of 10.5% senior secured notes due September 2002 when
the 5.5% notes mature in December 2000.

  In fiscal 2000, Rite Aid paid to J.P. Morgan fees and other amounts in
connection with the company's financing activities, including the refinancing
in October 1999, of $19.6 million. In fiscal 2001, Rite Aid has paid to J.P.
Morgan fees and other amounts in connection with the company's financing
activities, including the refinancing in June 2000, of $8.5 million and
anticipates paying J. P. Morgan fees and other amounts in connection with
financing activities, including the refinancing in June 2000, of $20.5
million.

  On October 27, 1999, Green Equity Investors III, L.P., ("GEI") an affiliate
of Leonard Green & Partners, L.P., purchased 3,000,000 shares of series A
cumulative pay-in-kind preferred stock ("series A preferred stock") at $100
per share. GEI exchanged all 3,000,000 shares of its series A preferred stock
for 3,000,000 shares of series B cumulative pay-in-kind preferred stock
("series B preferred stock"). The series B preferred stock, when issued, was
convertible into shares of Rite Aid common stock at a conversion price of
$11.00 per share of common stock. The conversion price of the series B
preferred stock will be adjusted if Rite Aid issues common stock before
October 27, 2000 at a per share price that is less than the then current
conversion price of the series B preferred stock and in other circumstances.
In June 2000, in connection with the refinancing, Rite Aid issued common stock
at a per share price of $5.50. As a result of this issuance, the per share
conversion price for the series B preferred stock was adjusted to $5.50. At
June 30, 2000, after giving effect to the adjustment and the receipt of pay-
in-kind dividends, the series B preferred stock was convertible into
56,749,091 shares of Rite Aid common stock. Leonard I. Green and Jonathan D.
Sokoloff, members of Rite Aid's board of directors, are equity owners and
executive officers of Leonard Green & Partners, L.P., an affiliate of GEI.
Rite Aid paid Leonard Green & Partners a $3 million fee for service provided
in connection with its preferred stock investment in October, 1999 and
reimbursed $0.24 million of its out of pocket expenses. In June 2000, Rite Aid
paid a $3,000,000 fee for services provided in connection with the financial
restructuring transactions which Rite Aid completed and reimbursed its out of
pocket expenses. In October 1999, Rite Aid agreed to pay Leonard Green &
Partners an annual fee of $1 million for its consulting services. This fee was
increased to $1.5 million at the time of the June 2000 restructuring
transactions. The consulting agreement also provides for the reimbursement of
out-of-pocket expenses incurred by Leonard Green & Partners. Rite Aid has also
granted customary registration rights to GEI with respect to the Rite Aid
common stock issuable upon conversion of the series B preferred stock.

  The law firm of Skadden, Arps, Slate, Meagher & Flom providers legal
services to Rite Aid. Nancy Lieberman, a director of Rite Aid, is a partner of
that law firm. Fees paid by Rite Aid to Skadden, Arps Slate, Meagher & Flom
LLP did not exceed five percent of the law firm's gross revenues for its last
fiscal year.

                                      48
<PAGE>

                                    PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

  (a) The consolidated financial statements of the Company and reports of
independent accountants identified in the following index are incorporated by
reference into this report from the individual pages filed as a part of this
report:

  1.Financial Statements

    The following financial statements and report of independent auditors
    are included herein:

<TABLE>
     <S>                                                                    <C>
     Independent Auditors' Reports......................................... F-1
     Consolidated Balance Sheets as of February 26, 2000 and February 27,
      1999................................................................. F-3
     Consolidated Statements of Operations for the fiscal years ended
      February 26, 2000, February 27, 1999 and February 28, 1998........... F-4
     Consolidated Statements of Stockholders' Equity for the fiscal years
      ended February 26, 2000, February 27, 1999 and February 28, 1998..... F-5
     Consolidated Statements of Cash Flows for the fiscal years ended
      February 26, 2000, February 27, 1999 and February 28, 1998........... F-6
     Notes to Consolidated Financial Statements............................ F-7
</TABLE>

  2.Financial Statement Schedules

    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 of notes thereto.

  Financial statements of 50% or less owned companies have been omitted since
they do not constitute significant subsidiaries.

  3.Exhibits

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
   2     Not Applicable                                --

   3.1   Restated Certificate of Incorporation dated   Exhibit 3(i) to Form 8-K
         December 12, 1996                             filed on November 2,
                                                       1999
   3.2   Certificate of Amendment to the Restated      Exhibit 3(ii) to Form 8-
         Certificate of Incorporation dated October    K filed on November 2,
         25, 1999                                      1999

   3.3   By-laws                                       Exhibit 3(a) to Form S-1
                                                       Registration Statement
                                                       filed on April 26, 1968

   3.4   Amendments to By-laws approved April 6,       Exhibit 3 to Form 10-K
         1983                                          filed on May 29, 1983

   4.1   The rights of security holders of the
         registrant are defined by a) the Laws of
         the State of Delaware, b) the Certificate
         of Incorporation of registrant and c) the
         By-laws of registrant. The Certificate of
         Incorporation and By-laws of the registrant
         are hereby incorporated by reference in
         accordance with Exhibit 3 above.

</TABLE>


                                      49
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
   4.2   Term Loan Agreement, dated as of October      Exhibit 10.2 to Form 8-K
         27, 1999, by and among Rite Aid               filed on November 2,
         Corporation, the banks from time to time      1999
         parties thereto and Morgan Trust Company of
         New York, as Administrative Agent

   4.3   Amended and Restated Credit Agreement,        Exhibit 10.3 to Form 8-K
         dated as of October 27, 1999, by and among    filed on November 2,
         Rite Aid Corporation, the banks from time     1999
         to time parties thereto and Morgan Guaranty
         Trust company of New York, as Agent

   4.4   Pledge Agreement, dated as of October 25,     Exhibit 10.4 to Form 8-K
         1999, by and between Rite Aid Corporation     filed on November 2,
         and Morgan Guaranty Trust Company of New      1999
         York, as Agent

   4.5   PCS Junior Pledge Agreement, dated as of      Exhibit 10.5 to Form 8-K
         October 19, 1999, by and between Rite Aid     filed on November 2,
         Corporation and Morgan Guaranty Trust         1999
         Company of New York, as Agent

   4.6   Waiver dated as of January 11, 2000 to the    Exhibit 4.1 to Form 8-K
         Amended and Restated Credit Agreement dated   filed on January 18,
         as of October 25, 1999 and amended as of      2000
         December 2, 1999 among Rite Aid Corporation
         the Banks party thereto and Morgan Trust
         Company of New York, as Agent

   4.7   Amendment dated as of December 2, 1999 to     Exhibit 4.2 to Form 8-K
         the Amended and Restated Credit Agreement     filed on January 18,
         dated as of October 25, 1999 among Rite Aid   2000
         Corporation, the Banks party thereto and
         Morgan Guaranty Trust Company of New York,
         as Agent

   4.8   Waiver dated as of January 11, 2000 to the    Exhibit 4.3 to Form 8-K
         Term Loan Agreement dated as of October 25,   filed on January 18,
         1999 among Rite Aid Corporation, the Banks    2000
         party thereto and Morgan Guaranty Trust
         Company of New York, as Administrative
         Agent

   4.9   Amendment dated as of December 2, 1999 to     Exhibit 4.4 to Form 8-K
         the Term Loan Agreement dated as of October   filed on January 18,
         25, 1999 among Rite Aid Corporation, the      2000
         Banks party thereto and Morgan Guaranty
         Trust Company of New York, as
         Administrative Agent

   4.10  Waiver dated as of January 11, 2000 to the    Exhibit 4.5 to Form 8-K
         Term Loan Agreement dated as of October 27,   filed on January 18,
         1999 among Rite Aid Corporation, the Banks    2000
         party thereto and Morgan Guaranty Trust
         Company of New York, as Administrative
         Agent

   4.11  Term Loan Agreement dated as of October 27,   Exhibit 4.6 to Form 8-K
         1999 among Rite Aid Corporation, the Banks    filed on January 18,
         party thereto and Morgan Guaranty Trust       2000
         Company of New York, as Administrative
         Agent

   4.12  Waiver dated as of January 11, 2000 to        Exhibit 4.7 to Form 8-K
         Guaranty dated as of March 19, 1998, as       filed on January 18,
         amended by Amendment No. 1, dated as of       2000
         June 22, 1998, and as further amended by
         Amendment No. 2, dated as of October 25,
         1999, and as further amended by Amendment
         No. 3, dated as of December 2, 1999 between
         Rite Aid Corporation and RAC Leasing LLC

</TABLE>


                                       50
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
   4.13  Amendment No. 3, dated as of December 23,     Exhibit 4.8 to Form 8-K
         1999 to Master Lease and Security             filed on January 18,
         Agreement, dated as of March 19, 1998, (as    2000
         amended by Amendment No. 1, dated as of
         June 22, 1998, and Amendment No. 2 dated as
         of October 25, 1999) between RAC Leasing
         LLC and Rite Aid Realty Corp.

   4.14  Amendment No. 3 dated as of December 2,       Exhibit 4.9 to Form 8-K
         1999 to Guaranty Dated as of March 19,        filed on January 18,
         1998, as amended by Amendment No. 1, Dated    2000
         as of June 22, 1998, and as further amended
         by Amendment No. 2, dated as of October 25,
         1999, from Rite Aid Corporation to RAC
         Leasing LLC

   4.15  Amendment No. 2 dated as of October 25,       Exhibit 4.10 to Form 8-K
         1999 to Guaranty dated March 19, 1998 (as     filed on January 18,
         amended by Amendment No. 1, dated as of       2000
         June 22, 1998) from Rite Aid Corporation to
         RAC Leasing LLC

   4.16  Amendment No. 1 dated as of June 22, 1998,    Exhibit 4.11 to Form 8-K
         to Guaranty dated March 19, 1998, from Rite   filed on January 18,
         Aid Corporation to RAC Leasing LLC            2000

   4.17  Amendment No. 2 dated as of October 25,       Exhibit 4.12 to Form 8-K
         1999 to Master Lease and Security             filed on January 18,
         Agreement, dated as of March 19, 1998 (as     2000
         amended by Amendment No. 1, dated as of
         June 22, 1998) between RAC Leasing LLC and
         Rite Aid Realty Corp.

   4.18  Amendment No. 1 dated as of June 22, 1998     Exhibit 4.13 to Form 8-K
         to Master Lease and Security Agreement,       filed on January 18,
         dated as of March 19, 1998 between RAC        2000
         Leasing LLC and Rite Aid Realty Corp.

   4.19  Guaranty, dated as of March 19, 1998, from    Exhibit 4.4 to Form 8-K
         Rite Aid Corporation to RAC Leasing LLC       filed on January 18,
                                                       2000

   4.20  Master Lease and Security Agreement, dated    Exhibit 4.15 to Form 8-K
         as of March 19, 1998, between RAC Leasing     filed on January 18,
         LLC and Rite Aid Realty Corp.                 2000

   4.21  Waiver dated as of January 11, 2000 to        Exhibit 4.16 to Form 8-K
         Guaranty dated as of May 30, 1997, as         filed on January 18,
         amended by Amendment No. 1, dated as of       2000
         October 25, 1999, and as further amended by
         Amendment No. 2, dated as of December 2,
         1999 between Rite Aid Corporation and
         Sumitomo Bank Leasing and Finance, Inc.

   4.22  Amendment No. 2 dated as of December 2,       Exhibit 4.17 to Form 8-K
         1999 to Guaranty dated as of May 30, 1997,    filed on January 18,
         as amended by Amendment No. 1, dated as of    2000
         October 25, 1999, from Rite Aid Corporation
         to Sumitomo Bank Leasing and Finance, Inc.

   4.23  Amendment No. 1 dated as of October 25,       Exhibit 4.18 to Form 8-K
         1999 to Guaranty dated as of May 30, 1997     filed on January 18,
         from Rite Aid Corporation to Sumitomo Bank    2000
         Leasing and Finance, Inc.
</TABLE>



                                       51
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
   4.24  Amendment No. 4, dated as of October 25,      Exhibit 4.19 to Form 8-K
         1999 to Master Lease and Security             filed on January 18,
         Agreement, dated as of May 30, 1997, as       2000
         amended by Amendment No. 1, dated as of
         March 11, 1998, and as further amended by
         Amendment No. 2, dated as of June 22, 1998,
         and as further amended by Amendment No. 3
         dated as of May 26, 1999 between Sumitomo
         Bank Leasing and Finance, Inc. and Rite Aid
         Realty Corp.

   4.25  Amendment No. 3, dated as of May 26, 1999,    Exhibit 4.20 to Form 8-K
         to Master Lease and Security Agreement,       filed on January 18,
         dated as of May 30, 1997, (as amended by      2000
         Amendment No. 1, dated as of March 11,
         1998, and as further amended by Amendment
         No. 2, dated as of June 22, 1998) between
         Sumitomo Bank Leasing and Finance, Inc. and
         Rite Aid Realty Corp.

   4.26  Amendment No. 2, dated as of June 22, 1998    Exhibit 4.21 to Form 8-K
         to Master Lease Security Agreement, dated     filed on January 18,
         as of May 30, 1997, as amended by Amendment   2000
         No. 1 to Master Lease and Security
         Agreement, dated as of March 11, 1998
         between Sumitomo Bank Leasing and Finance,
         Inc. and Rite Aid Realty Corp.

   4.27  Amendment No. 1, dated as of March 11, 1998   Exhibit 4.22 to Form 8-K
         to Master Lease and Security Agreement,       filed on January 18,
         dated as of May 30, 1997 between Sumitomo     2000
         Bank Leasing and Finance, Inc. and Rite Aid
         Realty Corp.

   4.28  Guaranty, dated as of May 30, 1997 from       Exhibit 4.23 to Form 8-K
         Rite Aid Corporation to Sumitomo Bank         filed on January 18,
         Leasing and Finance, Inc.                     2000

   4.29  Master Lease and Security Agreement, dated    Exhibit 4.24 to Form 8-K
         as of May 30, 1997, between Sumitomo Bank     filed on January 18,
         Leasing and Finance, Inc. and Rite Aid        2000
         Realty Corp.

   4.30  Waiver No. 1 dated as of January 10, 2000     Exhibit 4.25 to Form 8-K
         to Note Agreement dated as of September 30,   filed on January 18,
         1996 (as previously amended pursuant to       2000
         Amendment No. 1 dated as of October 25,
         1999 and Amendment No. 2 dated as of
         December 2, 1999) among Finco, Inc., Rite
         Aid Corporation, The Prudential Life
         Insurance Company of America and PruCo Life
         Insurance Company and Waiver No. 1 dated as
         of January 10, 2000 to Guaranty Agreement
         dated as of September 30, 1996 (as
         previously amended pursuant to Amendment
         No. 1 dated as of October 25, 1999 and
         Amendment No. 2 dated as of December 2,
         1999) among Finco, Inc., Rite Aid
         Corporation, The Prudential Life Insurance
         Company of America and PruCo Life Insurance
         Company
</TABLE>



                                       52
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
   4.31  Amendment No. 2 dated as of December 2,       Exhibit 4.26 to Form 8-K
         1999 to Note Agreement dated as of            filed on January 18,
         September 30, 1996 (as previously amended     2000
         pursuant to Amendment No. 1 dated as of
         October 25, 1999) among Finco, Inc., Rite
         Aid Corporation, The Prudential Insurance
         Company of America and PruCo Life Insurance
         Company and Amendment No. 2 dated as of
         December 2, 1999 to Guaranty Agreement
         dated as of September 30, 1996 (as
         previously amended pursuant to Amendment
         No. 1 dated as of October 25, 1999) among
         Finco, Inc., Rite Aid Corporation, The
         Prudential Insurance Company of America and
         PruCo Life Insurance Company

   4.32  Amendment No. 1 dated as of October 25,       Exhibit 4.27 to Form 8-K
         1999 to Note Agreement dated as of            filed on January 18,
         September 30, 1996 among Finco, Inc., Rite    2000
         Aid Corporation, The Prudential Insurance
         Company of America and PruCo Life Insurance
         Company and Amendment No. 1 dated as of
         October 25, 1999 to Guaranty Agreement
         dated as of September 30, 1996 among Finco,
         Inc., Rite Aid Corporation, The Prudential
         Insurance Company of America and PruCo Life
         Insurance Company

   4.33  Guaranty Agreement dated as of September      Exhibit 4.28 to Form 8-K
         30, 1996 from Rite Aid Corporation to the     filed on January 18,
         Prudential Insurance Company of America and   2000
         PruCo Life Insurance Company

   4.34  Note Agreement dated as of September 30,      Exhibit 4.29 to Form 8-K
         1996 among Finco, Inc., The Prudential        filed on January 18,
         Insurance Company of America and PruCo Life   2000
         Insurance Company

   4.35  Amended and Restated Receivables Purchase     Exhibit 4.30 to Form 8-K
         Agreement dated as of January 11, 2000        filed on January 18,
         among Rite Aid Funding LLC and Corporate      2000
         Asset Funding Company, Inc. and Corporate
         Receivables Corporation and Citibank, N.A.
         and Citicorp North American, Inc., as agent
         for the Investors and the Banks, and Rite
         Aid Corporation, as Collection Agent

   4.37  Supplemental Indenture, dated as of           Exhibit 4.2 to Form 8-K
         February 3, 2000, between Rite Aid            filed on February 7,
         Corporation and Harris Trust and Savings      2000
         Bank, to the Indenture dated September 10,
         1997, between Rite Aid Corporation and
         Harris Trust and Savings Bank

   4.38  Supplemental Indenture, dated as of           Exhibit 4.3 to Form 8-K
         February 3, 2000, between Rite Aid            filed on February 7,
         Corporation and Harris Trust and Savings      2000
         Bank, to the Indenture dated September 22,
         1998, between Rite Aid Corporation and
         Harris Trust and Savings Bank

   4.39  Supplemental Indenture, dated as of           Exhibit 4.4 to Form 8-K
         February 3, 2000, between Rite Aid            filed on February 7,
         Corporation and Harris Trust and Savings      2000
         Bank, to the Indenture dated December 21,
         1998, between Rite Aid Corporation and
         Harris Trust and Savings Bank

   4.40  Commitment Letter dated April 10, 2000        Exhibit 4.1 to Form 8-K
                                                       filed on April 11, 2000

</TABLE>


                                       53
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
   4.41  Indenture, dated as of June 14, 2000, among   Exhibit 4.1 to Form 8-K
         Rite Aid Corporation, as Issuer, each of      filed on June 21, 2000
         the Subsidiary Guarantors named therein and
         State Street Bank and Trust Company, as
         Trustee.

   4.42  Exchange and Registration Rights Agreement,   Exhibit 4.2 to Form 8-K
         dated as of June 14, 2000, by and among       filed on June 21, 2000
         Rite Aid Corporation, State Street Bank and
         Trust Company and the Holders of the 10.50%
         Senior Secured Notes due 2002.

   4.43  Registration Rights Agreement, dated as of    Exhibit 4.3 to Form 8-K
         June 14, 2000, by and among Rite Aid          filed on June 21, 2000
         Corporation and the Lenders listed therein.

   9     Not Applicable

  10.1   Agreement with McKesson Dated April 10,       Exhibit 10 to Form 10-Q
         1998                                          filed on July 2, 1998

  10.2   Salary Continuation Agreement with Key        Exhibit 10(iii) to Form
         Officers*                                     10-K filed on May 29,
                                                       1983

  10.3   1990 Omnibus Stock Incentive Plan, as         Exhibit 4 to Form S-8
         amended*                                      filed on July 12, 1996

  10.4   Annual Performance-Based Incentive Program*   Included in Proxy
                                                       Statement dated on June
                                                       7, 1995

  10.5   Deferred Compensation Agreement*              Exhibit 10(iii) to Form
                                                       10-K filed on May 31,
                                                       1996

  10.6   Registration Rights Agreement, dated as of    Exhibit 4.1 to Form 8-K
         October 27, 1999, by and between Rite Aid     filed on November 2,
         Corporation and Green Equity Investors III,   1999
         L.P.

  10.7   Registration Rights Agreement, dated as of    Exhibit 4.2 to Form 8-K
         October 27, 1999, by and between Rite Aid     filed on November 2,
         Corporation and J.P. Morgan Ventures          1999
         Corporation

  10.8   Warrant to purchase Common Stock, par value   Exhibit 4.3 to Form 8-K
         $1.00 per share, of Rite aid Corporation,     filed on November 2,
         dated October 27, 1999, issued to J.P.        1999.
         Morgan Ventures Corporation

  10.9   Commitment Letter, dated October 18, 1999,    Exhibit 10.1 to Form 8-K
         by and between Rite Aid Corporation and       filed on November 2,
         Green Equity Investors III, L.P.              1999

  10.10  Employment Agreement by and between Rite      Exhibit 10.1 to Form 8-K
         Aid Corporation and Robert G. Miller, dated   filed on January 18,
         as of December 5, 1999 *                      2000

  10.11  Rite Aid Corporation Restricted Stock and     Exhibit 4.31 to Form 8-K
         Stock Option Award Agreement, made as of      filed on January 18,
         December 5, 1999, by and between Rite Aid     2000
         Corporation and Robert G. Miller *

  10.12  Employment Agreement by and between Rite      Exhibit 10.2 to Form 8-K
         Aid Corporation and Mary F. Sammons, dated    filed on January 18,
         as of December 5, 1999 *                      2000

  10.13  Rite Aid Corporation Restricted Stock and     Exhibit 4.32 to Form 8-K
         Stock Option Award Agreement, made as of      filed on January 18,
         December 5, 1999, by and between Rite Aid     2000
         Corporation and Mary F. Sammons *

</TABLE>


                                       54
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
  10.14  Employment Agreement by and between Rite      Exhibit 10.3 to Form 8-K
         Aid Corporation and David R. Jessick, dated   filed on January 18,
         as of December 5, 1999 *                      2000

  10.15  Rite Aid Corporation Restricted Stock and     Exhibit 4.33 to Form 8-K
         Stock Option Award Agreement, made as of      filed on January 18,
         December 5, 1999, by and between Rite Aid     2000
         Corporation and David R. Jessick *

  10.16  Employment Agreement by and between Rite      Exhibit 10.4 to Form 8-K
         Aid Corporation and John T. Standley, dated   filed on January 18,
         as of December 5, 1999 *                      2000

  10.17  Rite Aid Corporation Restricted Stock and     Exhibit 4.34 to Form 8-K
         Stock Option Award Agreement, made as of      filed on January 18,
         December 5, 1999, by and between Rite Aid     2000
         Corporation and John T. Standley *

  10.18  Amended and Restated Deferred Compensation    Included herein
         Agreement by and between Rite Aid
         Corporation and Franklin C. Brown, dated as
         of October 23, 1996 *

  10.19  Employment Agreement by and between Rite      Included herein
         Aid Corporation and Beth Kaplan, dated as
         of August 14, 1996 *

  10.20  Intentionally Omitted

  10.21  Rite Aid Corporation Special Deferred         Included herein
         Compensation Plan *

  10.22  Senior Credit Agreement, dated as of June     Exhibit 10.1 to Form 8-K
         12, 2000, among Rite Aid Corporation, the     filed on June 21, 2000
         Banks party thereto, Citicorp USA, Inc., as
         Senior Administrative Agent, Citicorp USA,
         Inc., as Senior Collateral Agent, and
         Heller Financial, Inc. and Fleet Retail
         Finance Inc., as Syndication Agents.

  10.23  Collateral Trust and Intercreditor            Exhibit 10.2 to Form 8-K
         Agreement, dated as of June 12, 2000, among   filed on June 21, 2000
         Rite Aid Corporation, each Subsidiary
         Guarantor of Rite Aid Corporation listed
         therein, Wilmington Trust Company, Citcorp
         USA, Inc., Morgan Guaranty Trust Company of
         New York, The Prudential Insurance Company
         of America, State Street Bank and Trust
         Company and The Sumitomo Bank, Limited, New
         York Branch.

  10.24  Senior Subsidiary Security Agreement, dated   Exhibit 10.3 to Form 8-K
         as of June 12, 2000, made by the Subsidiary   filed June 21, 2000
         Guarantors identified therein and any other
         person that becomes a Subsidiary Guarantor
         pursuant to the Senior Credit Facility, in
         favor of Citicorp USA, Inc., as Senior
         Collateral Agent.

  10.25  Senior Subsidiary Guarantee Agreement,        Exhibit 10.4 to Form 8-K
         dated as of June 12, 2000, among each of      filed June 21, 2000
         the Subsidiary Guarantors of Rite Aid
         Corporation listed therein and Citicorp
         USA, Inc., as Senior Collateral Agent.

  10.26  Senior Indemnity, Subrogation and             Exhibit 10.5 to Form 8-K
         Contribution Agreement, dated as of June      filed June 21, 2000
         12, 2000, among Rite Aid Corporation, each
         of the Subsidiary Guarantors listed therein
         and Citicorp USA, Inc., as Senior
         Collateral Agent.

</TABLE>


                                       55
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
  10.27  RCF Facility, dated as of June 12, 2000,      Exhibit 10.6 to Form 8-K
         among Rite Aid Corporation, the Banks from    filed June 21, 2000
         time to time parties thereto and Morgan
         Guaranty Trust Company of New York, as
         Administrative Agent, with JP Morgan
         Securities Inc., as Lead Arranger and Book
         Runner.

  10.28  PCS Facility, dated as of June 12, 2000,      Exhibit 10.7 to Form 8-K
         among Rite Aid Corporation, the Banks from    filed June 21, 2000
         time to time parties thereto and Morgan
         Guaranty Trust Company of New York, as
         Administrative Agent, with JP Morgan
         Securities Inc., as Lead Arranger and Book
         Runner.

  10.29  Exchange Debt Facility, dated as of June      Exhibit 10.8 to Form 8-K
         12, 2000, among Rite Aid Corporation, the     filed June 21, 2000
         Banks from time to time parties thereto and
         Morgan Guaranty Trust Company of New York,
         as Administrative Agent, with JP Morgan
         Securities Inc., as Lead Arranger and Book
         Runner.

  10.30  Second Priority Subsidiary Guarantee          Exhibit 10.9 to Form 8-K
         Agreement, dated as of June 12, 2000, among   filed June 21, 2000
         each of the Subsidiary Guarantors of Rite
         Aid Corporation listed therein and
         Wilmington Trust Company, as Second
         Priority Collateral Trustee.

  10.31  Second Priority Subsidiary Security           Exhibit 10.10 to Form 8-
         Agreement, dated as of June 12, 2000, made    K filed June 21, 2000
         by the Subsidiary Guarantors identified
         therein and any other person that becomes a
         Subsidiary Guarantor pursuant to the Second
         Priority Debt Documents, in favor of
         Wilmington Trust Company, as Second
         Priority Collateral Trustee.

  10.32  Second Priority Indemnity, Subrogation and    Exhibit 10.11 to Form 8-
         Contribution Agreement, dated as of June      K filed June 21, 2000
         12, 2000, among Rite Aid Corporation, each
         Subsidiary Guarantor listed therein and
         Wilmington Trust Company, as Second
         Priority Collateral Trustee.

  10.33  First Priority Subsidiary Security            Exhibit 10.12 to Form 8-
         Agreement, dated as of June 12, 2000, made    K filed June 21, 2000
         by the Domestic Subsidiaries identified
         therein and any other person that becomes a
         Domestic Subsidiary pursuant to the
         Exchange Debt Facility Documents, in favor
         of Morgan Guaranty Trust Company of New
         York, as Agent.

  10.34  Amended and Restated Drugstore.com Pledge     Exhibit 10.13 to Form 8-
         Agreement, dated as of June 12, 2000,         K filed June 21, 2000
         between Rite Aid Corporation and Morgan
         Guaranty Trust Company of New York, as
         Agent.

  10.35  Amended and Restated PCS Pledge Agreement,    Exhibit 10.14 to Form 8-
         dated as of June 12, 2000, between Rite Aid   K filed June 21, 2000
         Corporation and Morgan Guaranty Trust
         Company of New York, as Agent.

  10.36  Form of Second Priority Mortgage,             Exhibit 10.15 to Form 8-
         Assignment of Leases and Rents, Security      K filed June 21, 2000
         Agreement and Financing Statement, by the
         Subsidiary Guarantor listed therein, to
         Wilmington Trust Company, as Second
         Priority Collateral Trustee.

</TABLE>


                                       56
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                   Incorporation by
 Numbers Description                                         Reference to
 ------- -----------                                       ----------------
 <C>     <S>                                           <C>
  10.37  Amendment No. 3 to Note Agreement,            Exhibit 10.16 to Form 8-
         Amendment No. 4 to Guaranty Agreement, and    K filed June 21, 2000
         Amendment No. 1 to Put Agreement, for
         Adjustable Rate Senior Secured Notes due
         August 15, 2002, among Finco, Inc., Rite
         Aid Corporation, The Prudential Insurance
         Company of America, and Pruco Life
         Insurance Company, as of June 12, 2000.

  10.38  Amendment No. 5 to Guaranty, dated as of      Exhibit 10.17 to Form 8-
         June 12, 2000, from Rite Aid Corporation,     K filed June 21, 2000
         as Guarantor, to RAC Leasing LLC, as
         Lessor.

  10.39  Amendment No. 4 to Master Lease and           Exhibit 10.18 to Form 8-
         Security Agreement, dated as of June 12,      K filed June 21, 2000
         2000, between RAC Leasing LLC, as Lessor,
         and Rite Aid Realty Corp., as Lessee.

  10.40  Amendment No. 4 to Guaranty, dated as of      Exhibit 10.19 to Form 8-
         June 12, 2000, from Rite Aid Corporation,     K filed June 21, 2000
         as Guarantor, to Sumitomo Bank Leasing and
         Finance, Inc., as Lessor.

  10.41  Amendment No. 5 to Master Lease and           Exhibit 10.20 to Form 8-
         Security Agreement, dated as of June 12,      K filed June 21, 2000
         2000, between Sumitomo Bank Leasing and
         Finance, Inc., as Lessor, and Rite Aid
         Realty Corp., as Lessee.

  10.42  Promissory Note, dated April 30, 1999, in     Included herein
         the amount of $5,000,000 between
         NationsBank, N.A. Banking Center, as lender
         and Beth Kaplan and Bruce Sholk as
         borrowers.

  10.43  Limited Guaranty, dated April 30, 1999, for   Included herein
         the amount of $5,000,000 between
         NationsBank, N.A. Banking Center, as bank,
         Rite Aid Corporation as guarantor and Beth
         Kaplan and Bruce Sholk, as borrower.

  10.44  Promissory Note, dated June 19, 1998, in      Included herein
         the amount of $2,500,000 between
         NationsBank, N.A. Banking Center, as lender
         and Beth Kaplan and Bruce Sholk as
         borrowers.

  10.45  Limited Guaranty, date June 19, 1998, for     Included herein
         the amount of $2,500,000 between
         NationsBank, N.A. Banking Center, as bank,
         Rite Aid Corporation as Guarantor and Beth
         Kaplan and Bruce Sholk, as borrower.

  10.46  Executive Separation Agreement and General    Included herein
         Release, dated February 28, 2000, between
         Rite Aid Corporation and Timothy Noonan.

  10.47  Letter Agreement, dated February 28, 2000,    Included herein
         between Rite Aid Corporation and Timothy
         Noonan, amending Executive Separation
         Agreement and General Release, dated
         February 28, 2000, between Rite Aid
         Corporation and Timothy Noonan.

  11     Not Applicable

  12     Not Applicable

  13     Not Applicable

  16     Not Applicable

</TABLE>


                                       57
<PAGE>

<TABLE>
<CAPTION>
 Exhibit                                                    Incorporation by
 Numbers Description                                          Reference to
 ------- -----------                                        ----------------
 <C>     <S>                                            <C>
  18     Letter re change in accounting principles      Included herein

  21     Subsidiaries of the registrant                 Included herein

  22     Not Applicable

  23     Consent of Independent Certified Public        Not applicable
         Accountants

  24     Not Applicable

  27     Financial Data Schedules (EDGAR Filing Only)   Included herein

  99.1   Press Release, dated June 14, 2000             Exhibit 99.1 to Form 8-K
                                                        filed June 21, 2000
</TABLE>

- --------
* Constitutes a compensatory plan or arrangement required to be filed with
  this Form.

Reports on Form 8-K

(1)  Rite Aid Corporation filed a Current Report on Form 8-K on December 10,
     1999 disclosing under Item 4 that it had retained the accounting firm of
     Deloitte & Touche LLP to audit and report on the Company's restated
     consolidated balance sheets as of February 27, 1999 and February 28, 1998
     and the related restated consolidated statements of income, stockholders'
     equity and cash flows for each of the years in the three-year period
     ended February 27, 1999 as well as auditing the Company's consolidated
     financial statements for the fiscal year ending February 26, 2000.
(2)   Rite Aid Corporation filed a Current Report on Form 8-K on January 18,
      2000 disclosing under Item 5 a press release describing certain
      agreements related to certain lenders and setting forth under Item 7
      copies of the related agreements and certain employment agreements and
      restricted stock and stock option award agreements.

(3)  Rite Aid Corporation filed a Current Report on Form 8-K on February 7,
     2000 disclosing under Item 5 a press release describing the receipt of
     consents from certain debt holders and setting forth under Item 7 copies
     of related Indentures as exhibits.

(4)  Rite Aid Corporation filed a Current Report on Form 8-K on April 11, 2000
     disclosing under Item 5 a press release describing the receipt of a
     commitment letter to provide a financing and to announce that one of the
     Company's lenders had agreed to convert $200 million existing bank debt
     into Rite Aid common stock setting forth under Item 7 a copy of the
     commitment letter.

(5) Rite Aid Corporation filed a Current Report on Form 8-K on June 21, 2000
    disclosing under Item 5 a press release announcing the completion of its
    refinancing transactions and setting forth under Item 7 copies of the
    related Indenture and agreements as exhibits.

                                      58
<PAGE>

                                  SIGNATURES

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.


Dated: July 11, 2000                RITE AID CORPORATION.

                                                    /s/ Robert G. Miller
                                          By: _________________________________
                                                      Robert G. Miller
                                                  Chairman of the Board of
                                               Directors and Chief Executive
                                                          Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in their respective capacities on July 11, 2000.


<TABLE>
<CAPTION>
             Signature                              Title
             ---------                              -----

 <C>                                <S>                                     <C>
        /s/ Robert G. Miller        Chairman of the Board of Directors
 _________________________________   and Chief Executive Officer
          Robert G. Miller


        /s/ Mary F. Sammons         President, Chief Operating Officer
 _________________________________   and Director
          Mary F. Sammons

        /s/ John T. Standley        Chief Financial Officer and Executive
 _________________________________   Vice Presidents
          John T. Standley

        /s/ Christopher Hall        Chief Accounting Officer and Senior
 _________________________________   Vice President
          Christopher Hall

        /s/ William Bratton         Director
 _________________________________
         William J. Bratton

       /s/ Alfred M. Gleason        Director
 _________________________________
         Alfred M. Gleason

           /s/ Alex Grass           Director
 _________________________________
             Alex Grass

        /s/ Leonard I. Green        Director
 _________________________________
          Leonard I. Green

       /s/ Nancy A. Lieberman       Director
 _________________________________
         Nancy A. Lieberman
</TABLE>




                                      S-1
<PAGE>


<TABLE>
<CAPTION>
             Signature                Title
             ---------                -----


 <C>                                <S>        <C>
         /s/ Philip Neivert         Director
 _________________________________
           Philip Neivert

        /s/ Stuart M. Sloan         Director
 _________________________________
          Stuart M. Sloan

      /s/ Jonathan D. Sokoloff      Director
 _________________________________
        Jonathan D. Sokoloff

        /s/ Leonard N. Stern        Director
 _________________________________
          Leonard N. Stern

      /s/ Preston Robert Tisch      Director
 _________________________________
        Preston Robert Tisch

        /s/ Gerald Tsai, Jr.        Director
 _________________________________
</TABLE>  Gerald Tsai, Jr.




                                      S-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Rite Aid Corporation
Camp Hill, Pennsylvania

We have audited the accompanying consolidated balance sheets of Rite Aid
Corporation and subsidiaries as of February 26, 2000 and February 27, 1999,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended February 26,
2000. Our audits also included the financial statement schedule listed in the
Table of Contents at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We did not audit the
consolidated financial statements of PCS Holding Corporation (a consolidated
subsidiary of Rite Aid Corporation), which statements reflect total assets
constituting 25% and 24%, respectively, of consolidated total assets as of
February 26, 2000 and February 27, 1999, and total revenues constituting 9%,
and 1%, respectively, of consolidated total revenues for the years ended
February 26, 2000 and February 27, 1999. Those financial statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for PCS Holding
Corporation, is based solely on the report of such other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects,
the financial position of Rite Aid Corporation and subsidiaries at February
26, 2000 and February 27, 1999, and the results of their operations and their
cash flows for each of the three years in the period ended February 26, 2000,
in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

As discussed in Note 24 to the consolidated financial statements, the
accompanying consolidated balance sheet as of February 27, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended February 27, 1999 and February 28, 1998 have been
restated.

As discussed in Note 5 to the consolidated financial statements, the Company
changed its application of the last-in, first-out ("LIFO") method of
accounting for inventory in 2000.

/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 11, 2000

                                      F-1
<PAGE>

                        Report of Independent Auditors

Board of Directors and Shareholder
PCS Holding Corporation

We have audited the consolidated balance sheets of PCS Holding Corporation and
Subsidiaries (the Company) as of February 27, 1999 and February 26, 2000, and
the related consolidated statements of operations, shareholder's equity, and
cash flows for the thirty-six days ended February 27, 1999 and the year ended
February 26, 2000 (not presented seperately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of PCS Holding Corporation and Subsidiaries at February 27, 1999 and February
26, 2000, and the consolidated results of their operations and their cash
flows for the thirty-six days ended February 27, 1999 and the year ended
February 26, 2000, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ Ernst & Young LLP

April 21, 2000, except for Note 12
 for which the date is June 15, 2000

                                      F-2
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (In thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
                                                                    February 27,
                                                                        1999
                                                      February 26,  (as restated,
                                                          2000      see Note 24)
                                                      ------------  -------------
<S>                                                   <C>           <C>
                       ASSETS
CURRENT ASSETS:
 Cash and cash equivalents..........................  $   184,600    $    87,311
 Accounts receivable, net ..........................      756,182        643,189
 Inventories, net ..................................    2,643,959      2,646,986
 Refundable income taxes............................      147,599            --
 Prepaid expenses and other current assets..........       73,130         55,128
                                                      -----------    -----------
 Total current assets...............................    3,805,470      3,432,614
                                                      -----------    -----------
PROPERTY, PLANT AND EQUIPMENT, NET..................    3,629,919      3,645,099
GOODWILL AND OTHER INTANGIBLES......................    3,131,070      3,322,859
OTHER ASSETS........................................      241,395        111,968
                                                      -----------    -----------
 Total assets.......................................  $10,807,854    $10,512,540
                                                      ===========    ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Current lease financing obligations................  $    25,964    $    31,522
 Short-term debt and current maturities of long-term
  debt .............................................       76,086      1,570,789
 Accounts payable...................................    1,771,198      1,788,216
 Sales and other taxes payable......................       35,053         33,944
 Income taxes payable ..............................      127,691        110,784
 Deferred income taxes..............................          --          28,045
 Accrued salaries, wages and other current
  liabilities ......................................      876,425        657,240
                                                      -----------    -----------
 Total current liabilities..........................    2,912,417      4,220,540
                                                      -----------    -----------
CONVERTIBLE SUBORDINATED NOTES .....................      649,986        649,991
LONG-TERM DEBT LESS CURRENT MATURITIES .............    4,738,661      2,552,291
LEASE FINANCING OBLIGATIONS ........................    1,118,204      1,110,178
DEFERRED INCOME TAXES ..............................       79,220         81,314
OTHER NONCURRENT LIABILITIES........................      858,401        524,082
                                                      -----------    -----------
 Total liabilities..................................   10,356,889      9,138,396
                                                      -----------    -----------
COMMITMENTS AND CONTINGENCIES (Note 21)                       --             --
REDEEMABLE PREFERRED STOCK .........................       19,457         23,559
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1 per share; liquidation
 value $100 per share. 20,000,000 shares authorized:
 shares issued--3,082,500 and 0 ....................      308,250            --
COMMON STOCK, par value $1 per share, 600,000,000
 shares authorized:
 shares issued--259,927,199 and 258,862,411 ........      259,926        258,861
ADDITIONAL PAID-IN CAPITAL..........................    1,289,755      1,369,378
ACCUMULATED DEFICIT.................................   (1,420,235)      (277,179)
DEFERRED COMPENSATION...............................       (6,188)           --
ACCUMULATED OTHER COMPREHENSIVE INCOME..............          --            (475)
                                                      -----------    -----------
 Total stockholders' equity.........................      431,508      1,350,585
                                                      -----------    -----------
 Total liabilities and stockholders' equity.........  $10,807,854    $10,512,540
                                                      ===========    ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (In thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                    February 27,  February 28,
                                        February        1999          1998
                                           26,      (as restated, (as restated,
                                          2000      see Note 24)  see Note 24)
                                       -----------  ------------- -------------
<S>                                    <C>          <C>           <C>
REVENUES.............................. $14,681,442   $12,782,890   $11,533,423
COSTS AND EXPENSES:
  Cost of goods sold, including
   occupancy costs....................  11,412,774     9,743,835     8,603,318
  Selling, general and administrative
   expenses...........................   3,712,279     3,144,134     2,835,395
  Gain on sale of stores..............     (80,109)          --        (52,261)
  Goodwill amortization...............      56,832        29,227        26,480
  Store closing, impairment and other
   charges ...........................     163,185       192,551       148,560
  Interest expense....................     520,336       277,226       209,152
  Share of loss from equity
   investment.........................      11,893           448         1,886
                                       -----------   -----------   -----------
                                        15,797,190    13,387,421    11,772,530
                                       -----------   -----------   -----------
    Loss before income taxes .........  (1,115,748)     (604,531)     (239,107)
INCOME TAXES EXPENSE (BENEFIT) .......           8      (182,049)      (52,916)
                                       -----------   -----------   -----------
    Loss before cumulative effect of
     accounting change................  (1,115,756)     (422,482)     (186,191)
    Cumulative effect of accounting
     change, net of tax benefit of
     $18,200 .........................     (27,300)          --            --
                                       -----------   -----------   -----------
    Net loss.......................... $(1,143,056)  $  (422,482)  $  (186,191)
                                       ===========   ===========   ===========
BASIC AND DILUTED LOSS PER SHARE
  Loss before cumulative effect of
   accounting change.................. $     (4.34)  $     (1.64)  $     (0.74)
  Cumulative effect of accounting
   change, net........................ $     (0.11)  $       --    $       --
                                       -----------   -----------   -----------
    Net loss.......................... $     (4.45)  $     (1.64)  $     (0.74)
                                       ===========   ===========   ===========
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 FOR THE FISCAL YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999, AND FEBRUARY
                                    28, 1998
              (In thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                                   Accumulated
                        Preferred Stock              Common Stock           Additional   Retained                     Other
                   -------------------------- ----------------------------   Paid-in     Earnings      Deferred   Comprehensive
                   Shares  Class A   Class B   Shares   Issued   Treasury    Capital     (Deficit)   Compensation    Income
                   ------- --------  -------- -------- --------  ---------  ----------  -----------  ------------ -------------
<S>                <C>     <C>       <C>      <C>      <C>       <C>        <C>         <C>          <C>          <C>
BALANCE, MARCH 1,
 1997
 (As Restated,
 see note 24)....      --  $    --   $    --  129,342  $129,342  $(104,746) $1,371,366  $   547,320    $   --        $(1,867)
Net income (As
 Restated, see
 note 24)........                                                                          (186,191)
Other
 comprehensive
 income:
 Minimum pension
  liability
  adjustment.....                                                                                                      1,080
                                                                                                                     -------
 Other
  comprehensive
  income.........                                                                                                      1,080
Comprehensive
 income..........
Stock options
 exercised.......                                  404      404                  9,293
Stock option
 income tax
 benefit.........                                                                4,191
Stock grants.....                                   13       13                    616
Bond conversion..                                5,875    5,875                196,777
Two-for-one stock
 split...........                              135,644  135,644               (135,644)
Cancel treasury
 shares..........                             (13,064)  (13,064)   104,746     (91,682)
Cash dividends
 paid on common
 stock ($.4075
 per share post
 split)..........                                                                          (102,715)
                   ------- --------  -------- -------- --------  ---------  ----------  -----------    -------       -------
BALANCE FEBRUARY
 28, 1998 (As
 Restated, see
 note 24)........      --       --        --   258,214  258,214        --    1,354,917      258,414        --           (787)
Net loss (As
 Restated, see
 note 24)........                                                                          (422,482)
Other
 comprehensive
 income:
 Minimum pension
  liability
  adjustment.....                                                                                                        312
                                                                                                                     -------
 Other
  comprehensive
  income.........                                                                                                        312
 Comprehensive
  income.........
Stock options
 exercised.......                                  633      633                  8,603
Stock option
 income tax
 benefit.........                                                                5,807
Stock grants.....                                   14       14                    669
Bond conversion..                                                                    9
Dividends on
 redeemable
 preferred
 stock...........                                                                 (627)
Cash dividends
 paid on common
 stock ($.4375
 per share post
 split)..........                                                                          (113,111)
                   ------- --------  -------- -------- --------  ---------  ----------  -----------    -------       -------
BALANCE FEBRUARY
 27, 1999 (As
 Restated, see
 note 24)........      --       --        --   258,861  258,861        --    1,369,378     (277,179)       --           (475)
Net loss.........                                                                        (1,143,056)
Other
 comprehensive
 income:
 Minimum pension
 liability
 adjustment......                                                                                                        475
                                                                                                                     -------
Other
 comprehensive
 income..........                                                                                                        475
Comprehensive
 income..........
Issuance of
 preferred
 shares..........  300,000  300,000
Exchange of
 preferred
 shares..........          (300,000)  300,000
Stock options
 exercised.......                                   65       65                    815
Stock option
 income tax
 benefit.........                                                                  244
Stock grants.....                                1,000    1,000                  7,250                  (6,188)
Issuance of
 common stock
 warrants........                                                                8,500
Bond conversion..                                                                    5
Dividends on
 redeemable
 preferred
 stock...........                                                               (1,860)
Dividends on
 preferred
 stock...........                       8,250                                   (8,250)
Accretion of
 redeemable
 preferred
 stock...........                                                                  (97)
Increase
 resulting from
 sale of stock by
 equity method
 investee........                                                                2,929
Cash dividends
 paid on common
 stock ($.4375
 per share post
 split)..........                                                              (89,159)         --
                   ------- --------  -------- -------- --------  ---------  ----------  -----------    -------       -------
BALANCE FEBRUARY
 26, 2000........  300,000 $    --   $308,250  259,926 $259,926  $     --   $1,289,755  $(1,420,235)   $(6,188)      $   --
                   ======= ========  ======== ======== ========  =========  ==========  ===========    =======       =======
<CAPTION>
                     Total
                   -----------
<S>                <C>
BALANCE, MARCH 1,
 1997
 (As Restated,
 see note 24)....  $1,941,415
Net income (As
 Restated, see
 note 24)........    (186,191)
Other
 comprehensive
 income:
 Minimum pension
  liability
  adjustment.....
 Other
  comprehensive
  income.........       1,080
                   -----------
Comprehensive
 income..........    (185,111)
Stock options
 exercised.......       9,697
Stock option
 income tax
 benefit.........       4,191
Stock grants.....         629
Bond conversion..     202,652
Two-for-one stock
 split...........
Cancel treasury
 shares..........         --
Cash dividends
 paid on common
 stock ($.4075
 per share post
 split)..........    (102,715)
                   -----------
BALANCE FEBRUARY
 28, 1998 (As
 Restated, see
 note 24)........   1,870,758
Net loss (As
 Restated, see
 note 24)........    (422,482)
Other
 comprehensive
 income:
 Minimum pension
  liability
  adjustment.....
 Other
  comprehensive
  income.........         312
                   -----------
 Comprehensive
  income.........    (422,170)
Stock options
 exercised.......       9,236
Stock option
 income tax
 benefit.........       5,807
Stock grants.....         683
Bond conversion..           9
Dividends on
 redeemable
 preferred
 stock...........        (627)
Cash dividends
 paid on common
 stock ($.4375
 per share post
 split)..........    (113,111)
                   -----------
BALANCE FEBRUARY
 27, 1999 (As
 Restated, see
 note 24)........   1,350,585
Net loss.........  (1,143,056)
Other
 comprehensive
 income:
 Minimum pension
 liability
 adjustment......
Other
 comprehensive
 income..........         475
                   -----------
Comprehensive
 income..........  (1,142,581)
Issuance of
 preferred
 shares..........     300,000
Exchange of
 preferred
 shares..........         --
Stock options
 exercised.......         880
Stock option
 income tax
 benefit.........         244
Stock grants.....       2,062
Issuance of
 common stock
 warrants........       8,500
Bond conversion..           5
Dividends on
 redeemable
 preferred
 stock...........      (1,860)
Dividends on
 preferred
 stock...........         --
Accretion of
 redeemable
 preferred
 stock...........         (97)
Increase
 resulting from
 sale of stock by
 equity method
 investee........       2,929
Cash dividends
 paid on common
 stock ($.4375
 per share post
 split)..........     (89,159)
                   -----------
BALANCE FEBRUARY
 26, 2000........  $  431,508
                   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-5
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (In thousands of dollars)
<TABLE>
<CAPTION>
                                                     February 27,  February 28,
                                                         1999          1998
                                         February    (as restated, (as restated,
                                         26, 2000    see Note 24)  see Note 24)
                                        -----------  ------------- -------------
<S>                                     <C>          <C>           <C>
OPERATING ACTIVITIES:
Net loss..............................  $(1,143,056)  $ (422,482)   $ (186,191)
Adjustments to reconcile to net cash
 provided by operations:
  Cumulative effect of change in
   accounting method..................       27,300          --            --
  Depreciation and amortization.......      500,997      399,283       349,631
  Store closings and impairment
   charges............................      163,185      192,551       148,650
  Gain on sale of stores..............      (80,109)          --       (52,621)
  LIFO and other charges..............       44,334       36,469        26,192
  Changes in operating assets and
   liabilities, net of effects from
   acquisitions.......................
    Accounts receivable...............     (112,993)    (150,264)      286,975
    Inventories.......................      (69,087)     376,972      (450,934)
    Other assets......................      (80,980)     (25,279)       (6,074)
    Accounts payable..................      (17,018)    (390,760)      446,703
    Other liabilities.................      356,723      135,437       (37,647)
                                        -----------   ----------    ----------
      Net cash (used in) provided by
       operating activities...........     (410,704)     151,927       524,684
INVESTING ACTIVITIES:
  Expenditures for property, plant and
   equipment..........................     (453,628)  (1,347,088)     (700,169)
  Purchases of businesses, net of cash
   acquired...........................      (24,454)  (1,390,620)     (335,014)
  Intangible assets acquired..........      (71,371)     (81,677)      (39,227)
  Proceeds from dispositions..........      146,677          --         66,903
  Other...............................      (34,984)      (9,941)       (9,061)
                                        -----------   ----------    ----------
      Net cash used in investing
       activities.....................     (437,760)  (2,829,326)   (1,016,568)
FINANCING ACTIVITIES
  Net proceeds from the issuance of
   long-term debt.....................    2,288,495      896,017       650,000
  Net (proceeds) payments of
   commercial paper borrowings........   (1,591,125)   1,397,201      (301,500)
  Net proceeds from the issuance of
   preferred stock....................      300,000          --            --
  (Redemption) issuance of redeemable
   preferred stock....................       (5,695)      23,559           --
  Proceeds from leasing obligations...       74,899      504,990       358,837
  Principal payments on long-term
   debt...............................      (35,831)     (38,615)      (42,210)
  Cash dividends paid.................      (91,019)    (113,738)     (102,715)
  Net proceeds from the issuance of
   common stock                                  65        9,236         9,697
  Other...............................        5,964          995         1,709
                                        -----------   ----------    ----------
      Net cash provided by financing
       activities.....................      945,753    2,679,645       573,818
INCREASE IN CASH AND CASH
 EQUIVALENTS..........................       97,289        2,246        81,934
CASH AND CASH EQUIVALENTS AT BEGINNING
 OF YEAR..............................       87,311       85,065         3,131
                                        -----------   ----------    ----------
CASH AND CASH EQUIVALENTS AT END OF
 YEAR.................................  $   184,600   $   87,311    $   85,065
                                        ===========   ==========    ==========
SUPPLEMENTAL DISCLOSURE OF CASH PAID
 FOR INTEREST (NET OF AMOUNTS
 CAPITALIZED OF $5,292, $7,069 AND
 $4,102)..............................  $   501,813   $  259,100    $  194,618
                                        ===========   ==========    ==========
SUPPLEMENTAL DISCLOSURE OF CASH PAID
 FOR INCOME TAXES.....................  $       981   $   47,667    $   46,671
                                        ===========   ==========    ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
 FINANCING ACTIVITY
  Bond conversion.....................          --           --     $  202,652
  Exchange of preferred shares........  $   300,000          --            --
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-6
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (in thousands of dollars, except share and per share amounts)

1. Summary of Significant Accounting Policies:

Description of Business

  Rite Aid Corporation (a Delaware corporation), through its wholly owned
subsidiaries, operates approximately 3,800 retail drugstores in the regions of
the Eastern, Southern, and Western United States (the "Retail Drug" segment).
Rite Aid owns PCS Holding Corporation ("PCS"), one of the country's largest
pharmacy benefits managers ("PBM"). Through PCS, Rite Aid provides pharmacy
benefit management services to employers, insurance carriers and managed care
companies (the "PBM Segment").

Fiscal Year

  The Company's fiscal year ends on the Saturday closest to February 29 or
March 1. The fiscal years ended February 26, 2000, February 27, 1999 and
February 28, 1998 each includes 52 weeks.

Principles of Consolidation

  The consolidated financial statements include the accounts of the Company
and all of its wholly 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 converted to known amounts of cash and which
have original maturities of three months or less, when purchased.

Inventories

  Inventories are stated at the lower of cost or market. Inventory balances
include 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") method of
accounting for substantially all of its inventories. At February 26, 2000 and
February 27, 1999, inventories were $320,389 and $240,826, respectively, lower
than the amounts that would have been reported using the first-in, first-out
("FIFO") method. The Company calculates its FIFO inventory valuation using the
retail method for store inventories and the cost method for warehouse
inventories (see note 5).

Impairment of Long-Lived Assets

  The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of.

  For purposes of recognizing and measuring impairment of long-lived assets of
the Retail Drug Segment, the Company categorizes assets of operating stores as
"Assets to Be Held and Used" and assets of stores that have been closed as
"Assets to Be Disposed Of". The Company evaluates assets at the store level
because this is the lowest level of independent cash flows ascertainable to
evaluate impairment. Assets being tested for recoverability at the store level
include tangible long-lived assets, identifiable intangibles and allocable
goodwill 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. Enterprise goodwill not associated with
assets being tested for impairment under SFAS No. 121 is evaluated based on a
comparison of undiscounted future cash flows of the enterprise compared to the
related net book value of the enterprise.

                                      F-7
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Long-lived assets of the PBM segment consist principally of intangibles. The
Company compares the estimates of future undiscounted cash flows of its
service lines to which the intangibles relate to the carrying amount of those
intangibles to determine if an impairment has occurred. Long-lived assets and
certain identifiable intangibles to be disposed of, whether by sale or
abandonment, are reported at the lower of carrying amount or fair value less
cost to sell.

  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. The Company provides for
depreciation using the straight-line method in amounts that allocate the cost
of the property, plant and equipment over the following useful lives:

<TABLE>
        <S>                                                       <C>
        Buildings................................................ 30 to 45 years
        Equipment................................................  3 to 15 years
</TABLE>

Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated useful life or the term of the lease.

Intangible Assets

  Goodwill represents the excess of acquisition cost over the fair value of
the net assets of acquired entities and is being amortized on a straight-line
basis over 40 years. The value of the PCS trade name is being amortized over
its estimated useful life of 40 years. The value of favorable and unfavorable
leases on stores acquired in business combinations are amortized over the
terms of the leases on a straight-line basis. Patient prescription files
purchased and acquired in business combinations are amortized over their
estimated useful lives of five to fifteen years. The value of the customer
base and pharmacy network acquired in the purchase of PCS is being amortized
over their estimated lives of 30 years. The value of assembled workforce
acquired is being amortized over its useful life of five to six years.

Internal-Use Software

  The Company capitalizes direct internal and external development costs and
direct external application development costs associated with internal-use
software. Neither preliminary evaluation costs nor costs associated with the
software after implementation are capitalized. For fiscal years 2000, 1999 and
1998, the Company capitalized costs of approximately $4,595, $9,667 and
$7,770, respectively. The Company's capitalization policy for internal-use
software is consistent with the provisions of American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
Therefore, adoption of SOP 98-1 in fiscal year 2000 did not have a significant
effect on the Company's financial statements.

                                      F-8
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Investments in Fifty Percent or Less Owned Subsidiaries

  Investments in affiliated entities for which the Company has the ability to
exercise significant influence, but not control over the investee, and
generally an ownership interest of the common stock of between 20% and 50%,
are accounted for under the equity method of accounting and are included in
Other assets. Under the equity method of accounting, the Company's share of
the investee's earnings or loss is included in the consolidated statements of
operations. The portion of the Company's investment in an equity-method
investee that exceeds its share of the underlying net equity of the investee,
if any, is amortized over 7 to 30 years.

Stock-Based Compensation

  The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." Under SFAS 123, companies can elect to account for stock-based
compensation using a fair value-based method or continue to measure
compensation expense using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has elected to continue to account for its employee
and director stock-based compensation plans under APB Opinion No. 25. See Note
18 for further information about the Company's incentive plans.

Revenue Recognition

Retail Drug Segment

  The Company recognizes revenue from the sale of merchandise at the time the
merchandise is sold. The Company records revenue net of an allowance for
estimated future returns. Return activity is immaterial to retail drug revenue
and results of operations in all periods presented.

PBM Segment

  The Company recognizes revenues from claims processing fees when the related
claim is adjudicated and approved for payment. Certain of the Company's
agreements require its customers to pay a fee per covered member rather than a
fee per claim. The Company recognizes these fees monthly based upon member
counts provided by its customers. Revenue from manufacturer programs is
recognized when claims eligible for rebate are adjudicated by the Company. The
customer portion of rebates collected is not included in revenue, and
correspondingly payments of rebates to customers are not included in expenses.
Mail order program revenue is recognized when prescriptions are shipped.

Vendor Rebates

  Rebates received from vendors that are based on future purchases are
initially deferred and are recognized as a reduction of cost of goods sold
when the related inventory is sold. Rebates not tied directly to purchases are
recognized as a reduction of Selling, general and administrative expense on a
straight-line basis over the related contract term.

Store Preopening Expenses and Closing Costs

  Costs incurred prior to the opening of a new store, associated with a
remodeled store, or related to the opening of a distribution facility, are
charged against earnings as administrative and general expenses when incurred.
When a store is closed, the Company expenses unrecoverable costs and accrues a
liability equal to the present value of the remaining lease obligations, net
of expected sublease income.

Advertising

  Advertising costs are expensed as incurred. Advertising expenses for 2000,
1999 and 1998 were $198,412, $223,464 and $223,484, respectively.

                                      F-9
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Insurance

  The Company is self-insured for certain general liability and workers'
compensation claims that occurred prior to December 31, 1996. With respect to
claims occurring from January 1, 1997 to December 31, 1998, the Company used a
combination of self-insurance and fixed-cost premium-based policies. Effective
January 1, 1999, substantially all general liability and workers' compensation
claims were covered through a fixed-cost premium-based policy. The Company
maintains self-insurance for all covered employee medical claims.

  For claims that are self-insured, stop-loss insurance coverage is maintained
for workers' compensation and general liability occurrences exceeding
$250,000. 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.

Income Taxes

  Deferred income taxes are determined based on the difference between the
financial reporting and tax bases 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 or all of the deferred
tax assets will not be realized.

Earnings per Share

  The Company adopted the provisions of SFAS No. 128, "Earnings per Share," in
the year ended February 28, 1998. SFAS No. 128 requires dual presentation of
basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic earnings per share computation to
the numerator and denominator of the diluted earnings per share computation.

  Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings 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 earnings of the
entity. All share and per share data have also been restated to reflect a two-
for-one stock split distributed to stockholders on February 2, 1998.

Recent Accounting Pronouncements

  In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes the accounting and financial reporting requirements for
derivative instruments and requires companies to recognize derivatives as
either assets or liabilities on the balance sheet and measure those
instruments at fair value. In May 1999, the FASB delayed the implementation
date for this statement by one year. The Company expects to adopt SFAS No. 133
in fiscal year 2002. The Company is evaluating the effects that the adoption
of SFAS No. 133 may have on the financial statements.

  In November 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition". This Bulletin sets forth the SEC Staff's position
regarding the point at which it is appropriate for a Registrant to recognize
revenue. The Staff believes that revenue is realizable and earned when all of
the following criteria are met:

  .Persuasive evidence of an arrangement exists;

  .Delivery has occurred or service has been rendered;

  .The seller's price to the buyer is fixed or determinable; and

  .Collectibility is reasonably assured.

                                     F-10
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company uses the above criteria to determine whether revenue can be
recognized, and therefore believes that the issuance of this Bulletin does not
have a material impact on these financial statements.

Use of Estimates

  The preparation of the financial statements in conformity with generally
accepted accounting principles 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.

Significant Concentrations

  During fiscal 2000, the Company purchased approximately 87% of the dollar
volume of its prescription drugs from a single supplier, McKesson HBOC, Inc.
("McKesson"). If Rite Aid's relationship with McKesson was disrupted, the
Company could have difficulty filling prescriptions, which would negatively
impact the business.

2. Result of Operations and Financing:

  During fiscal years 2000, 1999 and 1998, the Company incurred net losses of
$1,143,056, $422,482 and $186,191, respectively, and during fiscal 2000 net
cash used in operating activities was $340,315. As discussed in Note 11, the
Company obtained various loan covenant waivers and/or modifications, and
refinanced or extended maturity dates from certain of its lenders. In
addition, the Company obtained a new senior credit facility in June 2000 (see
note 24).

  Since December 1999, management of the Company has taken a series of steps
intended to stabilize and improve the operating results of the Company's
retail drug segment. Management believes that available cash and cash
equivalents together with cash flow from operations, available borrowings
under the new senior credit facility and other sources of liquidity (including
asset sales) will be sufficient to fund the Company's operating activities,
investing activities and debt maturities for fiscal 2001. In addition,
management believes that the Company will be in compliance with its existing
debt covenant requirements throughout fiscal 2001. However, a substantial
portion of its indebtedness which will mature in August and September 2002
will require the Company to refinance the indebtedness at that time.

3. Acquisitions and Dispositions:

  On January 22, 1999, the Company purchased PCS a pharmacy benefits
management subsidiary of Eli Lilly and Company. Total consideration was $1.5
billion, with $1.3 billion financed via commercial paper and $200 million paid
in cash. The PCS acquisition was accounted for using the purchase method. In
accordance with APB Opinion No. 16, the Company has recorded the assets and
liabilities of PCS at the date of acquisition at their fair values. The excess
of the cost of PCS over the fair value of the acquired assets and liabilities
of $1,286,089 has been recorded as goodwill. The Company has determined that
the estimated useful life of the goodwill recorded with the PCS acquisition is
primarily indeterminate and likely exceeds 40 years. This estimate is based
upon a review of the anticipated future cash flows and other factors the
Company considered in determining the amount that it was willing to incur for
the purchase of PCS. Additionally, management has found no persuasive evidence
that any material portion of these intangible assets will be depleted in less
than 40 years. Accordingly, the Company amortizes goodwill over the maximum
allowable period of 40 years. The results of operations for PCS have been
included in these consolidated financial statements since the date of
acquisition.

                                     F-11
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following unaudited pro-forma results of operations for the year ended
February 27, 1999 reflects the PCS acquisition as if it had taken place as of
the beginning of fiscal year 1999:

<TABLE>
<CAPTION>
                                                      Pro forma (Unaudited)
                                                   Year Ended February 27, 1999
                                                   ----------------------------
     <S>                                           <C>
     Revenues.....................................           $ 13,505
     Costs and expenses...........................             14,083
     Net loss.....................................               (578)
     Basic loss per share.........................              (2.24)
     Diluted loss per share.......................              (2.24)
</TABLE>

  On August 27, 1997, the Company completed the acquisitions of Harco, Inc.
("Harco") and K&B, Incorporated ("K&B"). The combined consideration paid for
these companies was $335,014, net of cash acquired of $2,811 and was financed
through commercial paper borrowings. These acquisitions were also accounted
for using the purchase method and, accordingly, the Company recorded the
assets and liabilities of Harco and K&B at the date of acquisition at their
fair values. The excess of the acquisition cost over the fair value of the
recorded assets and liabilities of $190,439 has been recorded as goodwill. The
Company has determined that the estimated useful life of the goodwill recorded
with the Harco and K&B acquisitions is primarily indeterminate and likely
exceeds 40 years. Accordingly, the Company amortizes goodwill over the maximum
allowable period of 40 years.

  In October 1996, the Company signed a definitive contract to sell for cash
of $450 each, plus the value of closing inventories all of its 193 drugstores
in North and South Carolina to J.C. Penney Company, Inc. (Penney).
Subsequently, Penney contracted to purchase Eckerd Corporation (Eckerd), a
chain of 1,748 drugstores. In order to proceed with the Eckerd purchase,
Penney agreed with the Federal Trade Commission not to take possession of 130
of the Company's stores. In February 1997, the Company agreed to an amendment
to its contract with Penney whereby the Company operated the stores until
Penney could find another buyer, but transfer of the stores was designated to
begin no later than May 30, 1997. Penney arranged for another drugstore chain
to begin taking possession of the stores in May 1997. A pretax gain of $29,969
was recognized in fiscal year 1997 for the stores that transferred in that
year. Upon transfer of the remaining stores in the first quarter of fiscal
1998, the Company recognized an additional pretax gain of $52,621.

  In September 1999, the Company signed a definitive contract to sell 38
drugstores in California to Longs Drug Stores California, Inc. ("Longs").
During the third quarter of fiscal 2000, a total of 32 stores were transferred
to Longs. In October 1999, the Company agreed to an amendment to its contract
with Longs whereby the closing of two stores was postponed due to delays in
obtaining waivers for existing lease provisions related to the assignment of
leases to the buyer. These two stores were ultimately closed in March 2000 and
transferred to the buyer at that time. The remaining four stores which were
originally included in the purchase agreement were retained by Rite Aid. A
pre-tax gain of $80,109 was recognized in the third quarter of fiscal year
2000 for the stores that were transferred in that year. The gain on the sale
of the two stores transferred in March 2000 was recognized by the Company in
the first quarter of fiscal 2001.

4. Store Closing and Impairment Charges:

  In fiscal years 2000, 1999, and 1998, Store closing, impairment and other
charges include non-cash charges of $130,461, $87,666, and $76,442
respectively, in the retail drug segment for the impairment of long-lived
assets (including allocable goodwill) at 259, 268, and 284 stores. These
amounts include the write-down of long-lived assets at stores that were
assessed for impairment because of management's intention to relocate or close
the store or because of changes in circumstances that indicate the carrying
value of an asset may not be recoverable.

                                     F-12
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Store closing and impairment charges consist of:

<TABLE>
<CAPTION>
                                  For the           For the           For the
                                year ended        year ended        year ended
                             February 26, 2000 February 27, 1999 February 28, 1998
                             ----------------- ----------------- -----------------
   <S>                       <C>               <C>               <C>
   Store lease exit costs..      $ 32,724          $104,885          $ 72,118
   Impairment charges......       130,461            87,666            76,442
                                 --------          --------          --------
                                 $163,185          $192,551          $148,560
                                 ========          ========          ========
</TABLE>

  During fiscal years 2000, 1999, and 1998, the Company closed or relocated
224, 422, and 593 stores, respectively, that were under long-term leases. Costs
incurred to close a store, which principally include lease termination costs,
are recorded at the time management commits to closing the store, which is
typically 90 days preceding the store closing date, or in the case of a store
to be relocated, the date the new property is leased or purchased. The Company
calculates its liability for closed stores on a store-by-store basis. The
future minimum lease payments and related ancillary costs, from the date of
closure to the end of the remaining lease term, net of estimated cost
recoveries that may be achieved through subletting properties or through
favorable lease terminations are computed. This liability is discounted using a
risk-free rate of interest. The Company evaluates these assumptions each
quarter and adjusts the liability accordingly. Included in Store closing,
impairment and other charges are charges of $58,324, $94,404, and $90,697
representing the present value of the remaining lease obligation net of
estimated lease recoveries in 2000, 1999 and 1998, respectively. The discount
rates used to determine the liability were 6.60%, 5.22% and 5.59% for 2000,
1999 and 1998 respectively.

  Subsequent to the recording of lease accruals, management determined that
certain stores would remain open. Included in the amounts stated above were
impairment write-downs for $3,954 at 6 stores in 2000 and $1,408 at 3 stores in
1999,that were written down to fair value but were not relocated or closed.
Also, the Company reversed charges of $10,490 and $1,052 in 2000 and 1998,
respectively for lease accruals previously established for those stores.

                                      F-13
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The reserve for store lease exit costs includes the following activity for
the fiscal years ended February 26, 2000, February 27, 1999 and February 28,
1998:

<TABLE>
<CAPTION>
                                  For the           For the           For the
                                year ended        year ended        year ended
                             February 26, 2000 February 27, 1999 February 28, 1998
                             ----------------- ----------------- -----------------
   <S>                       <C>               <C>               <C>
   Balance--Beginning of
    Year...................      $246,805          $191,453          $137,230
     Provision for present
      value of
      noncancellable lease
      payments of stores
      designated to be
      closed...............        58,324            94,404            90,697
     Changes in assumptions
      about future sublease
      income, terminations,
      etc. ................       (15,110)           10,481           (17,527)
     Reversals of reserves
      for stores that
      management has
      determined will
      remain open..........       (10,490)              --             (1,052)
     Interest accretion and
      changes in
      interest rates.......          (618)           10,877            13,489
     Cash payments, net of
      sublease income......       (66,099)          (60,410)          (31,384)
                                 --------          --------          --------
   Balance--End of Year....      $212,812          $246,805          $191,453
                                 ========          ========          ========
</TABLE>

  In addition to store closings, the Company has also closed or relocated
certain distribution centers in its efforts to consolidate operations and
implement its regional exit strategies. During the second quarter of fiscal
2000, management approved a plan to close its leased distribution center in Las
Vegas, Nevada and terminate all of its employees and accrued termination
benefit payments of $1.6 million in the second quarter of 2000, with the charge
included in Selling, general and administrative expenses (SG&A) on the
consolidated statement of operations. Severance payments of $1.1 million were
made during fiscal year 2000 leaving a remaining liability of $0.5 million at
February 26, 2000, with additional payments made during fiscal 2001. The
operating lease for the distribution center was terminated in May 2000 at the
end of the lease term with no additional liability to the Company.

  In the third quarter of fiscal 2000, management announced plans to close its
South Nitro, West Virginia distribution center in the summer of 2000. As a
result of this exit plan, the Company accrued termination benefits of
$3.9 million in the third quarter of fiscal 2000 for all of the 480 employees
with the charge included in SG&A on the consolidated statement of operations.
Subsequently, in the fourth quarter of fiscal 2000 management decided to not
close the facility. However, prior to this decision the Company became
obligated to pay $1.1 million in severance costs related to 102 employees. The
Company paid $0.6 million in the fourth quarter of fiscal 2000 and the
remaining $0.5 million was accrued at February 26, 2000. The remaining reserve
of $2.8 million was reversed to SG&A in the fourth quarter of fiscal 2000.

  In the third quarter of fiscal 2000, management approved a plan to close and
sell its Ogden, Utah distribution center. As a result of this exit plan, a
liability of $2.3 million for termination benefits for 500 employees was
recorded through SG&A in the third quarter of fiscal 2000. Additionally, an
impairment charge of $7.6 million for long-lived assets was recorded in the
third quarter of fiscal 2000. The facility was sold in March 2000.

  During the second quarter of fiscal 1998, the Company closed its distribution
center in Ontario, California and terminated all of its 177 employees. The
costs associated with closing the California facility including termination
benefit payments of approximately $0.4 million were expensed as they were
incurred during fiscal 1998. The termination benefits were determined through
negotiations with the union representatives and were largely based on years of
service and included some health insurance benefits. The facility was sold in
the second quarter of fiscal 1998 for its adjusted carrying value of
approximately $11.4 million.

                                      F-14
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In the fourth quarter of fiscal 1997, the Company committed to construct a
new distribution center near Baltimore, Maryland. The new distribution center
was scheduled to be completed in August 1998 and would replace the existing
distribution facility in Shiremanstown, Pennsylvania. The Pennsylvania
distribution center was scheduled to close and all of its 734 employees would
have been terminated in October 1998 when the Maryland facility was scheduled
to be fully operational. As a result of this exit plan, a liability of
$3.4 million for termination benefits was recorded in the fourth quarter of
1997 and charged to SG&A expenses on the statement of income. The termination
benefits were determined through negotiations with the union representative
and based on years of service and included the continuation of health
insurance coverage after the termination date. As a result of subsequent
negotiations with union representatives, an additional liability of
$4.0 million for termination benefits was recorded in fiscal 1998. The
Pennsylvania facility was closed in March 1999, and all payments related to
the liability were made in the first quarter of fiscal 2000. The closure of
the Pennsylvania facility was delayed due to computer software problems
encountered in opening the Maryland facility.

5. Change in Accounting Method:

  In the fourth quarter of fiscal 2000, the Company changed its application of
the LIFO method of accounting by restructuring its LIFO pool structure through
a combination of certain existing geographic pools. The reduction in the
number of LIFO pools was made to more closely align the LIFO pool structure to
the Company's store merchandise categories. The effect of this change in
fiscal 2000 was to decrease the Company's earnings by $6,840 (net of tax
effect of $4,560), or $.03 per diluted common share. The cumulative effect of
the accounting change on periods prior to fiscal 2000 was a charge of $27,300
(net of tax effect of $18,200), or $.11 per diluted common share. The pro
forma effect of this accounting change would have been a reduction in income
of $6,360 net of income tax effect of $4,240 or $.02 per diluted common share,
and $12,600 net of income tax effect of $8,400 or $.05 per common share, for
fiscal years 1999 and 1998, respectively.

6. Accounts Receivable:

  During November 1997, the Company and certain of its subsidiaries entered
into an agreement to sell, on an ongoing basis, a pool of receivables to a
wholly owned bankruptcy-remote special purpose funding subsidiary (the
"funding subsidiary") of the Company. The funding subsidiary is a distinct
legal entity that engages in no trade or business in order to make remote the
possibility that it would enter bankruptcy or other receivership and is
consolidated for financial reporting purposes. The Company and certain
subsidiaries transfer all of their accounts receivable (principally
representing amounts owed by third-party prescription payers) to the funding
subsidiary for a beneficial interest in the funding subsidiary. The funding
subsidiary has sold and, subject to certain conditions, may from time to time
sell an undivided fractional ownership interest in the pool of receivables to
a multi-seller receivables securitization company. The securitization company
is free to pledge or exchange its interests and the Company is not entitled to
repurchase them. The accounts receivable sold to the funding subsidiary which
sold an undivided fractional ownership interest to the securitization company
have been derecognized on the Company's consolidated balance sheet. Upon the
sale, the Company allocates its basis in the receivables between the interest
sold and the interest retained in relation to their relative fair values. The
remaining receivables, representing retained interests of the Company and
certain of its subsidiaries in the funding subsidiary, continue to be carried
on the Company's consolidated balance sheet at the lower of their cost or
market value, which was $130,636 and $68,220 as of February 26, 2000 and
February 27, 1999.

  Under the terms of the agreement, new receivables are added to the pool as
collections reduce previously sold accounts receivable. The Company services,
administers and collects the receivables on behalf of the purchaser. Total
proceeds outstanding from the securitization of receivables as of February 26,
2000 were approximately $294,140, representing an increase of approximately
$2,640 from the February 27, 1999 balance of $291,500. The additional proceeds
received during fiscal 2000 were used to reduce outstanding commercial

                                     F-15
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


paper borrowings and are reflected as operating cash flows in the accompanying
consolidated statements of cash flows. The Company recognizes no servicing
asset or liability because the benefits of servicing are expected to represent
adequate compensation for the services performed. Expenses of $18,052 and
$15,532 associated with the securitization program were recognized as a
component of selling, general and administrative expenses for the years ended
February 26, 2000 and February 27, 1999.

  The Company maintains an allowance for doubtful accounts receivable based
upon the expected collectibility of accounts receivable, including retained
interests in receivables sold. The Company recorded an allowance for
uncollectible accounts of $40,870 at February 26, 2000 and $40,190 at February
27, 1999. The Company's accounts receivable of the retail segment are due
primarily from third-party providers (e.g., insurance companies and
governmental agencies) under third-party payment plans and are booked net of
any allowances provided for under the respective plans. Since payments due
from third-party payers are sensitive to payment criteria changes and
legislative actions, the allowance is reviewed continually and adjusted for
accounts deemed uncollectible by management. Additionally, accounts receivable
for the Company's PBM Segment are due primarily from claims reimbursement
receivables, claims processing fees receivables and manufacturer program
receivables.

7. Property, Plant and Equipment:

  Following is a summary of property, plant and equipment at February 26, 2000
and February 27, 1999;

<TABLE>
<CAPTION>
                                                            2000        1999
                                                         ----------  ----------
      <S>                                                <C>         <C>
      Land.............................................. $  770,424  $  809,304
      Buildings.........................................  1,054,189     974,944
      Leasehold Improvements............................  1,263,076   1,124,094
      Equipment.........................................  1,622,363   1,392,425
      Construction in progress..........................     89,902     291,401
                                                         ----------  ----------
        Property, plant and equipment, cost.............  4,799,954   4,592,168
      Accumulated depreciation.......................... (1,170,035)   (947,069)
                                                         ----------  ----------
        Property, plant and equipment, net.............. $3,629,919  $3,645,099
                                                         ==========  ==========
</TABLE>

  Depreciation and amortization expenses, which include the depreciation of
assets recorded under capital leases, were $322,107 in 2000, $272,321 in 1999
and $255,535 in 1998.

  Substantially all of the Company's owned properties on which it operates
stores are pledged as collateral under the Company's debt agreements. The
carrying amount of idle facilities is $113,454 and $153,517 at February 26,
2000 and February 27, 1999.

8. Investments in Fifty Percent or Less Owned Subsidiaries:

  In July 1999, the Company purchased 9,334,746 of Series E Convertible
Preferred Shares in drugstore.com, an on-line pharmacy (the "investee"), for
cash of $8,125 and the Company's agreement to provide access to the Company's
pharmacy networks and insurance coverages, advertising commitments, and
exclusivity agreements. Also in July 1999, each of the Company's Series E
Convertible Preferred Shares converted to one share of common stock at the
time of the investee's initial public offering representing 21.6% of the
voting stock immediately after the initial public offering. The initial
investment which is recorded in Other assets was valued at $168,025, equal to
the initial public offering price of $18 per share multiplied by the Company's
shares. The Company accounts for the investment on the equity method because
the Company has significant influence over

                                     F-16
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the investee resulting from its share of the voting stock and its right to
appoint one board member and a number of significant operating agreements.
Included in Other noncurrent liabilities is the fair value of the operating
agreements of $159,900 which has been deferred and is being amortized over 10
years, the life of the arrangements described above. The excess of the initial
investment value over the Company's share of the underlying equity of the
investee is $77,320 and is being amortized over 7 years. As a result of the
start-up nature of the investee, the Company recorded an increase to its
investment of $2,929 and a corresponding increase to capital in connection
with the sale of stock by the investee during fiscal 2000.

  In June 1999, the Company sold its investment in Diversified Prescription
Delivery LLC, a provider of pharmacy benefit management services and online
prescription delivery services. The sales price was $22,860 and resulted in a
loss of $811. The investment was accounted for on the equity method with a
carrying amount of $23,671 at the date of sale.

  In February 2000, the Company sold its investment in Stores Automated
Systems, Inc. ("SASI"), a manufacturer of integrated point of sale systems.
The investment was accounted for on the equity method with a carrying amount
of $8,005 at the date of sale. The $8,805 sales price included cash and
forgiveness of payables, and resulted in a gain of $800.

  The Company's share of undistributed earnings of fifty percent or less owned
subsidiaries accounted for on the equity method was $0 and $7,263 at February
26, 2000 and February 27, 1999, respectively.

9. Goodwill and Other Intangibles:

  Following is a summary of intangible assets at February 26, 2000 and
February 27, 1999:

<TABLE>
<CAPTION>
                                                            2000        1999
                                                         ----------  ----------
   <S>                                                   <C>         <C>
   Goodwill............................................. $2,218,761  $2,278,002
   Trade name...........................................    113,300     113,300
   Lease acquisition costs and favorable leases.........    739,406     730,893
   Prescription files and customer lists................    558,226     533,132
   Assembled workforce..................................     62,947      61,959
   Other................................................     21,900      21,900
                                                         ----------  ----------
                                                          3,714,540   3,739,186
   Accumulated amortization.............................   (583,470)   (416,327)
                                                         ----------  ----------
                                                         $3,131,070  $3,322,859
                                                         ==========  ==========
</TABLE>

10. Accrued Salaries, Wages, and other Current Liabilities:

  Accrued salaries, wages and other current liabilities consist of the
following at February 26, 2000 and February 27, 1999:

<TABLE>
<CAPTION>
                                                              2000      1999
                                                            --------- ---------
   <S>                                                      <C>       <C>
   Accrued compensation.................................... $ 183,099 $ 277,862
   Accrued interest........................................    61,441    42,631
   Reserve for lease exit costs............................    42,651    49,588
   Deferred rent...........................................    40,871    50,628
   Deferred income.........................................    44,581    66,287
   Other...................................................   503,782   170,244
                                                            --------- ---------
                                                            $ 876,425 $ 657,240
                                                            ========= =========
</TABLE>

                                     F-17
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Indebtedness and Credit Agreements:

  Following is a summary of indebtedness at February 26, 2000 and February 27,
1999:

<TABLE>
<CAPTION>
                                                         2000        1999
                                                      ----------  -----------
<S>                                                   <C>         <C>
Commercial paper borrowings under existing credit
 facilities--5.2% and 5.5% weighted average rates in
 fiscal years 2000, and 1999......................... $  192,000  $ 1,783,125
Revolving credit facility due 2002 (amended and
 restated)...........................................    716,073          --
Term loan due 2002 (amended and restated)............  1,300,000          --
Term note due 2002 (amended and restated)............    272,422          --
5.25% convertible subordinated notes due 2002........    649,986      649,991
6.70% notes due 2001.................................    350,000      350,000
7.125% notes due 2007................................    350,000      350,000
7.70% notes due 2027.................................    300,000      300,000
5.50% fixed-rate senior notes due 2000...............    200,000      200,000
6.00% dealer remarketable securities due 2003........    200,000      200,000
6.00% fixed-rate senior notes due 2005...............    200,000      200,000
7.625% senior notes due 2005.........................    200,000      200,000
6.875% senior debentures due 2013....................    200,000      200,000
6.125% fixed-rate senior notes due 2008..............    150,000      150,000
6.875% fixed-rate senior notes due 2028..............    150,000      150,000
3.5% to 10.475% industrial development bonds due
 through 2016........................................      5,196        8,672
Other................................................     29,056       31,283
                                                      ----------  -----------
                                                       5,464,733    4,773,071
Short-term debt and current maturities of long-term
 debt................................................    (76,086)  (1,570,789)
                                                      ----------  -----------
Long-term debt less current maturities............... $5,388,647  $ 3,202,282
                                                      ==========  ===========
</TABLE>
  In December 1999, absent a waiver the Company would have failed to meet
certain reporting covenants contained in its bank credit and loan agreements
and public debt indentures, in particular the filing of quarterly financial
information in a timely manner. As a result, the Company obtained waivers of
these reporting requirements. These waivers relieve the Company from the
reporting requirements until July 11, 2000 at which time the Company is
required to submit all delinquent reports. In particular, the Company must
submit quarterly financial information for the quarters ended November 27,
1999 and May 27, 2000 and the fiscal year ended February 26, 2000. These
waivers enabled the Company to continue accessing funds under the credit
arrangements and provided a stay from debt acceleration clauses contained
under both the bank credit and loan agreements and the public debt indentures.
Company management subsequently renegotiated all of its bank credit and loan
agreements (see note 23). Management believes that they are in compliance with
the covenants contained within these new agreements.

  As described in Note 23, in connection with a refinancing on June 14, 2000,
the Company extended the maturity date of all its bank debt to 2002. In
addition, $52,500 of the Company's 5.50% senior notes due December 2000 were
exchanged for new 10.50% senior secured notes due September 2002. Another
$93,200 of the 5.50% senior notes will be refinanced in December 2000 with
proceeds received from the sale of 10.50% senior secured notes due September
2002 through a forward purchase agreement. All bank debt and notes with
extended maturities are reflected as long-term debt in the financial
statements.

  As of February 27, 1999, the Company had a $1,000,000 unsecured revolving
credit facility, expiring in July 2001, to support its commercial paper
program and a $1,300,000 unsecured revolving credit facility, expiring in
October 1999, to support commercial paper borrowings to complete the
acquisition of PCS. In June 1999, the Company borrowed an additional $300,000
from one of its banks under a demand note. In September 1999, the Company
determined it was in default on certain financial covenants in the credit
agreements. On October 27, 1999,

                                     F-18
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company's banks agreed to extend $2,600,000 of its outstanding credit
facilities. As a result, the due dates of the $1,300,000 revolving credit
facility scheduled to mature on October 29, 1999 and the $300,000 note that
was due on demand were extended to November 1, 2000. The Company's $1,000,000
revolving credit facility, which was to mature on July 19, 2001, was also
amended and restated. Borrowings under the credit facilities carry higher
interest costs than commercial paper. The interest rates under the Company's
credit facilities are based on prime or LIBOR plus a risk adjusted spread. As
of February 26, 2000, borrowings under the $1,300,000 facility were at LIBOR
plus 3.5%. Borrowings outstanding under the $1,000,000 facility and the
$300,000 bank note were $716,073 and $272,422, respectively, as of February
26, 2000 with interest rates at LIBOR plus 4.00%. Borrowings repaid under
these credit facilities cannot be re-borrowed. These borrowings have financial
and restrictive covenants that, among other things, restrict our ability to
incur liens and debt, pay dividends, make redemptions and repurchases of
capital stock, make loans, investments and capital expenditures, prepay,
redeem, or repurchase debt, engage in mergers, consolidations, asset
dispositions, sale leaseback transactions and affiliate transactions, change
our business, amend certain debt and other material agreements, issue and sell
capital stock of subsidiaries, make distributions from subsidiaries and grant
negative pledges to creditors.

  In connection with obtaining waivers of compliance with, and modifications
to certain of the covenants during the third and fourth quarters of fiscal
year 2000 and the subsequent extensions and restructuring described above, the
Company paid fees and transaction costs of approximately $62,777.
Additionally, the Company issued three-year warrants to purchase 2,500,000
shares of common stock at $11.00 per share.

  The fair value assigned to the warrants was $8,500 and is being amortized
over the term of the associated debt instruments. Additionally, as part of the
restructuring, the Company entered into a financial advisory agreement for a
period of one year. The Company is making payments under the advisory
agreement of $2,000 per month. These costs are being amortized over the life
of the contract, which approximates the term of restructured debt agreements.

  On December 15, 1998, the Company completed the sale of securities
aggregating $700,000. The sale of securities included $200,000 of 5.50% fixed-
rate senior notes due December 15, 2000; $200,000 of 6.00% fixed-rate senior
notes due December 15, 2005; $150,000 of 6.125% fixed-rate senior notes due
December 15, 2008; and $150,000 of 6.875% fixed-rate senior notes due December
15, 2028. Interest is payable semi-annually on December 15 and June 15.
Financing costs for each issue are being amortized over the period until the
maturity date.

  On September 22, 1998, the Company issued $200,000 of dealer remarketable
securities ("DRS") due October 1, 2013. The DRS bear interest at a rate of
6.00% from September 22, 1998 until October 1, 2003 (the remarketing date).
Interest is payable semi-annually on April 1 and October 1 of each year
commencing April 1, 1999. Finance costs are being amortized over the period
until the remarketing date. If the remarketing dealer elects to remarket the
DRS, the DRS will be subject to mandatory tender on the remarketing date. If
the remarketing dealer elects not to remarket the DRS, or for any reason does
not purchase all of the DRS on the remarketing Date, the Company will be
required to purchase on the remarketing date any DRS that have not been
purchased by the remarketing dealer. Net proceeds from the sale of securities
were used to repay commercial paper previously issued by the Company. On
December 24, 1999, the remarketing dealer put their remarketing option back to
the Company resulting in a final maturity date for the DRS of October 1, 2003.

  On September 10, 1997, the Company completed the sale of $650,000 of 5.25%
convertible subordinated notes due September 15, 2002. The notes are
convertible into shares of the Company's common stock at any time on or after
the 90th day following the last issuance of notes and prior to the close of
business on the maturity date, unless previously redeemed or repurchased. The
conversion price is $36.14 per share (equivalent to a conversion rate of 27.67
shares per $1 principal amount of notes), subject to adjustment in certain
events. Interest on the notes is payable semiannually on March 15 and
September 15 of each year, commencing on March 15, 1998. The notes may be
redeemed at the option of the Company on or after September 15, 2000, in whole
or in part. The proceeds from the sale of the notes were used to refinance and
repay commercial paper previously issued by the Company.

                                     F-19
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  On December 20, 1996, the Company issued securities aggregating $1,000,000.
The sale of securities included $350,000 of 6.70% notes due December 15, 2001,
$350,000 of 7.125% notes due January 15, 2007 and $300,000 of 7.70% debentures
due February 15, 2027.

  On April 20, 1995, the Company issued $200,000 of 7.625% senior notes due
April 15, 2005. Net proceeds from the sale of the notes were used for general
corporate purposes, including the repayment of outstanding commercial paper of
the Company. The notes may not be redeemed prior to maturity and will not be
entitled to any sinking fund.

  In August 1993, the Company issued 6.875% senior debentures having an
aggregate principal amount of $200,000. These debentures are due August 15,
2013, may not be redeemed prior to maturity, and are not entitled to any
sinking fund. The net proceeds from this issuance were used for working
capital and general corporate purposes, including the repayment of outstanding
commercial paper of the Company.

  The Company had outstanding letters of credit of $41,624 at February 26,
2000 and $41,383, at February 27, 1999. Also, the Company had provided
permanent financing guarantees to certain of its store construction developers
to be effective, if such developers were unable to obtain their own permanent
financing upon completion of the store construction. These guarantees totaled
$33,774 at February 26, 2000 and $ 65,130 at February 27, 1999.

  The aggregate annual principal payments of long-term debt for the five
succeeding fiscal years are as follows: 2001, $76,086; 2002, $29,879; 2003,
$3,601,985, 2004; $200,678; 2005, $2,289; and $1,553,816 in 2006 and
thereafter. The Company is in compliance with restrictions and limitations
included in the provisions of various loan and credit agreements.

12. Income Taxes:

  The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                  2000      1999       1998
                                                --------  ---------  --------
   <S>                                          <C>       <C>        <C>
   Current tax benefit:
     Federal................................... $ 10,500  $ (19,453) $(10,059)
     State.....................................      --         --        --
                                                --------  ---------  --------
                                                  10,500    (19,453)  (10,059)
                                                --------  ---------  --------

   Deferred tax benefit:
     Federal...................................  (17,092)  (190,789)  (58,707)
     State.....................................  (11,600)   (10,713)   (4,268)
                                                --------  ---------  --------
                                                 (28,692)  (201,502)  (62,975)
                                                --------  ---------  --------
   Total income tax benefit.................... $(18,192) $(182,049) $(52,916)
                                                ========  =========  ========

  A reconciliation of the provision for income taxes as presented on the
consolidated statement of operations is as follows:

<CAPTION>
                                                  2000      1999       1998
                                                --------  ---------  --------
   <S>                                          <C>       <C>        <C>
   Income tax expense (benefit) from
    operations................................. $      8  $(182,049) $(52,916)
   Income tax expense benefit related to
    cumulative effect of accounting change.....  (18,200)       --        --
                                                --------  ---------  --------
     Total income tax benefit.................. $(18,192) $(182,049) $(52,916)
                                                ========  =========  ========
</TABLE>

                                     F-20
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



  A reconciliation of the statutory federal rate and the effective rate is as
follows:

<TABLE>
<CAPTION>
   Percentage                2000    1999    1998
   ----------                -----   -----   -----
   <S>                       <C>     <C>     <C>
   Federal statutory rate..  (35.0)% (35.0)% (35.0)%
   Nondeductible expenses..    3.3     4.0     9.2
   State income taxes,
    net....................   (4.3)   (4.3)   (3.5)
   Tax credits.............     .4      .8     1.9
   Valuation allowance.....   33.3     3.1     4.0
   Other...................    2.3     1.2     1.2
                             -----   -----   -----
   Effective tax rate......    -- %  (30.2)% (22.2)%
                             =====   =====   =====
</TABLE>

  The tax effect of temporary differences that give rise to significant
components of deferred tax assets and liabilities is as follows:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            ---------  --------
   <S>                                                      <C>        <C>
   Deferred tax assets:
     Accounts receivable................................... $  45,392  $ 46,248
     Accrued expenses......................................   140,532    70,953
     Liability for lease exit costs........................   113,907   122,370
     Pension, retirement and other benefits................    73,745    97,240
     Deferred gain.........................................    59,863       --
     Credits...............................................    69,840    53,840
     Net operating losses..................................   471,947   242,556
                                                            ---------  --------
       Total gross deferred tax assets.....................   975,226   633,207
   Valuation allowance.....................................  (474,217)  (91,765)
                                                            ---------  --------
       Net deferred tax assets.............................   501,009   541,442
                                                            ---------  --------
   Deferred tax liabilities:
     Inventory.............................................   121,119   190,772
     Long-lived assets.....................................   457,078   458,263
     Other.................................................     2,032     1,766
                                                            ---------  --------
       Total gross deferred tax liabilities................   580,229   650,801
                                                            ---------
   Net deferred tax liabilities............................ $  79,220  $109,359
                                                            =========  ========
   Current deferred tax liabilities........................       --     28,045
   Noncurrent deferred tax liabilities.....................    79,220    81,314
                                                            ---------  --------
   Net deferred tax liabilities............................ $  79,220  $109,359
                                                            =========  ========
</TABLE>

Net Operating Losses and Tax Credits

  At February 26, 2000 and February 27, 1999, the Company has federal net
operating loss (NOL) carryforwards of approximately $855,610 and $305,207, the
majority of which expire between fiscal 2017 and 2020.

  At February 26, 2000 and February 27, 1999, the Company has state NOL
carryforwards of approximately $1,662,602 and $927,614, the majority of which
expire by fiscal 2005 and the remaining balance by fiscal 2015.


                                     F-21
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  At February 26, 2000 and February 27, 1999, the Company has federal business
tax credit carryforwards of approximately $61,394 and $45,394, the majority of
which expire between fiscal 2017 and 2020. In addition to these credits, the
Company has alternative minimum tax credit carryforwards of $7,512 at fiscal
2000 and 1999.

Valuation Allowances

  The valuation allowances as of February 26, 2000, and February 27, 1999 are
$474,217 and $91,765 respectively and principally apply to NOL and tax credit
carryforwards. The Company believes that it is more likely than not that those
carryovers will not be realized. The Company's valuation allowance may
increase significantly in the event that it disposes of PCS. (See note 23)

12-1. Financial Instruments:

  The carrying amounts and fair values of financial instruments at February
26, 2000 and February 27, 1999 are listed as follows:

<TABLE>
<CAPTION>
                                           2000                  1999
                                   --------------------- ---------------------
                                    Carrying              Carrying
                                     Amount   Fair Value   Amount   Fair Value
                                   ---------- ---------- ---------- ----------
   <S>                             <C>        <C>        <C>        <C>
   Commercial paper and credit
    facility indebtedness......... $2,480,495 $2,480,495 $1,783,125 $1,783,125
   Long-term indebtedness
    (excluding lease contracts)...  2,984,238  1,959,252  2,989,946  3,217,057
   Note receivable................     32,889     36,102     29,043     34,310
</TABLE>

  Cash, trade receivables and trade payables are carried at market value,
which approximate their fair values due to the short-term maturity of these
instruments.

  The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:

Commercial paper and LIBOR-based borrowings under credit facilities:

  The carrying amounts for commercial paper indebtedness and LIBOR-based
borrowings under the credit facilities, term loan and term note approximate
their fair market values due to the short-term nature of the obligations and
the variable interest rates.

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 or based on the
present value of estimated future cash flows using a discount rate on similar
long-term indebtedness issued by the Company.

Note receivable:

  The fair value of the fixed-rate note receivable was determined using the
present value of projected cash flows, discounted at a market rate of interest
for similar instruments.

                                     F-22
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



13. Retirement Plans:

  The Company and its subsidiaries have numerous retirement plans covering
salaried employees and certain hourly employees. The retirement plans include
a profit sharing retirement plan and other defined contribution plans.
Contributions for the profit sharing plan are a discretionary percent of each
covered employee's salary, as determined by the Board of Directors based on
the Company's profitability. Total expenses recognized for the profit sharing
plan were $9,945 in 2000, $6,091 in 1999, and $2,363 in 1998. Employer
contributions for other defined contribution plans are generally based upon a
percentage of employee contributions. The expenses recognized for these plans
were $10,375 in 2000, $7,847 in 1999, and $8,293 in 1998. There are also
several defined benefit plans that require benefits to be paid to eligible
employees based upon years of service with the Company or formulas applied to
their compensation. The Company's funding policy is to contribute the minimum
required by the Employee Retirement Income Security Act of 1974.

  Net periodic pension cost for the defined benefit plans includes the
following components:

<TABLE>
<CAPTION>
                                                         Nonqualified
                          Defined Benefit Pension    Executive Retirement Retiree Health
                                   Plans                     Plan         Benefits Plan
                          -------------------------  -------------------- --------------
                           2000     1999     1998     2000   1999   1998  2000 1999 1998
                          -------  -------  -------  ------ ------ ------ ---- ---- ----
<S>                       <C>      <C>      <C>      <C>    <C>    <C>    <C>  <C>  <C>
Service cost............  $ 8,505  $ 5,363  $ 5,015  $  671 $  514 $  402 $693 $57  $--
Interest cost...........    5,851    4,091    3,559   1,497  1,424  1,350  252  22   --
Expected return on plan
 assets.................   (7,670)  (5,117)  (4,219)    --     --     --   --  --    --
Amortization of
 unrecognized net
 transition
 (asset)/obligation.....     (160)    (160)    (160)  1,163  1,163  1,163  --  --    --
Amortization of
 unrecognized prior
 service cost...........      376      473      390     --     --     --   --  --    --
Amortization of
 unrecognized net gain..     (182)    (202)     --      --     --     --   --  --    --
                          -------  -------  -------  ------ ------ ------ ---- ---  ----
Pension expense.........  $ 6,720  $ 4,448  $ 4,585  $3,331 $3,101 $2,915 $945 $79  $--
                          =======  =======  =======  ====== ====== ====== ==== ===  ====
</TABLE>

                                     F-23
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



  The table below sets forth a reconciliation from the beginning of the year
for both the benefit obligation and plan assets of the Company's retirement
and health benefits plans, as well as the funded status and amounts recognized
in the Company's balance sheet as of February 26, 2000 and February 27, 1999:

<TABLE>
<CAPTION>
                                               Nonqualified
                          Defined Benefit        Executive       Retiree Health
                           Pension Plans      Retirement Plan    Benefits Plans
                          -----------------  ------------------  ----------------
                            2000     1999      2000      1999     2000     1999
                          --------  -------  --------  --------  -------  -------
<S>                       <C>       <C>      <C>       <C>       <C>      <C>
Change in benefit
 obligations:
  Benefit obligation at
   end of prior year....  $ 86,908  $58,048  $ 21,891  $ 20,906  $ 3,433  $   --
  Service cost..........     8,505    5,363       671       514      693       57
  Interest cost.........     5,851    4,091     1,497     1,424      252       22
  Distributions.........    (9,844)  (6,097)   (1,224)     (650)     (60)      (5)
  Purchase of PCS.......       --    23,537       --        --       --     3,359
  Change due to change
   in assumptions.......    (4,655)   1,486    (1,281)      (50)     --       --
  Change due to plan
   amendment............       187      665    18,891       --       --       --
  Actuarial (gain) or
   loss.................     2,425     (185)   (5,754)     (253)     323      --
                          --------  -------  --------  --------  -------  -------
Benefit obligation at
 end of year............  $ 89,377  $86,908  $ 34,691  $ 21,891  $ 4,641  $ 3,433
                          ========  =======  ========  ========  =======  =======
Change in plan assets:
  Fair value of plan
   assets at beginning
   of year..............  $ 93,366  $58,212  $    --   $    --   $   --   $   --
  Employer
   contributions........     5,611    7,315     1,224       651       60        5
  Actual return on plan
   assets...............    20,544   13,727       --        --       --       --
  Purchase of PCS.......       --    21,507       --        --       --       --
  Distributions
   (including assumed
   expenses)............   (10,601)  (6,744)   (1,224)     (651)     (60)      (5)
                          --------  -------  --------  --------  -------  -------
Fair value of plan
 assets at end of year..  $108,920  $94,017  $    --   $    --   $   --   $   --
                          ========  =======  ========  ========  =======  =======
Funded status...........  $ 19,543  $ 7,109  $(34,691) $(21,891) $(4,641) $(3,433)
Unrecognized net loss
 (gain).................   (21,532)  (7,369)   (5,972)    1,064      323      --
Unrecognized prior
 service cost...........     1,808    2,752    18,891       --       --       --
Unrecognized net
 transition (asset) or
 obligation.............      (339)    (498)   12,790    13,953      --       --
                          --------  -------  --------  --------  -------  -------
Prepaid or (accrued)
 pension cost
 recognized.............  $   (520) $ 1,994  $ (8,982) $ (6,874) $(4,318) $(3,433)
                          ========  =======  ========  ========  =======  =======
Amounts recognized in
 consolidated balance
 sheets consisted of:
  Prepaid (accrued)
   pension cost.........  $  4,787  $ 4,551  $ (8,982) $ (6,874) $   --   $   --
  Adjustment to
   recognize additional
   minimum liability....       --     1,039   (22,836)  (12,536)     --       --
  Accrued pension
   liability............    (5,307)  (3,596)      --        --    (4,318)  (3,433)
  Pension intangible
   asset................       --       --     22,836    12,061      --       --
  Accumulated other
   comprehensive
   income...............       --       --        --        475      --       --
                          --------  -------  --------  --------  -------  -------
Net amount recognized...  $   (520) $ 1,994  $ (8,982) $ (6,874) $(4,318) $(3,433)
                          ========  =======  ========  ========  =======  =======
</TABLE>

                                     F-24
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



  The amounts recognized in the accompanying consolidated balance sheets as of
February 26, 2000 and February 27, 1999 are as follows:

<TABLE>
<CAPTION>
                            Defined Benefit   Nonqualified Executive    Retiree Health
                             Pension Plans        Retirement Plan        Benefits Plan
                            ----------------  ------------------------  ----------------
                             2000     1999       2000         1999       2000     1999
                            -------  -------  -----------  -----------  -------  -------
   <S>                      <C>      <C>      <C>          <C>          <C>      <C>
   Accrued benefit
    liability.............. $(5,307) $(2,557) $    (8,982) $    (6,874) $(4,318) $(3,433)
   Prepaid pension cost....   4,787    4,551          --           --       --       --
                            -------  -------  -----------  -----------  -------  -------
   Net amount recognized... $  (520) $ 1,994  $    (8,982) $    (6,874) $(4,318) $(3,433)
                            =======  =======  ===========  ===========  =======  =======
</TABLE>

  The accumulated benefit obligation and fair value of plan assets for the
defined benefit pension plans with plan assets in excess of accumulated
benefit obligations were $58,798 and $84,084, respectively, as of February 26,
2000, and $30,579 and $24,836, respectively, as of February 27, 1999.

  The significant actuarial assumptions used for all defined benefit pension
plans were as follows:

<TABLE>
<CAPTION>
                              Defined Benefit  Non-Qualified
                               Pension Plan      Executive     Defined Benefit
                               (Retail Drug      Retirement     Pension Plan
                                 Segment)           Plan        (PBM Segment)
                             ----------------- -------------- -----------------
   Percentage                2000  1999  1998  2000 1999 1998 2000  1999  1998
   ----------                ----- ----- ----- ---- ---- ---- ----- ----- -----
   <S>                       <C>   <C>   <C>   <C>  <C>  <C>  <C>   <C>   <C>
   Discount rate............  7.25  6.75  7.00 7.83 9.00 7.93  7.80  7.80  --
   Rate of increase in
    future
    compensation levels.....  4.50  4.75  4.75 3.00 3.00 3.00  5.90   --   --
   Expected long-term rate
    of return on
    plan assets.............  9.00  9.00  9.00 9.00 9.00 9.00  9.00   --   --
</TABLE>

  Through its acquisition of PCS, the Company also assumed a retiree health
benefits plan that provides for certain health benefits at retirement for
covered employees. Healthcare cost trend rates were assumed to increase at an
annual rate of 6.5 percent in 1999 for participants under the age of 65, and
decrease one-half percent per year to 5.0 percent in 2002 and thereafter. For
participants over the age of 65, the rate was assumed to increase 5.0 percent
in 1999 and thereafter.

  The assumed health care cost trend rates have a significant effect on the
retiree health benefits amounts reported. If these trend rates were to be
increased by one percentage point each future year, the accumulated post-
retirement benefit obligation would increase by 16.1 percent and the aggregate
service and interest cost components of the expense recognized in 2000 would
increase by 17.6 percent. A one percentage point decrease in these rates would
reduce the accumulated post-retirement benefit obligation by 13.9 percent and
the aggregate service and interest cost components of the expense recognized
in 2000 would decrease by 14.9 percent.

                                     F-25
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



14. Leases:

  The Company leases most of its retail stores and certain distribution
facilities under noncancellable operating and capital leases, most of which
have initial lease terms ranging from 10 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 7 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.
Total rental expense, net of sublease income, was $423,926 in 2000, $330,513
in 1999 and $267,384 in 1998. These amounts include contingent rentals of
$19,124, $26,761, and $23,628, respectively. Deferred rent credits total
$6,078 and $5,267 at February 26, 2000 and February 27, 1999, respectively.

  The company is a guarantor on certain leases transferred to third parties
through sales or assignments.

  The Company leases certain facilities through sale-leaseback arrangements
accounted for using the financing method. Proceeds from sale-leaseback
programs were approximately $74,899 in 2000, $504,990 in 1999 and $323,803 in
1998.

  The net book values of assets under capital leases and sale-leasebacks
accounted for under the financing method are summarized as follows:
<TABLE>
<CAPTION>
                                                       February 26, February 27,
                                                           2000         1999
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Land...............................................    343,948      328,610
   Buildings..........................................    562,699      533,805
   Equipment..........................................     86,348       77,453
   Accumulated depreciation...........................    (36,043)     (20,391)
                                                         --------     --------
                                                         $956,952     $919,477
</TABLE>

  Following is a summary of lease finance obligations at February 26, 2000 and
February 27, 1999:

<TABLE>
<CAPTION>
                                                          2000        1999
                                                       ----------  ----------
<S>                                                    <C>         <C>
Sale-Leaseback obligations accounted for under the
 financing method..................................... $  989,908  $  934,906
Obligations under capital leases......................    154,224     206,794
                                                       ----------  ----------
Total.................................................  1,144,132   1,141,700
Less current obligation...............................    (25,928)    (31,522)
                                                       ----------  ----------
Long-term lease finance obligations................... $1,118,204  $1,110,178
                                                       ==========  ==========
</TABLE>

  Following are the minimum lease payments net of sublease income that will
have to be made in each of the years indicated based on non-cancellable leases
in effect as of February 26, 2000:

<TABLE>
<CAPTION>
                                               Financing obligation
                                               under sale-leaseback
                                                 arrangements and
                                                  Capital Lease      Operating
   Fiscal year                                     obligations        Leases
   -----------                                 -------------------- -----------
   <S>                                         <C>                  <C>
   2001.......................................     $   119,757      $   460,252
   2002.......................................         119,264          446,324
   2003.......................................         116,687          424,387
   2004.......................................         114,701          398,264
   2005.......................................         114,201          380,415
   Later years................................       1,454,176        3,676,112
                                                   -----------      -----------
   Total minimum lease payments...............       2,039,286      $ 5,785,754
                                                                    ===========
   Amount representing interest...............         895,154
                                                   -----------
   Present value of minimum lease payments....     $ 1,144,132
                                                   ===========
</TABLE>


                                     F-26
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15. Capital Stock:

  In October 1999, the Company issued 3,000,000 shares of $1.00 par value 8%
Series A Convertible Preferred Stock for cash of $300,000. The shares have a
liquidation value of $100.00 per share with preference over all existing
classes of preferred stock. The shares are callable by the Company beginning
October 2004 at the liquidation value plus a 5% premium. The shares accrue
cumulative dividends at 8% of the liquidation value of the outstanding shares.
Dividends may be paid in cash or additional shares. In December 1999, the
shares were exchanged for Series B Convertible Preferred Stock with the same
characteristics except that each Series B share has voting rights equivalent
to one share of common stock. The terms of the shares provide that they are
convertible into common stock at an initial conversion rate of $11.00 per
common share subject to adjustment based on future declines in the quoted
price or subsequent equity transactions based on per share prices lower than
$11.00. As a result of the Company's equity transaction on June 14, 2000,
further described in note 23, the conversion price was subsequently adjusted
to a conversion price of $5.50 per share. The resulting beneficial conversion
feature of approximately $165 million (representing the difference between
$5.50 and the market price of the Company's common stock on the issuance date
of the preferred stock), will be accreted as a return on the preferred stock
and will decrease earnings available to common shareholders beginning in the
second quarter of fiscal 2001.

  At a Special Meeting of Stockholders held on February 22, 1999, an amendment
to Rite Aid's Restated Certificate of Incorporation was approved to increase
the number of authorized shares of common stock, $1.00 par value, from
300,000,000 to 600,000,000. Accordingly, the authorized capital stock of the
Company consists of 600,000,000 shares of common stock and 20,000,000 shares
of preferred stock, both having a par value of $1.00 per share. Preferred
stock is issued in series subject to terms established by the Board of
Directors.

  On February 2, 1998, the Company effected a two-for-one stock split of the
Company's common stock to stockholders of record at the close of business on
January 20, 1998. The stock split increased the number of shares outstanding
by 135,644,000 shares. All share and per share amounts have been restated to
give effect to the stock split.

16. Redeemable Preferred Stock:

  In March 1999 and February 1999, Rite Aid Lease Management Company, a wholly
owned subsidiary of Rite Aid Corporation, issued 63,000 and 150,000, shares of
Cumulative Preferred Stock, Class A, par value $100 per share, respectively.
The Class A Cumulative Preferred Stock is mandatorily redeemable on April 1,
2019 at a redemption price of $100 per share plus accumulated and unpaid
dividends. The Class A Cumulative Preferred Stock pays dividends quarterly at
a rate of 7.0 percent per annum of the par value of $100 per share when, as
and if declared by the Board of Directors of Rite Aid Lease Management Company
in its sole discretion. The amount of dividends payable in respect of the
Class A Cumulative Preferred Stock may be adjusted under certain events. The
outstanding shares of the Class A Preferred Stock were recorded at the
estimated fair value of $5,695 and $13,559 for the 2000 and 1999 issuances,
respectively, which equaled the sale price on the date of issuance. Because
the fair value of the Class A Preferred Stock was less than the mandatory
redemption amount at issuance, periodic accretions to stockholders' equity
using the interest method are made so that the carrying amount equals the
redemption amount on the mandatory redemption date. Accretions were $97 in
fiscal year 2000 and $0 in 1999.

  In March 1998, RX Choice, Inc., a wholly owned subsidiary of Rite Aid
Corporation ("Rite Aid"), issued 10,000 shares of preferred stock, par value
$0.01, with a liquidation preference per share of $1,000 per share. Granted to
the holder of each share of preferred stock was an option ("Put Option") to
sell to Rite Aid all or any portion of the preferred stock held by the holder
on the date the Put Option is exercised. Each Put Option may be exercised any
time after March 25, 2003 and before March 25, 2004. In addition, Rite Aid has
an option ("Call Option") to purchase from the holders of the preferred stock,
all or any portion of the shares of preferred stock upon the exercise of the
Call Option. The Call Option may be exercised by Rite Aid any time after
March 20, 2004 and before March 20, 2005. The preferred stock carries a
mandatory obligation to declare and

                                     F-27
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


pay preferential dividends at the rate of 7.70 percent per annum of the
liquidation preference per share, payable quarterly. As amended and restated,
the articles of incorporation of RX Choice, Inc. authorize the issuance of
10,000 shares of preferred stock, of which 10,000 shares were issued in 1999.
During 2000, the Company repurchased and retired all of the shares at the
redemption value of $10,000.

17. Reconciliation of Numerator and Denominator for Basic and Diluted Earnings
Per Share:

<TABLE>
<CAPTION>
                                         February 26,  February 27,  February 28,
                                             2000          1999          1998
                                         ------------  ------------  ------------
   <S>                                   <C>           <C>           <C>
   Numerator for earnings per share:
     Loss before cumulative effect of
      accounting change................. $(1,115,756)  $  (422,482)  $  (186,191)
     Accretion of redeemable preferred
      stock.............................         (97)          --            --
     Dividends on preferred stock.......     (10,110)         (627)          --
                                         -----------   -----------   -----------
     Loss before cumulative effect of
      accounting change attributable to
      common stockholders...............  (1,125,963)     (423,109)     (186,191)
     Cumulative effect of accounting
      change............................     (27,300)          --            --
                                         -----------   -----------   -----------
   Net loss attributable to common
    stockholders........................ $(1,153,263)  $  (423,109)  $  (186,191)
                                         ===========   ===========   ===========
   Denominator:
     Basic weighted average shares...... 259,139,000   258,516,000   250,659,000
     Diluted weighted average shares.... 259,139,000   258,516,000   250,659,000
   Basic and diluted loss per share:
     Loss per share before cumulative
      effect of accounting change....... $     (4.34)  $     (1.64)  $     (0.74)
     Cumulative effect of accounting
      change............................       (0.11)          --            --
                                         -----------   -----------   -----------
     Basic and diluted loss per share... $     (4.45)  $     (1.64)  $     (0.74)
                                         ===========   ===========   ===========
</TABLE>

  In fiscal years 2000, 1999 and 1998, no potential common shares have been
included in the calculation of diluted earnings per share because of the
losses reported.

18. Stock Option and Stock Award Plans:

  The Company reserved 22,000,000 shares of its common stock for the granting
of stock options and other incentive awards to officers and key employees
under the 1990 Omnibus Stock Incentive Plan (the "1990 Plan"). Options may be
granted, with or without stock appreciation rights ("SARs"), at prices that
are not less than the fair market value of a share of common stock on the date
of grant. The 1990 Plan provides for 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. The exercise of either a SAR or
option automatically will cancel any related option or SAR. Under the Plan,
the payment for SARs will be made in shares, cash or a combination of cash and
shares at the discretion of the Compensation Committee.

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

                                     F-28
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Following is a summary of stock option transactions for the three fiscal
years ended February 26, 2000, February 27, 1999 and February 28, 1998:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                                         Price
                                                                          Per
                                                              Shares     Share
                                                            ----------  --------
   <S>                                                      <C>         <C>
   Balance, March 1, 1997.................................. 12,168,650   $13.43
     Granted...............................................    401,000    26.59
     Exercised.............................................   (771,500)   12.60
     Canceled..............................................   (306,376)   12.89
                                                            ----------   ------
   Balance, February 28, 1998.............................. 11,491,774    13.96
     Granted...............................................  4,054,000    32.74
     Exercised.............................................   (633,575)   14.58
     Canceled..............................................   (241,500)   20.18
                                                            ----------   ------
   Balance, February 27, 1999.............................. 14,670,699    19.02
     Granted............................................... 18,687,562     7.95
     Exercised.............................................    (64,650)   13.61
     Canceled.............................................. (7,488,707)   14.60
                                                            ----------   ------
   Balance, February 26, 2000.............................. 25,804,904   $12.30
                                                            ==========   ======
</TABLE>

  For various price ranges, weighted average characteristics of outstanding
stock options at February 26, 2000 were as follows:

<TABLE>
<CAPTION>
                            Outstanding Options           Exercisable Options
                      ----------------------------------  ---------------------
                                   Remaining   Weighted               Weighted
       Range of                      life      Average                Average
   exercise prices      Shares      (years)     Price      Shares      Price
   ---------------      ------     ---------   --------    ------     --------
   <S>                <C>          <C>         <C>        <C>         <C>
   $ 5.38              5,855,308     9.70       $ 5.38      600,000    $ 5.38
   $ 6.75 to $ 7.13      638,000     9.94       $ 6.94          --        --
   $ 7.35              7,000,000     9.77       $ 7.35      388,889    $ 7.35
   $ 7.44 to $ 9.25    3,059,416     5.82       $ 8.56    1,792,699    $ 9.22
   $ 9.56 to $16.50    2,955,600     5.54       $13.85    2,481,450    $13.42
   $16.63 to $23.00    2,871,000     7.35       $19.02    1,935,750    $17.16
   $23.06 to $32.00    2,791,080     8.40       $29.29      132,000    $29.39
   $32.06 to $48.81      634,500     8.61       $41.98      124,375    $43.89
   ----------------   ----------     ----       ------    ---------    ------
   $ 5.38 to $48.81   25,804,904     8.36       $12.30    7,455,163    $13.21
   ================   ==========     ====       ======    =========    ======
</TABLE>

                                     F-29
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



  The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
issued in October 1995. In accordance with the provisions of SFAS No. 123, the
Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plans and, accordingly, does not recognize compensation cost.
If the Company had elected to recognize compensation cost based upon the fair
value of the options granted at the grant date as prescribed by SFAS No. 123,
net income and earnings per share would have been reduced to the pro forma
amounts indicated in the table below:

<TABLE>
<CAPTION>
                                       February 26,  February 27, February 28,
                                           2000          1999         1998
                                       ------------  ------------ ------------
   <S>                                 <C>           <C>          <C>
   Net loss .......................... $(1,143,056)   $(422,482)   $(186,191)
   Pro forma compensation expense
    under fair value method...........     (13,478)      (9,658)      (5,686)
   Pro forma net loss.................  (1,156,534)    (432,140)    (191,877)
   Accretion of redeemable preferred
    stock.............................         (97)         --           --
   Dividends on preferred stock.......     (10,110)        (627)         --
   Pro forma net loss attributable to
    common stockholders............... $(1,166,741)   $(432,767)   $(191,877)
   Pro forma basic and diluted loss
    per share......................... $     (4.50)   $   (1.67)   $   (0.77)
</TABLE>

  The pro forma amounts only take into account the options issued since March
5, 1995. The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:

<TABLE>
<CAPTION>
                                                       2000      1999     1998
                                                     --------- --------- -------
   <S>                                               <C>       <C>       <C>
   Expected stock price volatility..................     58.0%     30.7%   25.0%
   Expected dividend yield..........................      0.0%      1.0%    1.5%
   Risk-free interest rate..........................      6.3%      5.6%    1.6%
   Expected life of options......................... 4.2 years 6.7 years 5 years
</TABLE>

  The average fair value of each option granted during 2000, 1999 and 1998 was
$4.09, $12.36 and $3.55, respectively.

Restricted Stock

  In December 1999, the new executive team received restricted stock grants of
1,000 shares. The Company recorded these grants at a fair value on the date of
the grant of $8,250. During fiscal 2000, the Company also made tax payments on
behalf of the executives to help defray the tax effects of the grant to the
executive. Under the restricted stock agreement, the restrictions placed on
the shares lapse over the period from December 1999 to November 2002. However,
in most circumstances the executive would only have to provide one year of
service to the Company to earn the total number of shares. Accordingly, the
Company is amortizing the cost of the stock grant over a period of one year
resulting in compensation expense of $2 million in 2000 relating to the
grants.

Stock Appreciation Units

  The Company has issued stock appreciation units to various members of field
management. The grant price for each unit is the closing price of the
Company's common stock on the date of grant. The units vest four years from
the date of grant. For each outstanding unit, the Company is obligated to pay
out the difference between the grant price and the average market price of one
share of the Company's common stock for the last twenty trading days before
the vesting date. The payment may be in cash or shares, at the discretion of
the Company; however, the Company has historically made cash payments.

  The Company's obligations under the stock appreciation units are remeasured
at each balance sheet date and amortized to compensation expense over the
vesting period.

  At February 26, 2000 and February 27, 1999, there were 7.0 million and 3.4
million stock appreciation rights units outstanding, respectively. Grant
prices for units outstanding at February 26, 2000 ranged from $5.38 to $48.56
per unit. Amounts charged or (credited) to expense relating to the stock
appreciation rights units for the fiscal years ended 2000, 1999, and 1998 were
$(45,500), $32,200, and $22,200, respectively.

19. Business Segments:

  The Company operates in primarily two business segments: i) the Retail Drug
segment, and ii) the Pharmacy Benefit Management ("PBM") segment, that
includes other managed health care services and mail-order pharmacy services.
The Company's business segments are organized according to the products and
services offered to its customers. The Company's dominant segment is the
Retail Drug segment, which consists of the operation of retail drugstores
across the United States. The Company is one of the largest retail drugstore
chains in the United States, with approximately 3,800 stores in operation as
of February 26, 2000. The Company's drugstores' primary business is pharmacy
services, with prescription drugs accounting for approximately 55 percent of
total segment sales. In addition, the Company's drugstores offer a full
selection of health and personal care products, seasonal merchandise and a
large private label product line.

  Through the January 1999 acquisition of PCS, the Company also operates a PBM
segment. Through its PBM segment, the Company offers pharmacy benefit
management services to employees, insurance carriers and managed car companies
as well as mail-order pharmacy services. Prior to fiscal 1999, the Company
operated only the Retail Drug segment. The Retail Drug segment in 1998
includes the results of Eagle Managed Care, a PBM, which is not considered
significant and a LIFO charge of $7,222.


                                     F-30
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The accounting policies of each segment are substantially the same as those
described in Note 1, except that segments are evaluated based upon a profit or
loss measurement on a FIFO basis. Financial information for each segment is
reported on this basis. The following table presents selected financial
information for each business segment and a reconciliation to the selected
financial information on a consolidated basis:

<TABLE>
<CAPTION>
                                  Retail        PBM       LIFO    Consolidated
                                  Segment     Segment    Charge      Totals
                                -----------  ---------- --------  ------------
<S>                             <C>          <C>        <C>       <C>
February 26, 2000:
  Revenues..................... $13,381,882  $1,299,560 $    --   $ 14,681,442
  Interest expense.............     520,336         --       --        520,336
  Depreciation and amortization
   expense.....................     423,642      77,355      --        500,997
  Loss from investment
   accounted for on the equity
   method......................     (11,893)        --       --        (11,893)
  Income tax expense
   (benefit)...................           8         --       --              8
  Cumulative effect of change
   in accounting method........         --          --   (27,300)      (27,300)
  Net (loss) income............ $(1,128,876) $   33,888 $(48,068) $(1,143,056)
  Total assets................. $ 8,188,361  $2,619,493 $    --   $ 10,807,854
  Total expenditures for
   additions to long-lived
   assets...................... $   425,047  $   28,581 $    --   $    453,628
February 27, 1999:
  Revenues..................... $12,490,309  $  292,714 $    --   $ 12,782,890
  Interest expense.............     277,007         219      --        277,226
  Depreciation and amortization
   expense.....................     392,873       6,410      --        399,283
  Loss from investment
   accounted for on the equity
   method......................        (448)        --       --           (448)
  Income tax expense
   (benefit)...................    (182,049)        --       --       (182,049)
  Net income (loss)............ $  (385,440) $ (15,161) $(21,881) $   (422,482)
  Total assets................. $ 9,784,970  $  727,570 $    --   $ 10,312,540
  Total expenditures for
   additions to long-lived
   assets...................... $ 1,347,088  $      --  $    --   $  1,347,088
</TABLE>

20. Related Party Transactions:

  Included in Accounts receivable at February 26, 2000 and February 27, 1999,
were receivables from related parties, of $5,355 and $4,175, including
employee loans.

  During fiscal 2000, 1999 and 1998, the Company sold merchandise totaling
$2,072, $6,225 and $25,041, respectively, to equity-method investees. During
fiscal 2000, 1999, and 1998, the Company purchased equipment totaling $26,115,
$27,119 and $44,105 from an equity-method investee.

  In fiscal 2000, 1999 and 1998, the Company purchased $8,800, and $8,800 of
product from a manufacturer of private label over the counter medications in
which a director held an ownership interest until May 31, 1999. The Company
leases for $153.7 per year a 43,920 square foot storage space in a warehouse
in Camp Hill, Pennsylvania, from a partnership in which a director has a 50%
interest.

                                     F-31
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



  The Company formerly operated an 8,000 square-foot store in a shopping
center in which Martin Grass, the former Chairman of the Board and Chief
Executive Officer, has a 50% ownership interest. The rent paid by the Company
was $96 per year. In February 1999, the lease was cancelled and the Company
was released from its obligation to pay over $300 in remaining lease
commitments.

  Beginning in January 1999 the Company leased for $188 per year a 10,750
square-foot store in Sinking Springs, Pennsylvania, which it leases from a
relative of Martin Grass, the former Chairman of the Board and Chief Executive
Officer. The Company leases a 5,000 square-foot store in Mt. Carmel,
Pennsylvania, from a partnership in which Martin Grass is or was a partner.
The rent is $39 per year.

21. Commitments, Contingencies and Guarantees:

Legal Proceedings

  This Company is party to numerous legal proceedings, as discussed below. The
Company has charged $232,778, $7,916, and $19,374, to expense for the years
ended February 26, 2000, February 27, 1999, and February 28, 1998,
respectively, for various pending and actual claims, litigation, and
assessments based upon its determination of its material, estimable and
probable liabilities in regard to the portion of these claims, lawsuits, and
assessments not covered by insurance.

  In addition, as discussed below, an unfavorable resolution of certain of
these matters could materially adversely effect the Company's results of
operations, financial position and cash flows.

  Federal investigations

  There are currently pending federal governmental investigations, both civil
and criminal, by the SEC and the United States Attorney, involving our
financial reporting and other matters. The Company is cooperating fully with
the SEC and the United States Attorney.

  The U.S. Department of Labor has commenced an investigation of matters
relating to the Company's employee benefit plans, including its principal
401(k) plan which permitted employees to purchase Company common stock. Plan
participants [held] approximately 2.8 million shares at December 31, 1998 and
3.9 million shares at December 31, 1999. Purchases of Company common stock
under the plan were suspended in October 1999. The Company is cooperating
fully with the Department of Labor.

  These investigations are ongoing. If the Company were convicted of any
crime, certain contracts and licenses that are material to operations may be
revoked, which would have a material adverse effect on results of operations,
financial condition, and cash flows. In addition, substantial penalties,
damages or other monetary remedies assessed against Rite Aid could also have a
material adverse effect on results of operations and financial condition.

  Stockholder litigation

  On March 12, 1999, the Company announced that the preliminary estimate for
diluted earnings per share for the fourth quarter of fiscal 1999 would be
approximately $0.30 to $0.32, as compared to the then existing First Call
analysts' consensus estimates of $0.52 per share. After the March 12
announcement, several purported class action lawsuits were commenced in the
U.S. District Court for the Eastern District of Pennsylvania and one suit was
brought in the U.S. District Court for the Northern District of Florida
against the Company and certain of its former officers and directors,
including Martin Grass, former chairman of the board of directors and chief
executive officer; Timothy Noonan, former interim chief executive officer and
a former director; Franklin Brown, former vice chairman and a former director
and Frank Bergonzi, former senior executive vice president and former chief
financial and accounting officer. The plaintiffs in these suits allege that
the defendants

                                     F-32
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


violated certain provisions of the federal securities laws by, among other
things, failing to make prompt public disclosure of the matters mentioned in
its March 12 announcement. The plaintiffs also allege that the Company's
financial statements for fiscal 1997, 1998 and 1999 fraudulently
misrepresented the Company's financial position, results of operations and
cash flows for those periods. The plaintiffs, by their original and amended
complaints, seek to recover damages on behalf of all of the purchasers of
Company common stock between May 1997 and October 1999. On April 18, 1999, the
Court approved a stipulation among counsel that, among other things, provided
for consolidation of these suits. The plaintiffs have the right until August
10, 2000 to amend the complaints to include additional allegations of
wrongdoing by the defendants. In June 2000, the Company moved to transfer the
Florida action to the U.S. District Court for the Eastern District of
Pennsylvania. The Company is unable to predict the ultimate outcome of this
litigation.

  Since May 1999, various complaints have been filed in the U.S. District
Court for the Eastern District of Pennsylvania and in the Court of Chancery of
the state of Delaware, federal courts in Philadelphia, Pennsylvania and
Wilmington, Delaware, derivatively and on behalf of the Company, against the
same officers named in the stockholder lawsuits discussed above and against
certain former [and current] directors of the Company. The complaints allege
essentially the same wrongful acts as are alleged in the class action
lawsuits. Some of those complaints also allege that certain of the
transactions discussed in the Current Report on Form 8-K filed with the SEC by
the Company on February 9, 1999 constituted mismanagement, waste of corporate
resources and breach of fiduciary duty. The plaintiffs seek indemnity and
contribution on behalf of the Company from the individual defendants. The
Company is unable to predict the ultimate outcome of this litigation.

  If any of these cases results in a substantial monetary judgment against the
Company or is settled on unfavorable terms, the Company's results of
operations, financial position and cash flows could be materially adversely
affected.

  Drug pricing and reimbursement matters

  Civil proceedings are continuing involving the Company's pricing-related
practices for prescription drugs. On September 22, 1999, the Florida Attorney
General filed a complaint against the Company in the Second District, Leon
County, alleging violations of the Florida Deceptive and Unfair Trade
Practices Act and the state RICO statute. The Company no longer operates any
retail drugstores in Florida. In essence, Florida asserted that the Company's
former practice of allowing its pharmacists the discretion to charge non-
uniform prices through the use of positive overrides for cash purchases of
prescription drugs was unlawful. The Company discontinued its use of this
policy in June 1998 throughout its retail drugstores. On February 18, 2000,
the reviewing Florida state court dismissed with prejudice the Florida
Attorney General's complaint. On May 5, 2000, the same court denied Florida's
motion to rehear the case and affirmed the initial decision on the merits, but
granted Florida's motion to amend its complaint to raise allegations
concerning other pricing practices relating to discounts and generic drug
price notices. On July 5, 2000, the Company filed a motion to dismiss the
amended complaint.

  The filing of the complaint by the Florida Attorney General, and the
Company's press release issued in conjunction therewith, precipitated the
filing of purported federal class actions in Alabama and California and
purported state class actions in New Jersey, New York, Oregon, and
Pennsylvania. All of the class actions are based on facts essentially
identical to those contained in the Florida complaint and none specify
damages. The Company has asserted in court filings that its imposition of
positive overrides was a legitimate utilization of non-uniform pricing
similarly engaged in by many other sectors of retail commerce. The Company
filed motions to dismiss each of the uncertified class action complaints for
failure to state a claim for which relief could be granted. The Company's
arguments have prevailed in each of the cases in which a court decision has
been rendered thus far. On December 27, 1999, the United States District Court
for the Northern District of Alabama dismissed the federal RICO claims against
the Company with prejudice and the plaintiffs later filed an appeal with the
Eleventh Circuit. That appeal is currently pending. On May 21, 2000, an Oregon
state court judge

                                     F-33
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


granted the Company's motion to dismiss the purported class action there with
prejudice. On June 12, 2000, the United States District Court for the Central
District of California dismissed that case and on June 27, 2000, a New Jersey
state court dismissed that class action there. Motions to dismiss the state
class actions in New York and Pennsylvania are currently pending.

  The Company believes that all of the positive override lawsuits are without
merit under applicable state consumer protection laws and/or state or federal
RICO statutes. As a result, the Company intends to continue to vigorously
defend each of the pending actions and does not anticipate, if fully
adjudicated, that any of the lawsuits will result in an award of damages
and/or civil penalties. However, such an outcome for each of the actions
cannot be assured and a ruling against the Company could have a material
adverse effect on the financial position, operations and cash flows of the
Company as well as necessitate substantial additional expenditures to cover
legal costs as it pursues all available defenses.

  The Company has also recently been notified that it is being investigated by
multiple state attorneys general for its reimbursement practices relating to
partially-filled prescriptions and fully filled prescriptions that are not
picked up by ordering customers. The Company is supplying similar information
with respect to these matters to the Department of Justice. The Company
believes that its existing policies and procedures fully comply with the
requirement of applicable law and intends to fully cooperate with these
investigations. The Company cannot, however, predict the outcome of these
investigations.

  If any of these cases results in a substantial monetary judgment against the
Company or is settled on unfavorable terms, the Company's results of
operations, financial position and cash flows could be materially adversely
affected.

  PCS Legal Proceedings

  In November 1999, PCS received a subpoena from the Office of Inspector
General of the Department of Health and Human Services ("OIG"). The subpoena
requests general information about PCS's formulary programs and rebate
practices and makes no allegation of any wrongdoing by PCS. PCS is fully
cooperating with the inquiry and believes that no regulatory action will be
taken by OIG against PCS that will have a material adverse effect on PCS's
business. The Company cannot predict the outcome of this matter.

  In January 1998, a purported class action was brought against PCS by a
participant in a plan managed by PCS in the federal district court in New
Jersey. The plaintiff alleged that PCS is an ERISA fiduciary and that, as
such, breached its fiduciary obligations under ERISA and that PCS received
improper kickbacks and rebates from certain drug manufacturers. PCS believes
that the plaintiff's action is without merit and is vigorously defending this
action. The Company cannot predict the outcome of this action.

PCS Customer Contracts

  The Company enters into risk contracts with certain customers as part of its
PBM business. These contracts provide that the Company assume varying
percentages of the risk associated with claims experience differing from fixed
fee arrangements under managed care programs. In addition, the Company, in
certain limited circumstances, guarantees a specific amount of savings for
certain customers. Included in other current liabilities in the accompanying
consolidated balance sheets are management's estimates of the amounts required
to cover losses incurred under such contracts.

Vendor Arrangements

  As of February 26, 2000, the Company had outstanding commitments to purchase
$140 million of merchandise inventory from a vendor for use in the normal
course of business. The Company expects to satisfy these purchase commitments
by fiscal 2005. Under the terms of a joint marketing agreement, the Company
and the vendor are each obligated to make contributions of $51 million to a
marketing fund to be used in connection with advertising and marketing of such
products through September 30, 2004.

                                     F-34
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Employment Agreements

  The Company has employment contracts with its executive officers and various
other members of senior management requiring payment of minimum annual base
salaries and, in some cases, minimum target bonuses and other compensation
arrangements. The terms of the agreements are three years.

  Employment agreements with four executive officers contain change in control
provisions that entitle each of them to receive three times the sum of their
annual base salary and annual target bonus amount. The executive officers will
also receive the total amount of contributions that would have been made to
the deferred compensation plan if they had been employed through the end of
their employment contract. All outstanding stock options shall become fully
vested and all restrictions on stock awards shall immediately lapse.

  Certain officers of PCS were provided with a financial incentive to remain
at the Company. Under this retention incentive program, the participating
officers vest annually in the financial benefits through January 22, 2002. The
value of the benefits is determined based upon the Rite Aid stock price during
the vesting period, but is not to be less than an established floor value. The
Company recognized compensation expense under this program of $706 of 1999 and
$7,137 in 2000. In the event of a change in control of PCS, the participating
officers immediately become fully vested in the program's benefits.

22. Interim Financial Results (Unaudited):

<TABLE>
<CAPTION>
                                                               Fiscal Year 1999
                          ------------------------------------------------------------------------------------------------
                              First Quarter           Second Quarter           Third Quarter            Fourth Quarter
                          ----------------------  -----------------------  -----------------------  ----------------------
                              As                      As                       As                       As
                          Previously      As      Previously       As      Previously       As      Previously      As
                          Reported(1)  Restated   Reported(1)   Restated   Reported(2)   Restated   Reported(2)  Restated
                          ----------- ----------  -----------  ----------  -----------  ----------  ----------- ----------
<S>                       <C>         <C>         <C>          <C>         <C>          <C>         <C>         <C>
Revenues................  $3,032,681  $3,086,505  $3,011,029   $3,057,095  $3,122,930   $3,185,386  $3,565,260  $3,453,904
Costs and expenses
 excluding store
 closing, impairment and
 other charges..........   2,902,230   3,232,024   2,894,676    3,105,926   2,995,965    3,325,360   3,482,123   3,531,560
Store closing,
 impairment and other
 charges................         --       57,134     264,204       31,244      (7,298)      69,255         430      34,918
                          ----------  ----------  ----------   ----------  ----------   ----------  ----------  ----------
Income (loss) before
 income taxes...........     130,451    (202,653)   (147,851)     (80,075)    134,263     (209,229)     82,707    (112,574)
Income taxes (benefit)..      52,179     (61,027)    (59,139)     (24,114)     53,705      (63,007)      9,139     (33,901)
                          ----------  ----------  ----------   ----------  ----------   ----------  ----------  ----------
Net loss................  $   78,272  $ (141,626) $  (88,712)  $  (55,961) $   80,558   $ (146,222) $   73,568  $  (78,673)
                          ==========  ==========  ==========   ==========  ==========   ==========  ==========  ==========
Basic earnings per
 share:
  Net income (loss).....  $     0.30  $    (0.55) $    (0.34)  $    (0.22) $     0.31   $    (0.57) $     0.28  $    (0.31)
                          ==========  ==========  ==========   ==========  ==========   ==========  ==========  ==========
</TABLE>
- --------
(1) Financial data as previously reported in the Company's quarterly report on
    Form 10-Q for the period ended August 28, 1999.
(2) Financial data as previously reported in the Company's annual report on
    Form 10-K for the year ended February 27, 1999.

                                     F-35
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                  For the fiscal year ended February 26, 2000
                 (Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                 Fiscal Year 2000
                         ---------------------------------------------------------------------
                             First Quarter         Second Quarter
                         ---------------------  ----------------------
                             As                     As
                         Previously     As      Previously      As        Third       Fourth
                          Reported   Restated    Reported    Restated    Quarter     Quarter
                         ---------- ----------  ----------  ----------  ----------  ----------
<S>                      <C>        <C>         <C>         <C>         <C>         <C>
Revenues................ $3,624,500 $3,681,108  $3,506,129  $3,522,213  $3,646,390  $3,831,731
Costs and expenses
 excluding store
 closing, impairment and
 other charges..........  3,483,358  3,697,347   3,536,096   3,618,434   3,884,571   4,448,653
Store closing,
 impairment and other
 charges................                28,238      29,343      56,094      33,119      45,734
                         ---------- ----------  ----------  ----------  ----------  ----------
Income (loss) before
 income taxes and
 cumulative effect of
 change in accounting
 method.................    141,142    (44,477)    (59,310)   (152,315)   (256,300)   (662,656)
Income taxes............     60,127       (697)    (43,908)     (2,386)     (4,015)      7,106
Income (loss) before
 cumulative effect of
 change in accounting
 method.................     81,015    (43,780)    (15,402)   (149,929)   (252,285)   (669,762)
Cumulative effect of
 change in accounting
 method, net............        --     (27,300)        --          --          --          --
                         ---------- ----------  ----------  ----------  ----------  ----------
Net income (loss)....... $   81,015 $  (71,080) $  (15,402) $ (149,929) $ (252,285) $ (669,762)
                         ========== ==========  ==========  ==========  ==========  ==========
BASIC AND DILUTED
 EARNINGS (LOSS) PER
 SHARE
  Income (loss) before
   cumulative effect of
   change in accounting
   method .............. $     0.31 $    (0.06) $    (0.06) $    (0.58) $    (0.98) $    (2.68)
  Cumulative effect of
   change in accounting
   method, net..........        --       (0.11)        --          --          --
                         ---------- ----------  ----------  ----------  ----------  ----------
  Net income (loss)..... $     0.31 $    (1.17) $    (0.06) $    (0.58) $    (0.98) $    (2.68)
                         ========== ==========  ==========  ==========  ==========  ==========
</TABLE>

  During the third and fourth quarters of 2000, the Company incurred
significant non-recurring charges. These included charges of $235,000 for
litigation expenses, $62,500 for debt restructuring, $67,600 for sale of
discontinued merchandise, and $49,800 for markdowns at retail stores.

23. Subsequent Events:

  Financing Transactions

  On June 14, 2000, the Company obtained a new $1,000,000 senior secured
credit facility (the "Senior Facility") from a syndicate of banks. The Senior
Facility is guaranteed by substantially all of the Company's wholly-owned
subsidiaries, and the banks have a security interest in substantially all of
the Company's accounts receivable, inventory and intellectual property and a
security interest in certain real property. Of the $1,000,000 Senior Facility
amount, $500,000 is in the form of a term loan due in August 2002 with
interest at LIBOR plus 3.00% that was used to pay-off $300,000 of drawings
under the accounts receivable securitization program; $200,000 was used for
working capital and transaction expenses; and $500,000 remained available as a
revolving credit facility under the Senior Facility.

  In connection with the above refinancing on June 14, 2000, the Company
exchanged $52,500 of its 5.50% fixed-rate senior notes due in December 2000
and $321,800 of its 6.70% notes due in 2000 for $374,300 of 10.50% senior
secured notes due 2002. The Company entered into an agreement with certain
banks under which they agreed to purchase $93,200 of the 10.50% senior secured
notes due 2002 when the 5.5% notes become due in December 2000.

  The senior secured credit facility contains customary covenants, which place
restrictions on the assumption of debt, the payment of dividends, mergers,
liens and sale and leaseback transactions. The facility requires us to meet
various financial ratios and limits our capital expenditures. These ratios and
capital expenditure limits are

                                     F-36
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                  For the fiscal year ended February 26, 2000
                 (Dollars in thousands, except share amounts)

subject to adjustment if we sell PCS. These covenants require us to maintain a
minimum interest coverage ratio of .75:1 (.72:1 if PCS is sold) for the
quarter ended August 26, 2000, increasing to 1.40:1 (1.40:1 if PCS is sold)
for the four quarter period ending June 1, 2002 and a minimum fixed charge
coverage ratio of .88:1 (.88:1 if PCS is sold) for the quarter ended August
26, 2000, increasing to 1.20:1 (1.19:1 if PCS is sold) for the four quarter
period ending June 1, 2002. We also must maintain consolidated EBITDA (as
defined in the senior secured credit facility) of no less than $104.0 million
($81.0 million if PCS is sold) for the quarter ended August 26, 2000,
increasing to $894.0 million ($720.0 million if PCS is sold) for the quarter
period ending June 1, 2002. In addition, our capital expenditures are limited
to $70.0 million ($64.0 million if PCS is sold) for the fiscal quarter ended
August 26, 2000, increasing to $265.0 million ($243.0 million if PCS is sold)
for the quarter period ending June 1, 2002.

  Also on June 14, 2000, the Company exchanged certain credit facility debt
with a carrying amount of $284,820 for 51,785,434 shares of the Company's
common stock at $5.50 per share and extended the maturity of its remaining
$2,147,188 of bank debt to August 2002. As a result of the exchange of the
credit facility debt, the Company is expected to record a loss on
extinguishment of $13.3 million in the second quarter of fiscal 2001.

  On June 26, 2000 in a separate transaction, the Company exchanged a total of
17,779,000 shares of Rite Aid common stock for $177,790 principal amount of
the 5.25% convertible subordinated notes due 2002. As a result of the
exchange, the Company is expected to record a loss on extinguishment of
approximately $88 million in the second quarter of fiscal 2001.

  In the second quarter of fiscal year 2001 the Company entered into interest
rate swap agreements in order to reduce its exposure to floating rate debt.
The contracts extend through June 2002 and effectively fix the rate on $1,000
million of debt at 7.01% through the period.

  The Company is currently in negotiations concerning the possible sale of
PCS. The negotiations are on-going and an agreement could be announced at any
time. No agreement has been reached at the time of this filing. No assurance
can be given that an agreement will be reached or that, if an agreement is
entered into, that a sale of PCS will be completed. If no sale transaction is
available on terms we consider acceptable, we intend to continue to own and
operate PCS. Based on the current negotiations, we expect to incur a
substantial loss upon the commitment to sell PCS compared to the acquisition
cost of $1.5 billion. See "Management's Discussion of Results of Operations
and Financial Condition -- General."

24. Restatement of Financial Statements

  On June 1, 1999 the Company filed its annual report on Form 10-K which
included its consolidated financial statements covering fiscal years 1997 and
1998 that had been restated to correct certain accounting errors. Subsequent
to this restatement, the Company determined that the errors were greater than
originally discovered and, in its Quarterly Report on Form 10-Q for the second
quarter of fiscal 2000 filed on November 2, 1999, the Company restated its
previously reported interim financial statements and the fiscal year-end
balance sheet as of February 27, 1999.

                                     F-37
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                  For the fiscal year ended February 26, 2000
                 (Dollars in thousands, except share amounts)


  Subsequent to the restatements described in the preceeding paragraph, the
Company determined that additional adjustments are required to correct
numerous errors in the previously issued financial statements. The adjustments
consist of numerous items; however, the principal reasons and significant
effects of the restatement on the accompanying financial statements from
amounts previously reported in the 1999 Annual Report on Form 10-K are
summarized as follows:

<TABLE>
<CAPTION>
                             As of and for the       For the fiscal     As of
                             fiscal year ended         year ended      March 2,
                             February 27, 1999      February 27, 1998    1997
                          ------------------------  ----------------- ----------
                                         Increase       Increase
                                        (decrease)     (decrease)      Decrease
                          Decrease in   to results     to results         in
                            Retained        of             of          Retained
                            earnings    operators      operations      earnings
                          ------------  ----------  ----------------- ----------
<S>                       <C>           <C>         <C>               <C>
Purchase accounting.....  $   (300,767) $ (133,866)    $ (152,060)    $  (14,841)
Exit costs and
 impairment of operating
 and other assets.......      (210,319)     44,694       (141,237)      (113,776)
Accruals for operating
 expenses...............      (466,309)   (123,143)       (81,006)      (262,160)
Property, plant, and
 equipment..............      (506,210)   (110,435)      (246,223)      (149,552)
Inventory and cost of
 goods sold.............      (635,995)   (438,799)       (63,385)      (133,811)
Capital leases and sale-
 leaseback accounting...       (55,428)    (13,683)       (40,667)        (1,078)
Other...................      (163,965)    (28,869)       (31,097)      (104,626)
Income taxes............       727,163     237,933        263,614        225,616
                          ------------  ----------     ----------     ----------
Total...................  $ (1,611,830) $ (566,168)    $ (492,061)    $ (554,228)
                          ============  ==========     ==========     ==========
</TABLE>

  A description of the principal adjustments follows:

Purchase Accounting

  The Company acquired Thrifty PayLess, Inc. in fiscal 1997 and Harco Inc. and
K&B Incorporated in fiscal 1998. Certain liabilities associated with these
acquisitions that had previously been established have been either reduced or
eliminated with a corresponding decrease in goodwill, to correctly reflect the
fair value of the assets acquired and liabilities assumed at the dates of
acquisition.

Exit Costs and Impairment of Operating and Other Assets

  The restated financial statements reflect adjustments to appropriately
recognize charges related to store closures in the period in which the
decision, and ability, to close a store had been made. In addition, other
charges not related to exiting stores and gains from the sale of certain
assets that had previously been recorded ad adjustments to the store exit
liability have been reflected as income or expense in the period in which they
were incurred or realized.

  Adjustments have also been made to record impairment charges for stores and
other assets in the period in which the impairment occurred; adn to change the
method used ot evaluate evaluate assets for impairment from a market level to
an individuall store level because this is the lowest level of independent
cash flows ascertainable for purposes of measuring impairment.

Accruals for Operating Expenses

  The restated financial statements reflect adjustments to expense certain
operating costs in the period in which they were incurred and to record a
corresponding liability for those items not paid at the end of the period.
Such costs primarily consisted of payroll, vacation pay, incentive
compensation, executive retirement plans, scheduled rent increases, and
certain insurance claims.

Property, Plant, and Equipment

  The restated financial statements reflect adjustments to charge certain
items previously capitalized to expense in the period in which they were
incurred. Such items include certain costs for repairs and maintenance,
interest, and internal software development. The adjustments also include
increases in depreciation expense to

                                     F-38
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                  For the fiscal year ended February 26, 2000
                 (Dollars in thousands, except share amounts)

reverse the effects of retroactive changes made to the useful lives of certain
assets, and to depreciate assets misclassified as construction in-progress.

Inventory and Cost of Goods Sold

  The restated financial statements reflect adjustments to inventory and cost
of goods sold related primarily to reverse unearned vendor allowances
previously recorded as a reduction to cost of goods sold; to correctly apply
the retail method of accounting, establish obsolescence reserves, recognize
certain selling costs including promotional markdowns and shrink in the period
in which they were incurred, recognize liabilities for inventory purchases in
the appropriatae periods; and reflect vendor allowances in the inventory
balances.

Lease Obligations

  The restated financial that had statements reflect adjustments to recognize
sale-leaseback transactions for certain stores as financing transactions. Such
transactions had previously been accounted for as sales and the leasebacks
were accounted for as operating leases leases. The adjustment to correct these
items resulted in the reversal of the asset sales and the establishment of
lease obligations as capital leases as capital leases . In addition
adjustements were made to record , certain leases previously been accounted
for as operating lease.s

<TABLE>
<CAPTION>
                                                   February 27, 1999
                                         --------------------------------------
                                         As Reported in Restatement
                                         1999 Form 10-K Adjustments As Restated
                                         -------------- ----------- -----------
<S>                                      <C>            <C>         <C>
                 ASSETS
CURRENT ASSETS:
  Cash..................................  $    82,949    $   4,362  $    87,311
  Accounts receivable, net..............      749,606     (106,417)     643,189
  Inventories, net......................    2,893,143     (246,157)   2,646,986
  Income taxes..........................          --           --           --
  Prepaid expenses and other current
   assets...............................       76,653      (21,525)      55,128
                                          -----------    ---------  -----------
    Total current assets................    3,802,351     (369,737)   3,432,614
                                          -----------    ---------  -----------
PROPERTY, PLANT AND EQUIPMENT:
  Land..................................      496,177      313,127      809,304
  Buildings.............................      446,048      528,896      974,944
  Leasehold improvements................    1,140,313      (16,219)   1,124,094
  Equipment.............................    1,546,738     (154,313)   1,392,425
  Property held for sale................          --           --           --
  Construction in progress..............      201,300       90,101      291,401
                                          -----------    ---------  -----------
                                            3,830,576      761,592    4,592,168
  Accumulated depreciation and
   amortization.........................      962,523      (15,454)     947,069
                                          -----------    ---------  -----------
    Total property, plant and equipment,
     net................................    2,868,053      777,046    3,645,099
                                          -----------    ---------  -----------
INTANGIBLE ASSETS:
  Excess of cost over underlying equity
   in subsidiaries......................    3,106,582     (898,814)   2,207,768
  Other intangible assets...............      440,881      674,210    1,115,091
                                          -----------    ---------  -----------
    Total intangible assets.............    3,547,463     (224,604)   3,322,859
                                          -----------    ---------  -----------
OTHER ASSETS............................      203,874      (71,633)     132,241
                                          -----------    ---------  -----------
    Total Assets........................  $10,421,741    $ 111,072  $10,532,813
                                          ===========    =========  ===========
</TABLE>

                                     F-39
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                  For the fiscal year ended February 26, 2000
                  (Dollars in thousands, except share amounts)


<TABLE>
<CAPTION>
                                                 February 27, 1999
                                       ---------------------------------------
                                       As Reported in Restatement
                                       1999 Form 10-K Adjustments  As Restated
                                       -------------- -----------  -----------
<S>                                    <C>            <C>          <C>
 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-term debt and current
   maturities of long-term debt.......  $ 1,550,211   $    52,110  $ 1,602,311
  Accounts payable....................    1,455,516       332,700    1,788,216
  Income taxes payable................      246,833      (136,049)     110,784
  Deferred income taxes...............          --         28,045       28,045
  Sales and other taxes payable.......       34,464          (520)      33,944
  Accrued salaries, wages and other
   current liabilities................      403,454       253,786      657,240
                                        -----------   -----------  -----------
    Total current liabilities.........    3,690,478       530,062    4,220,540
                                        -----------   -----------  -----------
CONVERTIBLE SUBORDINATED NOTES........      649,991           --       649,991
LONG-TERM DEBT LESS CURRENT
 MATURITIES...........................    2,584,255       (31,964)   2,552,291
CAPITAL LEASE OBLIGATIONS.............       69,994     1,040,184    1,110,178
DEFERRED INCOME TAXES.................      138,327       (57,013)      81,314
OTHER NONCURRENT LIABILITIES..........      311,405       212,677      524,082
                                        -----------   -----------  -----------
    Total liabilities.................    7,444,450     1,693,946    9,138,396
                                        -----------   -----------  -----------
REDEEMABLE PREFERRED STOCK............       23,559           --        23,559
STOCKHOLDERS' EQUITY:
PREFERRED STOCK.......................          --            --           --
COMMON STOCK..........................      258,862            (1)     258,861
ADDITIONAL PAID-IN CAPITAL............    1,360,219         9,159    1,369,378
RETAINED EARNINGS (DEFICIT)...........    1,334,651    (1,611,830)    (277,179)
ACCUMULATED OTHER COMPREHENSIVE
 INCOME...............................          --           (475)        (475)
                                        -----------   -----------  -----------
    Total stockholders' equity........    2,953,732    (1,603,147)   1,350,585
                                        -----------   -----------  -----------
    Total liabilities and
     stockholders' equity.............  $10,421,741   $    90,799  $10,512,540
                                        ===========   ===========  ===========
</TABLE>

                                      F-40
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                  For the fiscal year ended February 26, 2000
                  (Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                  Fiscal Year 1999                     Fiscal Year 1998
                         -----------------------------------  -----------------------------------
                         As Reported                          As Reported
                           in 1999   Restatement                in 1999   Restatement
                          Form 10-K  Adjustments As Restated   Form 10-K  Adjustments As Restated
                         ----------- ----------- -----------  ----------- ----------- -----------
<S>                      <C>         <C>         <C>          <C>         <C>         <C>
REVENUES................ $12,731,900  $  50,990  $12,782,890  $11,375,105  $ 158,318  $11,533,423
COSTS AND EXPENSES:
  Costs of goods sold,
   including occupancy
   costs................   9,396,432    347,403    9,743,835    8,290,888  $ 312,430    8,603,318
  Selling, general and
   administrative
   expenses.............   2,639,739    504,843    3,144,582    2,375,636    461,645    2,837,281
  Goodwill
   amortization.........      44,090    (14,863)      29,227       36,452     (9,972)      26,480
  Interest expense......     194,733     82,493      277,226      159,752     49,400      209,152
  Store closing,
   impairment and other
   charges..............     257,336    (64,785)     192,551                 148,560      148,560
                         -----------  ---------  -----------  -----------  ---------  -----------
  Gain on sales of
   stores...............           -          -            -            -    (52,261)     (52,261)
                          12,532,330    855,091   13,387,421   10,862,728    909,802   11,772,530
                         -----------  ---------  -----------  -----------  ---------  -----------
    Income (loss) before
     income taxes.......     199,570   (804,101)    (604,531)     512,377   (751,484)    (239,107)
INCOME TAXES............      55,884   (237,933)    (182,049)     206,507   (259,423)     (52,916)
                         -----------  ---------  -----------  -----------  ---------  -----------
    Net income (loss)... $   143,686  $(566,168) $  (422,482) $   305,870  $(492,061) $  (186,191)
                         ===========  =========  ===========  ===========  =========  ===========
BASIC AND DILUTED
 EARNINGS (LOSS) PER
 SHARE.................. $      0.55  $   (2.19) $     (1.64) $      1.22  $   (1.96) $     (0.74)
                         ===========  =========  ===========  ===========  =========  ===========
</TABLE>

                                      F-41
<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

                SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
Allowances deducted from             Additions  Additions
accounts receivable       Balance at Charged to  Charged               Balance at
for estimated             Beginning  Costs and  to Other                 End of
uncollectible amounts:    Of Period   Expenses  Accounts    Deductions   Period
- ------------------------  ---------- ---------- ---------   ---------- ----------
<S>                       <C>        <C>        <C>         <C>        <C>
Year ended February 26,
 2000...................   $40,189    $23,096    $  --       $22,415    $40,870
Year ended February 27,
 1999 (c)...............    35,497     16,906     9,229(b)    21,443     19,379
Year ended February 28,
 1998 (c)...............    32,561     26,358     1,800(a)    24,222     35,497
</TABLE>
- --------
(a) Allowance for estimated uncollectible accounts acquired from Harco, Inc.
    and K&B, Incorporated on August 27, 1997.
(b) Allowance for estimated uncollectible accounts acquired from PCS Health
    Systems Inc. on January 22, 1999.
(c) As restated, sSee note 24 to the consolidated financial statements.

                                     F-42
<PAGE>

                                  EXHIBIT 12

                     RITE AID CORPORATION AND SUBSIDIARIES

    STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

    YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
                         (dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                       Year Ended   Year Ended
                                                      February 27, February 28,
                                         Year Ended       1999         1998
                                        February 26,      (as          (as
                                            2000       restated)    restated)
                                        ------------  ------------ ------------
<S>                                     <C>           <C>          <C>
Fixed Charges:
Interest Expense......................  $    520,336   $ 277,226    $ 209,152
Interest Portion of Net Rental
 Expense(1)...........................       134,934     101,250       81,252
                                        ------------   ---------    ---------
Fixed Charges Before Capitalized
 Interest and Preferred Stock Dividend
 Requirements.........................       655,270     378,476      290,404
Preferred Stock Dividend
 Requirement(2).......................        15,554         965          --
Capitalized Interest..................         5,292       7,069        4,102
                                        ------------   ---------    ---------
  Total Fixed Charges.................  $    676,116   $ 386,510    $ 294,506
                                        ------------   ---------    ---------
Earnings:
Income Before Income Taxes and
 Cumulative Effect of Accounting
 Change ..............................  $ (1,115,748)  $(604,531)   $(239,107)
Fixed Charges Before Capitalized
 Interest.............................      5670,824     374,441      290,404
                                        ------------   ---------    ---------
  Total Adjusted Earnings.............  $    (444924)  $(225,090)   $  51,297
                                        ------------   ---------    ---------
Earnings to Fixed Charges,
 Deficiency...........................    (1,121,040)   (611,600)    (243,209)
                                        ============   =========    =========
</TABLE>
- --------
(1) The Interest Portion of Net Rental Expense is estimated to be equal to
    one-third of the minimum rental expense for the period.
(2) The Preferred Stock Dividend Requirement is computed as the pre-tax
    earnings that would be required to cover preferred stock dividends.

                                     F-43
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 10.18
<TEXT>

<PAGE>
                                                                   Exhibit 10.18

                              AMENDED AND RESTATED
                              --------------------
                        DEFERRED COMPENSATION AGREEMENT
                        -------------------------------


     AGREEMENT, (the "Agreement") entered into as of 23 day of
October, 1996, by and between RITE AID CORPORATION, with offices at
30 Hunter Lane, Camp Hill, Pennsylvania, 17011 ("Corporation") and FRANKLIN C.
BROWN ("Employee") and KAREN S. BROWN ("Brown").

                              W I T N E S S E T H
     WHEREAS, Employee and Corporation are the parties to a Deferred
Compensation Agreement dated __________________, 19__ (the "Original
Agreement"); and

     WHEREAS, the parties wish to amend and restate the Original Agreement in
its entirety; and

     WHEREAS, Employee is rendering valuable services to Corporation and
Corporation desires that Employee continue to render such services to
Corporation; and

     WHEREAS, to assist Employee and his finally in providing for the
contingencies of death, disability and old age dependency, Corporation and
Employee desire to enter into this Agreement to provide Employee with deferred
compensation with the intention that this Agreement supersede the Original
Agreement; and

     WHEREAS, Employee wishes to designate Brown as the owner of all rights to
receive payment of Employee's deferred compensation;

     NOW, THEREFORE, in recognition and consideration of the foregoing and of
services heretofore rendered by Employee to Corporation, and as a material
inducement to Employee to
<PAGE>

continue his service, Corporation Employee and Brown, each intending to be
legally bound, agree as follows:

          1.   Definitions.
               -----------

               (a) Retirement Allowance:  One twelfth (1/12th) of sixty percent
                   --------------------
(60%) of Employee's Highest Annual Compensation.

               (b) Highest Annual Compensation:  The highest annual salary paid
                   ---------------------------
to or accrued for Employee in or with respect to the last four (4) fiscal years
of Corporation next preceding the Retirement Date plus the highest annual bonus
paid to or accrued for Employee with respect to the last four (4) fiscal years
next preceding Retirement Date. Annual bonuses shall not include the value of
stock options and payments of multi-year performance awards. If the Retirement
Date is fixed by the death of Employee, the fiscal year in which the death
occurred shall be included as the fourth fiscal year as if Employee had served
through the end of said fiscal year and Employee's salary had continued to be
paid at the rate in effect at the date of death and Employee had been paid a
bonus with respect to that year commensurate with the bonuses paid to other
comparably compensated Corporation executives.

               (c) Retirement Date:  The date on which Employee's employment
                   ---------------
with Corporation terminates for any reason whatsoever, including, but not
limited to, the retirement or resignation of Employee, the termination of
Employee by Corporation with or without cause or the death or disability of
Employee.

               (d) Designated Beneficiary:  Brown shall be the sole initial
                   ----------------------
Designated Beneficiary and shall possess all of the rights to receive the
payment of Employee's deferred compensation under this Agreement.  Upon the
death of Brown, the personal representatives of

                                       2
<PAGE>

the estate of Brown (and upon termination of the estate, the beneficiaries
thereof) shall succeed to Brown's rights under this Agreement.

               (e) Change in Control:  As defined in Paragraph 4 below.
                   -----------------

               (f) Board of Directors:  The Board of Directors of Corporation in
                   ------------------
office at the time in question.

          2.   Retirement Allowance Payments.  On the first day of the month
               -----------------------------
following the Retirement Date of Employee, and on the first day of each
consecutive month thereafter, Corporation shall pay to the Designated
Beneficiary the Retirement Allowance and shall continue to pay same until the
later of the following dates:  (a) the date of death of Brown; (b) two hundred
forty (240) months after the Retirement Date.

          3.   Retirement Allowance CPI Adjustments:  The amount of Retirement
               ------------------------------------
Allowance shall be adjusted upward, beginning in the first month after each 48
month period following the first date on which Retirement Allowance is paid, in
direct proportion as the cost of living may have increased from Retirement Date
to date of each such adjustment, utilizing for this purpose the U.S. City
Average All Items Consumers Price Index for all Urban Consumers published by the
U.S. Department of Labor on the date hereof or if such index is discontinued,
the nearest equivalent index.  If the adjustment provided for in the prior
sentence would cause a decrease in the Retirement Allowance then in effect, no
adjustment shall be made for such 48 month period.

          4.   Change in Control.
               -----------------

               (a) In the event of Change in Control of Corporation, as
hereinafter defined, all Retirement Allowance payments shall, at the option of
Brown, exercised by written notice to Corporation at anytime following the
Change in Control, become immediately due and

                                       3
<PAGE>

payable, calculated as follows: (x) If the Change in Control occurs prior to the
Retirement Date (i) the amount of the Retirement Allowance shall be calculated
as if the date of the Change in Control were the Retirement date, (ii) the
Retirement Allowance shall be multiplied by Two Hundred Forty (240), and (iii)
the product shall be reduced to present discounted value as of the date of the
Change in Control by applying the Annual Discount Factor (as hereinafter
defined); and (y) If the Change in Control occurs after the Retirement Date (i)
the amount of the Retirement Allowance shall be multiplied by an amount equal to
Two Hundred Forty (240) less the number of Retirement Allowance payments that
have been made prior to the date of the Change in Control, and (ii) the product
shall be reduced to present discounted value as of the date of the Change in
Control by applying the Annual Discount Factor. The "Annual Discount Factor"
shall be determined as of the date of the written notice to Corporation referred
to above and shall be a percentage equal to (A) the yield on five-year United
States Treasury Notes as sold at the most recent government auction or (B) if
there has been no government auction sale of such Notes within the sixty-day
period preceding the date of such written notice to Corporation, the average
asked yield of United States Treasury Bonds and Notes maturing between 58 months
and 62 months from the date of the written notice to Corporation, as published
in the Wall Street Journal, or if not so published, the nearest equivalent
source. If clause (B) is applicable and the publication of the average asked
yield is no longer available, then the most nearly comparable rate shall be used
in lieu thereof.

               (b) For purposes of this Agreement, a Change of Control of
Corporation shall be deemed to have occurred upon the earliest to occur of the
following events:  (i) the date the stockholders of Corporation (or the Board of
Directors, if stockholder action is not required) approve a plan or other
arrangement pursuant to which Corporation will be dissolved, divided or

                                       4
<PAGE>

liquidated, or (ii) the date the stockholders of Corporation (or the Board of
Directors, if stockholder action is not required) approve a definitive agreement
to sell or otherwise dispose of substantially all of the assets of Corporation
(in one transaction or a series of transactions) other than to an affiliate of
Corporation, or (iii) the date the stockholders of Corporation (or the Board of
Directors, if stockholder action is not required) and the stockholders of
another constituent corporation (or its board of directors, if stockholder
action is not required) have approved a definitive agreement to merge or
consolidate Corporation with or into such other corporation, other than, in
either case, a merger or consolidation of Corporation in which holders of
securities of Corporation which vote generally in the election of directors
outstanding immediately prior to the merger or consolidation will have, directly
or indirectly, at least eighty percent (80%) of the total voting power of the
surviving corporation's voting securities immediately after the merger or
consolidation, which voting securities are to be held in the same proportion as
such holders ownership of voting securities of Corporation immediately before
the merger or consolidation, or (iv) the date any entity, person or group,
within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended, (other than (A) Corporation or any of its
subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by Corporation or any of its subsidiaries or (B) any person who, on
the date of this Agreement, shall have been the beneficial owner of, or have
voting control over, shares of voting securities of Corporation possessing more
than twenty percent (20%) of the aggregate voting power of Corporation's
outstanding voting securities) shall have become the beneficial owner of, or
shall have obtained voting control over, more than twenty percent (20%) of the
aggregate voting power of Corporation's then outstanding voting securities, or
(v) the first day after the date of this Agreement when directors are elected
such that a majority of the Board of Directors shall

                                       5
<PAGE>

have been members of the Board of Directors for less than two (2) years, unless
the nomination for election of each new director who was not a director at the
beginning of such two (2) year period was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the beginning
of such period.

               (c) In the event that Brown becomes entitled to payments under
Subparagraph 4(a) hereof which, together with any other amounts payable to Brown
and Employee, are determined to be "excess parachute payments" as such term is
defined in Section 280G(b) of the Internal Revenue Code of 1986, as amended (the
"Code") and subject to the excise tax imposed by Section 4999 of the Code
(hereinafter referred to, as the "Excise Tax"), Corporation shall pay to
Employee or Brown, depending upon which of them incurs the Excise Tax, an
additional amount (hereinafter referred to as the "Gross-Up Payment") such that
the net amount received under this Paragraph 4, after the deduction of any
Excise Tax on such Corporation payments under Subparagraph 4(a), and any
federal, state and local income tax (including any applicable interest,
penalties, Excise Tax and any other applicable excise taxes) upon the payment
provided for by this Subparagraph 4(c), shall be equal to the amount of
Corporation's payments in the absence of the imposition of such Excise Tax and
the payments provided for by this Subparagraph 4(c).  The determination of any
Gross-Up Payment payable under this Subparagraph 4(c) shall be determined by
independent tax counsel selected by Corporation's independent auditors subject
to Employees' consent or, if he has died, the consent of Brown.  For purposes of
determining the amount of the Gross-Up Payment, Employee or Brown, depending
upon which of them incurs the Excise Tax, shall be deemed to pay federal income
taxes at the highest individual marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the

                                       6
<PAGE>

highest individual marginal rates of taxation in the state and locality of
Employee's or Brown's residence in such calendar year. The Gross-Up Payment will
be paid as promptly as practicable following the determination described in this
Subparagraph 4(c), or, if earlier, the assertion of a deficiency under Code
Section 4999 by the Internal Revenue Service against Corporation, Employee or
Brown which independent tax counsel believes has a high probability of success,
but in no event shall the Gross-Up Payment be paid later than five business days
preceding the earlier of the due date for, or the payment of, the Excise Tax to
the Internal Revenue Service. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account at the time of the
initial determination hereunder, the recipient of the Gross-Up Payment shall
repay to Corporation, within five business days of the date that a refund of all
or a portion of the Excise Tax is received form the Internal Revenue Service,
the amount of such refund plus the after-tax amount of any interest received
from the Internal Revenue Service with respect to such refund (the after-tax
amount to be determined in accordance with the assumptions described previously
in this Subparagraph 4(c)). In the event that the Excise Tax is determined to
exceed the amount taken into account at the time of the initial determination
hereunder, Corporation shall make an additional Gross-Up Payment in respect of
such excess at the time that the excess is determined but in no event later than
five business days preceding the earlier of the due date for, or the payment of,
the excess to the Internal Revenue Service.

          5.   Forfeiture Under Certain Circumstances.  Notwithstanding the
               --------------------------------------
foregoing, Corporation shall have no further obligation to make Retirement
Allowance payments to Brown if either of the following shall occur:

               (a) Employee is discharged by Corporation for good cause (as
hereinafter defined) by order of the Board of Directors, or it is found by the
Board of Directors

                                       7
<PAGE>

that Employee has committed an act which would have resulted in his discharge
for good cause had it been brought to the attention of the Board of Directors.
As used herein, "good cause" shall mean and be limited to Employee's conviction
of a felony involving his personal dishonesty materially injurious to
Corporation.

               (b) Employee undertakes employment with any chain drug store
business or any chain health and beauty aid business anywhere in the continental
United States, or becomes affiliated with any such business in an advisory or
consulting capacity, and does not cease such activities within thirty (30) days
after his receipt of written notice from Corporation describing such activities
and demanding that he cease.

          6.   Interest on Late Payments.  Any payment of Retirement Allowance
               -------------------------
not paid within ten (10) days following the due date thereof, including but not
limited to payments accelerated pursuant to Subparagraph 4(a) hereof, shall bear
interest until paid in full, both before and after judgment, at a variable rate
equal to three (3) percentage points per annum in excess of the prime rate in
effect from time to time as published in the Wall Street Journal, or if not so
published, the nearest equivalent source.  If the publication of the prime rate
is no longer available then the most nearly comparable rate shall be used in
lieu thereof.

          7.   Tax Withholding.  If by reason of any federal, state or local tax
               ---------------
laws, rules or regulations, Corporation shall be required to withhold any
amounts on payments made under this Agreement, Corporation shall be entitled to
deduct and withhold any such amounts from any payments to be made to Employee or
Brown, whether under the terms of this Agreement or otherwise.  If for whatever
reason Corporation is unable to or has failed to satisfy the requirements of
such withholding from such payments, the recipient of such payments shall make
available to Corporation, promptly when required, sufficient funds to meet the
requirement

                                       8
<PAGE>

of such withholding, and Corporation shall be entitled to take and
authorize such action as it may deem advisable in order to have such funds
available when required.

          8.   Life Insurance.  Corporation shall maintain life insurance
               --------------
coverage on Employee for the balance of his life, in such manner as Corporation
and Employee may agree, with a death benefit of no less than $1,500,000.

          9.   Transfer Prohibited.  The rights to the Retirement Allowance
               -------------------
payments under this Agreement may not be anticipated, alienated, sold, assigned,
pledged, encumbered or otherwise transferred.

          10.  Unfunded Obligation.  The amounts payable in accordance with this
               -------------------
Agreement shall not constitute a segregation of funds or other property for the
benefit of Employee, Brown or any other person.  Nothing contained in this
Agreement and no action taken pursuant to the provisions of this Agreement shall
create or be construed as creating a trust of any kind or a fiduciary
relationship between Corporation and Employee, Brown or any other person, and
neither Employee, Brown nor any other person shall have rights with respect to
the benefits under this Agreement greater than the rights of an unsecured
general creditor of the Corporation.

          11.  Successors and Assigns.  This Agreement shall be binding upon and
               ----------------------
inure to the benefit of Corporation, its successors and assigns, and Employee,
Brown and their respective beneficiaries, heirs, executors, administrators and
legal representatives.

          12.  Waivers, Severability.  Failure to insist upon strict compliance
               ---------------------
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one time or more times be
deemed a waiver or relinquishment of such right or power at any other

                                       9
<PAGE>

time or times. If any clause, sentence, paragraph, section or part of this
Agreement shall be held by any court of competent jurisdiction to be invalid,
such judgment shall not affect, impair or invalidate the remainder hereof.

          13.  Applicable Law.  This Agreement shall be subject to and construed
               --------------
in accordance with the laws of the State of Pennsylvania where it is made
without giving effect to principles of conflict of law.

          IN WITNESS WHEREOF, Corporation has caused this Agreement to be
executed by its duly authorized officer, and Employee and Brown have hereunder
set their hands, as of the date first above written.



RITE AID CORPORATION



By: /s/ Martin L. Grass               /s/ Franklin C. Brown
    _________________________         ____________________________
        Martin L. Grass                   Franklin C. Brown

Its:  Chairman                       /s/ Karen S. Brown
                                     _____________________________
                                         Karen S. Brown

                                       10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXHIBIT 10.19
<TEXT>

<PAGE>
                                                                   Exhibit 10.19

                              EMPLOYMENT AGREEMENT
                              --------------------


          AGREEMENT made as of the 14th day of August, 1996 by and between RITE
AID CORPORATION, a Delaware corporation (the "Corporation"), with principal
offices at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and BETH KAPLAN (the
"Executive"), residing at 19 Woodfield Court, Riesterstown, Maryland 21136.

                              W I T N E S S E T H:

          WHEREAS, the Corporation agrees to employ the Executive as its
Executive as its Executive Vice President-Marketing, upon the terms and
conditions hereinafter set forth, and the Executive agrees to enter the employ
of the Corporation in such position upon such terms and conditions:

          NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements hereinafter set forth, it is agreed as follows:

          1.   EMPLOYMENT.
               ----------

               (a) The Corporation hereby employs the Executive as its Executive
Vice President-Marketing, and the Executive hereby accepts such employment with
the Corporation for a term commencing on or about September 9, 1996 and expiring
on February 27, 1999 (i.e., last day of fiscal 1999) ("Term of Employment").
During the Term of Employment, the Executive will devote her best efforts to
such employment and all of her business time and attention to the performance of
her duties hereunder.

               (b) On or about September 30, 1998, the Corporation and the
Executive will discuss the terms and conditions of the Executive's continued
employment by the Corporation.

               (c) The Executive shall have all of the duties, responsibilities
and authority inherent in the position of Executive Vice President-Marketing,
with overall executive supervision and direction of the Corporation's marketing
policies and efforts, including without limitation those relating to
merchandising, advertising, pricing and store layout and design, and shall have
a strategic role in general product category management, excluding inventory
purchasing. The Executive shall also actively participate in the development and
execution of the Corporation's general strategic business and financial plans,
budgets and goals, and in management decisions regarding material corporate
events such as acquisitions, divestitures and other similar transactions.
Executive shall report exclusively to the Chairman and Chief Executive Officer
of the Corporation. The Executive shall be provided with a suitable office, an
executive assistant of her choosing and working facilities consistent with her
position and adequate for the performance of her duties. Services by the
Executive shall be rendered in the Camp Hill area of Pennsylvania, except that
the Executive will travel as reasonably required by the business of the
Corporation.
<PAGE>

               (d) If elected, the Executive will serve without additional
compensation as a director of the Corporation and any of its subsidiaries.

          2.   COMPENSATION.
               ------------

               In consideration of her employment hereunder,

               (a) The Corporation shall pay to the Executive, not less
frequently than monthly, an annual salary (the "Minimum Salary") as fixed from
time to time by the Chairman of the Board, the Board of Directors or its
Compensation Committee during the Term of Employment hereunder. The initial
Minimum Salary shall be $400,000. The Minimum Salary may be increased from time
to time by the Chairman of the Board, the Board of Directors or the Compensation
Committee but shall not be decreased thereafter, it being understood that
increases in the Minimum Salary shall be reviewed by the Corporation no less
frequently than on an annual basis.

               (b) Not later than August 28, 1996, the Corporation will lend to
the Executive $1,900,000 for the purpose of allowing the Executive to exercise
any right or option Executive currently holds to purchase shares of the capital
stock of The Proctor & Gamble Co., said loan to be evidenced by a promissory
note of the Executive in the form of Exhibit A hereto (the "Note"). The amount
                                     ---------
loaned will be due and payable on August 14, 2000 (except as otherwise provided
in the Note), and will bear interest, compounded annually, from the date
advanced at an annual rate equal to the prime rate of interest announced by
Morgan Guaranty Trust Company of New York from time to time during the period
the loan is outstanding, with changes therein to be effective as they occur
("Prime Rate"). Interest on said loan shall accrue and be due and payable
together with any principal payment. Executive may prepay the accrued interest
on, and principal of, the loan at any time in whole and from time to time in
part, without penalty; amounts prepaid will be applied first to accrued
interest. The Corporation shall have the right to apply any cash payment made by
it to the Executive in respect of the Corporation's Long-Term Incentive Plan in
satisfaction of the Mandatory Prepayment Amount (as defined in the Note), if
any, provided the amount so applied shall not exceed the Mandatory Prepayment
Amount.

               (c) In addition to the Minimum Salary, Executive shall be
entitled to participate in the Annual Performance-Based Incentive Program of the
Corporation. Executive's initial target bonus will be 45% of the Minimum salary.
The target earnings amount and bonus payable for the Corporation's fiscal year
ending March 1, 1997 if the Corporation's earnings exceed or are below the
target level are set forth on Exhibit E hereto. With respect to the initial
                              ---------
partial fiscal year of employment, hereunder, the Executive shall receive 75% of
the bonus that would otherwise have been payable to her under said program had
she been employed by the Corporation for the entire fiscal year. Executive
acknowledges that the Corporation's Annual Performance-Based Incentive Program
is not "discretionary" for purposes of Section 9(a)(i) hereof.

                                      -2-
<PAGE>

               (d) Executive shall participate in the Corporation's Long-Term
Incentive Plan, which is generally described in the Corporation's proxy
statement in respect of the Corporation's 1996 annual meeting of stockholders,
on the same level as the other Executive Vice-Presidents of the Corporation, and
the Executive shall be treated as having been a participant in said Plan as of
the date employment commences hereunder.  Accordingly, upon commencement of
Executive's employment, Executive will be granted the right to receive, within
90 days of the close of Corporation's fiscal year ending February 27, 1999
(subject to earlier payment as provided in Section 9 hereof), up to 93,029
shares of the Corporation's Common Stock (or, at the discretion of the Board of
Directors, their equivalent value in cash, assuming the shares are subject to no
legal, contractual or other restrictions on transferability ("freely-
transferable") if the increase in the Corporation's annual earnings per share
for the Corporation's fiscal years 1996 through 1999 (the "Measurement Period")
averages at least 8% per annum (compounded) more than the Corporation's earnings
per share in the fiscal year ended March 4, 1995.  The number of shares (or
their equivalent value in cash (assuming the shares are freely-transferable), as
the case may be) which Executive may earn will be determined after the end of
the fiscal year ending February 27, 1999 (except as otherwise provided herein),
in accordance with the matrix attached as Exhibit C hereto.
                                          ---------

               (e) Executive will participate in the Corporation's Deferred
Compensation Program pursuant to a Deferred Compensation Agreement between
Corporation and Executive in the form attached hereto as Exhibit D hereto.  The
                                                         ---------
Corporation will execute and deliver such Agreement when Executive's employment
commences.

               (f) With respect to the Corporation's plans and programs referred
to herein, and any future plans or programs, the Executive shall be entitled to
receive no less favorable treatment by the Corporation than that accorded to the
other Executive Vice-Presidents of the Corporation (except Franklin C. Brown and
Frank M. Bergonzi, and their successors as Executive Vice President and Chief
Legal Counsel, and Executive Vice President and Chief Financial Officer,
respectively, and any other Executive Vice President whose principal
responsibility is professionally or departmentally specific in nature (e.g.,
information services) and does not involve corporate operations, administration
or management) regarding the benefits provided thereunder, including without
limitation the timing and manner (i.e., cash or securities), the amount of
securities and payments to be made by the Corporation, and the method of
valuation of any payments to be made by the Corporation and whether additional
benefits relating to such plans and programs are to be afforded by the
Corporation (such as any accommodations by the Corporation in respect of tax
obligations arising as a result of the receipt of benefits thereunder).
Furthermore, the Executive shall be entitled, subject to and in accordance with
the terms of this Agreement, to continue to participate in all plans and
programs available to Executive Vice-Presidents for their participation, in the
manner and to the extent provided for herein and therein, for as long as such
plans and programs are in effect during the Term of Employment. In addition, the
number of securities to be issued to the Executive pursuant to or in connection
with this Agreement (or the cash equivalent (assuming the securities are freely-
tradeable), as the case may be) shall be subject to adjustment for any stock
split, stock dividend, recapitalization, reorganization, merger, consolidation
or other change in capitalization of the Corporation. The Corporation will
promptly notify the Executive of all events,

                                      -3-
<PAGE>

transactions or other arrangements which would give rise to her receipt or
payments or benefits hereunder, and such obligation of the Corporation shall
survive termination of this Agreement.

               (g) With respect to the issuance of any securities of the
Corporation to the Executive hereunder, if the Corporation is required to
withhold any tax for federal Insurance Contribution Act purposes and/or federal,
state or local income taxes, the Executive shall be permitted to satisfy, in
whole or in part, her obligation to pay such taxes by electing to have the
Corporation withhold a portion of the securities otherwise receivable by the
Executive, with the value of such securities to be based upon the Fair Market
Value (as defined in the Corporation's 1990 Omnibus Stock Incentive Plan (the
"Stock Option Plan")) of the Common Stock of the Corporation, determined as of
the date the amount of tax to be withheld is determined.

          3.   EXPENSES
               --------

               (a) The Corporation will reimburse the Executive for all
reasonable and necessary business and entertainment expenses incurred by her in
connection with the performance of her duties hereunder. To the extent such
expenses include air travel by the Executive, such travel will be on the
Corporation's corporate jet or, if not available, at a first class level, or
otherwise in a manner consistent with general corporate practice for the senior
executives of the Corporation. The Corporation shall pay additional compensation
to the Executive to hold her harmless from any income taxes she may owe as a
result of the reimbursement of expenses hereunder.

               (b) The Corporation shall furnish to the Executive for her sole
use a new, suitable automobile. The Corporation shall pay for all of the
operating costs, including a driver, cellular phone, maintenance and storage
costs of such automobile. The Corporation shall keep the automobile, the
Executive and the driver adequately insured against any and all liabilities for
injuries to passengers or other persons and damages to property, including the
automobile.

          4.   BENEFIT PLANS; MATERNITY LEAVE.
               ------------------------------

               The Executive shall be eligible, as of the date employment
commences hereunder, to participate in any other employee benefit programs
generally made available to senior executives of the Corporation which are now
or may hereafter be placed in effect. For any pregnancy of the Executive, she
shall be entitled to not less than eight weeks' paid maternity leave at the
prevailing rate of Minimum Salary hereunder. To the extent permitted by
applicable law, all insurance and other benefits coverage in respect of the
Executive shall be effective as of the date employment commences hereunder and
any and all waiting periods relating thereto shall be waived.

          5.   STOCK OPTIONS OR OTHER SIMILAR BENEFITS.
               ---------------------------------------

               (a) Executive will be granted, effective as of the date
employment commences hereunder, an option ("Option") to acquire an aggregate of
32,000 shares of

                                      -4-
<PAGE>

Common Stock, at a price equal to the Fair Market Value of the Corporation's
Common Stock on the date of grant in accordance with and pursuant to the Stock
Option Plan. The Option so granted will be an "incentive" option and will be
exercisable for ten years from the date of grant in cumulative annual
installments of 25% commencing one year from the date of grant. Notwithstanding
anything to the contrary set forth herein or in the Stock Option Plan, the
Option shall be deemed fully vested and exercisable for a period of five years
following termination of Executive's employment hereunder in the event her
employment is terminated without cause (as hereinafter defined).

               (b) If a registration statement is filed providing for the public
sale of shares of Common Stock by any executive of the Corporation, Executive
shall be entitled to have shares owned by her (whether acquired pursuant to the
Long-Term Incentive Plan, the Stock Option Plan or otherwise) included in such
registration statement to the extent, pro rata, that shares of other executives
are included and on the same terms and conditions as such other executives;
provided, however, that if in the opinion of counsel for the Corporation,
addressed to the Executive, the Executive is free to sell all the shares which
she has requested to be included in the registration statement without
registration, then the Corporation shall not be required, and the Executive
shall not have the right, to have such shares included in such registration
statement.

               (c) This section shall apply to the executors, heirs or legal
representatives of the Executive to the extent such executors, heirs or legal
representatives succeed to the right of Executive to acquire shares of Common
Stock of the Corporation.

          6.   VACATIONS.
               ---------

               The Executive shall be entitled to such vacations, at such times
and for such periods, as are in accordance with the vacation policies of the
Corporation then in effect for senior executives of the Corporation, but not
less than four weeks per year.

          7.   INSURANCE.
               ---------

               (a) During the Term of Employment, the Corporation shall maintain
in force at its expense (in lieu of any group life insurance coverage generally
made available to senior executive officers of the Corporation) a term life
insurance policy which shall be in the amount of not less than twice the sum of
(i) the then-prevailing annual amount of Minimum Salary hereunder and (ii) the
amount of the Executive's annual cash bonus in respect of the most recently
completed fiscal year of the Corporation (or, for the initial year hereunder, an
amount equal to $1,160,000). In connection therewith, the Corporation agrees
that such insurance policy shall be owned by the trust benefitting the
Executive's family or other beneficiaries which is utilized by the Executive for
the purpose of, among other things, obtaining or holding insurance on the life's
of the Executive (a "Trust"), and that the premiums payable by the Corporation
during the Term of Employment for the policy shall be paid to the Trust or, upon
the written request of the trustee thereof, to the applicable insurance company
or agent thereof.

                                      -5-
<PAGE>

               (b) The Executive agrees to submit to any physical examination
required by any prospective insurer, and will otherwise cooperate with the
Corporation in connection with any life insurance on the Executive's life the
Corporation is required, or may wish, to obtain.

               (c) In the event the Executive is determined to be suffering from
an illness or condition which would preclude the Corporation from obtaining the
insurance, contemplated by subparagraph (a) above (the "Specified Insurance
Level") at a cost substantially equivalent to the cost of obtaining such
insurance for a healthy individual of Executive's age and gender, the Company
shall purchase the face amount of such term life insurance, if any, that can be
purchased at a cost substantially equivalent to the cost of obtaining the
Specified Insurance Level for a healthy individual of Executive's age and
gender, provided that in the event any such illness or condition subsequently is
cured or subsides and additional insurance coverage then becomes available for
the Executive, the Corporation shall thereupon provide such additional coverage
for the Executive, subject to the terms of this Section y.

          8.   TERMINATION OF EMPLOYMENT AND RELATED COMPENSATION.
               --------------------------------------------------

               (a) The Executive's employment shall terminate hereunder upon any
of the following events:

                    (i)    Voluntary termination by the Executive;

                    (ii)   Termination for Cause;

                    (iii)  Termination by reason of the Executive's disability
          (as hereinafter defined);

                    (iv)   Termination by reason of the Executive's death; or

                    (v)    Termination upon expiration of the Term of
                           Employment.

               (b)  "Cause" for purposes hereof shall be deemed to exist if:

                    (i)   The Executive is convicted or pleads guilty or nolo
                                                                         ----
          contendere to any crime which constitutes a felony in the jurisdiction
          ----------
          involved and if convicted the conviction, through lapse of time or
          otherwise, is not subject to appeal; or

                   (ii)  Material breach by the Executive of any provision of
          this Agreement, provided that such breach continues for thirty
          business days after delivery of notice to her of the facts on which
          the Corporation bases a claim of material breach.  Such notice shall
          be given only if approved by a majority of the

                                      -6-
<PAGE>

          members of the Board of Directors, not including the Executive for
          determining a majority.

If the Executive is indicted or charged in an information for a crime or offense
which would be grounds for termination for Cause, her employment may be
suspended until the charges are dropped or she is acquitted.  During such period
the provisions of this Agreement, including compensation, shall continue in full
force and effect, except that the Executive shall not act as Executive Vice
President-Marketing, and she shall be available on reasonable notice at
reasonable times for consultation on the business and affairs of the
Corporation.

               (c)    The Executive may elect, by notice to the Corporation, to
treat any of the following acts or omissions by the Corporation to which she has
not given her express consent as a termination without Cause;

                      (i)     If she is not appointed or retained as Executive
          Vice President-Marketing;

                      (ii)    With respect to acts or omissions other than those
          specifically stated in this paragraph (c), if the Corporation shall
          not substantially comply with its obligations under this Agreement and
          such failure shall not be corrected within ten business days after
          delivery of notice to the Corporation of the facts on which the
          Executive bases a claim of non-compliance;

                      (iii)   The assignment to the Executive of any duties
          inconsistent with her position as Executive Vice President-Marketing;

                      (iv)    A relocation of the Executive's office to a place
          further from the Baltimore area than Camp Hill, Pennsylvania;

                      (v)     A charge of material breach by the Corporation
          under Section 8(b)(ii) hereof which is determined by final judgment to
          have been made without adequate basis in law or fact;

                      (vi)    The sale by the Corporation of all or
          substantially all of its assets and business or a merger or
          consolidation of the Corporation with a company other than a
          subsidiary of the Corporation if, as a result of which, a majority of
          the members of the Board of Directors of the surviving or resulting
          entity are persons who were not immediately prior to the merger or
          consolidation directors of the Corporation;

                      (vii)   A change in control (as hereinafter defined) of
          the Corporation; or

                      (viii)  If Martin L. Grass is no longer serving the
          Corporation in the positions of Chairman and Chief Executive Officer
          thereof.

                                      -7-
<PAGE>

               (d)    "Disability" shall be deemed to exist if, in the judgment
of a physician licensed to practice in the Commonwealth of Pennsylvania selected
by the Board of Directors, the Executive has been unable or will be unable due
to mental or physical incapacity, disease or injury to perform the duties or
services specified herein for a period of not less than six consecutive months.
For purposes hereof, the date of such disability shall be the date of the
determination by such physician.

               (e)    For purposes hereof, a "change in control" shall be deemed
to have occurred if, at any time prior to February 27, 1999, voting power
representing more than 20% of the Corporation's outstanding Common Stock (or
equivalent in voting power of any class or classes of outstanding securities of
the Corporation ordinarily entitled to vote in elections of directors) shall be
acquired, directly or indirectly, by any individual, corporation or group, other
than persons who are members of the Board of Directors at the date hereof or who
succeed to the ownership of securities of the Corporation of any such members of
the Board as executor, administrator, heir or intestate distributee of such
persons. "Group" shall mean persons who act in concert as described in Section
14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). "Change in Control" shall not include increases in the percentage of
voting power of persons who beneficially own or control stock on the date of
this Agreement which occur solely as a result of a reduction in the amount of
stock outstanding.

               (f)    The notice required by paragraph (c) of this Section 8
shall be given within 60 days of the occurrences of a described event in which
is not required to be reported on a Schedule 13D or Schedule 14D or equivalent,
or within 90 days after the filing of a report on Schedule 13D or Schedule 14D
or equivalent, reporting the event on which the Executive elects to claim a
termination without Cause.

          9.   COMPENSATION AFTER TERMINATION.
               ------------------------------

               (a)    In the event this Agreement expires pursuant to its terms
or in the event the Executive's employment terminates hereunder for any reason,
the Corporation shall have no further obligations or duties to the Executive,
except that the Executive shall be entitled to receive:

                      (i)    All salary due and owing to the Executive hereunder
          up to the termination or expiration date, as the case may be
          (hereinafter collectively referred to as the "Termination Date"), and
          any bonus or incentive compensation for any year prior to the year of
          termination which has not been paid, and any bonus or incentive
          compensation for the year of termination (which shall be pro-rated
          based on the number of days in the year to the Termination Date),
          provided that, if such bonus or incentive compensation is
          discretionary in amount, the Executive shall receive, on the
          Termination Date, a payment for the year of termination at least equal
          to a pro-rata portion of the prior year's bonus or incentive
          compensation payment made to her, and if the bonus or incentive
          compensation is non-discretionary, the Executive shall receive, on the
          date such bonus or incentive compensation would otherwise have been
          payable, a payment

                                      -8-
<PAGE>

          for the year of termination at least equal to a pro-rata portion of
          the amount which would have been payable for the entire year (with the
          entire year's amount calculated in a manner consistent with the terms
          of the non-discretionary plan or program);

                    (ii)     Expense reimbursements due and owing to the
          Executive as of the Termination Date, plus payment for accrued
          vacation as of the Termination Date at the rate of the then-prevailing
          Minimum Salary;

                    (iii)    Payment, in accordance with prior Corporation
          practice, of health and medical benefits and of life insurance
          premiums contemplated hereby through the Termination Date and, in the
          case of death or disability, (A) any payments and benefits to which
          the Executive is entitled under the Deferred Compensation Agreement
          and (B) payment pursuant to the Long-Term Incentive Plan, simultaneous
          with the payment thereof to other executive officers of the
          Corporation receiving similar payments of such number of shares of the
          Corporation's Common Stock (or the equivalent value thereof (assuming
          the shares are freely-tradeable) in cash in lieu thereof) determined
          by multiplying 150,000 shares of the Corporation's Common Stock
          (subject to adjustment as provided elsewhere herein) or their
          equivalent value in cash (assuming the shares are freely-tradeable),
          as the case may be, by a fraction the numerator of which is the number
          of weeks which elapsed from the date Executive's employment hereunder
          commenced to the Termination Date and the denominator of which is 208;

                    (iv)     In the case of expiration of the Term of
          Employment, payment pursuant to the Long-Term Incentive Plan of all
          the shares of Common Stock (or the equivalent value thereof in cash
          (assuming the shares are freely-tradeable) to which she is then
          entitled (i.e., upon or as a result of completion of the Measurement
          Period), such payment to be simultaneous with the payment to other
          executive officers of the Corporation receiving similar payments;

                    (v)      All rights to the Option set forth in Section 5
          hereof, subject to the terms of the Stock Option Plan (as such terms
          are to be modified for the Executive in accordance with the terms of
          this Agreement; and

                    (vi)     Payment of all applicable amounts due to the
          Executive pursuant to clause (b) below.

               (b)  In the event Executive's employment is terminated hereunder
prior to February 27, 1999 for any reason other than (i) death, (ii) disability,
(iii) voluntary termination by the Executive (other than pursuant to Section
8(c) hereof) or (iv) for Cause, then the Executive shall be entitled, in
addition to any amounts payable pursuant to Paragraph 9(a) above, to receive a
lump sum payment on the Termination Date equal to the present value, discounted
at the Prime Rate from the date the amounts would otherwise by payable hereunder
(the "Present

                                      -9-
<PAGE>

Value Amount"), of the sum of (I) the Long-Term Incentive Plan Cash Payout (as
hereinafter defined) plus (II) the Minimum Salary (assuming said salary is at
the then-prevailing rate) plus the amount of the Executive's annual cash bonus
(assuming the bonus is at the same level as that for the most recently completed
fiscal year of the Corporation (or for the initial year hereunder the amount of
the initial target bonus specified in Section 2(c) hereof) which Executive would
have received for the period through the remaining balance of the Term of
Employment had her employment not terminated and (III) an amount equal to the
Minimum Salary (assuming said salary is at the then-prevailing rate) for the 24
month period commencing March 1, 1999. Notwithstanding the foregoing, if the
Present Value Amount exceeds an amount equal to 299% of the Executive's "base
amount" as defined in Section 280G (b) (3) of the Internal Revenue Code of 1986,
as amended (the "Code") less any other amounts treated as payments contingent
upon a change of control within the meaning of Section 280G of the Code (the
"Alternate Amount"), but the Present Value Amount after reduction for all
federal, state and local taxes (including, but not limited to, the excise tax
imposed on "excess parachute payments" pursuant to Section 4999 of the Code, if
applicable) is less than the Alternate Amount after reduction for all taxes (as
described above), the amount payable hereunder shall be the Alternate Amount.
For purposes hereof, the "Long-Term Incentive Plan Cash Payout" shall mean the
payment in cash to the Executive of an amount equal to the value of 93,029
shares of the Corporation's Common Stock (subject to adjustment as provided
elsewhere herein) under the Long-term Incentive Plan, such value to be
determined as of the Termination Date and assuming the shares are freely-
tradeable.

               (c)  Payments to the Executive pursuant to federal, state or
local government or agency benefits or disability insurance policies shall not
reduce the Corporation's obligations to the Executive.

          10.  APPLICABLE LAW.
               --------------

               This Agreement is to be governed by and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania applicable to agreements made
and to be performed wholly within such Commonwealth, except with respect to the
powers of the Corporation, which are governed by Delaware law.

          11.  AMENDMENT OF PLANS.
               ------------------

               Subject to the terms of this Agreement, the Corporation may
amend, terminate or modify any employee benefit programs or practices heretofore
or hereafter adopted by the Corporation so long as any amendment, termination or
modification does not adversely affect the Executive.

          12.  ASSIGNMENT.
               ----------

               This Agreement shall be binding upon the parties hereto, their
heirs, successors and assigns, except as otherwise set forth herein. This
Agreement is personal in nature and may not be assigned by either party except
that, subject to the provisions of Section

                                      -10-
<PAGE>

8(c) herein, the Corporation may assign this Agreement to any person who shall
acquire all or substantially all of the assets and business of the Corporation
and shall explicitly agree to perform the obligations of the Corporation in all
respects, but the Corporation shall not thereby be relieved of any such
obligations.

          13.  INDEMNIFICATION.
               ---------------

               To the fullest extent not inconsistent with applicable law, in
the event that the Executive is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that she is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, the Corporation shall indemnify the Executive and hold her
haramless, against all expenses (including costs and attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by her in connection with such action, suit or proceeding if she acted in good
faith and a manner she reasonable believed to be in or not opposed to the best
interest of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe her conduct unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contender or its equivalent., shall not, of
                              --------------
itself, create a presumption that the Executive did not act in good faith and in
a manner which she reasonably believed to be in or not opposed to the best
interest of the Corporation, or that, with respect to any criminal action or
proceeding, this Executive had reasonable cause to believe that her conduct was
un1awful. The provisions of this Section 13 shall not be deemed edxclusive of
any of her rights of indemnification to which the Executive may be entitled or
which may be granted to her, and it shall be in addition to any rights of
idemnification to which she may be entitled wider any policy of insurance. These
provisions sball continue in effect after the Executive has ceased to be a
director, officer, employee or agent of the Corporation and shall inure to the
benefit of Executive's heirs, executors, adminiscratore 'and intestate
distributees.

          All litigation or inquiries by third parties (for example, but not
limited to, those by shareholders - direct or derivative or government agencies)
arising out of or in connection with the Agreement or Executive's performance
orluance hereunder, against either the Corporation or the Executive or both,
shall be defended as opposed by the parties hereto, as the case may be, to
support this Agreement, and the costs, fees and expenses thereof, including fees
of counsel for the parties, shall be borne by the Corporation.

          14.  ARBITRATION.
               -----------

          Any controversy or claim between the Corporation and Executive, their
representatives, heirs, successors and assigns, arising out of or relating to
this Agreement or any breach or asserted breach hereof or questioning the
validity and binding effect hereof shall be determined by arbitration conducted
in Ba1timore, Maryland in accordance. with the Rules of the American Arbitration
Association then obtaining, and judgment upon any award rendered may be entered
in any court having jurisdiction thereof.  The decision of the arbitrators shall
be final

                                      -11-
<PAGE>

and binding upon the parties hereto. All of the Executive's costs and expenses
(including attorneys' fees) arising out of or in connection with any matters
submitted to arbitration pursuant to this Section 14 shall be paid by the
Corporation, unless the award of the arbitrators shall explicitly find that the
Executive's claim or her defense against a claim by the Corporation was
frivolous and completely without merit, in which case the executive shall pay
the costs and expenses (including, without limitation, reasonable attorney's
fees) incurred by the corporation in such connection. The term of this Section
14 shall survive the termination of this Agreement.

          15.  LEGAL FEES
               ----------

          The Corporation shall pay for all fees, up to $7,500 in the aggregate,
and expenses of counsel to the Executive for services rendered by such counsel
in connection with this Agreement.

          16.  NOTICES.
               -------

          Any notice or other communication required to or which may be given to
any party hereunder, shall be in writing and shall be deemed given effectively
if delivered personally to such party (or any officer thereof in the case of the
Corporation) or if mailed, by registered, or certified mail, postage prepaid,
return receipt requested, addressed to such other party at the address first set
forth above.  Any party may change the address to which notices are to be sent
by giving written notice of any such change in the manner provided herein.

          17.  CONFIDENTIAL INFORMATION.
               ------------------------

               (a)    The Executive recognizes that as an executive of the
Corporation she will have access to secret and confidential information
regarding the Corporation, its products, customers and plane. The Executive
acknowledges that such information is of great value to the Corporation, and is
the sole property of the Corporation and that such information has been and will
be acquired by her in confidence. In consideration. of the obligations
undertaken by the corporation as set forth herein, the Executive will not, at
any time, during or after her employment hereunder, reveal, divulge or make
known, except as authorized by the Corporation or required on its behalf or
required pursuant to legal or administrative processes, any information of a
confidential nature concerning the Corporation acquired by the Executive during
the course of her employment.

               (b)    The Executive agrees that any breach or threatened breach
by her of any provisions of this Section 2.7 shall entitle the Corporation, in
addition to any other legal or equitable remedies available to it, to apply to
any court of competent jurisdiction to enjoin such breach or threatened breach
without the posting of any bond or any security.

               (c)    This Section 17 shall survive the termination of the
Executive's employment hereunder.

          18.  COVENANT NOT TO COMPETE.
               -----------------------

                                      -12-
<PAGE>

               (a)    The Executive recognizes that the services to be performed
by her hereunder are special, unique and extraordinary. The parties confirm that
it is reasonably necessary for the protection of the Corporation that the
Executive agree, and accordingly, the Executive does hereby agree that she will
not, directly or indirectly, except for the benefit of the Corporation, at any
time during her employment hereunder, and thereafter during the Restricted
Period, as hereinafter defined, provided the Corporation shall duly perform it.
obligations to the Executive pursuant to this Agreement:

                      (i)     Become an officer, director, stockholder, partner.
          associate, employee, owner agent, creditor, independent contractor or
          co-venturer of, or otherwise be interested in or associated with, any
          other corporation, firm or business engaged, in any geographical area
          in which the Corporation or any of its subsidiaries is engaged, in a
          Competitive Business (as hereinafter defined);

                      (ii)    Solicit or cause or authorize, directly or
          indirectly, to be solicited for employment for or on behalf of herself
          or third parties, any persons who were at any time within one year
          prior to the cessation of her employment hereunder, employees of the
          Corporation;

                      (iii)   Employ or Cause or authorize, directly or
          indirectly, to be employed for or on behalf or herself or third
          parties, any such employees of the Corporation; or

                      (iv)    Directly or indirectly participate in the
          management or operation of or have direct supervisory responsibility
          with respect to the management or operation of a major chain of retail
          drug stores.

A corporation, firm or business shall not be deemed to be engaged in a
"Competitive Business" unless such entity operates exclusively a major chain of
retail drugstores.

               (b)    The Executive agrees that any breach or threatened breach
by her of any provisions of this Section 18 shall entitle the Corporation, in
addition to any other legal or equitable remedies available to it, to apply to
any court of competent jurisdiction to enjoin such breach or threatened breach
without the posting of any bond or any security. If any of the restrictions
contained herein shall be deemed to be unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration,
geographical. scope, or other provisions hereof, and in its reduced form this
paragraph shall then be enforceable in the manner contemplated hereby.

               (c)    This Section 18 shall not be construed to prevent the
Executive from owning in the aggregate an amount not exceeding three percent
(3%) of the issued and outstanding voting securities of any class of any
corporation whose voting capital stock is traded on a national securities
exchange or in the over-the-counter market. For this purpose "outstanding voting
securities" shall be deemed to include, the voting securities issuable upon

                                      -13-
<PAGE>

conversion of a corporation's outstanding convertible securities, whether or not
immediately convertible, and the voting securities of a corporation issuable
upon exercise of outstanding warrants and option to acquiring voting securities,
whether or not immediately exercisable, and "voting securities" of a corporation
shall be deemed to include securities convertible into or exercisable for voting
capital stock, valued at the number of shares such securities are convertible
into or exercisable for the purpose of determining percentage ownership of
outstanding voting securities

               (d)    The term "Restricted Period" as used in this Section 16
shall mean the one-year period following the date on which employment of the
Executive terminates.

               (e)    This Section 18 shall survive the termination of the
Executive employment hereunder for the period provided in paragraph (d)

               (f)    Notwithstanding anything in this Agreement to the
contrary, if the, Executive violates any of the provisions of paragraph (a)
hereof during the Restricted period and fails to cease such violation and to
remedy the consequences of such violation within ten days after notice from the
Corporation specifying such violation and if the Corporation obtains a final
judgment from a court of competent jurisdiction to the effect that the Executive
has violated a provision of paragraph (a) and has failed to cease such violation
and to remedy the consequences of such violation within ten days after notice
from the Corporation all obligations of the Corporation to compensate the
Executive shall cease, and the Corporation shall be entitled to recover from the
Executive compensation received by the Executive while such violation existed.

          19.  MODIFICATION.
               ------------

               The foregoing is the entire agreement between the parties
relating to the subject matter hereof (except the Deferred Compensation
Agreement), and supersedes all prior agreements. This Agreement may not be
altered, modified, changed or discharged and none of the provisions hereof may
be waived except in writing, signed by the party to be charged therewith. A
failure strictly to enforce any of the terms of this Agreement shall not be
deemed to be a waiver of the right to enforce any such term at any subsequent
time. In the event of a conflict between the terms of the Agreement and the
terms of the Deferred Compensation Agreement or any plan or program of the
corporation, the terms of this Agreement shall be controlling.

          20.  MISCELLANEOUS.
               -------------

               (a)    The Executive acknowledges that the remedy at law for any
material breach or threatened material breach by her of the performance of her
obligations hereunder will be inadequate and that the Corporation shall be
entitled to injunctive relief therefor.

               (b)    The Corporation recognizes that a termination without
Cause will subject the Executive to losses and damages, the amount of which
might not readily be

                                      -14-
<PAGE>

determined, and that there exist only a limited number of employment
opportunities comparable in stature, compensation and opportunity to employment
as the Executive Vice President -Marketing of the Corporation. Therefore, the
Executive shall not be required to seek or accept employment in mitigation of
any obligations of the Corporation arising by reason of her termination without
Cause.

          21.  SECTION HEADINGS.
               ----------------

               The headings or titles of the sections of this Agreement are not
a part of this Agreement and are not intended to aid in the construction of any
provisions thereof.

                  [Balance of page intentionally left blank.]

                                      -15-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.


ATTEST                              RITE AID CORPORATION


____________________________        By:  /s/ Martin L. Grass
                                         ______________________________
                                         Martin L. Grass
                                         Chairman and Chief Executive Officer


____________________________             /s/ Beth Kaplan
                                         ______________________________
                                         Beth Kaplan

                                      -16-
<PAGE>

                                                                      EXHIBIT A


                         NON-NEGOTIABLE PROMISSORY NOTE

$1,900,000                                                      AUGUST 28, 1996


     FOR VALUE RECEIVED, the undersigned, Beth Kaplan (the "Borrower"), hereby
promises to pay to Rite Aid Corporation, a Delaware corporation (the "Payee"),
the principal sum of One Million Nine Hundred Thousand Dollars ($1,900,000),
together with accrued interest, compounded annually, on the unpaid balance of
such principal amount which shall accrue from the date funds are advanced
hereunder, at an annual rate of interest equal to the prime rate of interest
announced by Morgan Guaranty Trust Company of New York from time to time during
the period the indebtedness hereunder is outstanding , with changes therein to
be effective as they occur.  The principal of, and accrued interest on, this
Note shall be payable in full by the Borrower to the Payee at 5:00 p.m., local
time, on August 14, 2000, subject to the terms hereof.

     Payments on this Note shall be paid to the  Payee at its principal office
in Camp Hill, Pennsylvania, (or where otherwise specified by the payee), by
certified or official bank check or personal check (subject to collection)
payable to the Payee.  In lieu of said forms of payment, the Borrower shall have
the option to deliver shares of Common Stock of the Payee  in satisfaction or
partial satisfaction, as the case may be, of this Note (so long as the Payee is
legally permitted to acquire said shares), such shares to be valued for purposes
hereof at their Fair Market Value (as constituted on the date hereof) as of the
date immediately preceding the date of delivery thereof to the Corporation.  IF
the date set for any payment on this Note is a Saturday, Sunday or legal
holiday, such payment shall be due on the next succeeding business day.

     This Note shall be secured by a pledge of any shares of common stock of the
Payee issued to the Borrower by the Payee pursuant to the Payee's Long-Term
Incentive Plan (the "Shares") as provided in a Stock Pledge Agreement
substantially in the form of Annex I hereto (the "Stock Pledge Agreement"), to
be entered into between the Payee and the Borrower upon receipt by the Borrower
of said shares.

     Principal and accrued interest on this Note are subject to mandatory
prepayment in the event that (a) the Long-Term Incentive Plan Cash Payout (as
defined in that certain Employment Agreement by and between the Payee and the
Borrower dated as of August 14, 1996 (the "Employment Agreement") is received by
the Borrower or (b) the Borrower sells all or any portion of the Shares prior to
the date on which the principal and accrued interest on this Note would
otherwise become due and payable (such sale is hereinafter referred to as a
"Pre-maturity Sale"). The amount to be prepaid shall be an amount (the
"Mandatory Prepayment Amount") equal to the net after-tax proceeds received by
the Borrower through the Long-Term Incentive Plan Cash Payout or upon such Pre-
maturity Sale (calculated in each case assuming the maximum Federal, state and
city tax rates applicable as of the date of such transaction).  Any principal
not prepaid under the terms of this Note shall remain outstanding and interest
shall continue to accrue thereon.  As collateral security for the payment of the
Mandatory Prepayment Amount, Borrower hereby grants

                                      A-1
<PAGE>

to Payee a lien upon and security interest in the Long-Term Incentive Plan Cash
Payout and the cash proceeds of a Pre-maturity Sale, in either case up to a
maximum aggregate amount equal to the unpaid principal of and accrued inters on
this Note, such lien and security interest to continue until the Mandatory
Prepayment Amount is paid in accordance herewith.

     The principal of and accrued interest on this Note may be prepaid at any
time, in whole, or from time to time in part, without penalty, by giving to the
Payee written notice of prepayment which shall state the intention to prepay.
Amounts prepaid hereunder shall be applied first to accrued interest and then to
principal owing hereunder.

     In the event (each, an "Event of Default") (i) that the Borrower commences
an action under any law relating to bankruptcy, insolvency or relief of debtors,
there is commenced against the Borrower an action under any such law which
results in the entry of an order for relief or such action remains undismissed
for a period of 60 days or the Borrower otherwise becomes insolvent, (ii) that
the Borrower fails to make complete payment of principal or accrued interest
when due under this Note or (iii) that the Borrower materially violates the
Pledge Agreement, the Payee may accelerate this Note and may, by written notice
to the Borrower, declare the entire unpaid principal amount and all such accrued
and unpaid interest thereon to be immediately due and payable and, thereupon,
the unpaid principal amount and all such accrued and unpaid interest shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by the Borrower;
provided, however, if any of the Events of Default described int (ii) or (iii)
- --------  -------
of this paragraph occurs, the Borrower may, at any time before the date that is
10 business days after the occurrence of such event without the consent of the
Payee, remedy such failure or material violation, and, if the Borrower timely
effects such remedy, the Payee may not accelerate this Note as described above.
The failure of the Payee to accelerate this Note shall not constitute a waiver
of any of the Payee's rights under this Note as long as any of the Events of
Default described in (i), (ii) or (iii) continues.

     In case this Note shall become mutilated, defaced or apparently destroyed,
lost or stolen, upon the written request of the Payee, the Borrower shall issue
and execute a new Note in exchange and substitution for the Note so apparently
destroyed, lost or stolen.  Thereafter, no amount shall be due and payable or
owing under the mutilated, defaced or apparently destroyed, lost or stolen Note.

     The provisions of this Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
the conflicts of law rules thereof.

                  [Balance of page intentionally left blank.]


                                      A-2
<PAGE>

  IN WITNESS WHEREOF, this Note has been duly executed and delivered by Borrower
on the date first above written.


                                            BORROWER


                                            ______________________________
                                            Beth Kaplan


FOR VALUE RECEIVED, the undersigned, the spouse of the Borrower named in the
foregoing promissory note, (the "Note"), intending to be legally bound, hereby
guarantees and shall be surety for, subject to the terms hereof, the due and
punctual payment by the Borrower of all amounts that may become due and payable
under the Note until either (a) the date the Borrower receives securities (or
cash in lieu thereof) pursuant to or in respect of the Rite Aid Corporation
Long-Term Incentive Plan or (b) the date securities (or cash in lieu thereof) to
which the Borrower is otherwise entitled under said Plan is applied to satisfy
any obligations of the Borrower under the Note, as the case may be.
Notwithstanding the amount or value of any securities or cash payment received
by the Borrower or applied on her behalf in connection with said Plan, upon the
earlier to occur of the dates referred to in clauses (a) and (b) above, the
obligation of the undersigned hereunder shall terminate and be of no further
force or effect.


                                            ______________________________
                                            Bruce Sholk







                                      A-3
<PAGE>

                                                                         Annex I
                                                                         -------

                             STOCK PLEDGE AGREEMENT

     STOCK PLEDGE AGREEMENT (the "Agreement"), dated as of ________, 199__,
among RITE AID CORPORATION, a Delaware Corporation (the "Pledgee" or the
"Corporation"), and BETH KAPLAN (the "Pledgor").

     WHEREAS, the Pledgee and the Pledgor are parties to an Employment Agreement
(the "Employment Agreement") dated as of August __, 1996; and

     WHEREAS, the Pledgor is a participant under the  Corporation's Long-Term
Incentive Plan pursuant to which the Corporation has issued [_______] shares of
common stock, par value $____ per share (the "Common Stock") to the Pledgor
[number of shares to correspond to number received pursuant to Long-Term
Incentive Plan];

     NOW THEREFORE, in consideration of the foregoing and of mutual undertakings
set forth in this Agreement, the Pledgee and the Pledgor agree as follows:

     1.   As collateral security for the full and timely payment, performance
and observance of all indebtedness (the "Indebtedness") of the Pledgor to the
Pledgee under the Pledgor's promissory note dated August __, 1996 in the
principal amount of $1,900,000 (the "Note"), the Pledgor herewith deposits and
pledges with the Pledgee, in form transferable for delivery, and grants to the
Pledgee a security interest in, [_____] shares of the Common Stock and such
additional property at any time and from time to time receivable by the Pledgee
hereunder or otherwise distributed in respect of or in exchange for any or all
such shares (collectively, the "Pledged Securities").

     2.   Notwithstanding anything to the contrary contained in this Agreement,
if no Event of Default (as defined in the Note) shall have occurred and be
continuing, any and all cash dividends and any other cash distributions at any
time and from time to time declared or paid upon or with respect to any of the
Pledged Securities shall be paid to the Pledgor.

     3.   The Pledgor may sell all or any portion of the Pledged Securities.  IN
such an event, the Pledgor shall deliver to the Pledgee a sale notice specifying
the number of Pledged Securities to be sold, and concurrently with payment of
the Mandatory Prepayment Amount (as that term is defined in the Note) by the
Pledgor to the Pledgee, the Pledgee shall promptly deliver to a third-party
licensed broker-dealer in Securities the number of  Pledged Securities specified
in the Sale Notice for sale for the account of the Pledgor.

     4.   This security interest in all Pledged Securities not delivered to the
Pledgor pursuant to the preceding paragraph shall continue until the Note has
been paid in full.  Upon payment in full of the Note, the Pledgee shall promptly
return to the Pledgor all previously undelivered Pledged Securities.



                                      I-1
<PAGE>

     5.   Any notice or demand hereunder shall be deemed to have been
sufficiently given for all purposes hereof if mailed, postage prepaid, by
registered or certified mail, return receipt requested, or delivered, to the
appropriate party at the address specified in the Employment Agreement or at
such other address as such party may theretofore have designated in writing and
given in like manner to the other party.

     6.   This Agreement and the rights and obligations of the Pledgee and the
Pledgor hereunder shall be construed in accordance with and governed by the law
of the Commonwealth of Pennsylvania, cannot be changed orally and shall bind and
inure to the benefit of the Pledgor and the Pledgee and their respective
successors and assigns, and all subsequent holders of the Indebtedness.

     7.   This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but one and the same instrument.

     IN WITNESS WHEREOF, the Pledgor has duly executed this Agreement and the
Pledgee has caused this Agreement to be duly executed by its officer duly
authorized as of the day and year first above written.

                                      RITE AID CORPORATION


                                      By:   ____________________________
                                            Martin L. Grass
                                            Chairman and Chief Executive
                                              Officer

                                      Pledgor:


                                      __________________________________





                                      I-2
<PAGE>

                                                                       EXHIBIT B

                        Fiscal 1997 Executive Bonus Plan
                        --------------------------------


Program based on increase in earnings per share over fiscal 1996, Results
interpolated at intermediate points.
Charge for Acquisition Reserve is excluded.
Target Bonus is the following percent of base salary:

Executive Vice Presidents  45%


       Increase in               Earnings Per        % of Target
Earnings Per Share             Share Required              Bonus
- ------------------             --------------              -----
    15.0% or above                     $2.182                 10%
             14.5%                      2.172                140%
             14.0%                      2.163                130%
             13.5%                      2.153                120%
             13.0%                      2.144                110%
- ------------------------------------------------------------------
            12.50%         TARGET       2.134    TARGET      100%
- ------------------------------------------------------------------
            12.0%                       2.125                 90%
            11.5%                       2.115                 80%
            11.0%                       2.106                 70%
            10.5%                       2.096                 60%
            10.0%                       2.087                 50%
   Below    10.0%                       2.086                  0%





                                      I-3
<PAGE>

                                                                       EXHIBIT C

                     Long-Term Incentive Plan Compensation
                    Performance Improvement Award Structure
                    ---------------------------------------



                                Average
                        E.P.S. Increase          % Earned
                        ---------------          --------
                                 12.0%               100%
                                 11.5%                90%
                                 11.0%                80%
                                 10.5%                70%
                                 10.0%                60%
                                  9.5%                50%
                                  9.0%                40%
                                  8.5%                30%
                                  8.0%                20%
                          Below     8%                 0%
<PAGE>

                                                                       EXHIBIT D

                        DEFERRED COMPENSATION AGREEMENT
                        -------------------------------

     AGREEMENT entered into as of the ____ day of September, 1996, by and
between RITE AID CORPORATION, with offices at 30 Hunter Lane, Camp Hill,
Pennsylvania 17011 ("Corporation"), and the employee named on the signature page
of this Agreement ("Employee").

     WHEREAS, Employee is rendering and Corporation desires that Employee
continue to render valuable services to Corporation; and

     WHEREAS, to assist Employee in providing for the contingencies of death,
disability and old age dependency, Corporation and Employee desire to enter into
this Agreement ("Agreement") to provide Employee with deferred compensation.

     NOW, THEREFORE,  Corporation and Employee hereby agree as follows:

     1.   (a)  In the event that Employee's employment with Corporation
terminates after Employee has reached age sixty five (65) and has completed at
least twenty (20) years of service with Corporation, Employee shall be entitled
to retirement ("Retirement") with the compensation provided in this Agreement.
In such event, the Corporation shall pay to Employee, monthly and amount equal
to one twelfth (1/12) of sixty (60%) percent of the average of the three (3)
highest annual base salaries paid or accrued in respect of three (3) fiscal
years of the Corporation within the last ten (10) fiscal years of the
Corporation within the last ten (10) fiscal years of the Corporation prior to
termination of Employee's employment; provided, however, that in the event
Employee's
<PAGE>

Retirement commences after at least six (6) months of the fiscal year in which
Employee's Retirement takes place have elapsed, that fiscal year shall be
included as the tenth year in the calculation of the Retirement Allowance and
Employee shall be deemed to have been paid an annual base salary for that entire
fiscal year at the highest rate paid to Employee in that fiscal year. The
monthly amount of such payments shall hereinafter be referred to as the
:Retirement Allowance". Monthly payments of Retirement Allowance shall commence
on the first day of the month next following Employee's Retirement and shall
continue for one hundred eighty (180) months. All payments of Retirement
Allowance under this Agreement shall be made subject to such withholding and
deductions as may be required by law.

          (b) If the Employee's service with the Corporation is terminated or
suspended by reason of disability ("Disability"), then regardless of the
Employee's age or length of service, and provided Employee is not then receiving
disability payments under Corporation's Long Term Disability Plan, if requested
by Employee and if approved by the Board of Directors in its sole discretion,
Corporation shall pay to Employee, monthly, commencing on the first day of the
third month next following its receipt of Employee's request, so much of the
Retirement Allowance (determined at the date of Employee's Disability) as the
Board of Directors shall deem appropriate. Such monthly payments shall continue
until the earlier of: (1) the cessation of Employee's Disability (whether or not
Employee returns to active employment with Corporation or with another employer)
or (ii) Employee's death.

     Employee shall be deemed to have incurred a Disability only if according to
certification of competent medical authority approved or selected by
Corporation's Board of Directors ("Board of



                                       2
<PAGE>

Directors"), Employee is incapable of performing normal duties with Corporation
by reason of medically determinable physical or mental impairment which will
persist for an indeterminate period of time; provided, however, that so long as
the Employment Agreement, dated August 14, 1996, between the Corporation and
Employee is in effect, Employee shall be deemed to have incurred a Disability if
Employee has suffered a "disability" as defined in that Employment Agreement.

          (c) If after receiving monthly Disability payments under this
Agreement, Employee returns to employment with Corporation, the total dollar
amount of Retirement Allowance received by Employee during Employee's Disability
shall, in any manner deemed equitable by the Board of Directors be subtracted
from the aggregate Retirement Allowance to which Employee may later become
entitled at such time as that Retirement Allowance becomes payable under this
Agreement.  However, there shall not be subtracted from the Retirement Allowance
any payments received under any other disability insurance or program not
arising out of this Agreement.

     2.   (a)  If Employee dies  while employed by Corporation or while subject
to a Disability, Corporation shall pay to Employee's beneficiary designated
pursuant to Section 5 or as otherwise provided in that Section, a Retirement
Allowance the amount of which shall be calculated as if the death had occurred
(i) after Employee had completed twenty (20) years of service with Corporation
and (ii) after Employee had reached age sixty five (65); reduced by one-180th of
the aggregate amount, if any, paid to Employee under Section 1(b).  Monthly
payment of that Retirement Allowance shall commence on the first day of the
month next following the date of Employee's death and shall continue for one
hundred eighty (180) months.



                                       3
<PAGE>

          (b) If Employee dies after payments under Section 1 have commended,
but before payments have been completed, the remaining payments shall be
continued to Employee's beneficiary designated pursuant to Section 5 or as
otherwise provided in that Section.

     3.   If Employee's employment with Corporation terminates for any reason
other than Retirement, disability or death, this Agreement shall terminate and
no benefits shall be payable pursuant to this Agreement to Employee or to any
person or entity claiming by, from or through Employee.

     4.   If at any time Employee is discharged for good cause by Corporation
with the acquiescence of the Board of Directors, or if subsequent to Employee's
retirement, disability or death, it is discovered that Employee committed an act
which could have resulted in Employee's discharge for good cause by Corporation,
had it been known to Corporation, this Agreement shall terminate and any and all
rights and benefits of Employee and of any person claiming by, from or through
Employee under this Agreement shall be forfeited and any benefits then being
paid or to be paid in the future shall cease.  In the case of an after-
discovered fact, the Board of Directors shall determine whether there has been
an act which would have justified a discharge for good cause using reasonable
and non-discriminatory standards.

     5.   Employee shall designate in writing on a firm delivered to the Board
of Directors (Attention: Chairman) a beneficiary or beneficiaries and successor
beneficiaries (including address) to receive the benefits, if any, payable under
this Agreement upon Employee's death.  The Board of Directors shall decide which
beneficiary or beneficiaries, if any, shall have been validly designated. Such
designation of beneficiary may be revoked and changed by Employee, from time to
time, in


                                       4
<PAGE>

writing on a form delivered to the Board of Directors (Attention: Chairman), and
shall be revoked automatically if the designated beneficiary or beneficiaries
predeceases Employee, in which case a new designation of beneficiary or
beneficiaries may be made. If, at the time of Employee's death no designation of
beneficiary is then in effect, or following Employee's death, upon the death of
all successor beneficiaries designated by Employee, all remaining Retirement
Allowance shall be paid to Employee's estate.

     6.   Employee's rights under this Agreement and the rights of Employee's
beneficiary or estate may not be assigned, transferred, pledged or encumbered.

     7.   In determining Employee's length of service with Corporation for
purposes of this Agreement there shall be counted any period of: (a) employment
with any business entity controlling, controlled by or under common control with
Corporation; (b) employment with any business entity at the request of
Corporation; (c) service prior to the date of this Agreement with any business
entity referred to in (a) and (b) of this Section and (d) any period of
disability (whether or not payments of the Retirement Allowance were made to
Employee as a result thereof).

     8.   Nothing contained in this Agreement shall be construed as conferring
upon Employee the right to continue in the employ of Corporation in any capacity
and the employment rights of Employee shall be determined as if this Agreement
had never been executed.

     9.   If at any time after Retirement Employee, without the prior consent of
the Board of Directors, undertakes employment with or provides consulting or
advisory services to any person


                                       5
<PAGE>

or entity engaged in the continental United States: (a) in any business in which
Corporation or any entity, employment with which would, for purposes of this
Agreement, constitute employment by the Corporation, is engaged (whether or not
in competition with Corporation or such entity) or (b) in the operation of
pharmacy benefit manager, Employee's right to any remaining Retirement Allowance
otherwise payable under this Agreement shall at that time cease and terminate
permanently. The provisions of this Section 9 shall not be applicable with
respect to employment by or consulting services to a trade association of
persons or entities referred to in (a) of this Section.

     10.  The benefits, if any, payable to Employee in accordance with this
Agreement shall not constitute a segregation of funds or other property for the
benefit of Employee or of any person or entity claiming by, from or through
Employee.  Nothing contained in this Agreement and no action taken pursuant to
the provision of this Agreement shall create or be construed as creating a trust
of any kind or a fiduciary relationship between Corporation and Employee or any
person or entity claiming by, from or through Employee and neither Employee nor
any person or entity claiming by, from or through Employee shall have rights
with respect to the benefits under this Agreement greater than the rights of an
unsecured general creditor of the Corporation.

     11.  (a)  The Board of Directors shall have full power and authority to
interpret, construe and administer this Agreement and shall not be liable to
Employee or any person or entity claiming by, from or through Employee for any
section taken or omitted in connection with interpretation, construction or
administration or this Agreement and no action taken or omitted by the Board of
Directors in connection with the interpretation, construction or administration
of any similar or dissimilar agreement between Corporation and any other
employee of Corporation shall


                                       6
<PAGE>

be reason of this Agreement create any cause of action in Employee or any person
or entity claiming by, from or through Employee. All decisions, interpretations
and actions of the Board of Directors taken in connection with this Agreement,
including any claims for benefits made under this Agreement, shall be
conclusive, final and binding on all parties.

          (b)    If the Board of Directors denies the claim of an Employee or of
any person claiming by, from or through Employee (a "Claimant") for payment of
the Retirement Allowance under this Agreement, the Board of Directors shall
provide written notice, within sixty (60) days after receipt of the claim,
setting forth in a manner calculated to be understood by the Claimant.

          (i)    the specific reasons for such denial;

          (ii)   the specific reference to the provisions of this Agreement on
which denial is based;

          (iii)  a description of any additional material or information
necessary to perfect the claim and an explanation of why such material or
information is needed; and

          (iv)   an explanation of this Agreement's claim review procedure and
the time limitations of this subsection applicable thereto.

     Employee or any Claimant whose claim for payment of the Retirement
Allowance has been denied may request review by the Board of Directors of the
denied claim by notifying the Board of



                                       7
<PAGE>

Directors in writing within sixty (60) days after receipt of the notification of
claim denial. As part of said review procedure, the Employee or claimant or
their authorized representatives may review pertinent documents and submit
issues and comments to the Board of Directors in writing. The Board of Directors
shall render its decision to Employee or the Claimant in writing in a manner
calculated to be understood by the Employee or Claimant not later than sixty
(60) days after receipt of the request for review, unless special circumstances
require an extension of time, in which case decision shall be rendered as soon
after the sixty (60) day period as possible, but not later than one hundred
twenty (120) days after receipt of the request for review. The decision on
review shall sate the specific reasons therefor and the specific Agreement
references on which it is based.

     12.  This Agreement shall be binding upon and inure to the benefit of this
Corporation, its successors and assigns, and Employee, Employee's beneficiary ,
heirs, executors, administrators and legal representatives.

     13.  Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.

     14.  If any clause, sentence, paragraph, section or part of this Agreement
shall be held by any court of competent jurisdiction to be invalid, such
judgment shall not affect, impair or invalidate the remainder hereof.


                                       8
<PAGE>

     15.  Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered or certified mail; if
to Employee, to the address shown on the books of Corporation; and if to
Corporation, to the address shown above or such other address as Corporation may
have designated in writing, or if actually received by the person to whom sent.

     16.  This Agreement shall be subject to and construed in accordance with
the law of the Commonwealth of  Pennsylvania where it is made without giving
effect to principles of conflict of law.




                                       9
<PAGE>

     IN WITNESS WHEREOF, Corporation has caused this Agreement to be executed by
its duly authorized officer and Employee has hereunder set Employee's hand as of
the date first above written.

RITE AID CORPORATION                     EMPLOYEE



By: /s/ Martin L. Grass                  /s/ Beth Kaplan
    ___________________                  ______________________
     Martin L. Grass                     Name: Beth Kaplan
     Chairman of the Board and
     Chief Executive Officer





                                      10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EXHIBIT 10.21
<TEXT>

<PAGE>
                                                                   Exhibit 10.21

                              RITE AID CORPORATION

                       SPECIAL DEFERRED COMPENSATION PLAN

                           Effective December 5, 1999



                                    Purpose
                                    -------

          The purpose of this Plan is to provide specified benefits to a select
group of management employees of Rite Aid Corporation, a Delaware corporation
(the "Company").  The Plan is being adopted pursuant to employment agreements
between the management employees and the Company entered into as of the date
hereof.  This Plan shall be unfunded for tax purposes and for purposes of Title
I of ERISA.


                                   ARTICLE 1
                                  Definitions
                                  -----------

          For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:

1.1  "Account Balance" shall mean, with respect to a Participant, his or her
     Deferral Account. This balance shall be a bookkeeping entry only and shall
     be utilized solely as a device for the measurement and determination of the
     amounts to be paid to the Participant and his or her Beneficiaries pursuant
     to this Plan.  Each Participant shall at all times be fully vested in his
     or her account balance.

1.2  "Beneficiary" shall mean one or more persons, trusts, estates or other
     entities, designated in accordance with Article 6, that are entitled to
     receive benefits under this Plan upon the death of a Participant.

1.3  "Beneficiary Designation Form" shall mean the form established from time to
     time by the Committee that a Participant completes, signs and returns to
     the Committee to designate one or more Beneficiaries.

1.4  "Board" shall mean the board of directors of the Company.

1.5  "Claimant" shall have the meaning set forth in Section 10.1.

1.6  "Code" shall mean the Internal Revenue Code of 1986, as amended from time
     to time.

1.7  "Committee" shall mean the committee described in Article 8.

1.8  "Company" shall mean Rite Aid Corporation, a Delaware corporation.
<PAGE>

1.9  "Deferral Account" shall mean (i) the sum of all of a Participant's Monthly
     Deferral Amounts, plus (ii) additional amounts debited or credited in
     accordance with Section 3.1, less (iii) all distributions made to the
     Participant or his or her Beneficiary pursuant to this Plan that relate to
     his or her Deferral Account.  This account shall be a bookkeeping entry
     only and shall be utilized solely as a device for the measurement and
     determination of the amounts to be paid to the Participant pursuant to this
     Plan.

1.10 "Deferral Account relating to a Fiscal Year" shall mean (i) a Participant's
     aggregate Monthly Deferral Amounts relating to a fiscal year of the
     Company, plus (ii) additional amounts debited or credited with respect such
     amounts in accordance with Section 3.1, less (iii) any distributions
     relating thereto.

1.11 "Employment Agreement" shall mean, as applicable, that certain employment
     agreement, dated December 5, 1999, between each Participant and the
     Company, including all exhibits thereto, as the same may be amended from
     time to time.

1.12 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
     may be amended from time to time.

1.13 "Measurement Funds" shall mean the group of mutual fund subaccounts from
     time to time available under the Variable Annuity.

1.14 "Monthly Deferral Amount" shall mean the amount set forth in Section 2(d)
     of the applicable Employment Agreement, to be credited to the Deferral
     Account on the first day of each month during the Employment Period (as
     defined in the Employment Agreement).

1.15 "Participant" shall mean, as applicable, Robert G. Miller, Mary F. Sammons,
     David R. Jessick and John T. Standley.

1.16 "Plan" shall mean this Special Deferred Compensation Plan, which shall be
     evidenced by this instrument, as the same may be amended from time to time.

1.17 "Short-Term Payout" shall mean the payout set forth in Section 4.1.

1.18 "Termination of Employment" shall mean the ceasing of a Participant's
     employment with the Company, voluntarily or involuntarily, for any reason.

1.19 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
     that is caused by an event beyond the control of the Participant that would
     result in severe financial hardship to the Participant resulting from (i) a
     sudden and unexpected illness or accident of the Participant or a dependent
     of the Participant, (ii) a loss of the Participant's property due to
     casualty, or (iii) such other extraordinary and unforeseeable circumstances
     arising as a result of events beyond the control of the Participant, as
     determined in good faith by the Committee.
<PAGE>

1.20 "Variable Annuity" shall mean [           ].



                                   ARTICLE 2
                                 Participation
                                 -------------

2.1  Participation in the Plan.  Each Participant shall participate in the Plan
     -------------------------
     on the terms and conditions set forth herein and in the applicable
     Employment Agreement.  No other persons shall participate in the Plan.

2.2  Enrollment Requirements.  Each Participant shall complete, execute and
     -----------------------
     return to the Committee a Beneficiary Designation Form.  In addition, the
     Committee shall establish from time to time such other enrollment
     requirements as it reasonably determines are necessary for purposes of the
     Plan.

2.3  Commencement of Participation.  Each Participant shall commence
     -----------------------------
     participation in the Plan as of the date hereof.


                                   ARTICLE 3
                                   Crediting
                                   ---------

3.1  Crediting/Debiting of Account Balances.  Each Participant shall at all
     --------------------------------------
     times be fully vested in the value of his or her Account Balance.  In
     accordance with, and subject to, such reasonable rules and procedures as
     may from time to time be established by the Committee, amounts shall be
     credited to or debited from a Participant's Account Balance in accordance
     with the following rules:

     (a)  Measurement Funds.  Each Participant shall have the right, from time
          -----------------
          to time, to select those Measurement Funds in which his or her Account
          Balance shall be deemed to be invested, upon which to base a crediting
          rate for the purpose of crediting or debiting amounts to the
          Participant's Account Balance.  The Participant shall provide two
          business days' notice to the Company prior to making any change in the
          deemed investment of his or her Account Balance, but shall not in any
          event be permitted to make such changes to the extent the Company
          would not be able to make corresponding changes to its actual
          investment of funds, if any, under the Variable Annuity, it being
          understood that the Company shall be under no obligation to invest
          funds in the same manner as any Participant's deemed investment of his
          or her Account Balance.

     (b)  Crediting or Debiting Method.  A Participant's Account Balance shall
          ----------------------------
          be credited or debited on a daily basis, based on the performance of
          the selected Measurement Funds.  To the extent necessary to comply
          with applicable insurance laws, Monthly Deferral Amounts shall be
          deemed to be invested at a money market rate of return prior to the
          expiration of any applicable waiting period, and
<PAGE>

          shall be deemed invested in the applicable Measurement Funds from and
          after the expiration of such waiting period.

     (c)  No Actual Investment.  Notwithstanding any other provision of this
          --------------------
          Plan, the Measurement Funds are to be used for measurement purposes
          only, and the crediting or debiting of amounts to a Participant's
          Account Balance shall not be considered or construed in any manner as
                          ----- ---
          an actual investment of his or her Account Balance in any Measurement
          Fund.  In the event that the Company, in its own discretion, decides
          to invest funds in any Measurement Fund, no Participant shall have any
          rights in or to any such fund.  Without limiting the foregoing, a
          Participant's Account Balance shall at all times be a bookkeeping
          entry only and shall not represent any investment made on his or her
          behalf by the Company; the Participant shall at all times remain an
          unsecured creditor of the Company.

3.2  FICA and Other Taxes.  The Company shall withhold the Participant's share
     --------------------
     of FICA and other employment taxes relating to Monthly Deferral Amounts in
     such reasonable manner as the Company deems appropriate.


                                   ARTICLE 4
            Short-Term Payout; Unforeseeable Financial Emergencies;
            -------------------------------------------------------
                              Withdrawal Election
                              -------------------

4.1  Short-Term Payout.  A Participant may elect, prior to the start of each
     -----------------
     fiscal year of the Company, to receive a future "Short-Term Payout" from
     the Plan with respect to the Monthly Deferral Amounts credited with respect
     to such fiscal year.  The Short-Term Payout shall be a lump sum payment in
     an amount that is equal to that portion of the Deferral Account relating to
     such fiscal year.  Subject to the other terms and conditions of this Plan,
     each Short-Term Payout elected shall be paid at the time elected by the
     Participant at the time such election is made; provided however, that in no
     event shall a Short-Term Payout be paid to a Participant prior to the first
     day of the fiscal year that is three (3) years after the first day of the
     fiscal year as to which such election relates.  By way of example, if a
     Short-Term Payout is elected for amounts that are deferred in the fiscal
     year of the Company commencing in 2000, no Short-Term Payout can be paid
     prior to the first day of the Company's fiscal year commencing in 2003.

4.2  Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.  If
     ---------------------------------------------------------------------
     the Participant experiences an Unforeseeable Financial Emergency, the
     Participant may petition the Committee to receive a partial or full payout
     of his or her Deferral Account. The amount of the payout shall not exceed
     the less of the Participant's Deferral Account, or the amount reasonably
     needed to satisfy the Unforeseeable Financial Emergency.  The Committee
     shall consider each such request in good faith.  If the petiton for a
     payout is approved, such payout shall be made as promptly as reasonably
     practicable, but in no event later than 10 bsiness days following the date
     of approval.
<PAGE>

4.3  Withdrawal Election.  A Participant (or Beneficiary, if applicable) may
     -------------------
     elect, at any time, to withdraw all of his or her Account Balance less a
     10% withdrawal penalty (the net amount shall be referred to as the
     "Withdrawal Amount").  This election can be made at any time, before or
     after Termination of Employment, and whether or not the Participant (or
     Beneficiary) is in the process of being paid pursuant to an installment
     schedule.  No partial withdrawsals shall be be allowed.  The Participant
     shall make this election by giving the Committee advance written notice of
     the election.  The penalty shall be equal to 10% of the Participant's
     Account Balance determined immediately prior to the withdrawal.  The
     Participant shall be paid the Withdrawal Amount in a lump sumw ithin 10
     busines days of his or her election.

                                   ARTICLE 5
                              Termination Benefit
                              -------------------

5.1  Termination Benefit.  Except as provided in Section 5.2, a Participant
     -------------------
     whose employment terminates for any reason and under any circumstances
     shall receive, as a Termination Benefit, his or her entire Account Balance
     (including without limitation any amount otherwise subject to a Short-Term
     Payout).

5.2  Installment Payments.  A Participant shall have the right from time to time
     --------------------
     to file an election with the Company providing for payment of his or her
     Account Balance in installments or otherwise at one or more times following
     his or her termination of employment.  No such election shall be valid
     unless made at least one year prior to the actual date of termination, and
     any election made during such one year period shall be ignored in favor of
     the most recent such election made at least one year prior to the actual
     date of termination.

                                   ARTICLE 6
                            Beneficiary Designation
                            -----------------------

6.1  Beneficiary.  Each Participant shall have the right at any time, to
     -----------
     designate his or her Beneficiary(ies) (both primary as well as contingent)
     to receive any benefits payable under the Plan to a beneficiary upon the
     death of a Participant.  The Beneficiary designated under this Plan may be
     the same as or different from the Beneficiary designation under any other
     plan of the Company in which the Participant participates.

6.2  Beneficiary Designation; Change; Spousal Consent.  A Participant shall
     ------------------------------------------------
     designate his or her Beneficiary by completing and signing the Beneficiary
     Designation Form, and returing it to the Committee or its designated agent.
     A Participant shall have the right to change a Beneficiary by completing,
     signing and otherwise complying with the terms of the Beneficiary
     Designation Form and the Committee's rules and procedures, as in effect
     from time to time.  If the Participant names someone other than his or her
     spouse as a Beneficiary, a spousal consent, in the form designated by the
     Committee, must be signed by that Participant's spouse and returned to the
     Committee.  Upon the acceptance by the Committee of a new Beneficiary
     Designated Form, all Beneficiary designations previously filed shall be
     canceled.  The Committee shall be entitled to rely on the last
<PAGE>

     Beneficiary Designation Form filed by the Participant and accepted by the
     Committee prior to his or her death.

6.3  Acknowledgement.  No designation or change in designation of a Beneficiary
     ---------------
     shall be effective until received, accepted and acknowledge in writing by
     the Committee or its designated agent.

6.4  No Beneficiary Designation.  If a Participant fails to designate a
     --------------------------
     Beneficiary as provided in Sections 6.1, 6.2 and 6.3 above, or if all
     designated Beneficiaries predeceased the Participant or die prior to the
     complete distribution of the Participant's benefits, then the Participant
     designated Beneficiary shall be deemed to be his or her surviving spouse.
     If the Participant has no surviving spouse, the benefits remaining under
     the Plan to be paid to a Beneficiary shall be payable to the executor or
     personal representative of the Participant's estate or otherwise as
     directed under any applicable living trust or similar instrument of the
     Participant.

6.5  Doubt as to Beneficiary.  If the Committee has any dout as to the proper
     -----------------------
     Beneficiary to receive payments pursuant to this Plan, the Committee shall
     have the right, exercisable in good faith, to cause the Company to withhold
     such payments until this matter is resolved to the Committee's
     satisifaction.

6.6  Discharge of Obligations.  The payment of benefits under the Plan to a
     ------------------------
     Beneficiary shall fully and completely discharge the Company and the
     Committee from all further obligations under this Plan with respect to the
     Participant.

                                   ARTICLE 7
                    Termination, Amendment or Modificiation
                    ---------------------------------------

7.1  Termiantion.  The Plan shall not be terminated with respect to any
     -----------
     Participant without the express written consent of such Participant.

7.2  Amendment.  The Plan shall not be amended or modified in whole or in part
     ---------
     with rspect to any Participant without the express writtenconsent of such
     Participant.

7.3  Effect of Payment.  The full payment of the applicalbe benefit under
     -----------------
     Articles 4 or 5 of the Plan shall completely discharge all obligations to a
     Participant and his or her designated Beneficiaries under this Plan.  Such
     payment shall not, however, be in discharge of any remaining deferred
     compensation obligations under the applicable Employment Agreement.

                                   ARTICLE 8
                                 Administration
                                 --------------

8.1  Committee Duties.  This Plan shall be administered by a Committee which
     ----------------
     shall consists of the Board, or such committee as the Board shall appoint.
     The Committee shall also have the discretion and authority in good faith to
     (i) make, amend, interpret, and enforce
<PAGE>

     all appropriate rules and regulations for the administration of this Plan
     and (ii) decide or resolve any and all questions including interpretations
     of this Plan, as may arise in connection with the Plan.

8.2  Agents.  In the administration of this Plan, the Committee may, from time
     ------
     to time, employ agents and delegate to them such administrative duties as
     it sees fit (including acting through a duly appointed representative) and
     may from time to time consult with counsel who may be counsel to the
     Company.

8.3  Indemnity of Committee.  The Company shall indemnify and hold harmless
     ----------------------
     themembers of the Committee against any and all claims, losses, damages,
     expenses or liabilities arising from any action or failure to act with
     respect to this Plan, except in the case of willful misconduct by the
     Committee or any of its members.

                                   ARTICLE 9
                         Other Benefits and Agreements
                         -----------------------------

9.1  Coordination with Other Benefits.  The benefits provided for a Participant
     --------------------------------
     and Participant's Beneficiary(ies) under the Plan are in addition to any
     other benefits available to such Participant under any other plan or
     program maintained by the Company.  The Plan shall supplement and shall not
     supersede, modify or amend any other such plan or program except as may
     otherwise be expressly provided.

                                   ARTICLE 10
                               Claims Procedures
                               -----------------

10.1 Presentation of Claim.  Any Participant or Beneficiary of a deceased
     ---------------------
     Participant (such Participant or Beneficiary being referred to below as a
     "Claimant") may deliver to the Committee a written claim for a
     determination with respect to the amounts distributable to such a Claimant
     from the Plan.

10.2 Notification of Decision.  The Committee shall consider a Claimant's claim
     ------------------------
     within a reasonable time, and shall notify the Claimant in writing:

     (a) that the Claimant's requested determination has been made, and that the
         claim has been allowed in full; or

     (b) that the Committee has reached a conclusion contrary, in whole or in
         part, to the Claimant's requested determiantion, and such notice must
         set forth in a manner calculated to be understood by the Claimant:

         (i)    the specific reason(s) for the denial of the claim, or any part
                of it;

         (ii)   specific refernce(s) to pertinent provisions of the Plan upon
                which such denial was based;
<PAGE>

         (iii)  a description of any additional material or information
                necessary for the Claimant to perfect the claim, and an
                explanation of why such material or information is necessary;
                and

         (iv)   an explanation of the claim review procedure set forth in
                Section 10.3 below.

10.3 Review of a Denied Claim.  Within 60 days after receiving a notice from the
     ------------------------
     Committee that a claim has been denied, in whole or in part, a Claimant (or
     the Claimant's duly authorized representative) may file with the Committee
     a written request for a review of the denial of the claim.  Thereafter, but
     not later than 30 days after the review procedure began, the Claimant (or
     the Claimant's duly authorized representative):

     (a) may review pertinent documents;

     (b) may submit written comments or other documents; and/or

     (c) may request a hearing, which the Committee, in its sole discretion, may
         grant.

10.4 Decision on Review.  The Committee shall render its decision on review
     ------------------
     promptly, and not later than 60 days after the filing of a written request
     for review of the denial, unless a hearing is held or other speical
     circumstances require additional time, in which case the Committee's
     decisions must be rendered within 120 days after such date.  Such decision
     must be written in a manner calculated to be understood by the Claimant,
     and it must contain:

     (a) specific reasons for the decision;

     (b) specific references) to the pertinent Plan provisions upon which the
         decision was based; and

     (c) such other matters as the Committee deems relevant.

10.5 Legal Action.  A Claimant's compliance with the foregoing provisions of
     -------------
     this Article 10 is a mandatory prerequisite to a Claimant's right to
     commence any legal action with respect to any claim for benefits under this
     Plan.  The resoluation of disputes and reimbursement of attorney's fees
     shall be in accordance with the terms of Section 10 of the Employment
     Agreement.

                                   ARTICLE 11
                                 Miscellaneous
                                 -------------

11.1 Unsecured General Creditor.  Participants and their Beneficiaries, heirs,
     --------------------------
     successors and assigns shall have no legal or equitable rights, interests
     or claims in any property or assets of the Company.  Any and allof the
     Company's assets shall be, and remain, the general,
<PAGE>

     unpledged unrestricted assets of the Company. The Company's obligation
     under the Plan shall be merely that of an unfunded and unsecured promise to
     pay money in the future.

11.2 Company's Liability.  The Company's liability for the payment of benefits
     -------------------
     shall be defined only by the Employment Agreement, the Plan and any
     elections made by the Participant pursuent to the Plan.  The Company shall
     have no obligation to a Participant under the Plan except as expressly
     provided in the Employment Agreement, the Plan and any such election.

11.3 Nonassignability.  Neither a Participant nor any other person shall have
     ----------------
     any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
     or otherwise encumber, trnsfer, hypothecate, alienate or convey in advance
     of actual receipt, the amounts, if any, payable hereunder, or any part
     thereof, which are, and all rights to which are expressly declared to be,
     unassignable and non-transferable, except that the foregoing shall nto
     apply to any family support obligations set forth in a court order.  No
     part of the amounts payable shall, prior to actual payment, be subject to
     seizure, attachment, garnishmento r sequestration for the payment of any
     debts, judgments, alimony or separate maintenance owed by a Participant or
     any other person, nor be transferable by operation of law in the event of a
     Participant's or any other person's bankruptcy or insolvency.

11.4 Furnishing Information.  A Participant or his or her Beneficiary will
     ----------------------
     cooperate with the Committee by furnishing any and all information
     requested by the Committee and take such other actions as may reasonably be
     requested in order to facilitate the adminstration of the Plan and the
     payments of benefits hereunder, including but not limted to taking such
     physical examnations as the Committee may reasonably deem necessary.

11.5 Terms.  Whenever any words are used herein in the masculine, they shall be
     -----
     construed as though they were in the feminine in all cases where they would
     so apply; and whenever any words are used herein in the singular or in the
     plural, they shall be construed as though they were used in the plural or
     the singular, as the case may be, in al cass where they would so apply.

11.6 Captions.  The captions of the articles, sections and paragraphs of this
     --------
     Plan are for convenience only and shall not control or affect the meaning
     or construction of any of its provisions.

11.7 Governing Law.  Subject to ERISA, the provisions of this Plan shall be
     -------------
     construed and interpreted according to the internal laws of the State of
     Pennslvania without regard to its conflicts of laws principles.

11.8 Notice.  Any notice or filing required or permitted to be given to the
     ------
     Committee under this Plan shall be sufficient if in writing and hand-
     delivered, or sent by registerd or certified mail, to the address below:

          General Counsel
          Rite Aid Corporation
<PAGE>

          30 Hunter Lane
          Camp Hill, PA 17011

     Such notice shall be deemed given as of the date of delivery or, if
     deliverly is made by mail, as of the date shwon on the postmark on the
     receipt for registration or certification.

     Any notice or filing required or permitted to be given to a Participant
     under this Plan shall be sufficient if in writing and hand-delivered, or
     sent by mail, to the last known address of the Participant.

11.9    Successors. This Plan and all rights of each Participant hereunder shall
        ----------
        inure to the benefit of and be enforceable by the Participant's
        Beneficiary(ies), personal or legal representatives, or estate, to the
        extent any such person succeeds to the Participant's interests under
        this Plan. No rights or obligations of the Company under this Plan may
        be assigned or transferred except that the Company shall require any
        successor (whether direct or indirect, by purchase, merger,
        consolidation or otherwise) to all or substantailly all of the business
        and/or assets of the Company expressly to assume and agree to perform
        the Company's obligations under this Plan in the same manner and to the
        same extent that the Company would have been required to peform it if no
        such succession had taken place. As used in this Plan, the "Company"
        shall mean both the Comapny as defined above and any successor to its
        business and/or assets (by merger, purchase or otherwise) which executes
        and delivers the agreement provided for in this Section 11.9 or which
        otherwise becomes bound by all ther terms and provisions of this
        Agreement by operation of law or otherwise.

11.10   Spouse's Interest.  The interest in the benefits hereunder of a spouse
        -----------------
        of a Participant who has predeceased the Participant shall automatically
        pass to the Participant and shall not be transferable by such spouse in
        any manner, including but not limited to such spouse's will, nor shall
        such interest pass under the laws of intestate succession.

11.11   Validity; No Waiver  In case any provision of this Plan shall be
        -------------------
        illegal or invalid for any reasona, said illegality or invalidity shall
        not affect the remaining parts hereof, but this Plan shall be construed
        and enforced as if such illegal or invalid provision had never been
        inserted herein. The failure of the Company or any Participant to insist
        upon strict compliance with any provisions of, or to assert any right
        under, this Plan shall not be deemd to be a waiver of such provision or
        right of any other provisions of or right under this Plan.

11.12   Incompetent.  If the Committee determines in its discretion that a
        -----------
        benefit under this Plan is to be paid to a minor, a person declared
        incompetent or to a person incapable of handling the disposition of that
        person's property, the Committee may direct payment of such benefit to
        the guardian, legal representative or person having the care and custody
        of such minor, incompetent or incapable person. The Committee may
        require proof of minority, incompetency, incapacity or guardianship, as
        it may deem appropriate prior to distribution of the benefit. Any
        payment of a benefit shall be a payment for the account
<PAGE>

        of the Participant and the Participant's Beneficiary, as the case may
        be, and shall be complete discharge of any liability under the Planfor
        such payment amount.

11.3    Court Order. The Committee is authorized to make any payments directed
        -----------
        by court order in any action in which the Plan or the Committee has been
        named as a party.

11.4    Distribution in the Even of Taxtion.  If, for any reason, all or any
        -----------------------------------
        portion of a Participant's benefit under this Plan becomes taxable to
        the Participant prior to receipt, the Company shall promptly distribute
        to the Participant immediately available funds in an amount equal to the
        taxable portion of his or her benefit (which amount shall nto exceed the
        Participant's unpaid Account Balance under the Plan).

11.15   Taxes and Withholding.  The Company may withhold from any distribution
        ---------------------
        under this Plan any and all employment and income taxes that are
        required to be withheld under applicable law.

          IN WITNESS WHEREOF, the undersigned has executed this Plan document on
behalf of the Company as of December 5, 1999.

                                "Company"

                                RITE AID CORPORATION
                                a Delaware corporation

                                By: ____________________________________
                                Title: _________________________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.42
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>EXHIBIT 10.42
<TEXT>

<PAGE>
                                                                  Exhibit 10.42
NationsBank, N.A.


                                Promissory Note

Date April 30, 1999 [X] New  [  ] Renewal Amount $5,000,000.00 Maturity Date
April 1, 2000

Between:                                 and
================================================================================
Bank:                                  Borrowers:

NationsBank, N.A.                      Beth Kaplan
Banking Center:                        Bruce Sholk
Private Client Group                   General Delivery
101 South Tryon Street                 Stevenson, MD  21153
Plaza 7th Floor                        County of Baltimore
Charlotte, NC  28255



(Street address including county)    (Name and street address, including county)
================================================================================

FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of FIVE MILLION and 00/100 Dollars ($5,000,000.00), or so much
thereof as may be advanced from time to time in immediately available funds,
together with interest computed daily on the outstanding principal balance
hereunder, at an annual interest rate, and in accordance with the payment
schedule, indicated below.  [This Note contains some provisions preceded by
boxes.  If a box is marked, the provision applies to this transaction; if it is
not marked, the provision does not apply to this transaction.]


RATE

[ ]  Prime Rate.  The Rate shall be the Prime Rate, plus one percent, per annum.
The "Prime Rate" is the fluctuating rate of interest established by Bank from
time to time, at its discretion, whether or not such rate shall be otherwise
published.  The Prime Rate is established by Bank as an index and may or may not
at any time be the best or lowest rate charged by Bank on any loan.

[ ]  Fixed Rate.  The Rate shall be fixed at _____ percent per annum.

[x]  Other.

          The rate shall be equal to the sum of (i) the rate of interest per
annum (rounded upward, if necessary, to the next higher 1/16th of one percent)
determined by Bank, in accordance with its customary general practice from time
to time, to be the rate equal to the London Interbank Offered Rate (expressed as
a percentage) for dollar deposits as would be quoted by Bank at 11:00 a.m.
London time, or as soon thereafter as practicable, on the second day on which
commercial banks are open for international business in London immediately
preceding the first day of such Interest Period, for a term comparable to such
Interest Period, as adjusted from time to time in Bank's sole discretion for
then applicable reserve requirements, deposit insurance
<PAGE>

assessment rates and other regulatory costs, and (ii) 2.0%. "Interest Period"
means (i) initially, the period commencing on the date the initial Loan
evidenced by this Note is made and ending on the first business day of the
immediately following calendar month, and (ii) thereafter, the period commencing
on the last business day of the immediately preceding Interest Period and ending
on the first business day of the immediately following calendar month, in each
case during which interest on the outstanding principal amount shall be
calculated by reference to the London Interbank Offered Rate, determined as of
the second day on which commercial banks are open for international business in
London before the commencement of that Interest Period; provided, however, that
any Interest Period which would otherwise extend beyond the Maturity Date shall
end on the Maturity Date.

Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of New York;
if any higher rate ceiling is lawful, then that higher rate ceiling shall apply.
Any payment in excess of such maximum shall be refunded to Borrower or credited
against principal, at the option of Bank.

ACCRUAL METHOD

Unless otherwise indicated, interest at the Rate set forth above will be
calculated by the 365/360 day method (a daily amount of interest is computed for
a hypothetical year of 360 days; that amount is multiplied by the actual number
of days for which any principal is outstanding hereunder).  If interest is not
to be computed using this method, the method shall be:

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PAYMENT SCHEDULE

All payments received hereunder shall be applied first to the payment of any
expense or charges payable hereunder or under any other loan documents executed
in connection with this Note, then to interest due and payable, with the balance
applied to principal, or in such other order as Bank shall determine at its
option.

[ ]  Principal Plus Accrued Interest.  Principal shall be paid in consecutive
equal installments of $_______________, plus accrued interest, payable [
]monthly, [ ]quarterly or [ ] ______________, commencing on _______________,
19___ and continuing on the [ ] same day [ ] last day of each successive month,
quarter or other period (as applicable) thereafter, with a final payment of all
unpaid principal and accrued interest due on ___________________, 19___.

[ ]  Fixed Principal and Interest.  Principal and interest shall be paid in
consecutive equal installments of $_______________, payable [ ]monthly, [
]quarterly or [ ] ____________, commencing on _______________, 19___, and
continuing on the same day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
interest due thereon on _______________, 19___.  If, on any payment date, the
accrued interest exceeds the interest portion of the installment amount set
forth above, the excess amount will be due with the next scheduled payment.

[X]  Single Principal Payment.  Principal shall be paid in full in a single
payment on April 1, 2000. Interest thereon shall be paid [ ] at maturity, or
else [X] monthly, [ ] quarterly or [ ] ______________, commencing on May 1,
1999, and continuing on the first day of each successive month, quarter or other
period (as applicable) thereafter, with a final payment of all unpaid interest
at the stated maturity of this Note.

                                      -2-
<PAGE>

[ ]  Other.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

REVOLVING FEATURE

[X]  Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided that Borrower (i) is not in default under any
                     --------
provision of this Note, any other document executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, (ii) the borrowings
hereunder do not exceed any borrowing base or other limitation on borrowings by
Borrower, and (iii) Borrower complies with the provisions of Paragraphs 4 and 5
of the Additional Terms and Conditions attached hereto and made a part hereof.
Bank shall incur no liability for its refusal to advance funds based upon its
determination that any conditions of such further advances have not been met.
Bank records of the amounts borrowed from time to time shall be conclusive proof
thereof.

[ ]  Uncommitted Facility.  Borrower acknowledges and agrees that
notwithstanding any provisions of this Note or any other documents executed in
connection with this Note, Bank has no obligation to make any advance, and that
all advances are at the sole discretion of Bank.

[ ]  Out-Of-Debt Period.  For a period of at least ___ consecutive days during
[_] each fiscal year [_] any consecutive 12-month period, Borrower shall fully
pay down the balance of this Note, so that no amount of principal or interest
and no other obligation under this Note remains outstanding.

AUTOMATIC PAYMENT

[ ]  Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number ____________.  This
authorization shall not affect the obligation of Borrower to pay such sums when
due, without notice, if there are insufficient funds in such account to make
such payment in full on the due date thereof, or if Bank fails to debit the
account.

Borrower represents to Bank that the proceeds of the Loans made hereunder are to
be used primarily for business, commercial or agricultural purposes.  Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note, including the Additional Terms and Conditions
attached hereto and made a part hereof, and hereby executes this Note intending
to create an instrument executed under Seal.

                                      -3-
<PAGE>

FINAL AGREEMENT:  THIS WRITTEN PROMISSORY NOTE AND ANY OTHER RELATED LOAN
DOCUMENTS CONSTITUTE THE ENTIRE AND FINAL AGREEMENT BETWEEN THE PARTIES, AND
SUPERSEDE ALL PRIOR WRITTEN AGREEMENTS AND ALL PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES REGARDING ALL ISSUES ADDRESSED IN
THOSE LOAN DOCUMENTS.

Borrower                                 Corporate or Partnership Borrower

_______________________________(Seal)
_______________________________

                                         Corporate or Partnership Name
Beth Kaplan
- -------------------------------

By: /s/ Beth Kaplan
    ___________________________(Seal)
Print Individual's Name

_______________________________(Seal)
_______________________________
                                         Print Name and Title
Bruce Sholk
- -------------------------------

By: /s/ Bruce Sholk
- -------------------------------
Print Individual's Name                  Attest (If Applicable)
                                         Corporate Seal

                                      -4-
<PAGE>

ADDITIONAL TERMS AND CONDITIONS

1. Waivers, Consents and Covenants.  Borrower, Rite Aid Corp. (the "Guarantor"),
any endorser, or guarantor hereof or any other party hereto (individually an
"Obligor" and collectively "Obligors") and each of them jointly and severally:
(a) waive presentment, demand, protest, notice of demand, notice of intent to
accelerate, notice of acceleration of maturity, notice of protest, notice of
nonpayment, notice of dishonor, and any other notice required to be given under
the law to any Obligor in connection with the delivery, acceptance, performance,
default or enforcement of this Note, any endorsement or guaranty of this Note,
the Guaranty (as defined in Section 4 hereof), the letter agreement dated the
date hereof, made by the Borrower and addressed to the Bank, any other documents
executed in connection with this Note, or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank from time to
time and in one or more instances (without notice to or further assent from any
of Obligors) and agree that no such action, failure to act or failure to
exercise any right or remedy by Bank shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Bank of, or otherwise
affect, any of Bank's rights under this Note, under any endorsement or guaranty
of this Note or under any of the Loan Documents; and (c) agree to pay, on
demand, all costs and expenses of collection of this Note or of any endorsement
or guaranty hereof and/or the enforcement of Bank's rights with respect to, or
the administration, supervision, preservation, protection of, or realization
upon, any property securing payment hereof, including, without limitation,
reasonable attorney's fees, including fees related to any suit, mediation or
arbitration proceeding, out of court payment agreement, trial, appeal,
bankruptcy proceeding or other proceeding.

2. Prepayments.  Prepayments may be made in whole or in part at any time and
from time to time, provided that Bank shall have received notice at least two
business days prior to such prepayment.  All prepayments of principal shall be
applied in the inverse order of maturity, or in such other order as Bank shall
determine in its sole discretion.

3. Delinquency Charges. To the extent permitted by law, a delinquency charge may
be imposed in an amount not to exceed four percent (4%) of the unpaid portion of
any payment that is more than fifteen days late.  Unless the terms of this Note
call for repayment of the entire balance of this Note (both principal and
interest) in a single payment and not for installments of interest or principal
and interest, the 4% delinquency charge may be imposed not only with respect to
regular installments of principal or interest or principal and interest, but
also with respect to any other payment in default under this Note (other than a
previous delinquency charge), including without limitation, a single payment of
principal due at the maturity of this Note.  In the event any installment, or
portion thereof, is not paid in a timely manner, subsequent payments will be
applied first to the past due balance (which shall not include any previous
delinquency charges), specifically to the oldest maturing installment, and a
separate delinquency charge will be imposed for each payment that becomes due
until the default is cured.

4. Conditions to Initial Loan. The obligation of the Bank to make the initial
Loan hereunder shall be subject to the condition precedent that on or prior to
the date of such Loan: (a)  the Bank shall have received the following, each in
form and substance satisfactory to the Bank: (i) a guaranty made by the
Guarantor in favor of the Bank (the "Guaranty"), with respect to the obligations
of the Borrower under this Note, (ii) a copy of the resolutions adopted by the
Board of Directors of the Guarantor, certified as of the date of this Note by an
authorized officer thereof, authorizing (A) the transactions contemplated by the
Guaranty to which the Guarantor is a party, and

                                      -5-
<PAGE>

(B) the execution, delivery and performance by the Guarantor of the Guaranty and
the execution and delivery of the other documents to be delivered by the
Guarantor in connection herewith, (iii) a certificate of an authorized officer
of the Guarantor, certifying the names and true signatures of the officers of
the Guarantor authorized to sign the Guaranty to which the Guarantor is a party
and the other documents to be executed and delivered by the Guarantor in
connection herewith, together with evidence of the incumbency of such authorized
officer, and (iv) such agreements, instruments, approvals, opinions and other
documents as the Bank may reasonably request, (b) Bank shall have received the
closing fee (as described herein), and (c) all proceedings in connection with
the making of such Loan and the other transactions contemplated by this Note,
the other Loan Documents and all documents incidental thereto shall be
satisfactory to the Bank and its special counsel, and the Bank and such special
counsel shall have received all such information and such counterpart originals
or certified or other copies of such documents as the Bank or such special
counsel may reasonably request.

5. Conditions to All Loans. The obligation of the Bank to make any Loan
(including the initial Loan) shall be subject to the conditions precedent that
on the date of such Loan (a) the following statements shall be true, and the
acceptance of the proceeds of each Loan by any Borrower shall be deemed to be a
representation and warranty of each Borrower on the date of such Loan that:

               (i)    The representations and warranties made by Borrower to the
     Bank herein are correct on and as of the date of such Loan as though made
     on and as of such date;

               (ii)    No event has occurred and is continuing, or would result
     from such Loan, which constitutes an Event of Default (as defined in
     Paragraph 7 hereof) or would constitute an event of default but for the
     requirement that notice be given or time elapse or both; and

               (iii)   No material adverse change in the financial condition,
     assets or prospects of either Borrower shall have occurred and be
     continuing; and

     (b) the Bank shall have received such other approvals, opinions or
documents as the Bank may reasonably request; and

     (c) the making of such Loan shall not contravene any law, rule or
regulation applicable to the Borrowers or the Bank.

6. Closing Fee.  The Borrower agrees to pay to Bank a nonrefundable closing fee
equal to one-half of one percent of $4,650,000 ($23,250), payable on the date of
this Note.

7. Events of Default.  The following are events of default (each an "Event of
Default") hereunder:  (a) the failure to pay or perform any obligation,
liability or indebtedness of any Obligor to Bank, or to any affiliate of
NationsBank Corporation, whether under this Note or any other document executed
in connection with this Note or any Loan Document, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to any other party;
(c) the death of any Obligor (if an individual), (d) the commencement of a
proceeding against any Obligor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Obligor or the merger or
consolidation of any Obligor with or into another entity; (e) the insolvency of,
the business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, the assignment for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtor's relief law or the filing of a petition for any adjustment of
indebtedness, composition or extension by or against any Obligor; (f) the
determination by Bank that any representation or warranty made to Bank by any
Obligor in this Note or any

                                      -6-
<PAGE>

Loan Document or otherwise is or was, when it was made, untrue or materially
misleading; (g) the failure of any Obligor to timely deliver such financial
statements, including tax returns, other statements of condition or other
information, as Bank shall request from time to time; (h) the entry of a
judgment against any Obligor which Bank deems to be of a material nature, in
Bank's sole discretion; (i) the seizure or forfeiture of, or the issuance of any
writ of possession, garnishment or attachment, or any turnover order for any
property of any Obligor; (j) the determination by Bank that it is insecure for
any reason; or (k) the determination by Bank that a material adverse change has
occurred in the financial condition of any Obligor.

8. Remedies upon Default.  Whenever there is an Event of Default under this Note
(a) the entire balance outstanding hereunder and all other obligations of any
Obligor to Bank (however acquired or evidenced) shall, at the option of Bank,
become immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"), and/or (c) the Bank may exercise any
or all of its rights and remedies under the other Loan Documents.  The
provisions herein for a Default Rate shall not be deemed to extend the time for
any payment hereunder or to constitute a "grace period" giving the Obligors a
right to cure any default.  At Bank's option, any accrued and unpaid interest,
fees or charges may, for purposes of computing and accruing interest on a daily
basis after the due date of the Note or any installment thereof, be deemed to be
a part of the principal balance, and interest shall accrue on a daily compounded
basis after such date at the rate provided in this Note until the entire
outstanding balance of principal and interest is paid in full.  Bank is hereby
authorized at any time to set off and charge against any deposit accounts of any
Obligor, as well as any money, instruments, securities, documents, chattel
paper, credits, claims, demands, income and any other property, rights and
interests of any Obligor which at any time shall come into the possession or
custody or under the control of Bank or any of its agents, affiliates or
correspondents, without notice or demand, any and all obligations due hereunder.
Additionally, Bank shall have all rights and remedies available under each of
the Loan Documents, as well as all rights and remedies available at law or in
equity.

9. Non-waiver.  The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank.  The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note.  No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligor to Bank
in any other respect at any other time.

10. Applicable Law, Venue and Jurisdiction.  This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of New York.  In any litigation in
connection with or to enforce this Note or any endorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of New York or the
United States located within the State of New York and expressly waive any
objections as to venue in any such courts.  Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.

11. Partial Invalidity.  The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of

                                      -7-
<PAGE>

this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to other
persons or circumstances.

12. ARBITRATION.  ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT, DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW.  IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.  ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.

          A.  SPECIAL RULES.  THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
              -------------
OF ANY BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.  ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.

          B.  RESERVATION OF RIGHTS.  NOTHING IN THIS ARBITRATION PROVISION
              ---------------------
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES
SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER.  THE BANK MAY EXERCISE SUCH SELF
HELP RIGHTS, FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT.  NEITHER
THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.

                                      -8-
<PAGE>

13. Binding Effect.  This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Bank and their respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of the Borrower
or the Obligors hereunder can be assigned without prior written consent of Bank.

14. Controlling Document.  To the extent that this Note conflicts with or is in
any way incompatible with any other Loan Document concerning this obligation,
the Note shall control over any other document, and if the Note does not address
an issue, then each other document shall control to the extent that it deals
most specifically with an issue.  Borrower confirms that the letter agreement
dated the date hereof, made by the Borrower in favor of the Bank, contains
certain representations, warranties and covenants, and that it shall constitute
an Event of Default hereunder if any representation or warranty made in such
letter agreement shall be false or misleading in any material respect, or if
Borrower fails to perform or observe any covenant, agreement or provision in
such letter agreement.

                                      -9-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.43
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>EXHIBIT 10.43
<TEXT>

<PAGE>
                                                                  Exhibit 10.43
NationsBank, N.A.
                                                        Date April 30, 1999

                                Limited Guaranty

================================================================================
Bank:                                Guarantor:
NationsBank, N.A.
Banking Center:                      Rite Aid Corporation
Private Client Group                 30 Hunter Lane
101 South Tryon Street               Camp Hill, Pennsylvania  17011
Charlotte, North Carolina  28255



(Street address including county)    (Name and street address, including county)
================================================================================

"Borrower":  Bruce Sholk and Beth Kaplan
            ----------------------------
               (Borrowers' Names)

1.  Guaranty.  FOR VALUE RECEIVED, and to induce NationsBank, N.A. (Attn: Mark
R. Antweil, Private Client Group) ("Bank") to make loans or advances or to
extend credit or other financial accommodations or benefits, with or without
security, to or for the account of the Borrowers, the undersigned "Guarantor",
if more than one, then each of them jointly and severally, hereby becomes surety
for and irrevocably and unconditionally guarantees to Bank prompt payment in an
amount as provided herein, when due, whether by acceleration or otherwise, of
any Liabilities of a Borrower to Bank.  This Guaranty is cumulative to and does
not supersede any other guaranties.

[This Guaranty contains some provisions preceded by boxes.  If a box is marked,
the provision applies to this transaction; if it is not marked, the provision
does not apply to this transaction.]

[ ]  This Guaranty is continuing and limited to the amount of
$_________________________ dollars principal plus interest owing at any time,
plus attorney's fees, cost of expenses of collection incurred and/or the cost of
the enforcement of rights in enforcing this Guaranty (including, without
limitation, any liability arising from failure to comply with any state or
federal laws, rules and regulations concerning the control of hazardous waste or
substances at or with respect to any real estate securing any loan guaranteed
hereby), plus interest on such attorney's fees and cost of collection.

[X]  This Guaranty is limited to (hereinafter collectively referred to as the
"Limitation") (i) the amount of $5,000,000 owing at any time under the
promissory note or other Loan Documents from the Borrowers to Bank, dated the
date hereof in the principal amount of $5,000,000 (whether for principal now or
hereafter arising, interest owing at any time thereunder, fees, costs, expenses,
indemnities or otherwise), as amended or otherwise modified from time to time,
plus (ii) attorneys' fees, costs and expenses incurred in connection with the
enforcement of this Guaranty, plus (iii) interest on the amount demanded
hereunder, from the date of demand until paid in full, payable upon demand, at
the Prime Rate plus one percent per annum.  The "Prime Rate" is the fluctuating
rate of interest established by Bank from time to time, at its discretion,
whether or not such rate shall be otherwise published.  The Prime Rate is
established by Bank as an index and may or may not at any time be the best or
lowest rate charged by Bank on any loan.

[ ]  This Guaranty is continuing and limited to __________________% percent of
all principal plus interest owing at any time, plus attorney's fees, cost of
expenses of collection incurred and/or the cost of the enforcement of rights in
enforcing this Guaranty (including, without limitation, any liability arising
from failure to comply with any state or federal laws, rules and regulations
concerning the control of hazardous waste or substances at or with respect to
any real estate securing any loan guaranteed hereby), plus interest on such
attorney's fees and cost of collection.

[ ]  This Guaranty is limited to _________% percent of all principal plus
interest incurred by Borrower pursuant to that certain promissory note or other
Loan Documents from Borrower to Bank, dated ____________________________, 19___
in the principal amount of $_________________________________ dollars,
including, without limitation, all principal plus interest arising thereunder
whether arising by renewal or advance of additional principal which may accrue
or be incurred with respect to said promissory note or other Loan Documents,
plus attorney's fees, cost of expenses of
<PAGE>

collection incurred and/or the cost of the enforcement of rights in enforcing
this Guaranty (including, without limitation, any liability arising from failure
to comply with any state or federal laws, rules and regulations concerning the
control of hazardous waste or substances at or with respect to any real estate
securing any loan guaranteed hereby), plus interest on such attorney's fees and
cost of collection.

Except to the extent limited above, Guarantor unconditionally guarantees the
faithful, prompt and complete compliance by each Borrower with all Obligations
(as hereinafter defined).  The undertakings of Guarantor hereunder are
independent of the Liabilities and Obligations of each Borrower and a separate
action or actions for payment, damages or performance may be brought or
prosecuted against Guarantor, whether or not an action is brought against either
Borrower or to realize upon the security for the Liabilities and/or Obligations,
whether or not either Borrower is joined in any such action or actions, and
whether or not notice is given or demand is made upon a Borrower.

Bank shall not be required to proceed first against either Borrower, or any
other person or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of a Borrower with respect to any Liabilities or
Obligations.

2.  Paragraph Headings, Governing Law and Binding Effect.  Guarantor agrees that
the paragraph headings in this Guaranty are for convenience only and that they
will not limit any of the provisions of this Guaranty.  Guarantor further agrees
that this Guaranty shall be governed by and construed in accordance with the
laws of the State of New York and applicable United States federal law.
Guarantor further agrees that this Guaranty shall be deemed to have been made in
the State of New York, and shall be governed by, and construed in accordance
with, the laws of the State of New York, or the United States courts located
within the State of New York.  This Guaranty is binding upon Guarantor, his,
their or its executors, administrators, successors or assigns, and shall inure
to the benefit of Bank, its successors, indorsees or assigns.  Anyone executing
this Guaranty shall be bound by the terms hereof without regard to execution by
anyone else.

3.  Definitions.

    A.  "Guarantor" shall mean Guarantor or any one or more of them.

    B.  "Liability" or "Liabilities" shall mean without limitation, all
liabilities, overdrafts, indebtedness, and obligations of the Borrowers and/or
Guarantor to Bank, whether direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now or
hereafter existing, or held or to be held by Bank for its own account or as
agent for another or others, whether created directly, indirectly, or acquired
by assignment or otherwise, including but not limited to all extensions or
renewals thereof, and all sums payable under or by virtue thereof, including
without limitation, all amounts of principal and interest, all expenses
(including reasonable attorney's fees and cost of collection) incurred in the
collection thereof or the enforcement of rights thereunder (including without
limitation, any liability arising from failure to comply with state or federal
laws, rules and regulations concerning the control of hazardous waste or
substances at or with respect to any real estate securing any loan guaranteed
hereby), whether arising in the ordinary course of business or otherwise.

    C.  "Loan Documents" shall mean all deeds to secure debt, deeds of trust,
mortgages, security agreements and other documents securing payment of the
Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities and Obligations.

    D.  "Obligation" or "Obligations" shall mean all terms, conditions,
covenants, agreements and undertakings of Borrowers and/or Guarantor under all
notes and other documents evidencing the Liabilities, and under all deeds to
secure debt, deeds of trust, mortgages, security agreements and other
agreements, documents and instruments executed in connection with the
Liabilities or related thereto.

4.  Waivers by Guarantor.  Guarantor waives notice of acceptance of this
Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against either
Borrower, Guarantor or any other person, any applicable statute of limitations
and any other notice to any party liable on any Loan Document (including
Guarantor).

                                      -2-
<PAGE>

Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against either Borrower that arises
hereunder and/or from the performance by any other Guarantor hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Bank against either Borrower or against any
security which Bank now has or hereafter acquires, whether or not such claim,
right or remedy arises in equity, under contract, by statute, under common law
or otherwise.

Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of N.C. Gen. Stat. (S)26-7 through (S)26-9, inclusive, as amended, or
otherwise.

Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing or otherwise affecting the Obligations of Guarantor, in whole or in
part, and without the indorsement or execution by Guarantor of any additional
consent, waiver or guaranty (in each case, subject to the Limitation): (a)
change the manner, place or terms of payment, or change or extend the time of or
renew, or change any interest rate or alter any Liability or Obligation or
installment thereof, or any security therefor; (b) loan additional monies or
extend additional credit to the Borrowers, with or without security, thereby
creating new Liabilities or Obligations the payment or performance of which
shall be guaranteed hereunder, and the Guaranty herein made shall apply to the
Liabilities and Obligations as so changed, extended, surrendered, realized upon
or otherwise altered; (c) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property at any time
pledged or mortgaged to secure the Liabilities or Obligations and any offset
there against; (d) exercise or refrain from exercising any rights against any
Borrower or others (including Guarantor) or act or refrain from acting in any
other manner; (e) settle or compromise any Liability or Obligation or any
security therefor and subordinate the payment of all or any part thereof to the
payment of any Liability or Obligation of any other parties primarily or
secondarily liable on any of the Liabilities or Obligations; (f) release or
compromise any Liability of Guarantor hereunder or any Liability or Obligation
of any other parties primarily or secondarily liable on any of the Liabilities
or Obligations; or (g) apply any sums from any sources to any Liability without
regard to any Liabilities remaining unpaid.

5.  Subordination.  Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from any Borrower, by set-off or in any other manner,
payment of any debt, now and at any time or times hereafter owing by any
Borrower to Guarantor unless and until all the Liabilities and Obligations shall
have been fully paid and performed, and any security interest, liens or
encumbrances which Guarantor now has and from time to time hereafter may have
upon any of the assets of a Borrower shall be made subordinate, junior and
inferior and postponed in priority, operation and effect to any security
interest of Bank in such assets.

6.  Waivers by Bank.  No delay on the part of Bank in exercising any of its
options, powers or rights, and no partial or single exercise thereof, shall
constitute a waiver thereof.  No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.

7.  Termination.  This Guaranty shall be binding on each Guarantor until written
notice of revocation signed by such Guarantor or written notice of the death of
such Guarantor shall have been received by Bank, notwithstanding change in name,
location, composition or structure of, or the dissolution, termination or
increase, decrease or change in personnel, owners or partners of a Borrower, or
any one or more of Guarantors.  No notice of revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Liabilities or Obligations that shall have been committed, created, contracted,
assumed or incurred prior to receipt of such written notice pursuant to any
agreement entered into by Bank prior to receipt of such notice.  The sole effect
of such notice of revocation or termination hereof shall be to exclude from this
Guaranty, Liabilities or Obligations thereafter arising that are unconnected
with Liabilities or Obligations theretofore arising or transactions entered into
theretofore.

In the event of the death of a Guarantor, the liability of the estate of the
deceased Guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof, and (ii) loans or advances made to or for the account of a Borrower
after the date of the death of the deceased Guarantor pursuant to a commitment
made by Bank to a Borrower prior to the date of such death.  As to all surviving
Guarantors, this Guaranty

                                      -3-
<PAGE>

shall continue in full force and effect after the death of a Guarantor, not only
as to the Liabilities existing at that time, but also as to Liabilities
thereafter incurred by a Borrower to Bank.

8.  Partial Invalidity and/or Enforceability of Guaranty.  The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document as it may apply to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.

In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.

9.  Change of Status.  Guarantor will not become a party to a merger or
consolidation with any other company, except where Guarantor is the surviving
corporation or entity, and all covenants under this Guaranty are assumed by the
surviving entity.  Further, Guarantor may not change its legal structure,
without the written consent of Bank and all covenants under this Guaranty are
assumed by the new or surviving entity.  Guarantor further agrees that this
Guaranty shall be binding, legal and enforceable against Guarantor in the event
either Borrower changes such person's name or status.

10.  Financial and Other Information.  Guarantor agrees to furnish to Bank any
and all financial information and any other information regarding Guarantor
and/or collateral requested in writing by Bank within ten (10) days of the date
of the request.  Guarantor has made an independent investigation of the
financial condition and affairs of each Borrower prior to entering into this
Guaranty, and Guarantor will continue to make such investigation; and in
entering into this Guaranty Guarantor has not relied upon any representation of
Bank as to the financial condition, operation or creditworthiness of either
Borrower.  Guarantor further agrees that Bank shall have no duty or
responsibility now or hereafter to make any investigation or appraisal of either
Borrower on behalf of Guarantor or to provide Guarantor with any credit or other
information which may come to its attention now or hereafter.

11.  Notices.  Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action to the address of Guarantor or
Bank, at their respective addresses indicated at the beginning of this Guaranty,
or to such other address as any party may designate by written notice to the
other party.  Each notice, request and demand shall be deemed given or made, if
sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.

12.  Guarantor Duties.  Guarantor shall upon notice or demand by Bank promptly
and with due diligence pay all Liabilities and perform and satisfy all
Obligations for the benefit of Bank in the event of (a) the occurrence of any
default under any Loan Documents; (b) the failure of any Borrower or Guarantor
to perform any obligation or pay any liability or indebtedness of any Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under any Note,
Guaranty, or any other agreement, now or hereafter existing, as and when due
(whether upon demand, at maturity or by acceleration); (c) the failure of any
Borrower or Guarantor to pay or perform any other liability, obligation or
indebtedness of any Borrower or Guarantor to any other party; (d) the death of
any Borrower or Guarantor (if an individual); (e) the resignation or withdrawal
of any partner or a material owner/Guarantor of Borrower, as determined by Bank
in its sole discretion; (f) the commencement of a proceeding against any
Borrower or Guarantor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Borrower or Guarantor or the
merger or consolidation of any Borrower or Guarantor with or into another
entity; (g) the insolvency, or the business failure of, or the appointment of a
custodian, trustee, liquidator or receiver for or of any of the property of, or
the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a petition
for any adjustment of indebtedness, composition or extension by or against any
Borrower or Guarantor; (h) the sole determination by Bank that any
representation or warranty to Bank in any Loan Document or otherwise to Bank was
untrue or materially misleading when made; (i) the failure of Guarantor or any
Borrower to timely deliver such financial statements including tax returns and
all schedules, or other statements of condition or other information, as Bank
shall request from time to time; (j) the entry of a judgment against any
Borrower or Guarantor which Bank deems to be of a material nature in the sole
discretion of Bank; (k)  the seizure or forfeiture of any of a Borrower or
Guarantor's property, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order; (l) the sole determination by Bank that
Guarantor or any Borrower jointly or severally, has suffered a material adverse
change in its financial condition; (m) the determination by Bank that for any
reason it is insecure; (n) any lien or additional security interest being placed
upon any collateral which is security for

                                      -4-
<PAGE>

any Loan Document; or (o) the failure of a Borrower's business to comply with
any law or regulation controlling the operation of a Borrower's business.

13.  Remedies.  Upon the failure of Guarantor to fulfill its duty to pay all
Liabilities and perform and satisfy all Obligations as required hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under all applicable law, and without limiting the generality of
the foregoing, Bank may, at its option and without notice or demand:  (a)
declare any Liability due and payable at once; (b) take possession of any
collateral pledged by a Borrower or Guarantor wherever located, and sell,
resell, assign, transfer and deliver all or any part of said collateral of a
Borrower or Guarantor at any public or private sale or otherwise dispose of any
or all of the collateral in its then condition, for cash or on credit or for
future delivery, and in connection therewith Bank may impose reasonable
conditions upon any such sale, and Bank, unless prohibited by law the provisions
of which cannot be waived, may purchase all or any part of said collateral to be
sold, free from and discharged of all trusts, claims, rights of redemption and
equities of each Borrower or Guarantor whatsoever; Guarantor acknowledges and
agrees that the sale of any collateral through any nationally recognized broker-
dealer, investment banker or any other method common in the securities industry
shall be deemed a commercially reasonable sale under the Uniform Commercial Code
or any other equivalent statute or federal law, and expressly waives notice
thereof except as provided herein; and (c) set-off against any or all
liabilities of Guarantor all money owed by Bank or any of its agents or
affiliates in any capacity to Guarantor whether or not due, and also set-off
against all other Liabilities of Guarantor to Bank all money owed by Bank in any
capacity to Guarantor, and if exercised by Bank, Bank shall be deemed to have
exercised such right of set-off and to have made a charge against any such money
immediately upon the occurrence of such default although made or entered on the
books subsequent thereto.

Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank.  Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account.  As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all dividends
and distributions now or hereafter in the possession or control of Bank.

14.  Attorney Fees, Cost and Expenses.  Guarantor shall pay all costs of
collection and reasonable attorney's fees, including reasonable attorney's fees
in connection with any suit, mediation or arbitration proceeding, out of court
payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred
or paid by Bank in enforcing the payment of any Liability or defending this
agreement.

15.  Collateral.  Bank at all times and from time to time shall have the right
to require Guarantor to deliver to Bank collateral satisfactory to Bank to
secure Guarantor's undertakings hereunder and/or the Liabilities of Guarantor
hereunder.

[ ]  Check if applicable.  In addition to the provisions stated above,
Guarantor hereby pledges, assigns and grants to Bank a security interest in and
title to the collateral described in the security agreement, deed of trust, deed
to secure debt, mortgage or other collateral instrument dated
____________________________, 19___ which collateral, except for any margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve System), shall secure this Guaranty, whether currently existing or
arising in the future.  Guarantor agrees to execute such security agreements,
financing statements and other documents as Bank may reasonably require or
request to obtain and perfect its security interest in said collateral.

16.  Preservation of Property.  Bank shall not be bound to take any steps
necessary to preserve any rights in any property pledged as collateral to Bank
to secure a Borrower's and/or Guarantor's Liabilities and Obligations as against
prior parties who may be liable in connection therewith, and each Borrower and
Guarantor hereby agree to take any such steps.  Bank, nevertheless, at any time,
may (a) take any action it deems appropriate for the care or preservation of
such property or of any rights of a Borrower and/or Guarantor or Bank therein;
(b) demand, sue for, collect or receive any money or property at any time due,
payable or receivable on account of or in exchange for any property pledged as
collateral to Bank to secure a Borrower's and/or Guarantor's Liabilities to
Bank; (c) compromise and settle with any person liable on such property; or (d)
extend the time of payment or otherwise change the terms of the Loan Documents
as to any party liable on the Loan Documents, all without notice to, without
incurring responsibility to, and without affecting any of the Obligations or
Liabilities of Guarantor.

                                      -5-
<PAGE>

17.  ARBITRATION.  ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS,  AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE  ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW.  IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.  ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.

    A.  SPECIAL RULES.  THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
        -------------
BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE
COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE
EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE.  ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.

    B.  RESERVATION OF RIGHTS.  NOTHING IN THIS ARBITRATION PROVISION SHALL BE
        ---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER.  BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT.  NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

18.  Year 2000 Matters.  The reprogramming and upgrading of the Guarantor's
computer systems required to permit these systems to function properly in and
following the year 2000, and the testing of these systems as so reprogrammed or
upgraded, will be completed so as to avoid any material adverse effect on the
financial condition or operations of the Guarantor.  The cost to the Guarantor
of such reprogramming, upgrading and testing and the consequences to the
Guarantor of the improper functioning of computer systems or equipment in and
after the year 2000 could not reasonably be expected to result in a material
adverse change in the financial condition or operations of the Guarantor.

19.  Controlling Document.  To the extent that this Limited Guaranty conflicts
with or is in any way incompatible with any other Loan Document concerning this
Obligation, any promissory note shall control over any other document, and if
such promissory note does not address an issue, then each other document shall
control to the extent that it deals most specifically with an issue.  This
Guaranty does not amend or otherwise modify in any respect the Guaranty dated
June 19, 1998, made by Guarantor in favor of the Bank, in respect of the
obligations of Borrower, which Guaranty shall remain in full force and effect
and is hereby ratified and confirmed in all respects.

20.  Execution Under Seal.  This Guaranty is being executed under seal by
Guarantor.

21.  NOTICE OF FINAL AGREEMENT.  THIS WRITTEN LIMITED GUARANTY REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                                      -6-
<PAGE>

IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
under seal on this ______ day of April, 1999.

Witnessed By:                           Guarantor:

______________________________          _____________________________(Seal)

______________________________          ________________________________________
Print Name and Title                    Print Individual's Name

                                        Corporate or Partnership Guarantor:

                                        RITE AID CORPORATION
                                        --------------------
                                        (Name of Corporation, Partnership, etc.)


                                        By:__________________________(Seal)

                                        Name:___________________________________

                                        Title:__________________________________

                                        ________________________________________
                                        Attest (If Applicable)

                                                   [Corporate Seal]

Individual Acknowledgment

State of ___________________)
                            )
County of __________________)

This instrument was acknowledged before me on _______, 19__, by _______________.
                                                                  (Guarantor)

(Seal)                                  ________________________________________
                                        Notary Public
                                        in and for the State of

______________________________          ________________________________________
My Commission Expires                   Print Name of Notary

                                      -7-
<PAGE>

Corporate Acknowledgment

State of ___________________)
                            )
County of __________________)

This instrument was acknowledged before me on ______________, 19___, by

________________, ____________________ of ________________________________, a

______________________________ corporation, on behalf of said corporation.


(Seal)                                  ________________________________________
                                        Notary Public
                                        in and for the State of

______________________________          ________________________________________
My Commission Expires                   Print Name of Notary


                                      -8-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>EXHIBIT 10.44
<TEXT>

<PAGE>
                                                                  Exhibit 10.44
NationsBank, N.A.


                                Promissory Note

Date June 19, 1998 [X] New  [  ] Renewal Amount $2,500,000.00 Maturity Date June
30, 2000

Between:                                 and
================================================================================
Bank:                                Borrowers:

NationsBank, N.A.                    Beth Kaplan
Banking Center:                      Bruce Sholk
Private Client Group                 General Delivery
101 South Tryon Street               Stevenson, MD  21153
Plaza 7th Floor                      County of Baltimore
Charlotte, NC  28255



(Street address including county)    (Name and street address, including county)
================================================================================

FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of TWO MILLION, FIVE HUNDRED THOUSAND and 00/100 Dollars
($2,500,000.00), or so much thereof as may be advanced from time to time in
immediately available funds, together with interest computed daily on the
outstanding principal balance hereunder, at an annual interest rate, and in
accordance with the payment schedule, indicated below.  [This Note contains some
provisions preceded by boxes.  If a box is marked, the provision applies to this
transaction; if it is not marked, the provision does not apply to this
transaction.]


RATE

[ ]  Prime Rate.  The Rate shall be the Prime Rate, plus one percent, per annum.
The "Prime Rate" is the fluctuating rate of interest established by Bank from
time to time, at its discretion, whether or not such rate shall be otherwise
published.  The Prime Rate is established by Bank as an index and may or may not
at any time be the best or lowest rate charged by Bank on any loan.

[ ]  Fixed Rate.  The Rate shall be fixed at _____ percent per annum.

[x]  Other.

The rate shall be equal to the sum of (i) the rate of interest per annum
(rounded upward, if necessary, to the next higher 1/16th of one percent)
determined by Bank, in accordance with its customary general practice from time
to time, to be the rate equal to the London Interbank Offered Rate (expressed as
a percentage) for dollar deposits as would be quoted by Bank at 11:00 a.m.
London time, or as soon thereafter as practicable, on the second day on which
commercial banks are open for international business in London immediately
preceding the first day of such Interest Period, for a term comparable to such
Interest Period, as adjusted from time to time in Bank's sole discretion for
then applicable reserve requirements, deposit insurance assessment rates and
other regulatory costs, and (ii) 2.0%.  "Interest Period" means each one (1)-
month period during which interest on the outstanding principal amount shall be
calculated by reference to the London Interbank Offered Rate, determined as of
the second day on which commercial banks are open for international business in
London before the commencement of that Interest Period; provided, however, that:
<PAGE>

          (i)   the initial Interest Period shall commence on the first day on
which any amounts are outstanding under this Note and end one month thereafter;

          (ii)    each subsequent Interest Period shall commence on the last day
of the immediately preceding Interest Period and end one month thereafter; and

          (iii)   any Interest Period which would otherwise extend beyond the
Maturity Date shall end on the Maturity Date.


Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of New York;
if any higher rate ceiling is lawful, then that higher rate ceiling shall apply.
Any payment in excess of such maximum shall be refunded to Borrower or credited
against principal, at the option of Bank.

ACCRUAL METHOD

Unless otherwise indicated, interest at the Rate set forth above will be
calculated by the 365/360 day method (a daily amount of interest is computed for
a hypothetical year of 360 days; that amount is multiplied by the actual number
of days for which any principal is outstanding hereunder).  If interest is not
to be computed using this method, the method shall be:

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PAYMENT SCHEDULE

All payments received hereunder shall be applied first to the payment of any
expense or charges payable hereunder or under any other loan documents executed
in connection with this Note, then to interest due and payable, with the balance
applied to principal, or in such other order as Bank shall determine at its
option.

[ ]     Principal Plus Accrued Interest.  Principal shall be paid in consecutive
equal installments of $_______________, plus accrued interest, payable [ ]
monthly, [ ]quarterly or [ ] ______________, commencing on _______________,
19___ and continuing on the [ ] same day [ ] last day of each successive month,
quarter or other period (as applicable) thereafter, with a final payment of all
unpaid principal and accrued interest due on ___________________, 19___.

[ ]  Fixed Principal and Interest.  Principal and interest shall be paid in
consecutive equal installments of $_______________, payable [ ]monthly, [
]quarterly or [ ] ____________, commencing on _______________, 19___, and
continuing on the same day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
interest due thereon on _______________, 19___.  If, on any payment date, the
accrued interest exceeds the interest portion of the installment amount set
forth above, the excess amount will be due with the next scheduled payment.

[X]  Single Principal Payment.  Principal shall be paid in full in a single
payment on June 30, 2000. Interest thereon shall be paid [ ] at maturity, or
else [X] monthly, [ ] quarterly or [ ] ______________, commencing on July 30,
1998, and continuing on the last day of each successive month, quarter or other
period (as applicable) thereafter, with a final payment of all unpaid interest
at the stated maturity of this Note.

[ ]  Other.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

REVOLVING FEATURE

[X]  Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided that Borrower (i) is not in default
                     --------

                                      -2-
<PAGE>

under any provision of this Note, any other document executed in connection with
this Note, or any other note or other loan documents now or hereafter executed
in connection with any other obligation of Borrower to Bank, (ii) the borrowings
hereunder do not exceed any borrowing base or other limitation on borrowings by
Borrower, and (iii) Borrower complies with the provisions of Paragraphs 4 and 5
of the Additional Terms and Conditions attached hereto and made a part hereof.
Bank shall incur no liability for its refusal to advance funds based upon its
determination that any conditions of such further advances have not been met.
Bank records of the amounts borrowed from time to time shall be conclusive proof
thereof.

[ ]  Uncommitted Facility.  Borrower acknowledges and agrees that
notwithstanding any provisions of this Note or any other documents executed in
connection with this Note, Bank has no obligation to make any advance, and that
all advances are at the sole discretion of Bank.

[ ]  Out-Of-Debt Period.  For a period of at least ___ consecutive days during
[_] each fiscal year [_] any consecutive 12-month period, Borrower shall fully
pay down the balance of this Note, so that no amount of principal or interest
and no other obligation under this Note remains outstanding.

AUTOMATIC PAYMENT

[ ]  Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number ____________.  This
authorization shall not affect the obligation of Borrower to pay such sums when
due, without notice, if there are insufficient funds in such account to make
such payment in full on the due date thereof, or if Bank fails to debit the
account.

Borrower represents to Bank that the proceeds of the Loans made hereunder are to
be used primarily for business, commercial or agricultural purposes.  Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note, including the Additional Terms and Conditions
attached hereto and made a part hereof, and hereby executes this Note intending
to create an instrument executed under Seal.

FINAL AGREEMENT:  THIS WRITTEN PROMISSORY NOTE AND ANY OTHER RELATED LOAN
DOCUMENTS CONSTITUTE THE ENTIRE AND FINAL AGREEMENT BETWEEN THE PARTIES, AND
SUPERSEDE ALL PRIOR WRITTEN AGREEMENTS AND ALL PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES REGARDING ALL ISSUES ADDRESSED IN
THOSE LOAN DOCUMENTS.

Borrower                                 Corporate or Partnership Borrower

_______________________________(Seal)
                                         ______________________________________

                                         Corporate or Partnership Name
Beth Kaplan                              By:______________________________(Seal)
- ------------------------------
Print Individual's Name

/s/ Beth Kaplan
_______________________________(Seal)
                                         ______________________________________
                                         Print Name and Title
Bruce Sholk
- -------------------------------
Print Individual's Name                  Attest (If Applicable)
                                         Corporate Seal

/s/ Bruce Sholk
- -------------------------------
                                      -3-
<PAGE>

ADDITIONAL TERMS AND CONDITIONS

1. Waivers, Consents and Covenants.  Borrower, Rite Aid Corp. (the "Guarantor"),
any endorser, or guarantor hereof or any other party hereto (individually an
"Obligor" and collectively "Obligors") and each of them jointly and severally:
(a) waive presentment, demand, protest, notice of demand, notice of intent to
accelerate, notice of acceleration of maturity, notice of protest, notice of
nonpayment, notice of dishonor, and any other notice required to be given under
the law to any Obligor in connection with the delivery, acceptance, performance,
default or enforcement of this Note,  any endorsement or guaranty of this Note,
the Guaranty (as defined in Section 4 hereof), any other documents executed in
connection with this Note, or any other note or other loan documents now or
hereafter executed in connection with any obligation of Borrower to Bank (the
"Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank from time to
time and in one or more instances (without notice to or further assent from any
of Obligors) and agree that no such action, failure to act or failure to
exercise any right or remedy by Bank shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Bank of, or otherwise
affect, any of Bank's rights under this Note, under any endorsement or guaranty
of this Note or under any of the Loan Documents; and (c) agree to pay, on
demand, all costs and expenses of collection of this Note or of any endorsement
or guaranty hereof and/or the enforcement of Bank's rights with respect to, or
the administration, supervision, preservation, protection of, or realization
upon, any property securing payment hereof, including, without limitation,
reasonable attorney's fees, including fees related to any suit, mediation or
arbitration proceeding, out of court payment agreement, trial, appeal,
bankruptcy proceeding or other proceeding.

2. Prepayments.  Prepayments may be made in whole or in part on the last
business day of any Interest Period, provided that Bank shall have received
notice at least two business days prior to such prepayment.  All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion.  No prepayment of any loan
shall be permitted at any other time without the prior written consent of Bank.
Notwithstanding such prohibition, if there is a prepayment of any such loan,
whether by consent of Bank, or because of acceleration or otherwise, Borrower
shall, within 15 days of any request by Bank, pay to Bank any loss or expense
which Bank may incur or sustain as a result of such prepayment.  For the
purposes of calculating the amounts owed only, it shall be assumed that Bank
actually funded or committed to fund the loan through the purchase of an
underlying deposit in an amount and for a term comparable to the loan, and such
determination by Bank shall be conclusive, absent a manifest error in
computation.

3. Delinquency Charges. To the extent permitted by law, a delinquency charge may
be imposed in an amount not to exceed four percent (4%) of the unpaid portion of
any payment that is more than fifteen days late.  Unless the terms of this Note
call for repayment of the entire balance of this Note (both principal and
interest) in a single payment and not for installments of interest or principal
and interest, the 4% delinquency charge may be imposed not only with respect to
regular installments of principal or interest or principal and interest, but
also with respect to any other payment in default under this Note (other than a
previous delinquency charge), including without limitation, a single payment of
principal due at the maturity of this Note.  In the event any installment, or
portion thereof, is not paid in a timely manner, subsequent payments will be
applied first to the past due balance (which shall not include any previous
delinquency charges), specifically to the oldest maturing installment, and a
separate delinquency charge will be imposed for each payment that becomes due
until the default is cured.

4. Conditions to Initial Loan. The obligation of the Bank to make the initial
Loan hereunder shall be subject to the condition precedent that on or prior to
the date of such Loan: (a)  the Bank shall have received the following, each in
form and substance satisfactory to the Bank: (i) a guaranty made by the
Guarantor in favor of the Bank (the "Guaranty"), with respect to the obligations
of the Borrower under this Note, (ii) a copy of the resolutions adopted by the
Board of Directors of the Guarantor, certified as of the date of this Note by an
authorized officer thereof, authorizing (A) the transactions contemplated by the
Guaranty to which the Guarantor is a party, and (B) the execution, delivery and
performance by the Guarantor of the Guaranty and the execution and delivery of
the other documents to be delivered by the Guarantor in connection herewith,
(iii) a certificate of an authorized officer of the Guarantor, certifying the
names and true signatures of the officers of the Guarantor authorized to sign
the Guaranty to which the Guarantor is a party and the other documents to be
executed and delivered by the Guarantor in connection herewith, together with
evidence of the incumbency of such authorized officer, and (iv) such agreements,
instruments, approvals, opinions and other

                                      -4-
<PAGE>

documents as the Bank may reasonably request, (b) Bank shall have received the
commitment fee (as described herein), and (c) all proceedings in connection with
the making of such Loan and the other transactions contemplated by this Note,
the other Loan Documents and all documents incidental thereto shall be
satisfactory to the Bank and its special counsel, and the Bank and such special
counsel shall have received all such information and such counterpart originals
or certified or other copies of such documents as the Bank or such special
counsel may reasonably request.

5. Conditions to All Loans. The obligation of the Bank to make any Loan
(including the initial Loan) shall be subject to the conditions precedent that
on the date of such Loan (a) the following statements shall be true, and the
acceptance of the proceeds of each Loan by any Borrower shall be deemed to be a
representation and warranty of each Borrower on the date of such Loan that:

                    (i)    The representations and warranties made by Borrower
     to the Bank herein are correct on and as of the date of such Loan as though
     made on and as of such date;

                    (ii)   No event has occurred and is continuing, or would
     result from such Loan, which constitutes an Event of Default (as defined in
     Paragraph 7 hereof) or would constitute an event of default but for the
     requirement that notice be given or time elapse or both; and

                    (iii)  No material adverse change in the financial
     condition, assets or prospects of either Borrower shall have occurred and
     be continuing; and

     (b) the Bank shall have received such other approvals, opinions or
documents as the Bank may reasonably request; and

     (c) the making of such Loan shall not contravene any law, rule or
regulation applicable to the Borrowers or the Bank.

6. Closing Fee.  The Borrower agrees to pay a nonrefundable closing fee equal to
one-half percent of the amount of this Note ($12,500), payable on the date of
this Note.

7. Events of Default.  The following are events of default (each an "Event of
Default") hereunder:  (a) the failure to pay or perform any obligation,
liability or indebtedness of any Obligor to Bank, or to any affiliate of
NationsBank Corporation, whether under this Note or any other document executed
in connection with this Note or any Loan Document, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to any other party;
(c) the death of any Obligor (if an individual), (d) the commencement of a
proceeding against any Obligor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Obligor or the merger or
consolidation of any Obligor with or into another entity; (e) the insolvency of,
the business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, the assignment for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtor's relief law or the filing of a petition for any adjustment of
indebtedness, composition or extension by or against any Obligor; (f) the
determination by Bank that any representation or warranty made to Bank by any
Obligor in this Note or any Loan Document or otherwise is or was, when it was
made, untrue or materially misleading; (g) the failure of any Obligor to timely
deliver such financial statements, including tax returns, other statements of
condition or other information, as Bank shall request from time to time; (h) the
entry of a judgment against any Obligor which Bank deems to be of a material
nature, in Bank's sole discretion; (i) the seizure or forfeiture of, or the
issuance of any writ of possession, garnishment or attachment, or any turnover
order for any property of any Obligor; (j) the determination by Bank that it is
insecure for any reason; or (k) the determination by Bank that a material
adverse change has occurred in the financial condition of any Obligor.

8. Remedies upon Default.  Whenever there is an Event of Default under this Note
(a) the entire balance outstanding hereunder and all other obligations of any
Obligor to Bank (however acquired or evidenced) shall, at the option of Bank,
become immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest

                                      -5-
<PAGE>

on the unpaid principal shall be increased at Bank's discretion up to the
maximum rate allowed by law, or if none, 25% per annum (the "Default Rate"),
and/or (c) the Bank may exercise any or all of its rights and remedies under the
other Loan Documents. The provisions herein for a Default Rate shall not be
deemed to extend the time for any payment hereunder or to constitute a "grace
period" giving the Obligors a right to cure any default. At Bank's option, any
accrued and unpaid interest, fees or charges may, for purposes of computing and
accruing interest on a daily basis after the due date of the Note or any
installment thereof, be deemed to be a part of the principal balance, and
interest shall accrue on a daily compounded basis after such date at the rate
provided in this Note until the entire outstanding balance of principal and
interest is paid in full. Bank is hereby authorized at any time to set off and
charge against any deposit accounts of any Obligor, as well as any money,
instruments, securities, documents, chattel paper, credits, claims, demands,
income and any other property, rights and interests of any Obligor which at any
time shall come into the possession or custody or under the control of Bank or
any of its agents, affiliates or correspondents, without notice or demand, any
and all obligations due hereunder. Additionally, Bank shall have all rights and
remedies available under each of the Loan Documents, as well as all rights and
remedies available at law or in equity.

9. Non-waiver.  The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank.  The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note.  No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligor to Bank
in any other respect at any other time.

10. Applicable Law, Venue and Jurisdiction.  This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of New York.  In any litigation in
connection with or to enforce this Note or any endorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of New York or the
United States located within the State of New York and expressly waive any
objections as to venue in any such courts.  Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.

11. Partial Invalidity.  The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.

12. ARBITRATION.  ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT, DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW.  IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.  ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.

  A.  SPECIAL RULES.  THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
      -------------
BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION

                                      -6-
<PAGE>

WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN
ADDITIONAL 60 DAYS.

  B.  RESERVATION OF RIGHTS.  NOTHING IN THIS ARBITRATION PROVISION SHALL BE
      ---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER.  THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSURE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING
OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT.  NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

13. Binding Effect.  This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Bank and their respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of the Borrower
or the Obligors hereunder can be assigned without prior written consent of Bank.

14. Controlling Document.  To the extent that this Note conflicts with or is in
any way incompatible with any other Loan Document concerning this obligation,
the Note shall control over any other document, and if the Note does not address
an issue, then each other document shall control to the extent that it deals
most specifically with an issue.

                                      -7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.45
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>EXHIBIT 10.45
<TEXT>

<PAGE>
                                                                  Exhibit 10.45
NationsBank, N.A.

                                                        Date June 19, 1998

                                Limited Guaranty


<TABLE>
<CAPTION>
====================================================================================================
<S>                                            <C>
Bank:                                            Guarantor:
NationsBank, N.A.                                Rite Aid Corporation
Banking Center:                                  30 Hunter Lane
Private Client Group                             Camp Hill, Pennsylvania  17011
101 South Tryon Street
Charlotte, North Carolina  28255



(Street address including county)                (Name and street address, including county)
====================================================================================================
</TABLE>

"Borrower":  Bruce Sholk and Beth Kaplan
            ----------------------------
                (Borrowers' Names)

1.  Guaranty.  FOR VALUE RECEIVED, and to induce NationsBank, N.A. (Attn: Mark
R. Antweil, Private Client Group) ("Bank") to make loans or advances or to
extend credit or other financial accommodations or benefits, with or without
security, to or for the account of the Borrowers, the undersigned "Guarantor",
if more than one, then each of them jointly and severally, hereby becomes surety
for and irrevocably and unconditionally guarantees to Bank prompt payment in an
amount as provided herein, when due, whether by acceleration or otherwise, of
any Liabilities of a Borrower to Bank.  This Guaranty is cumulative to and does
not supersede any other guaranties.

[This Guaranty contains some provisions preceded by boxes.  If a box is marked,
the provision applies to this transaction; if it is not marked, the provision
does not apply to this transaction.]

[  ]  This Guaranty is continuing and limited to the amount of
$_________________________ dollars principal plus interest owing at any time,
plus attorney's fees, cost of expenses of collection incurred and/or the cost of
the enforcement of rights in enforcing this Guaranty (including, without
limitation, any liability arising from failure to comply with any state or
federal laws, rules and regulations concerning the control of hazardous waste or
substances at or with respect to any real estate securing any loan guaranteed
hereby), plus interest on such attorney's fees and cost of collection.

[X]  This Guaranty is limited to (i) the amount of $2,500,000 owing at any time
under the promissory note or other Loan Documents from the Borrowers to Bank,
dated the date hereof in the principal amount of $2,500,000 (whether for
principal now or hereafter arising, interest owing at any time thereunder, fees,
costs, expenses, indemnities or otherwise), as amended or otherwise modified
from time to time, plus (ii) attorneys' fees, costs and expenses incurred in
connection with the enforcement of this Guaranty, plus (iii) interest on the
amount demanded hereunder, from the date of demand until paid in full, payable
upon demand, at the Prime Rate plus one percent per annum.  The "Prime Rate" is
the fluctuating rate of interest established by Bank from time to time, at its
discretion, whether or not such rate shall be otherwise published.  The Prime
Rate is established by Bank as an index and may or may not at any time be the
best or lowest rate charged by Bank on any loan.

[ ]  This Guaranty is continuing and limited to __________________% percent of
all principal plus interest owing at any time, plus attorney's fees, cost of
expenses of collection incurred and/or the cost of the enforcement of rights in
enforcing this Guaranty (including, without limitation, any liability arising
from failure to comply with any state or federal laws, rules and regulations
concerning the control of hazardous waste or substances at or with respect to
any real estate securing any loan guaranteed hereby), plus interest on such
attorney's fees and cost of collection.

[ ]  This Guaranty is limited to _________% percent of all principal plus
interest incurred by Borrower pursuant to that certain promissory note or other
Loan Documents from Borrower to Bank, dated ____________________________, 19___
in the principal amount of $_________________________________ dollars,
including, without limitation, all principal plus interest arising thereunder
whether arising by renewal or advance of additional principal which may accrue
or be incurred with respect to said promissory note or other Loan Documents,
plus attorney's fees, cost of expenses of collection incurred and/or the cost



<PAGE>

of the enforcement of rights in enforcing this Guaranty (including, without
limitation, any liability arising from failure to comply with any state or
federal laws, rules and regulations concerning the control of hazardous waste or
substances at or with respect to any real estate securing any loan guaranteed
hereby), plus interest on such attorney's fees and cost of collection.

Except to the extent limited above, Guarantor unconditionally guarantees the
faithful, prompt and complete compliance by each Borrower with all Obligations
(as hereinafter defined).  The undertakings of Guarantor hereunder are
independent of the Liabilities and Obligations of each Borrower and a separate
action or actions for payment, damages or performance may be brought or
prosecuted against Guarantor, whether or not an action is brought against either
Borrower or to realize upon the security for the Liabilities and/or Obligations,
whether or not either Borrower is joined in any such action or actions, and
whether or not notice is given or demand is made upon a Borrower.

Bank shall not be required to proceed first against either Borrower, or any
other person or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of a Borrower with respect to any Liabilities or
Obligations.

2.  Paragraph Headings, Governing Law and Binding Effect.  Guarantor agrees that
the paragraph headings in this Guaranty are for convenience only and that they
will not limit any of the provisions of this Guaranty.  Guarantor further agrees
that this Guaranty shall be governed by and construed in accordance with the
laws of the State of New York and applicable United States federal law.
Guarantor further agrees that this Guaranty shall be deemed to have been made in
the State of New York, and shall be governed by, and construed in accordance
with, the laws of the State of New York, or the United States courts located
within the State of New York.  This Guaranty is binding upon Guarantor, his,
their or its executors, administrators, successors or assigns, and shall inure
to the benefit of Bank, its successors, indorsees or assigns.  Anyone executing
this Guaranty shall be bound by the terms hereof without regard to execution by
anyone else.

3.  Definitions.

    A.  "Guarantor" shall mean Guarantor or any one or more of them.

    B.  "Liability" or "Liabilities" shall mean without limitation, all
liabilities, overdrafts, indebtedness, and obligations of the Borrowers and/or
Guarantor to Bank, whether direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now or
hereafter existing, or held or to be held by Bank for its own account or as
agent for another or others, whether created directly, indirectly, or acquired
by assignment or otherwise, including but not limited to all extensions or
renewals thereof, and all sums payable under or by virtue thereof, including
without limitation, all amounts of principal and interest, all expenses
(including reasonable attorney's fees and cost of collection) incurred in the
collection thereof or the enforcement of rights thereunder (including without
limitation, any liability arising from failure to comply with state or federal
laws, rules and regulations concerning the control of hazardous waste or
substances at or with respect to any real estate securing any loan guaranteed
hereby), whether arising in the ordinary course of business or otherwise.

    C.  "Loan Documents" shall mean all deeds to secure debt, deeds of trust,
mortgages, security agreements and other documents securing payment of the
Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities and Obligations.

    D.  "Obligation" or "Obligations" shall mean all terms, conditions,
covenants, agreements and undertakings of Borrowers and/or Guarantor under all
notes and other documents evidencing the Liabilities, and under all deeds to
secure debt, deeds of trust, mortgages, security agreements and other
agreements, documents and instruments executed in connection with the
Liabilities or related thereto.

4.  Waivers by Guarantor.  Guarantor waives notice of acceptance of this
Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against either
Borrower, Guarantor or any other person, any applicable statute of limitations
and any other notice to any party liable on any Loan Document (including
Guarantor).

Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against either Borrower that arises
hereunder and/or from the performance by any other Guarantor hereunder
including,




                                      -2-
<PAGE>

without limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of Bank against either Borrower or against any security which Bank now
has or hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise.

Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of N.C. Gen. Stat. (S)26-7 through (S)26-9, inclusive, as amended, or
otherwise.

Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing or otherwise affecting the Obligations of Guarantor, in whole or in
part, and without the indorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (a)  change the manner, place or terms of payment,
or change or extend the time of or renew, or change any interest rate or alter
any Liability or Obligation or installment thereof, or any security therefor;
(b) loan additional monies or extend additional credit to the Borrowers, with or
without security, thereby creating new Liabilities or Obligations the payment or
performance of which shall be guaranteed hereunder, and the Guaranty herein made
shall apply to the Liabilities and Obligations as so changed, extended,
surrendered, realized upon or otherwise altered; (c) sell, exchange, release,
surrender, realize upon or otherwise deal with in any manner and in any order
any property at any time pledged or mortgaged to secure the Liabilities or
Obligations and any offset there against; (d) exercise or refrain from
exercising any rights against any Borrower or others (including Guarantor) or
act or refrain from acting in any other manner; (e) settle or compromise any
Liability or Obligation or any security therefor and subordinate the payment of
all or any part thereof to the payment of any Liability or Obligation of any
other parties primarily or secondarily liable on any of the Liabilities or
Obligations; (f) release or compromise any Liability of Guarantor hereunder or
any Liability or Obligation of any other parties primarily or secondarily liable
on any of the Liabilities or Obligations; or (g) apply any sums from any sources
to any Liability without regard to any Liabilities remaining unpaid.

5.  Subordination.  Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from any Borrower, by set-off or in any other manner,
payment of any debt, now and at any time or times hereafter owing by any
Borrower to Guarantor unless and until all the Liabilities and Obligations shall
have been fully paid and performed, and any security interest, liens or
encumbrances which Guarantor now has and from time to time hereafter may have
upon any of the assets of a Borrower shall be made subordinate, junior and
inferior and postponed in priority, operation and effect to any security
interest of Bank in such assets.

6.  Waivers by Bank.  No delay on the part of Bank in exercising any of its
options, powers or rights, and no partial or single exercise thereof, shall
constitute a waiver thereof.  No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.

7.  Termination.  This Guaranty shall be binding on each Guarantor until written
notice of revocation signed by such Guarantor or written notice of the death of
such Guarantor shall have been received by Bank, notwithstanding change in name,
location, composition or structure of, or the dissolution, termination or
increase, decrease or change in personnel, owners or partners of a Borrower, or
any one or more of Guarantors.  No notice of revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Liabilities or Obligations that shall have been committed, created, contracted,
assumed or incurred prior to receipt of such written notice pursuant to any
agreement entered into by Bank prior to receipt of such notice.  The sole effect
of such notice of revocation or termination hereof shall be to exclude from this
Guaranty, Liabilities or Obligations thereafter arising that are unconnected
with Liabilities or Obligations theretofore arising or transactions entered into
theretofore.

In the event of the death of a Guarantor, the liability of the estate of the
deceased Guarantor shall continue in full force and effect as to (i) the
Liabilities existing at the date of death, and any renewals or extensions
thereof, and (ii) loans or advances made to or for the account of a Borrower
after the date of the death of the deceased Guarantor pursuant to a commitment
made by Bank to a Borrower prior to the date of such death.  As to all surviving
Guarantors, this Guaranty shall continue in full force and effect after the
death of a Guarantor, not only as to the Liabilities existing at that time, but
also as to Liabilities thereafter incurred by a Borrower to Bank.





                                      -3-
<PAGE>

8.   Partial Invalidity and/or Enforceability of Guaranty.  The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document as it may apply to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.

In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which had been
previously applied to or retained for application against any Liability, by
reason of a proceeding arising under the Bankruptcy Code, or for any other
reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.

9.   Change of Status.  Guarantor will not become a party to a merger or
consolidation with any other company, except where Guarantor is the surviving
corporation or entity, and all covenants under this Guaranty are assumed by the
surviving entity.  Further, Guarantor may not change its legal structure,
without the written consent of Bank and all covenants under this Guaranty are
assumed by the new or surviving entity.  Guarantor further agrees that this
Guaranty shall be binding, legal and enforceable against Guarantor in the event
either Borrower changes such person's name or status.

10.  Financial and Other Information.  Guarantor agrees to furnish to Bank any
and all financial information and any other information regarding Guarantor
and/or collateral requested in writing by Bank within ten (10) days of the date
of the request.  Guarantor has made an independent investigation of the
financial condition and affairs of each Borrower prior to entering into this
Guaranty, and Guarantor will continue to make such investigation; and in
entering into this Guaranty Guarantor has not relied upon any representation of
Bank as to the financial condition, operation or creditworthiness of either
Borrower.  Guarantor further agrees that Bank shall have no duty or
responsibility now or hereafter to make any investigation or appraisal of either
Borrower on behalf of Guarantor or to provide Guarantor with any credit or other
information which may come to its attention now or hereafter.

11.  Notices.  Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action to the address of Guarantor or
Bank, at their respective addresses indicated at the beginning of this Guaranty,
or to such other address as any party may designate by written notice to the
other party.  Each notice, request and demand shall be deemed given or made, if
sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.

12.  Guarantor Duties.  Guarantor shall upon notice or demand by Bank promptly
and with due diligence pay all Liabilities and perform and satisfy all
Obligations for the benefit of Bank in the event of (a) the occurrence of any
default under any Loan Documents; (b) the failure of any Borrower or Guarantor
to perform any obligation or pay any liability or indebtedness of any Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under any Note,
Guaranty, or any other agreement, now or hereafter existing, as and when due
(whether upon demand, at maturity or by acceleration); (c) the failure of any
Borrower or Guarantor to pay or perform any other liability, obligation or
indebtedness of any Borrower or Guarantor to any other party; (d) the death of
any Borrower or Guarantor (if an individual); (e) the resignation or withdrawal
of any partner or a material owner/Guarantor of Borrower, as determined by Bank
in its sole discretion; (f) the commencement of a proceeding against any
Borrower or Guarantor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Borrower or Guarantor or the
merger or consolidation of any Borrower or Guarantor with or into another
entity; (g) the insolvency, or the business failure of, or the appointment of a
custodian, trustee, liquidator or receiver for or of any of the property of, or
the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a petition
for any adjustment of indebtedness, composition or extension by or against any
Borrower or Guarantor; (h) the sole determination by Bank that any
representation or warranty to Bank in any Loan Document or otherwise to Bank was
untrue or materially misleading when made; (i) the failure of Guarantor or any
Borrower to timely deliver such financial statements including tax returns and
all schedules, or other statements of condition or other information, as Bank
shall request from time to time; (j) the entry of a judgment against any
Borrower or Guarantor which Bank deems to be of a material nature in the sole
discretion of Bank; (k)  the seizure or forfeiture of any of a Borrower or
Guarantor's property, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order; (l) the sole determination by Bank that
Guarantor or any Borrower jointly or severally, has suffered a material adverse
change in its financial condition; (m) the determination by Bank that for any
reason it is insecure; (n) any lien or additional security interest being placed
upon any collateral which is security for any Loan Document; or (o) the failure
of a Borrower's business to comply with any law or regulation controlling the
operation of a Borrower's business.

13.  Remedies.  Upon the failure of Guarantor to fulfill its duty to pay all
Liabilities and perform and satisfy all Obligations as required hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under





                                      -4-
<PAGE>

all applicable law, and without limiting the generality of the foregoing, Bank
may, at its option and without notice or demand: (a) declare any Liability due
and payable at once; (b) take possession of any collateral pledged by a Borrower
or Guarantor wherever located, and sell, resell, assign, transfer and deliver
all or any part of said collateral of a Borrower or Guarantor at any public or
private sale or otherwise dispose of any or all of the collateral in its then
condition, for cash or on credit or for future delivery, and in connection
therewith Bank may impose reasonable conditions upon any such sale, and Bank,
unless prohibited by law the provisions of which cannot be waived, may purchase
all or any part of said collateral to be sold, free from and discharged of all
trusts, claims, rights of redemption and equities of each Borrower or Guarantor
whatsoever; Guarantor acknowledges and agrees that the sale of any collateral
through any nationally recognized broker-dealer, investment banker or any other
method common in the securities industry shall be deemed a commercially
reasonable sale under the Uniform Commercial Code or any other equivalent
statute or federal law, and expressly waives notice thereof except as provided
herein; and (c) set-off against any or all liabilities of Guarantor all money
owed by Bank or any of its agents or affiliates in any capacity to Guarantor
whether or not due, and also set-off against all other Liabilities of Guarantor
to Bank all money owed by Bank in any capacity to Guarantor, and if exercised by
Bank, Bank shall be deemed to have exercised such right of set-off and to have
made a charge against any such money immediately upon the occurrence of such
default although made or entered on the books subsequent thereto.

Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank.  Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account.  As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all dividends
and distributions now or hereafter in the possession or control of Bank.

14.  Attorney Fees, Cost and Expenses.  Guarantor shall pay all costs of
collection and reasonable attorney's fees, including reasonable attorney's fees
in connection with any suit, mediation or arbitration proceeding, out of court
payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred
or paid by Bank in enforcing the payment of any Liability or defending this
agreement.

15.  Collateral.  Bank at all times and from time to time shall have the right
to require Guarantor to deliver to Bank collateral satisfactory to Bank to
secure Guarantor's undertakings hereunder and/or the Liabilities of Guarantor
hereunder.

[ ]  Check if applicable.  In addition to the provisions stated above,
Guarantor hereby pledges, assigns and grants to Bank a security interest in and
title to the collateral described in the security agreement, deed of trust, deed
to secure debt, mortgage or other collateral instrument dated
____________________________, 19___ which collateral, except for any margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve System), shall secure this Guaranty, whether currently existing or
arising in the future.  Guarantor agrees to execute such security agreements,
financing statements and other documents as Bank may reasonably require or
request to obtain and perfect its security interest in said collateral.

16.  Preservation of Property.  Bank shall not be bound to take any steps
necessary to preserve any rights in any property pledged as collateral to Bank
to secure a Borrower's and/or Guarantor's Liabilities and Obligations as against
prior parties who may be liable in connection therewith, and each Borrower and
Guarantor hereby agree to take any such steps.  Bank, nevertheless, at any time,
may (a) take any action it deems appropriate for the care or preservation of
such property or of any rights of a Borrower and/or Guarantor or Bank therein;
(b) demand, sue for, collect or receive any money or property at any time due,
payable or receivable on account of or in exchange for any property pledged as
collateral to Bank to secure a Borrower's and/or Guarantor's Liabilities to
Bank; (c) compromise and settle with any person liable on such property; or (d)
extend the time of payment or otherwise change the terms of the Loan Documents
as to any party liable on the Loan Documents, all without notice to, without
incurring responsibility to, and without affecting any of the Obligations or
Liabilities of Guarantor.

17.  ARBITRATION.  ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS,  AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE  ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH




                                      -5-
<PAGE>

BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.
JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN
ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF
ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.

  A.  SPECIAL RULES.  THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
      -------------
BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE
COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE
EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE.  ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.

  B.  RESERVATION OF RIGHTS.  NOTHING IN THIS ARBITRATION PROVISION SHALL BE
      ---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER.  BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT.  NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

18.  Controlling Document.  To the extent that this Limited Guaranty conflicts
with or is in any way incompatible with any other Loan Document concerning this
Obligation, any promissory note shall control over any other document, and if
such promissory note does not address an issue, then each other document shall
control to the extent that it deals most specifically with an issue.

19.  Execution Under Seal.  This Guaranty is being executed under seal by
Guarantor.

20.  NOTICE OF FINAL AGREEMENT.  THIS WRITTEN LIMITED GUARANTY REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.




                                      -6-
<PAGE>

NationsBank, N.A.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
under seal on this ______ day of ______________________, 19___.

Witnessed By:                        Guarantor:

__________________________           _____________________________(Seal)


__________________________           ___________________________________
Print Name and Title                 Print Individual's Name

                                     Corporate or Partnership Guarantor:

                                     RITE AID CORPORATION
                                     --------------------
                                     (Name of Corporation, Partnership, etc.)

                                     By:__________________________(Seal)

                                     Name:______________________________

                                     Title:_____________________________

                                     ___________________________________
                                     Attest (If Applicable)

                                                   [Corporate Seal]

Individual Acknowledgment

State of _________________)
                          )
County of ________________)

This instrument was acknowledged before me on _________,19__, by _____________.
                                                                  (Guarantor)

(Seal)                                   _____________________________________
                                         Notary Public
                                         in and for the State of _____________


________________________________         _____________________________________
My Commission Expires                    Print Name of Notary


Corporate Acknowledgment

State of ________________)
                         )
County of _______________)

This instrument was acknowledged before me on __________,19__, by _________,

________________ of _______________________, a ______________ corporation, on
behalf of said corporation.



                                         ______________________________________
(Seal)                                   Notary Public
                                         in and for the State of ______________


__________________________               ______________________________________
My Commission Expires                    Print Name of Notary








                                      -7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>EXHIBIT 10.46
<TEXT>

<PAGE>
                                                                  Exhibit 10.46
May 2, 2000

Mr. Timothy J. Noonan
c/o Paul S. Kimbol, Esquire
Dechert Price & Rhoads
1717 Arch Street
Philadelphia, PA  19103-2793

Re:  Executive Separation Agreement and General Release, dated as of
     ---------------------------------------------------------------
     February 28, 2000
     -----------------

Dear Tim:

The purpose of this letter is to correct two dating errors which appear in the
above referenced Agreement, as follows:

     1.  The Agreement's date was intended to be and is February 25, 2000, and
         not February 28, 2000; and

     2.  In subpart (i) of the second sentence of Section 3(c), the words "May
         15, 2002" were intended to be and are hereby substituted with the words
         "the last day of the Severance Period."

Other than as clarified hereby, the above referenced Agreement is intended to
remain in full force and effect in accordance with its terms.

I would appreciate it if you would confirm the corrections set forth above by
signing and returning to me a copy of this letter at your first convenience.

Very truly yours,



ACCEPTED AND AGREED TO:

       /s/ TJN
__________________________
Timothy J. Noonan

Dated:    May __, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.47
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>EXHIBIT 10.47
<TEXT>

<PAGE>
                                                                  Exhibit 10.47

               EXECUTIVE SEPARATION AGREEMENT AND GENERAL RELEASE
               --------------------------------------------------


          This Executive Separation Agreement and General Release (this
"Agreement") by and between Timothy Noonan ("Executive") and Rite Aid
Corporation (the "Company") is entered into as of February 28, 2000 subject to
the revocation and effectiveness provisions of Section 14 below.

          WHEREAS, Executive has for many years served as an officer and
employee of the Company and its subsidiaries; and

          WHEREAS, the Company and Executive have determined that Executive's
employment with the Company shall terminate effective as of the date hereof; and

          WHEREAS, the Company has determined to provide Executive with certain
severance benefits, subject to the terms and conditions set forth herein.

          NOW, THEREFORE, in consideration of the premises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, Executive and
the Company hereby agree as follows:

          1.   Resignation of Positions.  Executive hereby voluntarily resigns
               ------------------------
his employment with the Company effective as of the date hereof, and the Company
hereby accepts such resignation.  Executive hereby further resigns, effective as
of the date hereof, from all positions he may hold as an officer or director of
the Company and its subsidiaries and affiliates, and the Company hereby accepts
such resignations.

          2.   Accrued Obligations.  Within 10 days of the date hereof, the
               -------------------
Company shall pay to Executive in a lump sum the following amounts (such amounts
hereinafter referred to as "Accrued Obligations"):  (i) Executive's base salary
through February 26, 2000, (ii) any compensation, including without limitation
any bonus and salary, previously deferred by Executive (together with any
accrued interest thereon) and not yet paid by the Company, and (iii) any accrued
vacation pay not yet paid by the Company, not to exceed eight weeks, and any and
all other similar amounts generally payable to terminating executives of the
Company.

          3.   Severance Benefits.  In consideration for Executive's resignation
               ------------------
and release of claims set forth herein, but subject to the forfeiture provisions
set forth in Sections 7 and 8, the Company shall provide Executive with the
following benefits (the "Severance Benefits");

          (a) During the period commencing on the date hereof and ending on
February 28, 2002 (the "Severance Period"), the Company shall continue payment
of Executive's annual base salary at the rate in effect on the date hereof
("Base Salary"), such amounts to be payable at such times and otherwise in
accordance with the Company's standard payroll procedures for officers.  (For
clarity, it is understood and acknowledged that for purposes of this
<PAGE>

Agreement, the meaning of the terms "Severance Period" shall be unaffected by
any forfeiture of all or any portion of the Severance Benefits pursuant to
Sections 8 or 9 below).

          (b) During the Severance Period, the Company shall provide Executive
with continued coverage under such of the Company's medical benefit plans,
including without limitation all dental, vision and hospital benefits plans, in
effect from time to time as are generally applicable to senior executives of the
Company, subject to all applicable terms and conditions of such plans.  Without
limiting the generality of the foregoing, Executive shall be responsible for any
premiums, co-payments, deductible and other amounts payable by participants
pursuant to the terms of such plans.

          (c) All stock options by Executive that have not vested on or prior to
the date hereof shall immediately terminate effective as of the date hereof;
provided, that the option grant made to Executive on May 12, 1998 related to the
- --------
right to purchase an aggregate of 650,000 shares of the Company's common stock,
par value $1.00 per share (the "Common Stock") at a price of $30.75 per share
made to Executive on May 12, 1998 shall continue to vest and become exercisable
in accordance with its terms through the end of the Severance Period. Any option
that vests before Severance Period shall remain exercisable, but not beyond the
tenth anniversary of its date of grant, through the later of (i) the last day of
the Severance Period and (ii) 90 days after the date on which the Company is
first able lawfully to deliver shares in response to the exercise of that option
by reason of a registration statement under the Securities Act of 1933 relating
to the shares deliverable upon such exercise being effective, and provided,
                                                                  --------
further, that with respect to the option grants made to Executive on November
10, 1999, relating to the right to purchase an aggregate of 1,960,897 shares of
the Common Stock at a price of $5.37 per share, the Company acknowledges that as
of the date hereof such option grant has vested and become exercisable with
respect to 300,000 shares of Common Stock and Executive acknowledges that the
remaining portion of such option grant shall terminate and expire in full as of
the date hereof and shall not become exercisable at any time.

          (d) That certain Deferred Compensation Agreement, dated November 15,
1999, between Executive and the Company (the "Deferred Compensation Agreement"),
shall be amended to provide that Executive shall begin to receive payment of
benefits under the Deferred Compensation Agreement commencing on or after March
1, 2002. Other than as set forth herein, the terms and conditions of the
Deferred Compensation Agreement shall remain in full force and effect.  For
clarity, it is understood and acknowledged by Executive that regardless of the
date upon which the payment of such benefits actually commences, the maximum
period during which such benefits shall be paid is 15 years.

          (e) Executive shall be eligible to receive benefits under any
applicable pension and welfare benefit plans maintained by the Company in which
Executive is a participant as of the date hereof, including any successor plans
thereto, in accordance with the terms and conditions of such plans.  Nothing
herein shall be construed as providing Executive the right to continued vesting
or accrual benefits under any such plan during the Severance Period.

                                       2
<PAGE>

          (f) The Company shall (i) indemnify Executive to the full extent
permitted by the Company's Certificate of Incorporation (subject to any
limitations imposed under applicable law) and provide advancement of attorney's
fees in connection therewith, and (ii) continued coverage for Executive
following termination of his employment with the Company under any Director and
Officer insurance policies maintained from time to time by the Company, for any
claims that may be made against Executive with respect to his service as a
director or officer of the Company, for any claims that may be made against
Executive with respect to his service as a director or officer of the Company;
provided, that Executive shall reimburse the Company for advancements if and to
- --------
the extent so required under the Company's Certificate of Incorporation and
applicable law.

          Executive acknowledges and agrees that (i) lie shall not receive or be
entitled to receive any annual or other bonus in respect of the Company's fiscal
year ending in February 2000, (ii) he shall not receive or be entitled to
receive any payment in respect of any long-term bonus or incentive plan in which
Executive has at any time been a participant prior to the date hereof, (iii) he
shall not receive or be entitled to receive any annual, long-term or other bonus
in respect to the Severance Period or any portion thereof, (iv) he shall not
receive or be entitled to receive pension credits or otherwise be eligible for
retirement plan contributions in connection with the Severance Benefits and (v)
other than as set forth in this Section 3, Executive shall not receive or be
entitled to receive any amounts or benefits under any stock-based or other
incentive, bonus or other compensation, severance or fringe benefit plan,
program, policy, agreement or arrangement of the Company.  Executive shall not
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 this Section 3, and such amounts, benefits and other
compensation shall not be reduced in respect of any amounts actually earned by
Executive from subsequent employment.

          4.   Full Discharge.  Executive agrees and acknowledges that (i) the
               --------------
Severance Benefits provided to Executive under this Agreement and referred to in
Section 3 above exceed any sums or other payments of benefits to which Executive
would otherwise be entitled in respect of his employment with the Company and
the termination thereof under any policy, plan, or procedure of, or any
agreement or understanding, with, the Company or its subsidiaries or affiliates
and (ii) except as provided in Section 5(a), the Severance Benefits, and the
Accrued Obligations referred to in Section 2 above, are in full discharge of
any, and all claims the Executive has or may have against the Company Releasees,
as defined in Section 5(d), including without limitation for wages, benefits
(including plan contributions) or attorneys fees.

          5.   General Release.
               ---------------

               (a) The Executive Releasors (as defined below) release and
forever discharge the Company Releasees (as defined below), jointly and
severally, from and against any and all claims, charges, complaints, demands,
actions, causes of action, agreements, promises, contributions, fees, losses,
expenses and liabilities of any kind whatsoever (based upon any legal or
equitable theory, whether contractual, common-law, statutory, federal, state,
local or otherwise), whether known or unknown, which Executive Releasors ever
had, now have or may

                                       3
<PAGE>

have against the Company Releasees, by reason of any actual or alleged act,
omission, transaction, practice, conduct, occurrence, or other matter up to and
including the Release Effective Date (as defined in Section 14) (the "Claims");
provided that such release shall not apply with respect to (i) any rights of
- --------
indemnification and advancement to which Executive is entitled as of the date
hereof; (ii) Executive's rights under this Agreement; and (iii) Executive's
vested right to any benefit payable after termination of employment under any
employee benefit plan, as defined in Section 3(3) of ERISA.

               (b) Without limiting the generality of the foregoing, this
Agreement is intended to and shall release the Company Releasees from any and
all claims arising out of Executive's employment by or other service with the
Company and its affiliates, or the resignation or termination of Executive's
employment or other service with the Company and its affiliates, including
without limitation, (i) any claim under the Age Discrimination in Employment
Act, as amended by, among other laws, the Older Workers Benefit Protection Act;
(ii) any claim under Title VII of the Civil Rights Act of 1964, as amended by,
among other laws, the Civil Rights Act of 1991; (iii) any claim under the
Americans with Disabilities Act; (iv) any claim under any applicable
Pennsylvania law; (v) any other claim of discrimination or retaliation in
employment (whether based on federal, state or local law, statutory or
decisional); (vi) any claim under the Employee Retirement Income Security Act of
1974, as amended ("ERISA") except as provided in (a)(iii) above; (vii) any claim
under the National Labor Relations Act, as amended; (viii) any claim under the
Worker Adjustment and Retraining Notification Act; (ix) any claim for tort or
for breach of contract; and (x) any claim for attorneys' fees, costs,
disbursements or the like, except to the extent any such claim relates to
                           ------
(A) any rights of indemnification and advancement to which Executive is entitled
as of the date hereof, (B) Executive's rights under this Agreement; and (C) the
Company's rights under this Agreement.

               (c) Executive and the Company further agree that Executive will
not seek or accept any award or settlement from any source or proceeding with
respect to any claim or right covered by this Section 5 and 6 below.

               (d) As used herein, (i) "Executive Releasors" shall mean
Executive, for himself and for his heirs, executors, administrators,
representatives, successors and assigns; and "Company Releasees" shall mean the
Company and any and all of its subsidiaries, divisions, affiliated entities,
representatives, successors and assigns, and any and all of its or their
employee benefit or pension plans or funds, and any and all of its or their past
or present officers, directors, stockholders, agents, trustees, administrators,
employees, successors or assigns (whether acting as agents for such entities or
in their individual capacities).

          6.   No Claims.  Executive agrees, to the fullest extent permitted by
               ---------
law, not to commence, maintain, prosecute or participate in any action or
proceeding of any kind, nor encourage anyone else to do so, against any of the
Company Releasees, arising out of any act, omission, transaction or occurrence
occurring up to and including the Release Effective Date (other than with
respect to an action, omission, transaction or occurrence that is subject to the

                                       4
<PAGE>

proviso in Section 5(a)), and Executive represents and warrants that he has not
done so at any time prior to or as of the Release Effective Date.

          7.   No Injurious Conduct.  Executive acknowledges that he has not
               --------------------
knowingly engaged and agrees that he will not knowingly engage (except as may be
required pursuant to Section 8 below or by applicable law) in any conduct that
is injurious to the Company Releasees, reputation or interest, including but not
limited to (i) divulging, communicating, or in any way making use of any
confidential or proprietary information acquired in the performance of
Executive's duties for the Company and its affiliates and (ii) publicly
disparaging (or inducing or encouraging others to publicly disparage) any of the
Company Releasees.

          8.   Cooperation.
               -----------

               (a) Executive shall cooperate fully with the Company and its
subsidiaries and affiliates and its counsel in connection with any investigation
by the Company relating to any matter in which Executive was or is involved or
of which Executive has knowledge by virtue of his employment or other position
with the Company Releasees, including without limitation the pending
investigation of the Company's accounting practices and related matters.
Without limiting the generality of the foregoing, Executive shall (i) make
himself available to be interviewed upon reasonable notice and otherwise on a
reasonable basis and for a reasonable period of time relating to any such
investigation, (ii) provide, to the best of his abilities truthful, accurate and
complete information and responses in the course thereof (including without
limitation during informal or formal interviews) and (iii) provide all requested
documentation that is in his possession or control (pursuant to any formal or
informal request).

               (b) Executive agrees that, in the event he is subpoenaed by any
person or entity to give testimony (in a deposition, court proceeding or
otherwise) which in any way relates to Executive's employment or other position
with Releasees, any investigation, proceeding or litigation or otherwise
relating to the subject matter of this Agreement, Executive shall give prompt
notice of such request to the Company's General Counsel at the address listed
below.

               (c) Executive shall make himself available to the Company upon
reasonable notice and otherwise on a reasonable basis and for a six-month period
commencing on the date hereof to consult regarding the Company's business during
the transition period for the Company's new management team.

               (d) The Company shall reimburse Executive for any and all
reasonable expenses incurred by him in discharging his obligations pursuant to
this Section 8, including without limitation all reasonable travel and related
expenses and all reasonable attorneys fees and disbursements subject to the
reimbursement obligation referred to in Section 3(f).

               (e) Notwithstanding anything herein to the contrary, if the
Company shall determine that Executive has failed to perform his obligations set
forth in this Section 8, then the Company shall have the right to terminate
immediately payment and provisions of the

                                       5
<PAGE>

Severance Benefits in their entirety (other than vested benefits protected under
ERISA and Executive's rights to indemnification and advancement as set forth in
Section 3(f)), and such Severance Benefits shall thereupon be forfeited by
Executive. For clarity, it is understood and agreed by Executive that (i) such
forfeiture shall result in, among other things, (x) the immediate termination of
all benefits under the Deferred Compensation Agreement (notwithstanding anything
to the contrary therein) and (y) the immediate termination of any otherwise then
exercisable stock options; and (ii) the termination of payment and provision of
Severance Benefits pursuant to this Section 8(e) shall in no way affect the
continuing validity and enforceability of the release provided in Section 5 and
Executive's other covenants and agreements hereunder. If at any time during the
Severance Period the Company shall become aware of evidence that, Executive may
have committed an act which could have resulted in Executive's discharge for
"cause" by the Company, had it been known to the Company, the Company shall have
the right to immediately begin proceedings to terminate payment of the Severance
Benefits in their entirety (other than vested benefits protected under ERISA).
For purposes of this Agreement "cause" shall mean that in accordance with the
Deferred Compensation Agreement, the Board of Directors shall have determined
that there has been an act which would have justified a discharge for good
cause, using reasonable and non discriminatory standards. For clarity, it is
understood and agreed by Executive that (i) the termination of payment and
provision of the Severance Benefits pursuant to this Section 8(f) shall in no
way affect the continuing validity and enforceability of the release provided in
Section 5 and Executive's other covenants and agreements.

          9.   Non-Disclosure.  The terms and conditions of this Agreement, the
               ---------------
disclosure information attached as Exhibit A, and the circumstances and
discussions giving rise to this Agreement are and shall be deemed to be
confidential, and shall not be disclosed by Executive to any person or entity
without the prior written consent of the Chairman and Chief Executive Officer of
the Company, except if required by law, or to Executive's accountants, attorneys
or spouse, provided that these latter persons each agree to maintain the
confidentiality of this Agreement, the disclosure information and the
circumstances and discussions giving rise to this Agreement.  Executive further
represents that he has not disclosed the terms and conditions of this Agreement
or the disclosure information or the circumstances and discussions giving rise
to this Agreement to anyone who is not an executive officer or director of the
Company other than his attorneys, accountants or spouse.

          10.  Confidentiality.  Executive acknowledges that during the course
               ---------------
of his employment with the Company, its subsidiaries and affiliates, he has been
exposed to documents and other information regarding the confidential affairs of
the Company, its subsidiaries and affiliates, including without limitation
information about their past, present and future financial condition, the
markets for their products, key personnel, past, present or future actual or
threatened litigation, trade secrets, 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 and affiliates not readily available to the public (the
"Confidential Information").  In recognition of the foregoing, the Executive
covenants and agrees as follows:

                                       6
<PAGE>

               (a) Except as is necessary in order for Executive to enforce his
rights hereunder, and as may otherwise be required by applicable law or court
order at no time shall Executive ever divulge, disclose, or otherwise use any
Confidential Information, unless and until such information is available in the
public domain by reason other than Executive's unauthorized disclosure or use
thereof, unless such disclosure or use is expressly authorized by the Chairman
and Chief Executive Officer of the Company in writing in advance of such
disclosure or use.

               (b) Promptly following the date hereof, Executive shall deliver
to the Company's offices in Camp Hill, Pennsylvania all of the property and
equipment of the Company and its subsidiaries (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, successors or assigns, and/or their respective past
and present officers, directors, employees, agents or consultants (collectively,
the "Company Property, Records and Files"); it being expressly understood that
Executive shall not be authorized to retain any of the Company Property, Records
and Files, except (i) that in any event Executive may retain his rolodex and
(ii) to the extent expressly so authorized in writing by the Company's Chairman
and Chief Executive Officer.

          11.  Non-Solicitation.  During the Severance 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, successors or assigns to terminate his, her or its
employment or other relationship with the Company or its subsidiaries,
affiliates, successors or assigns for the purpose of associating with any
competitor of the Company or its subsidiaries, affiliates, 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, successors or assigns for any other reason.  For
purposes of this Section 11, the term "competitor of the Company" shall be
defined as any person or entity which directly or indirectly through one or more
subsidiaries and affiliates owns and/or operates a chain of 200 or more retail
drugstores in the United States.

          12.  Rights and Remedies upon Breach.  If Executive breaches, or
               -------------------------------
threatens to commit a breach of, any of the provisions of Sections 10 or 11
above (the "Restrictive Covenants"), the Company and its subsidiaries,
affiliates, 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, successors or
assigns at law or in equity:

               (a) 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, successors or assigns, as the case

                                       7
<PAGE>

may be, and that money damages would not provide an adequate remedy to the
Company or its subsidiaries, affiliates, successors or assigns, as the case may
be.

               (b) The right and remedy to require Executive to account for and
pay over to the Company or its subsidiaries, affiliates, 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.

               (c) 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.

               (d) If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
scope of such provisions, such court shall have the power (and is hereby
instructed by the parties) to reduce the duration or scope of such provisions,
as the case may be, to render such provision enforceable (it being the intent of
the parties that any such reduction be limited to the minimum extent necessary
to render such provision enforceable), and, in its reduced form, such provision
shall then be enforceable.

               (e) The parties hereto agree that the state and federal courts of
Pennsylvania shall have exclusive jurisdiction to enforce the Restrictive
Covenants and over any other dispute arising with respect to this Agreement, and
the parties hereby submit to such jurisdiction.

          13.  No Violation.  The making of this Agreement is not intended to,
               ------------
and shall not, be construed as an admission that any Company Releasee or
Executive Releasee has violated any federal, state or local law (statutory or
decisional), ordinance or regulation, breached any agreement, contract,
understanding, policy or practice, or committed any wrong whatsoever against any
Executive Releasor or Company Releasor.

          14.  Review and Revocation Period.  Executive shall have up to forty-
               ----------------------------
five (45) days from the date of receipt hereof to consider the terms and
conditions of this Agreement. Executive may accept this Agreement by signing it
before a notary and returning it to Mr. Robert G. Miller, Chairman and Chief
Executive Officer, Rite Aid Corporation, at 30 Hunter Lane, Camp Hill,
Pennsylvania 17011, by no later than the close of business on the forty-fifth
(45th) day after Executive receives this Agreement ("Agreement and Release
Return Date"). After signing this Agreement, Executive shall have seven (7) days
(the "Revocation Period") to revoke this Agreement by indicating his desire to
do so in writing (i) addressed to Mr. Miller at the address listed above, and
(ii) received in hand by Mr. Miller no later than the close of business on the
seventh (7th) day following the date Executive executes this Agreement.  The
effective date of this Agreement shall be the eighth (8th) day after Executive
executes it (the "Release Effective Date").  If the last day of the Agreement
and Release Return Date or the

                                       8
<PAGE>

Revocation Period falls on a Saturday, Sunday, or holiday, the last day of the
Agreement and Release Return Date or the Revocation Period, respectively, will
be deemed to be the next business day. In the event Executive does not accept
this Agreement as set forth above, or in the event Executive revokes this
Agreement during the Revocation Period, this Agreement, including but not
limited to the obligation of the Company to provide the Severance Benefits
referred to in Section 3, shall automatically be deemed null and void; provided
                                                                       --------
that notwithstanding anything herein to the contrary, the date of termination of
Executive's employment with the Company shall in all events be February 28,
2000.

          15.  Acknowledgment.  Executive acknowledges that:  (a) he has
               --------------
carefully read this Agreement in its entirety; (b) he has been offered and had
an opportunity to consider fully the terms of this Agreement and the disclosure
information attached as Exhibit A provided pursuant to the Older Workers Benefit
Protection Act, for a period of at least forty-five (45) days, or where
applicable has waived the necessity of a full 45 days; (c) he has been advised
by the Company in writing to consult with an attorney of Executive's choice
before signing this Agreement; (d) he fully understands the significance of all
of the terms and conditions of this Agreement and he has discussed them with his
independent legal counsel, or has had a reasonable opportunity to do so; (e) he
has had answered to his satisfaction any questions he has asked with regard to
the meaning and significance of any of the provisions of this Agreement; and (f)
he is signing this Agreement voluntarily and of his own free will and assents to
all the terms and conditions contained herein.

          16.  Arbitration.  Any controversy or claim arising out of or relating
               -----------
to this Agreement or the breach of this Agreement (other than a controversy or
claim arising under Sections 11 and 12, to the extent necessary for the Company
to avail itself of the rights and remedies provided under Section 12) that is
not resolved by Executive and the Company (or its affiliates where applicable)
shall be submitted to arbitration in Philadelphia, Pennsylvania in accordance
with Pennsylvania law and the procedures of the American Arbitration
Association. The determination of the arbitrator(s) shall be conclusive and
binding on the Company (or its affiliates, where applicable) and Executive and
judgment may be entered on the arbitrators' award in any court having
jurisdiction.

          17.  Successors.  This Agreement is binding upon, and shall insure to
               ----------
the benefit of, the parties and their respective heirs, executors,
administrators, representatives, successors and assigns.

          18.  Survival.  Except as specifically provided herein, Executive's
               --------
obligations under Sections 4, 5, 6, 7, 9, and 10 of this Agreement shall survive
the payment of the Severance Benefits.

          19.  Severability.  If any provision of this Agreement shall be held
               ------------
by a court of competent jurisdiction to be illegal, void, or unenforceable, such
illegality or unenforceability shall have no effect upon, and shall not impair
the enforceability of, any other provision of this Agreement.  Further, if
Executive seeks to challenge the validity of or otherwise vitiate this Agreement
or any provision thereof (including, without limitation, Sections 5 and 6),
Executive

                                       9
<PAGE>

shall, as a precondition, be required to repay to the Company the Severance
Benefits theretofore paid and provided to him under this Agreement in their
entirety; and if the Company seeks to challenge the validity of or otherwise
vitiate this Agreement or any provision thereof, the Company shall, as a
precondition, be required to pay to the Executive any unpaid Severance Benefits
and Executive shall immediately be released from his obligation to cooperate as
described in Section 8.

          20.  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, PA  17011
                              Attention:  General Counsel
                              Fax:  (717) 760-7867

with a copy to:               Kaye, Scholer, Fierman, Hays & Handler, LLP
                              1999 Avenue of the Stars
                              Los Angeles, CA  90067
                              Attention: Andrew Ash, Esq.
                              Fax:  (310) 788-1200

If to Executive:              Timothy Noonan
                              1022 N. Waterford Way
                              Mechanicsburg, PA  17055

Any such party may change such party's address for notices by notice duly given
pursuant hereto.

          21.  Governing Law; Venue.  This Agreement shall be governed by the
               --------------------
laws of the Commonwealth of Pennsylvania and the parties in any action arising
out of this Agreement shall be subject to the jurisdiction and venue of the
federal and state courts, as applicable, in the County of Cumberland,
Commonwealth of Pennsylvania.

          22.  Entire Agreement.  This Agreement and Exhibit A hereto,
               ----------------
constitute the complete understanding between the parties and supersede any and
all prior agreements, understandings, and discussions, whether written or oral,
between the parties.  No other promises or agreements shall be binding unless in
writing and executed after the Release Effective Date by the parties to be bound
thereby.

          23.  Amendment; Waiver.  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

                                      10
<PAGE>

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.

          24.  No Conflict with Other Agreements.  Each of Executive and the
               ---------------------------------
Company represents and warrants that neither the execution of this Agreement by
such party nor the full and complete performance of such party's obligations
hereunder will violate or conflict in any respect with any written or oral
agreement or understanding with any person or entity.

          25.  Headings.  The section headings contained herein are for
               --------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

          26.  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.
















                                      11
<PAGE>

          IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to due authorization, the Company has caused this Agreement to be
executed in its name and on its behalf, all as of the day and year set forth
below.

<TABLE>
<S>                                     <C>
                                        RITE AID CORPORATION

                                        /s/ Robert G. Miller
Date: ______________________            _____________________________________
                                        By:   Robert G. Miller
                                        Its:  Chairman and Chief Executive
                                              Officer
                                        /s/ Timothy Noonan
Date: ______________________            _____________________________________
                                        Timothy Noonan
</TABLE>
















                                      12
<PAGE>

COMMONWEALTH OF PENNSYLVANIA             )
                                         : ss
COUNTY OF CUMBERLAND                     )

     On this __ day of _______, ____, before me personally came Timothy Noonan,
to me known and known to me to be the person described in and who executed the
Executive Separation Agreement and General Release, and he duly acknowledged to
me that he executed the same.

                              _______________________________________
                              Notary Public
















                                      13
<PAGE>

                                   EXHIBIT A

Severance benefits have been offered to William Titleman and Philip Markovitz in
connection with the termination of their employment with the Company pursuant to
individually negotiated arrangements.

<TABLE>
<CAPTION>
Name                           Age                       Title
- -------------------            ---              ------------------------
<S>                            <C>              <C>
Willliam Titleman               53              Executive Vice President
Philip Markovitz                59              Senior Vice President
</TABLE>
















                                      14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-18
<SEQUENCE>11
<FILENAME>0011.txt
<DESCRIPTION>EXHIBIT 18
<TEXT>

<PAGE>

                                                                     Exhibit 18

July 11, 2000

Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania

Dear Sirs/Madams:

We have audited the consolidated financial statements of Rite Aid Corporation
and subsidiaries as of February 26, 2000 and February 27, 1999, and for each
of the three years in the period ended February 26, 2000, included in your
Annual Report on Form 10-K to the Securities and Exchange Commission and have
issued our report thereon dated July 11, 2000, which expresses an unqualified
opinion and includes two explanatory paragraphs related to the restatement of
the consolidated financial statements for each of the two years in the period
ended February 27, 1999 and a change in your application of the last-in,
first-out ("LIFO") method of accounting for inventory. Note 5 to such
financial statements contains a description of your adoption during the year
ended February 26, 2000 of a change in your application of the LIFO method of
accounting for inventory. In our judgment, such change is an alternative
accounting principle that is preferable under the circumstances.

Yours truly,

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>12
<FILENAME>0012.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>

<PAGE>
                                                                     Exhibit 21
                                 Subsidiaries
                                 ------------


Rite Aid Hdqtrs. Corp.
Rite Aid of Alabama, Inc.
Rite Aid of Connecticut, Inc.
Rite Aid of Delaware, Inc.
Rite Aid of Florida, Inc.
Rite Aid of Georgia, Inc.
Rite Aid of Illinois, Inc.
Rite Aid of Indiana, Inc.
Rite Aid of Kentucky, Inc.
Rite Aid of Maine, Inc.
Rite Aid of Maryland, Inc.
Rite Aid of Massachusetts, 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, Inc.
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.
Drug Fair of PA, Inc.
Drug Fair, Inc.
Eagle Managed Care Corp.
GDF, Inc.
Harco, Inc.
The Lane Drug Company
Keystone Centers, Inc.
Ocean Acquisition Corporation
PCS Holding Corporation
Perry Drug Stores, Inc.
Reed, Inc.
Rite Aid Funding LLC
Rite Investments Corp.
Rite Aid Drug Palace, Inc.
Rite Aid Rome Distribution Center, Inc.
Rite Aid Transport, Inc.
RX Choice, Inc.
Script South
<PAGE>

Thrifty Payless, Inc.
W.R.A.C., Inc.
3581 Carter Hill Road -Montgomery Corp.
4042 Warrensville Center Road -Warrensville Ohio, Inc.
5277 Associates, Inc.
537 Elm Street Corporation
5600 Superior Properties, Inc.
657-659 Broad St. Corp.
Broadview and Wallings -Broadview Heights Ohio, Inc.
Dominion Action One Corporation
Dominion Action Two Corporation
Dominion Action Three Corporation
Dominion Action Four Corporation
Dominion Drug Stores Corp.
England Street-Asheland Corporation
Jaime Nathan Travis Corporation
Lakehurst and Broadway Corporation
Patton Drive and Navy Boulevard Property Corporation
Portfolio Medical Services, Inc.
Rack Rite Distributors, Inc.
Ram-Utica, Inc.
Rite Aid Venturer #1, Inc.
Rite Fund, Inc.
The Muir Company
Virginia Corporation
K&B, Incorporated
K&B Alabama Corporation
K&B Florida Corporation
K&B Louisiana Corporation
K&B Mississippi Corporation
K&B Services, Incorporated
K&B Tennessee Corporation
K&B Texas Corporation
K&B Trainees, Inc.
Katz & Besthoff, Inc.
Super Beverage of Texas #2, Inc.
Super Beverage of Texas #3, Inc.
Super Beverage of Texas #4, Inc.
Super Beverage of Texas #5, Inc.
Super Beverage of Texas #6, Inc.
Super Distributors, Inc.
Super Ice Cream Suppliers, Inc.
Super Laboratories, Inc.
Super Pharmacy Network, Inc.
Super Tobacco Distributors, Inc.
PCS Health Systems, Inc.
<PAGE>

PCS Services, Inc.
PCS Mail Service of Fort Worth, Inc.
PCS Mail Service of Birmingham, Inc.
PCS Mail Services of Scottsdale, Inc.
PCS Mail Services, Inc.
Clinical Pharmaceuticals, Inc.
Apex Drug Stores, Inc.
PDS-1 Michigan, Inc.
RDS Detroit, Inc.
Perry Distributors, Inc.
PL Xpress, Inc.
Thrifty Corporation
P.L.D. Enterprises, Inc.
Rite Aid Lease Management Company
Rite Aid Realty Corp.
Thrifty Wilshire, Inc.
Sophie One Corp.
Name Rite LLC
112 Burliegh Avenue Norfolk, LLC
1515 West State Street Boise, Idaho, LLC
1525 Cortyou Road -Brooklyn Inc.
1740 Associates, LLC
764 South Broadway -Geneva, Ohio, LLC
912 Elmwood Avenue -Buffalo, LLC
Ann & Government Streets -Mobile, Alabama, LLC
Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC
Central Avenue and Main Street -Petal, MS, LLC
Eighth and Water Streets -Ulrichsville, Ohio, LLC
Euclid and Wilders Roads -Bay City, LLC
Gettysburg and Hoover-Dayton, Ohio, LLC
Gratiot & Center -Saginaw Township, Michigan, LLC
Louisville Avenue & North 18th Street-Monroe, Louisiana, LLC
Main & McPherson-Clyde, LLC
Mayfield & Chillicothe Roads-Chesterland, LLC
Munson & Andrews LLC
Northline & Dix -Toledo -Southgate, LLC
Paw Paw Lake Road & Paw Paw Avenue0Coloma, Michigan, LLC
Richmond Road & Monticello Boulevard-Richmond Heights, Ohio, LLC
Route 1 and Hood Road -Fredericksburg, LLC
Route 202 at Route 124 Jaffrey-New Hampshire, LLC
Seven Mile and Evergreen-Detroit, LLC
Silver Springs Road-Baltimore, Maryland/One, LLC
Silver Springs Road-Baltimore, Maryland/Two, LLC
State Street and Hill Road-Gerard, Ohio, LLC
State & Fortification Streets -Jackson, Mississippi, LLC
Tyler and Sanders Roads, Birmingham-Alabama, LLC
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>13
<FILENAME>0013.txt
<DESCRIPTION>EXHIBIT 27
<TEXT>

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S>                             <C>                     <C>                     <C>
<PERIOD-TYPE>                   YEAR                   YEAR                   YEAR
<FISCAL-YEAR-END>                          FEB-26-2000             FEB-27-1999             FEB-28-1998
<PERIOD-START>                             FEB-28-1999             MAR-01-1998              MAR-2-1997
<PERIOD-END>                               FEB-26-2000             FEB-27-1999             FEB-28-1998
<CASH>                                         184,600                  87,311                  85,065
<SECURITIES>                                         0                       0                       0
<RECEIVABLES>                                  756,182                 643,189                 104,852
<ALLOWANCES>                                         0                       0                       0
<INVENTORY>                                  2,643,959               2,646,988               3,033,694
<CURRENT-ASSETS>                             3,805,470               3,432,614               3,256,890
<PP&E>                                       4,799,954               4,592,168               3,315,288
<DEPRECIATION>                               1,170,035                 947,069                 861,514
<TOTAL-ASSETS>                              10,807,854              10,512,540               7,398,250
<CURRENT-LIABILITIES>                        2,912,417               4,220,540               2,009,288
<BONDS>                                      5,464,733               4,773,071               2,465,948
<PREFERRED-MANDATORY>                           19,457                  23,559                       0
<PREFERRED>                                    308,250                       0                       0
<COMMON>                                       259,926                 258,861                 258,214
<OTHER-SE>                                    (136,668)              1,092,199               1,613,331
<TOTAL-LIABILITY-AND-EQUITY>                10,807,854              10,512,540               7,398,250
<SALES>                                     14,681,442              12,782,890              11,533,423
<TOTAL-REVENUES>                            14,681,442              12,782,890              11,533,423
<CGS>                                       11,412,774               9,743,835               8,603,318
<TOTAL-COSTS>                               11,412,774               9,743,835               8,603,318
<OTHER-EXPENSES>                             3,689,002               3,643,138               2,811,500
<LOSS-PROVISION>                               163,186                 192,551                 148,560
<INTEREST-EXPENSE>                             520,336                 277,226                 209,152
<INCOME-PRETAX>                             (1,115,748)               (604,531)               (239,107)
<INCOME-TAX>                                         8                (182,049)                (52,916)
<INCOME-CONTINUING>                         (1,143,056)               (422,482)               (186,191)
<DISCONTINUED>                                       0                       0                       0
<EXTRAORDINARY>                                      0                       0                       0
<CHANGES>                                      (87,300)                      0                       0
<NET-INCOME>                                (1,143,056)               (422,482)               (186,191)
<EPS-BASIC>                                      (4.45)                   1.64                   (0.74)
<EPS-DILUTED>                                    (4.45)                   1.64                   (0.74)


</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----