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<SEC-DOCUMENT>0001125282-01-500559.txt : 20010522
<SEC-HEADER>0001125282-01-500559.hdr.sgml : 20010522
ACCESSION NUMBER:		0001125282-01-500559
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		15
CONFORMED PERIOD OF REPORT:	20010331
FILED AS OF DATE:		20010521

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			RITE AID CORP
		CENTRAL INDEX KEY:			0000084129
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-DRUG STORES AND PROPRIETARY STORES [5912]
		IRS NUMBER:				231614034
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0302

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	001-05742
		FILM NUMBER:		1644221

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

	MAIL ADDRESS:	
		STREET 1:		PO BOX 3165
		CITY:			HARRISBURG
		STATE:			PA
		ZIP:			17105

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	LEHRMAN LOUIS & CO
		DATE OF NAME CHANGE:	19680510

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	RACK RITE DISTRIBUTORS
		DATE OF NAME CHANGE:	19680510
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>b311659_10k.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 March 3, 2001

                                       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>
<CAPTION>
<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)

                      Delaware
           (State or other jurisdiction of
           incorporation or organization)
                   30 Hunter Lane,
               Camp Hill, Pennsylvania
      (Address of principal executive offices)
</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 common 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 May 14, 2001 was
approximately $2,888,464,506. For purposes of this calculation, executive
officers, directors and 5% shareholders are deemed to be affiliates of the
registrant.

   As of May 14, 2001 the registrant had outstanding 394,341,787 shares of
common stock, par value $1.00 per share.

===============================================================================

<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                             Page
                                                                             ----
<S>                                                                          <C>
PART I...................................................................      2

     ITEM 1.      Business...............................................      2

     ITEM 2.      Properties.............................................      8

     ITEM 3.      Legal Proceedings......................................      9

     ITEM 4.      Submission of Matters to a Vote of Security Holders....     11

PART II..................................................................     12

     ITEM 5.      Market for Registrant's Common Equity and Related
                  Stockholder Matters....................................     12

     ITEM 6.      Selected Financial Data................................     14

     ITEM 7.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations....................     16

     ITEM 7A.     Quantitative and Qualitative Disclosures About Market
                  Risks..................................................     31

     ITEM 8.      Financial Statements and Supplementary Data............     32

     ITEM 9.      Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure....................     32

PART III.................................................................     33

PART IV..................................................................     34

     ITEM 14.     Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K...............................................     34
</TABLE>


                                       i

<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 our future prospects,
developments and business strategies.

   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:

   o our high level of indebtedness;

   o 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;

   o our ability to complete the financial restructuring contemplated by our
     May 15, 2001 bank commitment letter;

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

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

   o 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

   o our ability to further develop, implement and maintain reliable and
     adequate internal accounting systems and controls.

   We undertake no obligation to revise the forward-looking statements included
in this report to reflect any future events or circumstances. Our 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 this report
under the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Factors Affecting our Future Prospects"
herein.


                                       1

<PAGE>
                                     PART I


Item 1. Business

Overview

   We are the second largest retail drugstore chain in the United States based
on store count and the third largest based on sales. We operate our drugstores
in 30 states across the country and in the District of Columbia. As of March
3, 2001, we operated 3,648 stores and had a first or second place market
position in 34 of the 65 major U.S. metropolitan markets in which we operated.
Our stores are an average of 12,663 square feet.

   Our headquarters are 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".

   During all of the fiscal year ended March 3, 2001 ("fiscal 2001"), we
operated in the retail drug segment and for a portion of fiscal 2001, we also
operated in the pharmacy benefit management ("PBM") segment.

   Through our retail drug segment, we sell prescription drugs, sales of which
represented approximately 59.5% of our total sales during fiscal 2001. Our
drugstores filled over 204 million prescriptions during fiscal 2001. Our
drugstores also offer non-prescription medications, health and beauty aids and
personal care items, cosmetics, household items, beverages, convenience foods,
greeting cards, photo processing, seasonal merchandise and numerous other
everyday and convenience products which we refer to as our "front-end
products."

   Until October 2, 2000, when we sold it to Advance Paradigm, Inc. (now
AdvancePCS), we owned PCS Health Systems, Inc. ("PCS"), one of the nation's
largest providers of pharmacy benefit management services to employers,
insurance carriers and managed care companies. As a result of the sale, the
PBM segment is reported as a discontinued operation for all relevant periods
in the financial statements included in this Annual Report.

   From the beginning of fiscal 1997 until December 1999, we were engaged in an
aggressive expansion program. During that period, we purchased 1,554 stores,
relocated 866 stores, opened 445 new stores, remodeled 308 stores and acquired
PCS. These activities had a significant negative impact on our operating
results, severely strained our liquidity and increased our indebtedness to
$6.6 billion as of February 26, 2000. In October 1999, we announced that we
had identified accounting irregularities and our former chairman and chief
executive officer resigned. In November 1999, our former auditors resigned and
withdrew their previously issued opinions on our financial statements for the
fiscal years 1998 and 1999. Thereafter, investigations were begun by the
Securities and Exchange Commission and the United States Attorney for the
Middle District of Pennsylvania into our affairs. In addition, the complaint
in a securities class action lawsuit, which had been filed in March 1999, was
amended to include allegations based upon the accounting irregularities we
disclosed. In December 1999, new senior management was hired. In response to
the situation we faced, we completed the following:

   o Restated our financial statements for fiscal years 1998 and 1999, engaged
     new auditors to audit our financial statements for fiscal years 1998,
     1999 and 2000, and resumed normal financial reporting;

   o Refinanced our near term indebtedness to defer virtually all principal
     amortization to no earlier than August 2002;

   o Improved our front end same store sales growth from a minus 2.2% in
     fiscal 2000 to a positive 6.5% in fiscal 2001 by improving store
     conditions and launching a competitive marketing program;

   o Reduced our indebtedness by $1.4 billion from $6.6 billion on February
     26, 2000 to $5.2 billion on April 28, 2001 with the proceeds from the
     sale of PCS and as a result of debt for equity exchanges;

   o Curtailed our expansion plans resulting in an approximately $441 million
     reduction in capital expenditures from fiscal 2000 to fiscal 2001;


                                       2

<PAGE>
   o Pending court approval, settled the securities class action and related
     lawsuits for $45 million to be funded with insurance proceeds and $155
     million of common stock, cash and/or notes to be issued and paid in
     January 2002; and

   o Began development and implementation of a comprehensive plan to address
     accounting systems and controls.

   o Entered into a bank committment letter to refinance a significant
     portion of our indebtedness, see "Recent Event".

   Our long term operating strategy is to focus on improving the productivity
of our existing store base. We believe that improving the sales of our
existing stores is important to improving our future profitability and cash
flow. We also believe that the substantial investment made in our store base
over the last five years has given us one of the most modern store bases in
the industry. However, our store base has not yet achieved the level of sales
productivity that our major competitors achieve. We intend to improve the
performance of our existing stores by continuing to (i) capitalize on the
substantial investment in our stores and distribution facilities; (ii) enhance
our customer and employee relationships; and (iii) improve the product
offerings in our stores. Moreover, it is estimated that pharmacy sales in the
United States will increase more than 75% over the next five years. This
anticipated growth is expected to be fueled by the "baby boom" generation
entering their 50's, the increasing life expectancy of the American population
and the introduction of several new successful drugs and inflation. We believe
that this growth will help increase the sales productivity of our existing store
base.

   Since the beginning of fiscal 1997, we have opened 466 new stores, relocated
945 stores, generally to larger or free-standing sites, remodeled 406 stores
and closed 1,139 stores. We also acquired 1,554 stores during the same period.
All of our stores are integrated into a common information system. At March 3,
2001, 49.8% of our stores had been constructed, relocated or remodeled since
the beginning of fiscal 1997. Our new and relocated stores are generally
larger and need to develop a critical mass of customers to achieve
profitability, which generally takes two to four years. Therefore, attracting
more customers is a key component of our long term operating strategy. We have
also improved our distribution network to support these new stores by, among
other things, opening two high capacity distribution centers.

   We have initiated various programs that are designed to improve our image
with customers. These include our weekly distribution of a nationwide
advertising circular to announce vendor promotions, weekly sales items and, in
our expanded test market, our customer reward program, "Rite Rewards." We have
also initiated programs that are specifically directed to our pharmacy
business. These include reduced cash prices and an increased focus on
attracting and retaining managed care customers. Through the use of technology
and attention to customers' needs and preferences, we are increasing our
efforts to identify inventory and product categories that will enable us to
offer more personalized products and services to our customers. We continue to
develop and implement employee training programs to improve customer service
and educate our employees about the products we offer. We are also developing
employee programs that create compensatory and other incentives for employees
to provide customers with quality service, to promote our private label brands
and to improve our corporate culture.

   We continue to add 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 continue to develop ideas for new
product departments and have begun to implement plans to expand the categories
of our front-end products. During fiscal 2001, we undertook several
initiatives to increase sales of our Rite Aid brand products and generic
prescription drugs. 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 us from other national
drugstore chains.

Recent Event

   On May 16, 2001, we issued a press release announcing the details of a
comprehensive $3.0 billion refinancing package that includes a commitment for
a new $1.9 billion senior secured credit facility fully underwritten by
Citibank NA, J.P. Morgan Chase & Co., Credit Suisse First Boston and Fleet
Retail Finance, Inc. We announced that upon completion of the planned
transactions scheduled to close during our second

                                       3

<PAGE>
fiscal quarter, we will have significantly reduced our debt and the amount of
our debt maturing prior to March 2005.

   The closing of the new credit facility is subject to the satisfaction of
customary closing conditions and our issuance of approximately $1.05 billion
in new debt or equity securities, of which $527 million, as of May 16, 2001,
has been committed or arranged, as described herein. We plan to raise, at a
minimum, the additional $523 million by issuing equity and fixed income
securities and through real estate mortgage financings in transactions which
are intended to close simultaneously with, and which will be conditioned upon,
the closing of the new credit facility. The new credit facility will be
secured by inventory, accounts receivable and certain other assets owned by
our subsidiaries. The facility will be used to repay our first and second lien
debt, pay expenses associated with the planned refinancing and for general
working capital purposes.

   In the $527 million in new debt and equity securities that has already been
committed is a $149 million private placement comprised of 22.7 million shares
of common stock committed on March 22, 2001 at $5.50 per share and 3.8 million
shares of common stock committed on May 2, 2001 at $6.50 per share. The closing
of this equity investment will take place simultaneously with, and is contingent
upon, the completion of the new credit facility.

   One of the holders has committed to exchange $152 million of our 10.5% senior
secured notes due 2002 for $152 million of new 12.5% senior secured notes
maturing in 2006. The new notes will be secured by a second lien on the
collateral securing the new credit facility. In connection with the exchange,
the holder will receive five-year warrants to purchase approximately 3.0 million
shares of our common stock at $6.00 per share. The exchange will take place
simultaneously with, and is contingent upon, the closing of the new credit
facility.

   We also announced that included in the $527 million that has already been
committed are recently completed or contracted private exchanges of common
stock for $226.2 million of our bank debt and 10.5% senior secured notes due
2002, as described herein.

   Once the refinancing transactions are completed, our remaining debt due
before March 2005 will be $152.0 million of our 5.25% convertible subordinated
notes due 2002, $107.8 million of our 6.0% dealer remarketable securities due
2003, $259.2 million of our 10.5% senior secured notes due 2002 and
amortization of the new credit facility. We expect to use internally generated
funds to retire both the 5.25% notes and the dealer remarketable securities at
maturity and to meet the amortization payments under the new credit facility.
We also announced that funds to repay the 10.5% notes at maturity are included
in the new credit facility.

   We are being advised on the refinancing by Salomon Smith Barney Inc., J.P.
Morgan Chase & Co. and Credit Suisse First Boston.

   The debt and equity securities that we will offer will not be registered
under the Securities Act of 1933, as amended, and may not be offered or sold
in the United States absent registration or an applicable exemption from such
registration requirements.

   As described in our May 16, 2001 press release, the completion of the
proposed refinancing of our credit facility is subject to customary closing
conditions, some of which are beyond our control, and also to our ability to
successfully complete the additional financings required by the commitment
letter for the refinancing. While we believe we will successfully complete the
refinancing, there can be no assurance that the refinancing transactions will
be consummated.

   Except as set forth herein, this Annual Report does not give effect to the
consummation of the refinancing.

Description of Business

 Retail Drug Segment

   Our stores sell prescription drugs and a wide assortment of general
merchandise that we call "front-end products," including over-the-counter
medications, health and beauty aids and personal care items, cosmetics,

                                       4

<PAGE>
greeting cards, household items, convenience foods, photo processing services
and seasonal merchandise. We distinguish our stores from other national chain
drugstores, in part, through our private label brands, our "stores-within-Rite
Aid stores" program with GNC and by our Internet presence through our website,
www.riteaid.com, and the drugstore.com website. Our stores range in size from
approximately 5,000 to 40,000 square feet. The larger stores are concentrated
in the western United States. Substantially all of the stores we have opened
since 1995 are based on our prototype 12,500 square foot freestanding building
and such stores typically include a drive-thru pharmacy.

   Products and Services. During fiscal 2001, sales of prescription drugs
represented approximately 59.5% of our total sales. In fiscal years 2001, 2000
and 1999, prescription drug sales were $8.6 billion, $7.8 billion and $6.7
billion, respectively, of our revenues. We sell approximately 24,600 different
types of non-prescription, or front-end, products. No single front-end product
category contributed significantly to our sales during fiscal 2001 although
certain front-end product classes contributed notably to our sales. Our
principal classes of products are the following:

<TABLE>
<CAPTION>

                                                       Fiscal Year 2001
                                                         Percentage of
          Product Class                                 Sales/Revenues
            -------------                               --------------
          <S>                                          <C>
          Prescription drugs .......................         59.5%
          Over-the-counter and personal care .......         10.9
          Health and beauty aids ...................          5.8
          General merchandise and other ............         23.8
</TABLE>


   We offer over 1,500 products under the Rite Aid private label brand, which
contributed approximately 10.0% of our front-end sales in fiscal 2001. During
fiscal 2001, we added 159 products under our private label. We intend to
increase the number and the sales of our private label brand products.

   We have a strategic alliance with GNC under which we plan to open, own and
operate a minimum of 1,000 GNC "stores-within-Rite Aid-stores" across the
country by July 2003. GNC is a leading nationwide retailer of vitamin and
mineral supplements and personal care, fitness and other health-related
products. As of March 3, 2001, we operated 605 GNC stores-within-Rite Aid-
stores. We plan to open 220 GNC stores-within-our-stores during fiscal 2002.

   Our strategy is to locate our stores at convenient locations in fast-growing
metropolitan areas. As of March 3, 2001, we have a first or second place
market position in 34 of the 65 major U.S. metropolitan markets in which we
operate. We have significantly reduced our store development program in order
to focus our efforts and resources on improving the operations of our existing
store base. Consistent with our operating strategy, during fiscal 2001, we
opened 9 new stores, relocated 63 stores, remodeled 98 stores and closed 163
stores. Our current plan for fiscal 2002 is to open approximately 6 new
stores, relocate 25 stores and remodel 76 stores. Our fiscal 2002 planned
store openings and relocations are not concentrated in any specific geographic
region.


                                       5

<PAGE>

   The table below identifies the number of stores by state as of March 3,
2001:

<TABLE>
<CAPTION>

   State
    -----                                                        Store Count
                                                                 -----------
   <S>                                                           <C>
   Alabama...................................................         129
   Arizona...................................................           3
   California................................................         598
   Colorado..................................................          31
   Connecticut...............................................          45
   Delaware..................................................          26
   District of Columbia......................................           8
   Georgia...................................................          52
   Idaho.....................................................          22
   Indiana...................................................           8
   Kentucky..................................................         124
   Louisiana.................................................          96
   Maine.....................................................          82
   Maryland..................................................         154
   Michigan..................................................         345
   Mississippi...............................................          32
   Nevada....................................................          37
   New Hampshire.............................................          40
   New Jersey................................................         177
   New York..................................................         406
   Ohio......................................................         281
   Oregon....................................................          72
   Pennsylvania..............................................         369
   Tennessee.................................................          51
   Texas.....................................................           5
   Utah......................................................          30
   Vermont...................................................          13
   Virginia..................................................         162
   Washington................................................         139
   West Virginia.............................................         110
   Wyoming...................................................           1
                                                                    -----
      Total..................................................       3,648
                                                                    =====
</TABLE>


   Technology.  All of our stores are integrated into a common information
system, which enables us to fill prescriptions with increased accuracy and
efficiency and that can be expanded to accommodate new stores. Additionally,
each of our stores employs point-of-sale technology that facilitates inventory
replenishment, sales analysis and recognition of customer trends. As of March
3, 2001, we had installed ScriptPro automated pharmacy dispensing units which
are linked to our pharmacists' computers and fill and label prescription drug
orders, in 871 stores. In fiscal 2001, we developed and implemented several
new technologies and applications, including productivity improvements related
to our piece picking and inventory movement management. We also made
modifications to our proprietary pharmacy information system in order to
improve its user interface and information output. We also simplified our cash
register or point of sale processes. Our customers may also order prescription
refills over the Internet through drugstore.com or over the phone through our
telephonic rapid automated refill systems.


                                       6

<PAGE>
   Suppliers. During fiscal 2001, we purchased approximately 93% of the dollar
volume of our prescription drugs from a single supplier, McKesson HBOC, Inc.
under a contract which runs until April 2004. Under the contract, McKesson
HBOC has agreed to sell to us all of our requirements of branded
pharmaceutical products. With limited exceptions, we are required to purchase
all of our branded pharmaceutical products from McKesson HBOC. We purchase
generic (non-brand name) pharmaceuticals from a variety of sources on an
exclusive basis and generic pharmaceutical products on a non-exclusive basis.
If our relationship with McKesson HBOC was disrupted, we could have difficulty
filling prescriptions, which would negatively affect our business. We purchase
our non-pharmaceutical merchandise from numerous manufacturers and
wholesalers. We believe that competitive sources are readily available for
substantially all of the non-pharmaceutical merchandise we carry and that the
loss of any one supplier would not have a material effect on our business.
During fiscal 2001, we made significant efforts to resolve prior issues and
disputes and to improve our relationships with our suppliers and vendors and
we believe these efforts have been successful.

   We sell 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 developed by GNC,
and along with our Rite Aid brand vitamin and mineral supplements, are
manufactured by GNC.

   Customers. During fiscal 2001, our stores served an average of 1.9 million
customers per day as compared to an average of 1.8 million customers per day
in fiscal 2000. The loss of any one customer would not have a material adverse
impact on our results of operations. No single customer accounted for more
than 10% of our total sales.

   Competition. The retail drugstore industry is highly competitive. In the
sale of prescription drugs, we compete with, among others, retail drugstore
chains, independently owned drugstores, mass merchandisers, supermarkets,
discount stores and mail order pharmacies. We compete on the basis of store
location and convenient access, customer service, product selection and price.

   Employees. As of March 3, 2001, we had 75,500 employees. Approximately 12%
of these employees are pharmacists. There is a national shortage of
pharmacists. Our management is implementing various employee incentive plans
in order to attract and retain qualified pharmacists. We believe that our
relationships with our employees are good.

   Research and Development. We do not make significant expenditures for
research and development.

   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.

Regulation

   Our 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 we 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. The legislative initiatives include prescription drug benefit
proposals for Medicare participants. Although we believe we are well
positioned to respond to these developments, we cannot predict the outcome or
effect of legislation resulting from these reform efforts. Also, in recent
years, both 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.


                                       7

<PAGE>

PBM Segment

   On October 2, 2000, we consummated the sale of PCS to Advance Paradigm (now
known as AdvancePCS) for $710.5 million in cash, equity securities of
AdvancePCS and AdvancePCS's $200.0 million 11% promissory notes. In March
2001, we sold the AdvancePCS equity securities in an underwritten public
offering for a total of $284.1 million (net of selling commissions) and
AdvancePCS paid the promissory note in full plus accrued and unpaid interest.
We applied $1,093.5 million of the proceeds from the sale of PCS to reduce our
debt. We recorded a loss on disposal of $168.8 million in fiscal 2001 as a
result of the sale.

Item 2. Properties

   We own our corporate headquarters, which are 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 3,358 of our drugstore
facilities under non-cancelable leases, many of which have original terms of
10 to 22 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 our leases contain renewal options, some of which involve rent
increases.

   As of March 3, 2001, we operated 3,648 retail drugstores. The overall
average size of each store in our chain is 12,663 square feet. The stores on
the east coast average 9,502 square feet per store. The west coast stores
average 20,802 square feet per store. The central stores average 10,323 square
feet per store.

   We operate the following distribution centers and overflow storage
locations, which we own or lease as indicated:

<TABLE>
<CAPTION>

                                                                   Approximate
                                                       Owned or      Square
          Location                                      Leased       Footage
            --------                                    ------       -------
          <S>                                          <C>         <C>
          Rome, New York ...........................     Owned       291,000
          Rome, New York(1) ........................    Leased        71,400
          Utica, New York(1) .......................    Leased       115,000
          Poca, West Virginia ......................     Owned       264,000
          Dunbar, West Virginia(1) .................    Leased        61,000
          South Nitro, West Virginia(1) ............    Leased        50,000
          Perryman, Maryland .......................    Leased       885,000
          Tuscaloosa, Alabama ......................     Owned       238,000
          Tuscaloosa, Alabama(1) ...................    Leased        27,000
          Cottondale, Alabama(1) ...................    Leased       125,000
          Pontiac, Michigan ........................     Owned       362,000
          Woodland, California .....................     Owned       521,300
          Woodland, California(1) ..................    Leased       200,000
          Wilsonville, Oregon ......................    Leased       518,000
          Lancaster, California ....................    Leased       917,000
</TABLE>


- ---------------
(1) Overflow storage locations.

   The original terms of the leases for our 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.

   We also own a 52,200 square foot ice cream manufacturing facility located in
El Monte, California.

   On a regular basis and as part of our normal business, we evaluate store
performance and may reduce its size, close or relocate a store if the store is
redundant, under performing or otherwise deemed unsuitable. When we reduce in
size, close or relocate a store, we often continue to have leasing obligations
or own the property, but we attempt to sublease the space. As of March 3,
2001, we subleased 5,558,000 square feet of space and an additional 4,019,000
square feet of space in closed or relocated stores was not subleased.


                                       8

<PAGE>
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. We are cooperating fully with the SEC
and the United States Attorney.

   The U.S. Department of Labor has commenced an investigation of matters
relating to our employee benefit plans, including our principal 401(k) plan,
which permitted employees to purchase our common stock. Purchases of our
common stock under the plan were suspended in October 1999. In January 2001,
we appointed an independent trustee to represent the interests of these plans
in relation to us and to investigate possible claims the plans may have
against us. Both the independent trustee and the Department of Labor have
asserted that the plans may have claims against us. The investigations, with
which we are cooperating fully, are ongoing and we cannot predict their
outcomes. In addition, a purported class action lawsuit on behalf of the plans
and their participants has been filed by a participant in the plans in the
United States District Court for the Eastern District of Pennsylvania.

   These investigations are ongoing and we cannot predict their outcomes. If we
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 us could also
have a material adverse effect on our results of operations, financial
condition and cash flows.

 Stockholder Litigation

   We, certain of our directors, our former chief executive officer Martin
Grass, our former president Timothy Noonan, our former chief financial officer
Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of
actions, most of which purport to be class actions, brought on behalf of
stockholders who purchased our securities on the open market between May 2,
1997 and November 10, 1999. All of these cases have been consolidated in the
U.S. District Court for the Eastern District of Pennsylvania. On November 9,
2000, we announced that we had reached an agreement to settle the consolidated
securities class action lawsuits pending against us in the U.S. District Court
for the Eastern District of Pennsylvania and the derivative lawsuits pending
there and in the Delaware Court of Chancery. Under the agreement, which has
been submitted to the U.S. District Court for the Eastern District of
Pennsylvania for approval, we will pay $45 million in cash, which will be
fully funded by our officers' and directors' liability insurance, and issue
shares of common stock in 2002. The shares will be valued over a 10 day
trading period in January 2002. If the value determined is at least $7.75 per
share, we will issue 20 million shares. If the value determined is less than
$7.75 per share, we have the option to deliver any combination of common
stock, cash and short-term notes, with a total value of $155 million. As
additional consideration for the settlement, we have assigned to the
plaintiffs all of our claims against the above named executives and KPMG LLP.
Several members of the class have elected to "opt-out" of the class and, as a
result, if the settlement is approved by the court, they will be free to
individually pursue their claims. Management believes that their claims,
individually and in the aggregate, are not material.


                                       9

<PAGE>
 Drug Pricing and Reimbursement Matters

   On October 5, 2000, we settled, for an immaterial amount, and without
admitting any violation of the law, the lawsuit filed by the Florida Attorney
General alleging that our non-uniform pricing policy for cash prescription
purchases was unlawful under Florida law.

   The filing of the complaint by the Florida Attorney General, and our press
release issued in conjunction therewith, precipitated the filing of a
purported federal class action in California and several purported state class
actions, all of which (other than those pending in New York that were filed on
October 5, 1999 and those pending in California that were filed on January 3,
2000) have been dismissed. A motion to dismiss the action in New York is
currently pending. We believe that the remaining lawsuits are without merit
under applicable state consumer protection laws. As a result, we intend to
continue to vigorously defend against them and we do not anticipate that if
fully adjudicated, they will result in an award of damages. However, such
outcomes cannot be assured and a ruling against us could have a material
adverse effect on the financial position and results of operations of the
company as well as necessitate substantial additional expenditures to cover
legal costs as we pursue all available defenses.

   We are being investigated by multiple state attorneys general for our
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. We believe 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. We also believe that our existing policies and
procedures fully comply with the requirements of applicable law and intend to
fully cooperate with these investigations. We cannot, however, predict their
outcomes at this time.

   An individual acting on behalf of the United States of America, has filed a
lawsuit in the United States District Court for the Eastern District of
Pennsylvania under the Federal False Claims Act alleging that we defrauded
federal health care plans by failing to appropriately issue refunds for
partially filled prescriptions and prescriptions which were not picked up by
customers. The Department of Justice has not decided whether to join this
lawsuit, as is its right under the law, and its investigation is continuing.
We have filed a motion to dismiss the complaint for failure to state a claim.

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

 Store Management Overtime Litigation

   We are a defendant in a class action pending in the California Superior
Court in San Diego with three subclasses, comprised of our California store
managers, assistant managers and managers-in-training. The plaintiffs seek
back pay for overtime not paid to them and injunctive relief to require us to
treat our store management as non-exempt. They allege that we decided to
minimize labor costs by causing managers, assistant managers and managers-in-
training to perform the duties and functions of associates for in excess of
forty hours per week without paying them overtime. We believe that in-store
management were and are properly classified as exempt from the overtime
provisions of California law. We have filed a motion to decertify the class
which is currently pending. Our results of operations and financial position
could be materially adversely affected by an adverse judgment in this matter.

 Other

   We are subject from time to time to lawsuits arising in the ordinary course
of business. In the opinion of our management, these matters are adequately
covered by insurance or, if not so covered, are without merit or are of such
nature or involve amounts that would not have a material adverse effect on our
financial condition, results of operations or cash flows if decided adversely.


                                       10

<PAGE>
Item 4.  Submission of Matters to a Vote of Security Holders

   On December 6, 2000, we held our 2000 Annual Meeting of Stockholders. At the
2000 Annual Meeting, our stockholders:

   1. Elected three directors to hold office until the Annual Meeting of
Stockholders in 2003 by the following votes:

<TABLE>
<S>                                          <C>                  <C>               <C>
(a) William J. Bratton ...................   For: 313,733,384*    Against: 70,375   Abstain: 7,560,123
(b) Stuart M. Sloan ......................   For: 314,415,440*    Against: 65,175   Abstain: 6,883,267
(c) Jonathan D. Sokoloff .................   For: 314,366,614*    Against: 70,375   Abstain: 6,926,893
</TABLE>


   Following the 2000 Annual Meeting of Stockholders, the following persons
continued to serve as our Directors: Robert G. Miller, Alfred M. Gleason, Alex
Grass (resigned January 4, 2001), Leonard I. Green, Nancy A. Lieberman, Mary
F. Sammons, Leonard N. Stern and Gerald Tsai, Jr.

   2. Approved, adopted and ratified our 2000 Omnibus Equity Plan by the
following vote:

     For: 156,023,933*             Against: 22,955,892       Abstain: 2,323,130

   3. Declined to adopt a stockholder proposal to sell our company to the
highest bidder by the following vote:

   For: 17,029,174           Against: 160,168,193*           Abstain: 4,126,718

   4. Declined to adopt a stockholder proposal requesting that our management
prepare and make public an employment diversity report by the following vote:

   For: 12,121,942           Against: 163,783,162*           Abstain: 5,397,853

   5. Declined to adopt a stockholder proposal to declassify our Board of
Directors by the following vote:

   For: 23,303,172           Against: 153,228,708*           Abstain: 4,768,656

   An asterisk "*" indicates that the results include 58,722,800 votes cast in
respect of all of the outstanding shares at the time of the 2000 Annual
Meeting of Stockholders of our 8% series B cumulative convertible pay-in-kind
preferred stock.

   There were 140,060,927; 140,039,797; 140,060,925; and 140,063,346 broker
non-votes for each of Item 2, Item 3, Item 4 and Item 5, respectively.


                                       11

<PAGE>
                                    PART II


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

   Our common stock is listed on the New York and Pacific Stock Exchanges under
the symbol "RAD". On May 4, 2001, we had approximately 11,719 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 Year                                  Quarter     High       Low     Dividend
        -----------                                 -------     ----       ---     --------
       <S>                                          <C>       <C>         <C>      <C>
       2002 (through May 18, 2001)..............     First           9     5 1/4        --

       2001.....................................     First       8 1/2     4 3/4        --
                                                    Second       8 1/2         4        --
                                                     Third       4 3/8    2 7/16        --
                                                    Fourth      6 3/32     1 3/4        --

       2000.....................................     First      41 3/4        21    $.1150
                                                    Second    26 15/16    17 1/2    $.1150
                                                     Third      20 1/8     4 1/2    $.1150
                                                    Fourth      13 1/4     6 3/8        --
</TABLE>


   We have not declared or paid any cash dividends on our common stock since
the third quarter of fiscal 2000 and we do not anticipate paying cash
dividends in the foreseeable future. Our credit facilities do not allow us to
pay cash dividends and we anticipate that any credit facility we enter into in
connection with a refinancing of our indebtedness will not allow us to pay
cash dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Credit Facilities and Debt
Restructuring."

   Recent sales of unregistered securities. On October 27, 1999, we sold to
Green Equity Investors III, L.P. 3,000,000 shares of our series A cumulative
convertible pay-in-kind 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 our 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 votes with the holders of our common
stock and each holder of series B preferred stock has one vote for each share
of the common stock issuable upon conversion of the holder's series B
preferred stock. The holders of our series B preferred stock are also entitled
to vote separately as a class to elect two directors to our Board of
Directors. Leonard I. Green and Jonathan D. Sokoloff are the series B
directors. When issued, the series B preferred stock was convertible into
shares of our common stock at a conversion price of $11.00 per share subject
to adjustment. As a result of the exchange of our bank debt for shares of our
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, we issued a warrant to J.P. Morgan Ventures
Corporation, an affiliate of J.P. Morgan, to purchase 2,500,000 shares of our
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 our
PCS and RCF facilities in October 1999.

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

   On June 14, 2000, we issued $374.3 million of our 10.5% senior secured notes
due 2002 in exchange for $52.5 million of our outstanding 5.5% notes due
December 2000 and $321.8 million of our outstanding 6.7% notes due December
2001. We also entered into an agreement with J.P. Morgan and another 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.


                                       12

<PAGE>
   The series A preferred stock, the series B preferred stock, the warrant, the
10.5% senior secured notes due 2002 and our common stock issued in exchange
for certain of our bank debt were issued in transactions exempt from
registration in reliance on Section 4(2) of the Securities Act.

   On June 26, 2000, the holders of approximately $177.8 million principal
amount of our 5.25% convertible subordinated notes due 2002 exchanged these
notes for an aggregate of 17,779,000 shares of our 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.

   On November 10, 2000, the holders of approximately $79.9 million principal
amount of our 5.25% convertible subordinated notes due 2002 and $12.3 million
principal amount of our 6.0% dealer remarketable securities due 2003 exchanged
these notes for an aggregate of 9,222,200 shares of our 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.

   On January 23, 2001, the holders of approximately $5.5 million principal
amount of our 6.0% senior notes due 2005 and $2.0 million principal amount of
our 7.625% senior notes due 2005 exchanged these notes for an aggregate of
862,500 shares of our 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.

   On January 26, 2001, the holders of approximately $15.0 million principal
amount of our 5.25% convertible subordinated notes due 2002 exchanged these
notes for an aggregate of 1,875,000 shares of our 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.

   On January 30, 2001, the holders of approximately $20.0 million principal
amount of our 5.25% convertible subordinated notes due 2002 exchanged these
notes for an aggregate of 2,600,000 shares of our 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.

   On March 14, 2001, the holders of approximately $201.4 million principal
amount of our 5.25% convertible subordinated notes due 2002 exchanged these
notes for an aggregate of 29,204,160 shares of our common stock. The common
stock was issued in an exchange offer exempt from registration in reliance on
section 3(a)(9) of the Securities Act.

   On March 14, 2001, the holders of approximately $77.9 principal amount of
our 6.0% dealer remarketable securities due 2003 exchanged these notes for an
aggregate of 12,072,175 shares of our common stock. The common stock was
issued in an exchange offer exempt from registration in reliance on Section
3(a)(9) of the Securities Act.

   On April 6, 2001, the holders of approximately $3.9 million principal amount
of our 5.25% convertible subordinated notes due 2002 and $2.0 million
principal amount of our 6.0% dealer remarketable securities due 2003 exchanged
these notes for an aggregate of 856,000 shares of our 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.

   The following described transactions make up the $527 million in new equity
and debt securities we have committed to issue or have issued as of May 16,
2001 in connection with the refinancing plan we announced on May 16, 2001 and
which is described under the caption "Recent Event" in Item 1 of this Annual
Report.

   o On March 22 and May 2, 2001, respectively, we agreed to issue 22.7
     million and 3.8 million shares of common stock at $5.50 and $6.50 per
     share, respectively (an aggregate of $149.6 million). The shares of
     common stock will be issued in a transaction exempt from registration in
     reliance on Section 4(2) of the Securities Act.

   o On April 25, 2001, the holders of approximately $11.0 million principal
     amount of our 10.5% senior secured notes due 2002 exchanged these notes
     for an aggregate of 1,925,000 shares of our common

                                       13

<PAGE>
     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.

   o On April 25, 2001, the holders of approximately $5.0 million principal
     amount of our 10.5% senior secured notes due 2002 exchanged these notes
     for an aggregate of 785,000 shares of our 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.

   o On April 27, 2001, we agreed with (i) holders of our RCF credit facility
     to exchange $10.0 million principal amount of indebtedness under the RCF
     credit facility, and (ii) holders of our PCS credit facility to exchange
     $5.0 million principal amount of indebtedness under the PCS credit
     facility, for an aggregate of 2,144,936 shares of our common stock. The
     common stock will be issued in a transaction exempt from registration in
     reliance on Section 4(2) of the Securities Act.

   o As amended on April 30, 2001, pursuant to an agreement entered into on
     April 12, 2001, we agreed to exchange approximately $132.7 million
     principal amount of indebtedness under our RCF credit facility for
     21,216,772 shares of our common stock. The shares of common stock will be
     issued in a transaction exempt from registration in reliance on Section
     4(2) of the Securities Act.

   o On May 2, 2001, holders of our RCF credit facility agreed to exchange
     $10.0 million principal amount of indebtedness for an aggregate of
     1,443,814 shares of our common stock. The shares of common stock will be
     issued in a transaction exempt from registration in reliance on Section
     4(2) of the Securities Act.

   o On May 15, 2001, a holder of our RCF credit facility exchanged $10.0
     million principal amount of indebtedness under the credit facility for an
     aggregate of 1,473,405 shares of our common stock. The common stock was
     issued in a transaction exempt from registration in reliance on Section
     4(2) of the Securities Act.

   o On May 16, 2001, we agreed to issue five year warrants to purchase
     approximately 3.0 million shares of common stock at $6.00 per share.
     These warrants will be issued in connection with the exchange by a
     holder of $152.0 million of our 10.5% senior secured notes due 2002 for
     a like principal amount of new 12.5% senior secured notes due 2006. The
     warrants will be issued in a privately negotiated transaction exempt
     from registration in reliance on Sections 3(a)(9) of the Securities
     Act.

   o We have also committed in three additional transactions to issue shares
     of our common stock in exchange for an aggregate of $40.3 million of our
     10.5% senior secured notes due 2002 and $2.2 million of our RCF credit
     facility. The number of shares to be issued in each transaction will
     depend on the average price of our common stock in the pricing period
     contained in the agreement relating to the transaction. The shares of
     common stock will be issued in privately negotiated transactions exempt
     from registration in reliance on Section 3(a)(9) and Section 4(2),
     respectively, of the Securities Act.

Item 6. Selected Financial Data

   The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and related
notes appearing on pages F-1 through F-40. Selected financial data is
presented for four fiscal years. As previously discussed in our 10-K/A dated
October 11, 2000, substantial time, effort and expense was required over a six
month period to review, assess, reconcile, prepare and audit our financial
statements for fiscal 2000, fiscal 1999 and fiscal 1998. We believe it would
require an unreasonable effort and expense to conduct a similar process
related to fiscal year 1997. Certain reclassifications have been made to prior
years' amounts to conform to current year classifications.


                                       14

<PAGE>

<TABLE>
<CAPTION>

                                                                                     Fiscal Year Ended
                                                         --------------------------------------------------------------------------
                                                        March 3, 2001    February 26, 2000    February 27, 1999   February 28, 1998
                                                          (53 weeks)         (52 weeks)          (52 weeks)           (52 weeks)
                                                        -------------    -----------------    -----------------   -----------------
                                                                  (In thousands, except per share amounts and other data)
<S>                                                     <C>              <C>                  <C>                 <C>
Summary of Operations:
REVENUES ............................................    $ 14,516,865       $ 13,338,947        $ 12,438,442         $ 11,352,637
COSTS AND EXPENSES:
 Cost of goods sold, including occupancy costs ......      11,151,490         10,213,428           9,406,831            8,419,021
 Selling, general and administrative expenses .......       3,458,307          3,607,810           3,200,563            2,773,560
 Goodwill amortization ..............................          20,670             24,457              26,055               26,169
 Store closing and impairment charges ...............         388,078            139,448             195,359              155,024
 Interest expense ...................................         649,926            542,028             274,826              202,688
 Loss on debt conversions and modifications .........         100,556                 --                  --                   --
 Share of loss from equity investments ..............          36,675             15,181                 448                1,886
 Gain on sale of fixed assets .......................          (6,030)           (80,109)                 --              (52,621)
                                                         ------------       ------------        ------------         ------------
                                                           15,799,672         14,462,243          13,104,082           11,525,727
                                                         ------------       ------------        ------------         ------------
 Loss from continuing operations before income taxes
   and cumulative effect of accounting change........      (1,282,807)        (1,123,296)           (665,640)            (173,090)
INCOME TAX EXPENSE (BENEFIT) ........................         148,957             (8,375)           (216,941)             (28,064)
 Loss from continuing operations before cumulative
   effect of accounting change.......................      (1,431,764)        (1,114,921)           (448,699)            (145,026)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
  including income tax expense (benefit) of $13,846,
  $30,903, $(5,925) and $(10,885)....................          11,335              9,178             (12,823)             (20,214)
 Loss on disposal of discontinued operations, net of
   tax benefit of $734...............................        (168,795)                --                  --                   --
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of
  income tax benefit of $18,200......................              --            (27,300)                 --                   --
                                                         ------------       ------------        ------------         ------------
   Net loss..........................................    $ (1,589,224)      $ (1,133,043)       $   (461,522)        $   (165,240)
                                                         ============       ============        ============         ============
BASIC AND DILUTED (LOSS) INCOME PER SHARE:
   Loss from continuing operations...................    $      (5.15)      $      (4.34)       $      (1.74)        $      (0.58)
 Income (loss) from discontinued operations .........           (0.50)              0.04               (0.05)               (0.08)
 Cumulative effect of accounting change, net ........              --              (0.11)                 --                   --
                                                         ------------       ------------        ------------         ------------

  Net loss per share.................................    $      (5.65)      $      (4.41)       $      (1.79)        $      (0.66)
                                                         ============       ============        ============         ============
Year-End Financial Position:
   Working capital (deficit).........................    $  1,955,877       $    752,657        $   (892,115)        $  1,258,580
   Property, plant and equipment (net)...............       3,041,008          3,445,828           3,328,499            2,460,513
   Total assets......................................       7,913,911          9,845,566           9,778,451            7,392,147
   Total debt .......................................       5,894,548          6,612,868           5,922,504            3,132,894
   Redeemable preferred stock........................          19,457             19,457              23,559                   --
   Stockholders' equity..............................        (354,435)           432,509           1,339,617            1,898,203
Other Data:
   Cash dividends declared per common share..........    $          0       $      .3450        $      .4375         $      .4075
   Basic weighted average shares.....................     314,189,000        259,139,000         258,516,000          250,659,000
   Diluted weighted average shares...................     314,189,000        259,139,000         258,516,000          250,659,000
   Number of retail drugstores.......................           3,648              3,802               3,870                3,975
   Number of employees...............................          75,500             77,300              89,900               83,000
</TABLE>


                                                       (Footnotes on next page)


                                       15

<PAGE>

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

(1) PCS was acquired on January 22, 1999. On October 2, 2000, we sold PCS. See
    "Business--PBM Segment." Accordingly, our PBM segment is reported as a
    discontinued operation for all periods presented. See note 24 of the notes
    to the consolidated financial statements.
(2) K&B, Incorporated and Harco, Inc. were acquired in August 1997.
(3) Total debt includes capital lease obligations of $1.1 billion, $1.1
    billion, $1.1 billion and $622 million as of March 3, 2001, February 26,
    2000, February 27, 1999 and February 28, 1998, respectively.

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

Overview

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

   Recent Actions Affecting Operating Results. During fiscal 2001, we took a
number of actions which had the short term effect of significantly reducing
our operating results but which management believes were nevertheless
necessary. Among the actions taken were: (i) the sale of PCS which resulted in
our recognizing a loss of $168.8 million and an increase in income tax expense
of $146.9 million; (ii) the exchange of approximately $597.3 million of our
debt for shares of our common stock which resulted in a net loss of $100.6
million; (iii) our decision to close or relocate certain stores that resulted
in an approximate $149.2 million charge included in the $388.1 million
recorded charges for store closures and impairment; and (iv) the restatement
and audit of our fiscal 1999 and 1998 financial statements and the related
investigation conducted by our audit committee of prior accounting
irregularities resulted in our incurring and recording of $82.1 million of
accounting and legal expense. We anticipate taking similar actions in the
future that may have a material negative impact upon our operating results for
the period in which we take those actions or subsequent periods. We also
expect to incur significant costs and fees in connection with the refinancing
described under "Recent Event".

   Maturing Store Base.  Since the beginning of fiscal 1997, we built 466 new
stores, relocated 945 stores, remodeled 406 and closed 1,139 stores. These
new, relocated and remodeled stores represented approximately 49.8% of our
total stores at March 3, 2001 and are generally larger, free standing stores
and have 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 and 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.
Management believes that as these newer stores mature they should gain the
critical mass of customers needed for profitable operations. We believe this
continuing maturation should positively affect our operating performance in
future periods. If we are not able to improve the performance of these new and
relocated stores, it will have a material adverse effect on our ability to
restore the profitability of our operations.

   Substantial Investigation Expenses. We have incurred substantial expenses
in connection with the process of reviewing and reconciling our books and
records, restating our 1998 and 1999 financial statements, investigating our
prior accounting practices and preparing our financial statements. Included in
these expenses are the costs of the Deloitte & Touche LLP audits, the
investigation by the law firm of Swidler, Berlin, Shereff, Friedman, assisted
by Deloitte & Touche LLP, conducted for our audit committee concerning the
accounting irregularities which led to the restatement of our financial
statements for our 1999 and 1998 fiscal years and the costs of retaining
Arthur Andersen LLP to assist management in reviewing and reconciling our
books and records. We incurred $82.1 million in fiscal 2001 and we expect to
incur $10.0 million to $15.0 million in fiscal 2002. We anticipate that we
will continue to incur significant legal and other expenses in connection with
the ongoing litigation and investigations to which we are subject.


                                       16

<PAGE>
   Dilutive Equity Issuances. In June 2000, we 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 our common stock were issued in exchange for $462.6
million principal amount of our outstanding indebtedness. In addition, in
November 2000, January 2001 and April 2001, we completed numerous privately
negotiated transactions, and in connection with these transactions, an
aggregate total of 18,125,700 shares of our common stock were issued in
exchange for approximately $156.6 million principal amount of our outstanding
indebtedness. In March 2001, we also exchanged approximately $279.3 million
principal amount of outstanding indebtedness for an aggregate of 41,276,335
shares of our common stock upon completion of a public tender offer. As a
result of these exchanges, we recorded an aggregate loss on conversion of
approximately $100.6 million in fiscal 2001 and will record additional losses
in fiscal 2002. In addition, pursuant to the conversion price adjustment and
pay-in-kind dividend provisions of the series B convertible preferred stock
issued to Green Equity Investors III, L.P. in October 1999, 61,095,219 shares
of our common stock were issuable upon the conversion of such preferred stock
at March 31, 2001. Assuming the transactions which occurred subsequent to
March 3, 2001 and prior to May 4, 2001 had occurred on March 3, 2001, the
common shares outstanding would have increased from 348,055,000 to
392,868,382. In light of our substantial leverage and liquidity constraints,
we will continue to consider opportunities to use our equity securities to
discharge debt or other obligations that may arise. Such issuances will have a
dilutive effect on the outstanding shares of our common stock.

   Accounting Systems. Following its review of our books and records,
management concluded that further steps were needed to establish and maintain
the adequacy of our internal accounting systems and controls. In connection
with the audit of our financial statements, Deloitte & Touche LLP advised us
that it believed there were numerous "reportable conditions" under the
standards established by the American Institute of Certified Public
Accountants which relate to our accounting systems and controls and could
adversely affect our ability to record, process, summarize and report
financial data consistent with the assertions of management in the financial
statements. We are developing and implementing comprehensive, adequate and
reliable accounting systems and controls which address the reportable
conditions identified by Deloitte & Touche LLP.

   Sale of PCS. On October 2, 2000, we sold PCS, our PBM segment, to Advance
Paradigm (now AdvancePCS). The selling price of PCS consisted of $710.5
million in cash, $200.0 million in principal amount of AdvancePCS's 11%
promissory notes and AdvancePCS equity securities. Accordingly, the PBM
segment is reported as a discontinued operation for all periods presented in
the accompanying financial statements, and the operating income of the PBM
segment through October 2, 2000, the date of sale, is reflected separately
from the income from continuing operations. The loss on disposal of the PBM
segment was $168.8 million. Additionally, we recorded an increase to the tax
valuation allowance and income tax expense of $146.9 million in the first
quarter of fiscal 2001 in continuing operations.

   Working Capital. We generally finance our 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. Over
75% of our front-end sales are in cash. Third-party insurance programs, which
typically settle in fewer than 30 days, accounted for 90.3% of our pharmacy
sales and 53.7% of our revenues in fiscal 2001.

   Seasonality. We experience seasonal fluctuations in our results of operations
in the fourth quarter as the result of the seasonal nature of Christmas and the
flu season. We tailor certain front-end merchandise to capitalize on holidays
and seasons.


                                       17

<PAGE>

Results of Operations

<TABLE>
<CAPTION>

                                                                                 Year Ended
                                                                 ------------------------------------------
                                                                  March 3,     February 26,    February 27,
                                                                    2001           2000            1999
                                                                 -----------   ------------    ------------
                                                                           (dollars in thousands)
   <S>                                                           <C>           <C>             <C>
   Sales.....................................................    $14,516,865    $13,338,947    $12,438,442
   Sales growth..............................................            8.8%           7.2%           9.6%
   Same store sales growth...................................            9.1%           7.9%          15.5%
   Pharmacy sales growth.....................................            8.7%          15.6%          18.2%
   Same store pharmacy sales growth..........................           10.9%          16.2%          21.9%
   Pharmacy as a % of total sales............................           59.5%          58.4%          54.2%
   Third-party sales as a % of total pharmacy sales..........           90.3%          87.8%          85.4%
   Front-end sales growth....................................            3.8%          (2.6)%          0.8%
   Same store front-end sales growth.........................            6.5%          (2.2)%          6.6%
   Front-end as a % of total sales...........................           40.5%          41.6%          45.8%

   Store data:
    Total stores (beginning of period) ......................          3,802          3,870          3,975
    New stores ..............................................              9             77            163
    Closed stores ...........................................           (163)          (181)          (330)
    Store acquisitions, net .................................             --             36             62
    Total stores (end of period) ............................          3,648          3,802          3,870
    Remodeled stores ........................................             98             14            155
    Relocated stores  .......................................             63            180            331
</TABLE>


 Sales

   The 8.8% growth in revenues in fiscal 2001 is driven by an increase of 3.8%
in front-end sales, an increase of 8.7% in pharmacy sales and the additional
week in fiscal 2001. Our total revenues growth in fiscal 2000 of 7.2 % was
fueled by strong growth in pharmacy sales, offset by a slight decline in front
end sales. Same store sales growth for fiscal 2001 was 9.1%. As fiscal 2001
was a 53 week year, same store sales are calculated by comparing the 53 week
period ending March 3, 2001 with the 53 week period ending March 4, 2000.

   For fiscal 2001 and 2000, pharmacy revenues led sales growth with same store
sales increases of 10.9% and 16.2%, respectively. Fiscal 2001 increases were
generated by our ability to attract and retain managed care customers, our
successful pilot markets for reduced cash pricing, our increased focus on
pharmacy initiatives such as will call and predictive refill, and favorable
industry trends. These favorable trends include an aging population, the use
of pharmaceuticals to treat a growing number of healthcare problems, and the
introduction of a number of successful new prescription drugs. Fiscal 2000
pharmacy increases were driven by favorable industry trends, as well as the
purchase of prescription files from independent pharmacies.

   The lower growth in same store pharmacy sales in fiscal 2001 was due
primarily to a significant reduction in the number of prescription files we
purchased and store relocations we effected. The lower growth in fiscal 2000
was due primarily to a reduction as compared to fiscal 1999 in the number of
relocations effected.

   Same store front-end sales, which includes all non-prescription sales, such
as seasonal merchandise, convenience items, and food and other non-
prescription sales, increased 6.5% from fiscal 2000. This increase was fueled
by the reinstatement of our weekly circular advertising program, and was also
driven by strong performance in seasonal businesses, consumables, vitamins,
general merchandise and private brands. Same store front-end sales in fiscal
2000 decreased 2.2% from fiscal 1999 levels. This decrease was due to elevated
levels of out-of-stock merchandise in the 3rd and 4th quarters of fiscal 2000,
and the decision of former management to suspend the weekly advertising
program in fiscal 2000 and to raise front-end prices to levels that were not
competitive.


                                       18

<PAGE>
<TABLE>
<CAPTION>

                                                                                                      Year Ended
                                                                                      ------------------------------------------
                                                                                        March 3,     February 26,   February 27,
                                                                                          2001           2000           1999
                                                                                      -----------    ------------   ------------
                                                                                                (dollars in thousands)
   <S>                                                                                <C>            <C>            <C>
   Costs of goods sold ............................................................   $11,151,490    $10,213,428     $9,406,831
   Gross margin ...................................................................          23.2%          23.4%          24.4%
   Selling, general and administrative expenses ...................................   $ 3,458,307    $ 3,607,810     $3,200,563
   Selling, general and administrative expenses as a percentage of revenues .......          23.8%          27.0%          25.7%
   Goodwill amortization ..........................................................   $    20,670    $    24,457     $   26,055
   Store closing and impairment charges ...........................................       388,078        139,448        195,359
   Interest expense ...............................................................       649,926        542,028        274,826
   Loss on debt conversions and modifications .....................................       100,556             --             --
   Share of loss from equity investments ..........................................        36,675         15,181            448
   Gain on sale of fixed assets ...................................................        (6,030)       (80,109)            --
</TABLE>


 Cost of Goods Sold

   Gross margin was 23.2% for fiscal 2001 compared to 23.4% in fiscal 2000. The
slight decline in margin is attributable to a shifting in sales mix to
pharmacy from front-end. In fiscal 2001, the percentage of front-end sales to
total sales decreased to 40.5% from 41.6% in 2000. Also contributing to the
lower margin in 2001 was an increase in sales of cigarettes and liquor as a
percentage of front-end sales. Additionally, we incurred $17.5 million in
inventory liquidation losses related to our closed stores. Partially
offsetting the items above was an improvement in the margin of front-end goods
(exclusive of cigarettes and liquor). These increases resulted from a more
profitable product mix, and from increases in the levels of one-hour photo and
phone card sales.

   Gross margin declined to 23.4% in fiscal 2000 from 24.4% in fiscal 1999. The
decline in gross margin in fiscal 2000 from fiscal 1999 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. We incurred significant costs in fiscal 2000 in connection with
the 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 2000 were improved
store level margins for front-end and pharmacy sales.

   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 sales were 59.5%, 58.4% and 54.2% in fiscal 2001, 2000 and
1999, respectively and third-party sales as a percentage of pharmacy sales
were 90.3%, 87.8%, and 85.4% in fiscal 2001, 2000 and 1999, respectively.

   We use the last-in, first-out (LIFO) method of inventory valuation. The LIFO
charge was $40.7 million in fiscal 2001, $34.6 million in fiscal 2000 and
$36.5 million in fiscal 1999. We have changed our 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 23.8% of sales in
fiscal 2001, 27.0% in fiscal 2000 and 25.7% in fiscal 1999. SG&A expenses for
2001 were favorably impacted by a $20.0 million increase in estimated
insurance recovery related to the settlement of the shareholder's class action
lawsuit, and by $20.0 million received related to the partial settlement of
litigation with certain drug manufacturers. Offsetting these items was $82.1
million incurred in connection with the restatement of our

                                       19

<PAGE>
historical financial statements, and the incurrence of $45.9 million in non-
cash expense related to variable plan accounting on certain management stock
options, and restricted stock grants. If these non-operating and non cash
items are excluded, our SG&A as a percentage of revenues would have been
23.2%. SG&A expense for 2000 was unfavorably impacted by a charge of $232.8
million related to litigation issues, offset by a reversal of stock
appreciation rights accruals of $45.5 million. Excluding these non-operating
and non cash items results in an adjusted SG&A as a percentage of sales of
25.6% in fiscal 2000. SG&A on an adjusted basis of 23.2% for fiscal 2001
compares favorably with SG&A on an adjusted basis of 25.6% for fiscal 2000 due
to lower depreciation expense resulting from a net reduction in our store
count, decreased repair and maintenance and terminated project costs, and the
better leveraging of fixed SG&A costs resulting from our higher sales volume.

   The increase in SG&A expense as a percent of sales in fiscal 2000 over
fiscal 1999 is predominately attributable to increased accruals for litigation
and other contingencies, as described above.

 Store Closing and Impairment Charges

   Store closing and impairment charges consist of:

<TABLE>
<CAPTION>

                                                                Year Ended
                                                 ---------------------------------------
                                                 March 3,    February 26,   February 27,
                                                   2001          2000           1999
                                                 --------    ------------   ------------
                                                          (dollars in thousands)
    <S>                                          <C>         <C>            <C>
    Impairment charges .......................   $214,224      $120,593       $ 87,666
    Store lease exit costs ...................     57,668        18,855        107,693
    Impairment of investments ................    116,186            --             --
                                                 --------      --------       --------
                                                 $388,078      $139,448       $195,359
                                                 ========      ========       ========
</TABLE>


 Impairment Charges

   In fiscal 2001, 2000 and 1999, store closing and impairment charges include
non-cash charges of $214.2 million, $120.6 million and $87.7 million,
respectively, for the impairment of long-lived assets (including allocable
goodwill) of 495, 249 and 270 stores, respectively. These amounts include the
write-down of long-lived assets to estimated fair value at stores that were
assessed for impairment as part of our on-going review of the performance of
our stores or management's intention to relocate or close the store.

 Store Lease Exit Cost

   Costs incurred to close a store, which principally consist of lease
termination costs, are recorded at the time management commits to closing the
store, which is the date that the closure is formally approved by senior
management, or in the case of a store to be relocated, the date the new
property is leased or purchased. We calculate our liability for closed stores
on a store-by-store basis. The calculation includes 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. As a result of focused efforts on cost recoveries for closed
stores during fiscal 2001, we experienced improved results, which has been
reflected in the assumptions about future sublease income. This liability is
discounted using a risk-free rate of interest. We evaluate these assumptions
each quarter and adjust the liability accordingly.

 Impairment of Investments

   We have an investment in the common stock of drugstore.com, which is
accounted for under the equity method. The initial investment was valued based
upon the initial public offering price for drugstore.com. During fiscal 2001,
we recorded an impairment of our investment in drugstore.com of $112.1
million. This write-down was based upon a decline in the market value of
drugstore.com's stock that we believe to be other than temporary.
Additionally, we recorded impairment charges of $4.1 million for other
investments.


                                       20

<PAGE>

 Interest Expense

   Interest expense was $649.9 million in fiscal 2001 compared to $542.0
million in fiscal 2000 and $274.8 million in fiscal 1999. The substantial
increase in fiscal 2001 and fiscal 2000 is due to higher average levels of
indebtedness and higher interest rates on debt. In fiscal 2001, we increased
our average outstanding debt with the addition of the $1.1 billion senior
secured credit facility, which includes a $600.0 million term loan and a
$500.0 million revolving credit facility. We used the term loan to terminate
our accounts receivable securitization facility and repurchased $300.0 million
of unpaid receivables thereunder and funded $66.4 million of transaction costs
related to our debt restructuring. The remainder of the term loan together
with the revolving credit facility were used for general corporate purposes,
including reviewing, reconciling and restating our 1998 and 1999 financial
statements, the cost of the audit of our restated financial statements and
investigation costs. These items were partially offset by reductions of
indebtedness in the second half of the fiscal year resulting from the sale of
PCS and debt for equity exchanges. In fiscal 2000, our debt increased as a
result of the $1.3 billion borrowed in January 1999 under the PCS credit
facility and the $300.0 million of demand note borrowings to supplement cash
flows from operating activities. The annual weighted average interest rates on
our indebtedness in fiscal 2001, fiscal 2000 and fiscal 1999 were 8.2%, 7.4%
and 6.8% respectively.

 Income Taxes

   We had net losses in fiscal 2001, fiscal 2000 and fiscal 1999. Tax expense
of $149.0 and tax benefits of $26.6 million (including the benefit related to
cumulative effect of accounting change) and $216.9 million have been reflected
for fiscal 2001, fiscal 2000 and fiscal 1999, respectively. The full benefit
of the net operating loss carryforwards ("NOLs") generated in each period has
been fully 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. We expect to file amended tax
returns and utilize the NOL's against taxable income in prior years to the
maximum extent possible. It is likely that an "ownership change" for statutory
purposes may occur as a result of our refinancing efforts, including issuances
of equity and exchanges of debt for equity. If an ownership change occurs, the
use of our existing NOLs and possibly our net unrealized built-in losses would
be subject to limitations. Of the $147.6 million recoverable taxes recorded as
of February 26, 2000, we have collected or have offsets of $122.7 million. The
remaining $24.9 million has been reclassified to other non current assets since
we anticipate collection beyond fiscal 2002.

 Other Significant Charges

   In addition to the operational matters discussed above, our results in the
current fiscal year have been adversely affected by other significant charges.
We recorded a net loss of $168.8 million on the disposal of the PBM segment.
As a result of the decision to dispose of the PBM segment, we recognized an
increase in the income tax valuation allowance of $146.9 million for fiscal
2001. We also recorded a pre-tax loss of $100.6 million on debt conversions
and modifications, and recorded a loss of $36.7 million representing our share
of the drugstore.com losses.

 Discontinued Operations

   On July 12, 2000, we announced the sale of the PBM segment, at which time
the PBM segment was subjected to discontinued operations accounting. Prior to
becoming a discontinued operation on July 12, 2000, the PBM segment generated
net income of $11.3 million from February 27, 2000 through July 11, 2000,
compared to net income of $9.2 million in fiscal 2000 and a net loss of $12.8
million in fiscal 1999.

Liquidity and Capital Resources

   We have two primary sources of liquidity: (i) cash provided by operations
and (ii) the revolving credit facility under our senior secured credit
facility. We may also generate liquidity from the sale of assets, including
sale-leaseback transactions. During fiscal 2001 and fiscal 2000, cash provided
by operations was not sufficient to fund our working capital requirements. 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. On May 15, 2001, we
entered into a commitment letter to refinance a significant portion of our
indebtedness. See "Recent Event".


                                       21

<PAGE>
 Credit Facilities and June 2000 Debt Restructuring

   In June 2000, we completed a major financial restructuring that provided us
with additional liquidity, 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.

   Senior Secured Credit Facility. In June 2000, we entered into a $1.0
billion (which was increased to $1.1 billion in November 2000) senior secured
credit facility with a syndicate of banks led by Citibank N.A., as agent. The
facility matures on August 1, 2002, and consists of a $600.0 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 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 Citibank's base rate plus 2%. 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 guarantee
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-leaseback transactions. The facility requires us to meet
various financial ratios and limits our capital expenditures. In connection
with the additional term loan borrowings in November 2000, we also amended
certain of the financial covenants in this facility to conform to the less
restrictive covenants in our other debt agreements for a limited period of
time. For the three quarters ended March 3, 2001, our covenants required us to
maintain a minimum interest coverage ratio and a minimum fixed charge coverage
ratio of .95:1, increasing to a minimum interest coverage ratio of 1.40:1 and
a minimum fixed charge ratio of 1.19:1 for the four quarters ending June 1,
2002. For the three fiscal quarters ended March 3, 2001, our consolidated
EBITDA (as defined in the senior secured credit facility) was required to be
no less than $364.0 million, increasing to $720.0 million for the four
quarters ending June 1, 2002. In addition, our capital expenditures were
limited to $186.0 million for the three fiscal quarters ended March 3, 2001,
increasing to $243.0 million for the four quarters ending June 1, 2002.

   For the three quarters ended March 3, 2001, our EBITDA (as so defined) was
$410.1 million, our interest coverage ratio was 1.07:1, our fixed charge
coverage ratio was 1.03:1 and our capital expenditures were $113.6 million.

   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 our 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 March 3, 2001, the $600.0 million term loan was fully drawn and
we had $394.6 million in additional available borrowing capacity under the
revolving facility.

   Other Credit Facilities. In June 2000, we extended to August 2002 the
maturity date of our RCF credit facility and our 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%.
These credit facilities contain restrictive covenants which place restrictions
on the assumption of debt, the payment of dividends, mergers, liens and sale-
leaseback transactions. They also require us to satisfy financial covenants
which are generally slightly less restrictive than the covenants in our senior
secured credit facility. The

                                       22

<PAGE>
facilities also limit the amount of our capital expenditures to $186.0 million
for the three quarters ended March 3, 2001, increasing to $243.0 million for the
four quarters ending June 1, 2002. We applied $1.1 billion (all of the net
proceeds from the sale of PCS minus certain expenses) to reduce the outstanding
balances of the PCS credit facility and the PCS exchange debt described below.
Under the terms of these facilities, after giving effect to the $100.0 million
increase in the term loan, we are permitted to incur up to an additional $35.0
million of indebtedness under the senior secured credit facility without the
further consent of the lenders. At April 28, 2001, we had $1.1 billion of
borrowings outstanding under these credit facilities and exchange debt. These
facilities are also guaranteed and secured as described below. The RCF credit
facility is secured by a first lien on the stock of drugstore.com.

   As part of the restructuring of our debt in June 2000, 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 shares
of our common stock. This resulted in a total of $284.8 million of debt under
these facilities, including $200.0 million of the outstanding principal of the
demand note, being exchanged for an aggregate of 51,785,434 shares of our
common stock at an exchange rate of $5.50 per share. We recorded a gain on
this exchange of debt of $5.2 million in the second quarter of fiscal 2001. An
additional $274.8 million of borrowings under the facilities were exchanged
for the exchange debt, including the entire remaining principal amount of the
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 PCS and RCF credit facilities.
Also, as part of the restructuring of our debt in June 2000, 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.

   In connection with modifications to the PCS and RCF credit facilities, the
exchange of debt for exchange debt and the amendment of 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. The holders of exchange debt also
received a first lien on our prescription files. Except to the extent
previously secured, our direct obligations under those facilities and
guarantees remain unsecured.

   Debt Covenants. We were in compliance with the covenants of the senior
secured credit facility and our other credit facilities and debt instruments
as of March 3, 2001. With continuing improvements in operating performance, we
anticipate that we will remain in compliance with our debt covenants. However,
variations in our operating performance and unanticipated developments may
adversely affect our ability to remain in compliance with the applicable debt
covenants.

   Commercial Paper. Until September 24, 1999, we 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. Our outstanding commercial paper
amounted to $192.0 million at February 26, 2000 and $1,783.1 million at
February 27, 1999. All remaining commercial paper obligations were repaid in
March 2000.

   Exchange Offers. In June 2000, we completed the exchange of $52.5 million
of our 5.5% notes due December 2000 and $321.8 million of our 6.7% notes due
December 2001 for an aggregate of $374.3 million of our 10.5% senior secured
notes due September 2002. After the exchange, $147.5 million of the 5.5% notes
due December 2000 and $28.2 million of the 6.7% notes due December 2001
remained outstanding. In connection with the exchange, we entered into a
forward purchase agreement with J.P. Morgan and another financial institution
under which they agreed to purchase $93.2 million of the 10.5% senior secured
notes due 2002. These financial institutions purchased $16.7 million of the
5.5% notes and $20.4 million of the 6.7% notes on July 27, 2000; $53.8 million
of the 5.5% notes on September 13, 2000; and $.5 million of the 6.7% notes on
December 14, 2000; and exchanged the purchased notes with us for the 10.5%
senior secured notes due 2002. The remaining $76.9 million of 5.5% notes due
in December 2000 were retired at maturity with general corporate funds and the
$1.8 million that remained under the forward purchase agreement.


                                       23

<PAGE>
   On June 26, 2000, we issued 17,779,000 shares of our common stock in
exchange for approximately $177.8 million principal amount of our 5.25%
convertible subordinated notes due 2002. As a result of this exchange, we
recorded a loss of approximately $89.0 million in the second quarter of fiscal
2001.

   On November 10, 2000, we issued 9,222,200 shares of our common stock in
exchange for approximately $79.9 million principal amount of our 5.25%
convertible notes due 2002 and $12.3 million principal amount of our 6.0%
dealer remarketable securities due 2003. As a result of this exchange, we
recorded a loss of approximately $8.3 million in the third quarter of fiscal
2001.

   On January 23, 2001, we issued 862,500 shares of our common stock in
exchange for approximately $5.5 million principal amount of our 6.0% senior
notes due 2005 and $2.0 million principal amount of our 7.625% senior notes
due 2005. As a result of this exchange, we recorded a gain of approximately
$4.3 million in the fourth quarter of fiscal 2001.

   On January 26 and January 30, 2001, we issued an aggregate of 4,475,000
shares of our common stock in exchange for approximately $35.0 million
principal amount of our 5.25% convertible subordinated notes due 2002. As a
result of this exchange, we recorded a loss of approximately $12.8 million in
the fourth quarter of fiscal 2001.

   Debt Capitalization. Subsequent to March 3, 2001, the following debt for
equity exchanges were completed:

   o On March 14, 2001, the holders of approximately $201.4 million principal
     amount of our 5.25% convertible subordinated notes due 2002 exchanged
     these notes for an aggregate of 29,204,160 shares of our common stock and
     the holders of approximately $77.9 million principal amount of our 6.0%
     dealer remarketable securities due 2003 exchanged these notes for an
     aggregate of 12,072,175 shares of our common stock. As a result of these
     exchanges, we recorded a loss of approximately $119.2 million in the
     first quarter of fiscal 2002.

   o On April 6, 2001, the holders of approximately $3.9 million principal
     amount of our 5.25% convertible subordinated notes due 2002 and
     $2.0 million principal amount of our 6.0% dealer remarketable securities
     due 2003 exchanged these notes for an aggregate of 856,000 shares of our
     common stock. As a result of these exchanges, we recorded a loss of
     approximately $2.5 million in the first quarter of fiscal 2002.

   o On April 25, 2001, the holders of approximately $11.0 million principal
     amount of our 10.5% senior secured notes due 2002 exchanged these notes
     for an aggregate of 1,925,000 shares of our common stock. As a result of
     this exchange, we recorded a loss of approximately $1.2 million in the
     first quarter of fiscal 2002.

   o On April 25, 2001, the holders of approximately $5.0 million principal
     amount of our 10.5% senior secured notes due 2002 exchanged these notes
     for an aggregate of 785,000 shares of our common stock. As a result of
     this exchange, we recorded a loss of approximately $0.6 million in the
     first quarter of fiscal 2002.


                                       24

<PAGE>

   The following table sets forth our debt capitalization at April 28, 2001,
following the completion of the refinancing transactions described above and
the repayment of the PCS credit facility by $437.5 million and the exchange
debt facility by $46.6 millon utilizing proceeds from AdvancePCS's retirement
of its $200.0 million obligation to us and the sale of AdvancePCS shares.

<TABLE>
<CAPTION>

                                                                     As of
                                                              April 28, 2001 (1)
                                                               -----------------
                                                                ($ in millions)
<S>                                                           <C>
Secured Debt:
 Senior secured credit facility ...........................         $  800
 PCS credit facility ......................................            154
 RCF credit facility ......................................            730
 10.5% senior secured notes due 2002 ......................            452
 Exchange debt ............................................            170
 Capital lease obligations ................................             20
 Other ....................................................             12
Lease Financing Obligations ...............................          1,076

Other Senior Debt:
 6.7% notes due 2001 ......................................              7
 6.0% dealer remarketable securities due 2003 .............            108
 6.0% notes due 2005 ......................................            195
 7.625% notes due 2005 ....................................            198
 7.125% notes due 2007 ....................................            350
 6.125% notes due 2008 ....................................            150
 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 ............            152
                                                                    ------
 Total Debt ...............................................         $5,224
                                                                    ======
</TABLE>

- ---------------
(1) We have entered into commitments for additional debt for equity exchanges
    that have not yet been consumated and are not reflected in the table set
    forth above, and on May 15, 2001, we entered into a commitment letter to
    refinance a significant portion of our indebtedness--see "Recent Event".

 Net Cash Provided By (Used In) Operating, Investing and Financing Activities

   We used $704.6 million of cash to fund continuing operations in fiscal 2001.
Operating cash flow was negatively impacted by $543.3 million of interest
payments. Operating cash flow was also negatively impacted from an increase in
current assets, primarily resulting from repurchasing $300.0 million of
accounts receivable when we refinanced the accounts receivable securitization
facility, and a decrease in accounts payable and other liabilities.

   In fiscal 2000, we used $623.1 million of cash to fund continuing
operations. Operating cash flow was negatively impacted by $501.8 million of
interest payments. Operating cash flow was also negatively impacted from an
increase in current assets and a decrease in accounts payable partially offset
by an increase in other liabilities.

   Cash provided by investing activities was $677.7 million for fiscal 2001.
Cash was provided from the sale of our discontinued operations, various other
assets, less expenditures for fixed and intangible assets.


                                       25

<PAGE>
   Cash used for investing activities was $552.1 million and $2.7 billion for
fiscal years 2000 and 1999, respectively. Cash used for store construction and
relocations amounted to $573.3 million for fiscal 2000 and $1.2 billion for
fiscal 1999. In addition, cash of $1.4 billion was used to acquire PCS in
fiscal 1999.

   Cash used in financing activities was $64.3 million for fiscal 2001. The
cash used consisted of payments of $78.1 million of deferred financing costs
partially offset by net debt borrowings of $6.8 million and proceeds from
sale-leaseback transactions of $7.0 million.  During fiscal 2001, we used the
proceeds from the sale of our PBM segment to reduce our borrowings.

   Cash provided by financing activities was $905.1 million for fiscal 2000 and
$2,660.3 million for fiscal 1999. Increased borrowings under our RCF and PCS
credit facilities which replaced our commercial paper program and the sale of
$300.0 million of preferred stock were the main financing activities during
fiscal 2000. In fiscal 1999, we issued 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
remarketable securities. Cash provided by financing activities included
proceeds received from store sale-leaseback transactions of $74.9 million and
$505.0 million for fiscal 2000 and 1999, respectively.

 Capital Expenditures

   We plan to make total capital expenditures of approximately $140.0 million
during fiscal 2002, consisting of approximately $34.7 million related to new
store construction, store relocation and other store construction projects. An
additional $89.2 million will be dedicated to other store improvement
activities and the purchase of prescription files from independent
pharmacists. Management expects that these capital expenditures will be
financed primarily with cash flow from operations and borrowings under the
revolving credit facility available under our senior secured facility.

 Future Liquidity

   We are highly leveraged. Based upon our current levels of operations and
expected improvements in our operating performance, management believes that
cash flow from operations, together with available borrowings under our senior
secured credit facility and our other sources of liquidity (including asset
sales) will be adequate to meet anticipated requirements for working capital,
debt service and capital expenditures until August and September 2002, when
$2.5 billion of our indebtedness (as of April 28, 2001), including the
revolving credit facility under the senior secured credit facility, matures.
For a discussion of factors that could affect our current assessment, see "--
Factors Affecting Our Future Prospects" below. 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. On May 15, 2001, we entered into a
commitment letter to refinance a significant portion of our indebtedness, see
"Recent Event".

Accounting Change

   In fiscal 2000, we changed our application of the 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 merchandise categories. The
effect of this change in fiscal 2000 was to decrease our earnings by $6.8
million (net of income tax benefit of $4.6 million) or $.03 per diluted common
share. The cumulative effect of the accounting change was a charge of $27.3
million (net of income tax benefit 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 $4.2
million) or $.02 per diluted common share for fiscal 1999.

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 is effective for all
fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. All derivatives, whether designated in hedging
relationships or not, will be required to be recorded on the balance sheet at
fair value. If the derivative is designated and effective as a fair value
hedge, the changes in the fair value of the derivative and

                                       26

<PAGE>
the changes in the hedged item attributable to the hedged risk will be
recognized in earnings. If the derivative is designated and effective as a
cash-flow hedge, changes in the fair value of the effective portion of the
derivative will be recorded in other comprehensive income ("OCI") and will be
recognized in the income statement when the hedged item affects earnings. SFAS
133 defines new requirements for designation and documentation of hedging
relationships as well as ongoing effectiveness assessments in order to use
hedge accounting. For a derivative that does not qualify as a hedge, changes
in fair value will be recognized in earnings. On March 4, 2001, in connection
with the adoption of the new Statement, we will record a reduction of
approximately $29.0 million in OCI as a cumulative transition adjustment for
derivatives designated as cash flow-type hedges prior to adopting SFAS 133.

   Certain issues currently under consideration by the Derivatives
Implementation Group ("DIG") may make it more difficult to qualify for cash
flow hedge accounting in the future. Pending the results of the DIG
deliberations, changes in the fair value of our interest rate swaps may be
recorded as a component of net income.

Factors Affecting our Future Prospects

                    Risks Related to Our Financial Condition

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

   As of April 28, 2001, we had $4.1 billion of outstanding indebtedness for
borrowed money (including current maturities but excluding letters of credit)
and $1.1 billion of capital leases and a negative stockholders' equity. As of
the same date, we had additional borrowing capacity under our revolving credit
facility of $264.0 million. Based on the indebtedness outstanding at April 28,
2001 and the then current interest rates, our annualized cash interest expense
would be approximately $433.6 million.

   Our high level of indebtedness will continue to restrict our operations.
Among other things, our indebtedness will:

   o limit our ability to obtain additional financing;

   o limit our flexibility in planning for, or reacting to, changes in the
     markets in which we compete;

   o place us at a competitive disadvantage relative to our competitors with
     less indebtedness;

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

   o require us to dedicate substantially all of our cash flow to service our
     debt.

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.

   If we do not consummate the refinancing transaction described under "Recent
Event", approximately $2.5 billion of our indebtedness at April 28, 2001 will
mature in August and September 2002. In order to satisfy these obligations, we
will need to refinance them, sell assets to satisfy them or seek postponement
of their maturity dates from our existing lenders. Our ability successfully to
accomplish any of these 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 $853.7 million of our outstanding indebtedness as of April 28,
2001 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 will also increase. Therefore an increase in
LIBOR would increase our interest payment

                                       27

<PAGE>
obligations under these outstanding loans and have a negative effect on our
cash flow and financial condition. We anticipate that any replacement
financing we obtain will also have the interest rate on a floating rate.

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. We anticipate
that any replacement financing we obtain, including those proposed by our May
15, 2001 bank commitment letter, will impose similar restrictions.

   Moreover, if we are unable to meet the terms of the financial covenants or
if we breach of any of these covenants, 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 indebtedness and cause our debt
to become immediately due and payable. If 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. Any
criminal conviction against us 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, results of operations and cash flows.

   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. In addition, an investigation has also
been commenced by the U.S. Department of Labor concerning our employee benefit
plans, including our principal 401(k) plan, which permitted employees to
purchase our common stock. Purchases of our common stock under the plan were
suspended in October 1999. In January 2001, we appointed an independent
trustee to represent the interests of these plans in relation to the company
and to investigate possible claims the plans may have against us. Both the
independent trustee and the Department of Labor have asserted that the plans
may have claims against us. These investigations are ongoing and we cannot
predict their outcomes. If we were convicted of any crime, certain contracts
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 us could also have a material adverse effect on our results
of operations, financial condition and cash flows.

   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, financial condition and cash flows.

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 93% of our pharmaceutical supplies from a single
supplier, McKesson HBOC, Inc., pursuant to a long-term contract. Pharmacy
sales represented approximately 59.5% of our total sales during fiscal 2001,
and, therefore, our relationship with McKesson HBOC is important to us. Any
significant disruptions in our relationships with our suppliers, particularly
our relationship with McKesson HBOC 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.


                                       28

<PAGE>
Our internal accounting systems and controls may be insufficient.

   An audit of our financial statements for fiscal years 1999 and 1998,
following a previous restatement, concluded in July 2000 and resulted in an
additional restatement of fiscal years 1999 and 1998. Following its review of
our books and records, our management concluded that further steps were needed
to establish and maintain the adequacy of our internal accounting systems and
controls. In connection with the above audits of our financial statements,
Deloitte & Touche LLP advised us that it believed there were numerous
"reportable conditions" under the standards established by the American
Institute of Certified Public Accountants which relate to our accounting systems
and controls and could adversely affect our ability to record, process,
summarize and report financial data consistent with the assertions of management
in the financial statements. In order to address the reportable conditions
identified, we are developing and implementing comprehensive, adequate and
reliable accounting systems and controls which address the reportable conditions
identified by Deloitte & Touche LLP. If, however, we determine that our internal
accounting systems and controls require additional improvements beyond those
identified, we may need to commit substantial resources, including time from our
management team, to implement new systems and controls.

We cannot assure you that management will be able to successfully manage our
business or successfully implement our strategic plan.

   In December 1999, we hired a new management team. Our management team has
considerable experience in the retail industry. Nonetheless, we cannot assure
you that our management will be able successfully to manage our business or
successfully implement our strategic business plan.

We are dependent on our 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, Robert G. Miller, and
the other members of our 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 need to continue to improve our operations in order to improve our
financial condition, but our operations will not improve if we cannot continue
to effectively implement our business strategy.

   Our operations during fiscal 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 our ability to produce audited
financial statements. To improve operations, new management developed and in
fiscal 2001 had been implementing and continues to implement, a business
strategy to improve the pricing of products, provide more consistent
advertising through weekly, national circulars, eliminated inventory shortages
and out-dated inventory, shortages, resolved issues and disputes with our
vendors, developed 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 implementing our
business strategy, or if our business strategy is not effective, we may not be
able to continue to improve our operations. Failure to continue to improve
operations would adversely affect our ability to make principal or interest
payments on our debt.

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

   We are obligated to register the shares of our common stock that we issued
in various transactions. In addition, we are obligated to register the
61,095,219 shares of our common stock underlying (as of March 31, 2001) the
series B convertible preferred stock that we issued in October 1999 and the
2,500,000 shares of our common stock underlying the warrant issued to J.P.
Morgan Ventures Corporation on October 1999. As of May 17, 2001, we have also
agreed to register an aggregate of approximately 111,000,000 shares of our
common stock that we issued or agreed to issue in various debt for equity
exchanges. In addition, we expect to agree to register a significant number of
additional shares of our common stock pursuant to the

                                       29

<PAGE>
refinancings of our debt described under "Recent Event," and we may agree to
register additional shares in the future pursuant to additional refinancings.
The possible public sale of such large numbers of shares may have an adverse
effect on the market price of our common stock.

                         Risks Related to Our Industry

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

   We face intense competition with local, regional and national companies,
including other drug store chains, independent drug stores, supermarkets 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, 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 effectively to 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.

   Sales of prescription drugs, as a percentage of sales, have been increasing
and we expect them to continue to increase. In fiscal 2001, we were reimbursed
by third-party payors for approximately 90.3% of all of the prescription drugs
that we sold. 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 and our results of operations and financial
condition could be adversely affected.

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

   Our pharmacy business is subject to federal, state, and local regulation.
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 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 our
results of operations and financial condition.

Certain risks are inherent in the provision of pharmacy services; 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, our consumers may decrease their purchases,
particularly of products other than pharmaceutical products that they

                                       30

<PAGE>
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

   Our 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. Our major
market risk exposure is changing interest rates. Increases in interest rates
would increase our interest expense. Since the end of fiscal 2000, our primary
risk exposure has not changed. We enter into debt obligations to support
capital expenditures, acquisitions, working capital needs and general
corporate purposes. Our 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 our 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 March 3, 2001.

<TABLE>
<CAPTION>

                                                                                                                         Fair Value
                                                                                                                        at March 3,
                                    2002        2003        2004        2005       2006      Thereafter      Total          2001
                                   ------    ----------   --------    --------   --------    ----------    ----------   -----------
                                                                        (dollars in thousands)
<S>                                <C>       <C>          <C>         <C>        <C>         <C>           <C>          <C>
Long-term debt,
including current portion
Fixed rate .....................   $8,353    $1,828,874   $188,533    $197,014   $198,439    $1,153,550    $3,574,763    $2,824,904
Average Interest Rate ..........     5.91%         9.41%      6.00%       6.06%      7.62%         7.05%
Interest Rate Swap .............       --            --         --          --         --            --            --      ($29,000)
Variable Rate ..................       --    $1,219,785         --          --         --                  $1,219,785    $1,219,785
Average Interest Rate ..........       --          9.16%        --          --         --
</TABLE>


   In June 2000, we entered into an interest rate swap that fixes the LIBOR
component of $500.0 million of our variable-rate debt at 7.083% for a two year
period. In July 2000, we 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.

   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 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 replacement borrowing or equity financing could be
successfully completed.

   The ratings on the senior secured credit facility, the RCF credit facility,
the PCS credit facility and the fixed-rate obligations as of March 31, 2001
were B- by Standard & Poor's and by Caa1 by Moody's. The exchange debt
facility has not been rated. The interest rates on the variable-rate
borrowings are as follows: $1.1 billion senior credit facility: LIBOR plus
3.00%, the RCF facility: LIBOR plus 3.75%, the PCS and the exchange debt
facilities: LIBOR plus 3.25%.

   Further downgrades of our credit ratings will not have an impact upon the
rate on the borrowings under these credit facilities.

   Changes in one month LIBOR affect our cost of borrowings because the
interest rate on our variable-rate obligations is based on LIBOR. If the
market rates of interest for one month LIBOR change by 10% (approximately 50
basis points) as compared to the LIBOR rate of 5.29% and 4.43% as of March 3,
2001 and April 28, 2001, respectively, our annual interest expense would
change by approximately $6.0 million and $4.3 million, respectively, based
upon our variable-rate debt outstanding of approximately $1.2 billion and
$853.7 million as of March 3, 2001 and April 28, 2001, respectively.

   A change in interest rates generally does not have an impact upon our 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

                                       31

<PAGE>
debt repayment, future earnings and cash flow may be affected by changes in
interest rates. This effect would be realized in the periods subsequent to the
periods when the debt matures.

Item 8. Financial Statements and Supplementary Data

   Our consolidated financial statements and notes thereto are included
elsewhere in this Annual Report on Form 10-K and are incorporated by reference
herein. See Item 14 of Part IV.

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

   On November 19, 1999, we filed a Current Report on Form 8-K disclosing the
resignation of our former auditors, KPMG LLP and the withdrawal of their
report on our financial statements. On December 6, 1999, we 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, we filed a Current Report on
Form 8-K to announce that we had retained Deloitte & Touche LLP as our
independent auditors.


                                       32

<PAGE>
                                    PART III


   We intend to file with the Securities and Exchange Commission a definitive
proxy statement for our 2001 Annual Meeting of Stockholders pursuant to
Regulation 14A not later than 120 days after March 3, 2001. The information
called for by this Part III is incorporated by reference to that proxy
statement.


                                       33

<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 March 3, 2001 and February 26, 2000 ....   F-3

        Consolidated Statements of Operations for the fiscal years ended
          March 3, 2001, February 26, 2000 and February 27, 1999..................   F-4

        Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal
          years ended March 3, 2001, February 26, 2000 and February 27, 1999......   F-5

        Consolidated Statements of Cash Flows for the fiscal years ended
          March 3, 2001, February 26, 2000 and February 27, 1999..................   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 or 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
Numbers                            Description                                                   Incorporation by reference to
- -------                            -----------                                                   -----------------------------
<S>       <C>                                                                                     <C>
 2        Not Applicable

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

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

 3.3      By-laws, as amended on November 8, 2000                                                Exhibit 3.1 to Form 8-K filed on
                                                                                                 November 13, 2000

 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.

 4.2      Waiver dated as of January 11, 2000 to Guaranty dated as of March 19, 1998, as         Exhibit 4.7 to Form 8-K filed on
          amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by       January 18, 2000
          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>



                                       34

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

 4.14     Amendment No. 4, dated as of October 25, 1999 to Master Lease and Security              Exhibit 4.19 to Form 8-K filed on
          Agreement, dated as of May 30, 1997, as amended by Amendment No. 1, dated as of         January 18, 2000
          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.

 4.15     Amendment No. 3, dated as of May 26, 1999, to Master Lease and Security Agreement,      Exhibit 4.20 to Form 8-K filed on
          dated as of May 30, 1997, (as amended by Amendment No. 1, dated as of March 11,         January 18, 2000
          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.
</TABLE>



                                       35

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
 4.16     Amendment No. 2, dated as of June 22, 1998 to Master Lease Security Agreement,          Exhibit 4.21 to Form 8-K filed on
          dated as of May 30, 1997, as amended by Amendment No. 1 to Master Lease and             January 18, 2000
          Security Agreement, dated as of March 11, 1998 between Sumitomo Bank Leasing and
          Finance, Inc. and Rite Aid Realty Corp.

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

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

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

 4.20     Waiver No. 1 dated as of January 10, 2000 to Note Agreement dated as of September       Exhibit 4.25 to Form 8-K filed on
          30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25,     January 18, 2000
          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

 4.21     Amendment No. 2 dated as of December 2, 1999 to Note Agreement dated as of              Exhibit 4.26 to Form 8-K filed on
          September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of       January 18, 2000
          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

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

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

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

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



                                       36

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
 4.26     Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation      Exhibit 4.3 to Form 8-K filed on
          and Harris Trust and Savings Bank, to the Indenture dated September 22, 1998,           February 7, 2000
          between Rite Aid Corporation and Harris Trust and Savings Bank

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

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

 4.29     Indenture, dated as of June 14, 2000, among Rite Aid Corporation, as Issuer, each       Exhibit 4.1 to Form 8-K filed on
          of the Subsidiary Guarantors named therein and State Street Bank and Trust Company,     June 21, 2000
          as Trustee.

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

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

10.1      1999 Stock Option Plan*                                                                 Filed Herewith

10.2      2000 Omnibus Equity Plan*                                                               Included in Proxy Statement dated
                                                                                                  October 24, 2000

10.3      2001 Stock Option Plan*                                                                 Filed Herewith

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

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

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

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

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

10.9      Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and         Filed Herewith
          Robert G. Miller, dated as of May 7, 2001*

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

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

10.12     Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and         Filed Herewith
          Mary F. Sammons, dated as of May 7, 2001*

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

10.14     Employment Agreement by and between Rite Aid Corporation and David R. Jessick,          Exhibit 10.3 to Form 8-K filed on
          dated as of December 5, 1999*                                                           January 18, 2000

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



                                       37

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
10.16     Employment Agreement by and between Rite Aid Corporation and John T. Standley,          Exhibit 10.4 to Form 8-K filed on
          dated as of December 5, 1999*                                                           January 18, 2000

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

10.18     Employment Agreement by and between Rite Aid Corporation and Elliot S. Gerson,          Filed Herewith
          dated as of November 16, 2000*

10.19     Employment Agreement by and between Rite Aid Corporation and Eric Sorkin, dated as      Filed Herewith
          of April 2, 1999*

10.20     Employment Agreement by and between Rite Aid Corporation and James Mastrain, dated      Filed Herewith
          as of September 27, 2000*

10.21     Rite Aid Corporation Special Deferred Compensation Plan*                                Exhibit 10. 20 to Form 10-K filed
                                                                                                  on July 11, 2000

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

10.23     Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite     Exhibit 10.2 to Form 8-K filed on
          Aid Corporation, each Subsidiary Guarantor of Rite Aid Corporation listed therein,      June 21, 2000
          Wilmington Trust Company, Citicorp 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 as of June 12, 2000, made by the            Exhibit 10.3 to Form 8-K filed
          Subsidiary Guarantors identified therein and any other person that becomes a            June 21, 2000
          Subsidiary Guarantor pursuant to the Senior Credit Facility, in favor of Citicorp
          USA, Inc., as Senior Collateral Agent.

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

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

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

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

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



                                       38

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
10.30     Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, among        Exhibit 10.9 to Form 8-K filed
          each of the Subsidiary Guarantors of Rite Aid Corporation listed therein and            June 21, 2000
          Wilmington Trust Company, as Second Priority Collateral Trustee.

10.31     Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by       Exhibit 10.10 to Form 8-K filed
          the Subsidiary Guarantors identified therein and any other person that becomes a        June 21, 2000
          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 Contribution Agreement, dated as of June     Exhibit 10.11 to Form 8-K filed
          12, 2000, among Rite Aid Corporation, each Subsidiary Guarantor listed therein and      June 21, 2000
          Wilmington Trust Company, as Second Priority Collateral Trustee.

10.33     First Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by        Exhibit 10.12 to Form 8-K filed
          the Domestic Subsidiaries identified therein and any other person that becomes a        June 21, 2000
          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 Agreement, dated as of June 12, 2000,         Exhibit 10.13 to Form 8-K filed
          between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as          June 21, 2000
          Agent.

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

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

10.37     Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, and           Exhibit 10.16 to Form 8-K filed
          Amendment No. 1 to Put Agreement, for Adjustable Rate Senior Secured Notes due          June 21, 2000
          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 June 12, 2000, from Rite Aid Corporation,      Exhibit 10.17 to Form 8-K filed
          as Guarantor, to RAC Leasing LLC, as Lessor.                                            June 21, 2000

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

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

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

10.42     Executive Separation Agreement and General Release, dated February 28, 2000,            Exhibit 10.46 to Form
          between Rite Aid Corporation and Timothy Noonan.                                        10-K filed on July 11, 2000

10.43     Letter Agreement, dated February 28, 2000, between Rite Aid Corporation and Timothy     Exhibit 10.47 to Form
          Noonan, amending Executive Separation Agreement and General Release, dated February     10-K filed on July 11, 2000
          28, 2000, between Rite Aid Corporation and Timothy Noonan.
</TABLE>



                                       39

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
10.44     Commitment letter dated May 15, 2001 by and between Rite Aid Corporation, Solomon       Filed herewith
          Smith Barney Inc., Citicorp North America, Inc., The Chase Manhattan Bank, J.P.
          Morgan Securities Inc., Credit Suisse First Boston, Fleet Retail Finance Inc., and
          Fleet Securities, Inc.

10.45     Equity for Bank Debt Exchange Agreement dated April 12, 2001 between Rite Aid           Filed herewith
          Corporation, Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P.,
          Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.

10.46     Side Letter to Equity for Bank Debt Exchange Agreement dated April 30, 2001 between     Filed herewith
          Rite Aid Corporation, Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund,
          L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.

10.47     Intentionally left blank

10.48     Employment Agreement by and between Rite Aid Corporation and Christopher Hall,          Filed herewith
          dated as of January 26, 2000*

10.49     Employment Agreement by and between Rite Aid Corporation and Robert B. Sari, dated      Filed herewith
          as of February 28, 2001*

11        Not Applicable

12        Statement regarding computation of ratios of earnings to fixed charges                  Filed herewith

13        Not Applicable

16        Not Applicable

18        Letter re change in accounting principles                                               Exhibit 18 to the Form
                                                                                                  10-K filed on July 11, 2000

21        Subsidiaries of the registrant                                                          Filed herewith

22        Not Applicable

23        Consent of Independent Certified Public Accountants                                     Not applicable

24        Not Applicable
</TABLE>

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

(b) Reports on Form 8-K

    We did not file any current reports on Form 8-K during the fourth quarter of
    fiscal 2001.


                                       40



<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 March 3, 2001 and February 26, 2000, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
March 3, 2001. 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 has been included in
discontinued operations in the accompanying consolidated financial statements,
which statements reflect total assets constituting 17% of consolidated total
assets as of February 26, 2000, and revenues of $1,264.7 million and $104.3
million for the years ended February 26, 2000 and February 27, 1999,
respectively. 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
March 3, 2001, and February 26, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended March 3,
2001, 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 3 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

May 8, 2001, except for Note 25,
as to which the date is May 16, 2001


                                      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 separately 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


                                      F-2

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                (In thousands of dollars, except share amounts)

<TABLE>
<CAPTION>
                                               March 3, 2001   February 26, 2000
                                               -------------   -----------------
<S>                                            <C>             <C>
                   ASSETS
CURRENT ASSETS:
 Cash and cash equivalents ................     $    92,290       $   179,757
 Accounts receivable, net  ................         503,527           152,035
 Inventories, net  ........................       2,444,525         2,472,437
 Investment in AdvancePCS  ................         491,198                --
 Refundable income taxes ..................              --           147,599
 Prepaid expenses and other current assets           85,292            63,659
                                                -----------       -----------
   Total current assets....................       3,616,832         3,015,487
PROPERTY, PLANT AND EQUIPMENT, NET ........       3,041,008         3,445,828
GOODWILL AND OTHER INTANGIBLES ............       1,067,339         1,258,108
OTHER ASSETS ..............................         188,732           235,398
DEFERRED TAX ASSET ........................              --           146,917
NET NON-CURRENT ASSETS OF DISCONTINUED
  OPERATIONS...............................              --         1,743,828
                                                -----------       -----------
   Total assets............................     $ 7,913,911       $ 9,845,566
                                                ===========       ===========
    LIABILITIES AND STOCKHOLDERS' EQUITY
                  (DEFICIT)
CURRENT LIABILITIES:
 Current lease financing obligations ......     $    28,603       $    25,964
 Short-term debt and current maturities of
  long-term debt ..........................           8,353            76,086
 Accounts payable  ........................         896,390           854,062
 Sales and other taxes payable ............          31,562            33,662
 Accrued salaries, wages and other current
  liabilities .............................         696,047           883,003
 Net current liabilities of discontinued
  operations...............................              --           390,053
                                                -----------       -----------
   Total current liabilities...............       1,660,955         2,262,830
CONVERTIBLE SUBORDINATED NOTES  ...........         357,324           649,986
LONG-TERM DEBT LESS CURRENT MATURITIES  ...       4,428,871         4,738,661
LEASE FINANCING OBLIGATIONS LESS CURRENT
  MATURITIES...............................       1,071,397         1,122,171
OTHER NONCURRENT LIABILITIES ..............         730,342           619,952
                                                -----------       -----------
   Total liabilities.......................       8,248,889         9,393,600
COMMITMENTS AND CONTINGENCIES  ............              --                --
REDEEMABLE PREFERRED STOCK ................          19,457            19,457
STOCKHOLDERS' EQUITY (DEFICIT):
 Preferred stock, par value $1 per share;
   liquidation value $100 per
   share; 20,000,000 shares authorized:
   shares issued -- 3,340,000
   and 3,083,000...........................         333,974           308,250
 Common stock, par value $1 per share;
   600,000,000 shares authorized: shares
   issued and outstanding -- 348,055,000
   and 259,927,000.........................         348,055           259,927
 Additional paid-in capital ...............       2,065,301         1,292,337
 Accumulated deficit ......................      (3,171,956)       (1,421,817)
 Deferred compensation ....................          19,782            (6,188)
 Accumulated other comprehensive income ...          50,409                --
                                                -----------       -----------
   Total stockholders' equity (deficit)....        (354,435)          432,509
                                                -----------       -----------
   Total liabilities and stockholders'
  equity (deficit).........................     $ 7,913,911       $ 9,845,566
                                                ===========       ===========
</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>

                                                                                                         Year Ended
                                                                                         ------------------------------------------
                                                                                           March 3,     February 26,   February 27,
                                                                                             2001           2000           1999
                                                                                          (53 weeks)     (52 weeks)     (52 weeks)
                                                                                         -----------    ------------   ------------
<S>                                                                                      <C>            <C>            <C>
REVENUES.............................................................................    $14,516,865    $13,338,947     $12,438,442
COSTS AND EXPENSES:
 Cost of goods sold, including occupancy costs.......................................     11,151,490     10,213,428       9,406,831
 Selling, general and administrative expenses........................................      3,458,307      3,607,810       3,200,563
 Goodwill amortization...............................................................         20,670         24,457          26,055
 Store closing and impairment charges................................................        388,078        139,448         195,359
 Interest expense....................................................................        649,926        542,028         274,826
 Loss on debt conversions and modifications..........................................        100,556             --              --
 Share of loss from equity investments...............................................         36,675         15,181             448
 Gain on sale of fixed assets........................................................         (6,030)       (80,109)             --
                                                                                         -----------    ------------   ------------
                                                                                          15,799,672     14,462,243      13,104,082
                                                                                         -----------    ------------   ------------
 Loss from continuing operations before income taxes and
   cumulative effect of accounting change............................................     (1,282,807)    (1,123,296)       (665,640)
INCOME TAX EXPENSE (BENEFIT).........................................................        148,957         (8,375)       (216,941)
                                                                                         -----------    -----------     -----------
 Loss from continuing operations before cumulative effect
   of accounting change..............................................................     (1,431,764)    (1,114,921)       (448,699)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
  including income tax expense (benefit) of $13,846, $30,903, and $(5,925)...........         11,335          9,178         (12,823)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
  net of income tax benefit of $734..................................................       (168,795)            --              --
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
  net of income tax benefit of $18,200...............................................             --        (27,300)             --
                                                                                         -----------    ------------   ------------
    NET LOSS.........................................................................    $(1,589,224)   $(1,133,043)    $  (461,522)
                                                                                         ===========    ============   ============
COMPUTATION OF LOSS APPLICABLE TO COMMON STOCKHOLDERS:
 Net loss............................................................................    $(1,589,224)   $(1,133,043)    $  (461,522)
 Accretion of redeemable preferred stock.............................................             --            (97)             --
 Preferred stock conversion reset....................................................       (160,915)            --              --
 Cumulative preferred stock dividends................................................        (25,724)       (10,110)           (627)
                                                                                         -----------    ------------   ------------
    Loss applicable to common stockholders...........................................    $(1,775,863)   $(1,143,250)    $  (462,149)
                                                                                         ===========    ============   ============
BASIC AND DILUTED (LOSS) INCOME PER SHARE:
 Loss from continuing operations.....................................................    $     (5.15)   $     (4.34)    $     (1.74)
 Income (loss) from discontinued operations..........................................          (0.50)          0.04           (0.05)
 Cumulative effect of accounting change, net.........................................             --          (0.11)             --
                                                                                         -----------    ------------   ------------
    Net loss per share...............................................................    $     (5.65)   $     (4.41)    $     (1.79)
                                                                                         ===========    ============   ============
</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 (DEFICIT)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>

                                           Preferred Stock               Common Stock      Additional     Retained
                                   -------------------------------    ------------------     Paid-in      Earnings
                                   Shares    Class A      Class B     Shares     Issued      Capital      (Deficit)
                                   ------   ---------    ---------   -------    --------   ----------    -----------
<S>                                <C>      <C>          <C>         <C>        <C>        <C>           <C>
BALANCE FEBRUARY 28, 1998......       --           --           --   258,214    $258,214   $1,354,917    $   285,859
Net loss.......................                                                                             (461,522)
Other comprehensive income --
 Minimum pension liability
  adjustment...................
 Comprehensive loss ...........
Stock options exercised........                                          633         633        8,603
Stock option income tax benefit                                                                 5,807
Stock grants...................                                           14          14          669
Bond conversion................                                                                     9
Cash dividends paid on common
  stock ($.4375 per share).....                                                                             (113,111)
                                   -----    ---------    ---------   -------    --------   ----------    -----------
BALANCE FEBRUARY 27, 1999......       --           --           --   258,861     258,861    1,370,005       (288,774)
Net loss.......................                                                                           (1,133,043)
Other comprehensive income --
 Minimum pension liability
  adjustment...................
 Comprehensive loss ...........
Issuance of preferred shares...    3,000      300,000
Exchange of preferred shares...              (300,000)     300,000
Stock options exercised........                                           66          66          814
Stock option income tax benefit                                                                   243
Stock grants...................                                        1,000       1,000        7,250
Issuance of common stock
  warrants.....................                                                                 8,500
Bond conversion................                                                                     5
Dividends on preferred stock...       83                     8,250                             (8,250)
Increase resulting from sale of
  stock by equity method
  investee.....................                                                                 2,929
Cash dividends paid on common
  stock ($.3450 per share).....                                                               (89,159)
                                   -----    ---------    ---------   -------    --------   ----------    -----------
BALANCE FEBRUARY 26, 2000......    3,083           --      308,250   259,927     259,927    1,292,337     (1,421,817)
Net loss.......................                                                                           (1,589,224)
Other comprehensive (loss) --
 Minimum pension liability
  adjustment...................
 Appreciation of investment in
  AdvancePCS...................
 Comprehensive loss ...........
Preferred stock conversion
  reset........................                           (160,915)                           160,915
Accretion of convertible
  preferred stock..............                            160,915                                          (160,915)
Stock grants...................                                        4,004       4,004       18,793
Bond conversion................                                       84,124      84,124      604,574
Deferred compensation plans....
Dividends on preferred stock...      257                    25,724                            (25,724)
Increase resulting from sale of
  stock by equity method
  investee.....................                                                                14,406
                                   -----    ---------    ---------   -------    --------   ----------    -----------
BALANCE MARCH 3, 2001..........    3,340    $      --    $ 333,974   348,055    $348,055   $2,065,301    $(3,171,956)
                                   =====    =========    =========   =======    ========   ==========    ===========

<CAPTION>

                                                   Accumulated
                                                      Other
                                     Deferred     Comprehensive
                                   Compensation       Income          Total
                                   ------------   -------------    -----------
<S>                                <C>            <C>              <C>
BALANCE FEBRUARY 28, 1998......            --        $  (787)      $ 1,898,203
Net loss.......................                                       (461,522)
Other comprehensive income --
 Minimum pension liability
  adjustment...................                          312               312
                                                                   -----------
 Comprehensive loss ...........                                       (461,210)
Stock options exercised........                                          9,236
Stock option income tax benefit                                          5,807
Stock grants...................                                            683
Bond conversion................                                              9
Cash dividends paid on common
  stock ($.4375 per share).....                                       (113,111)
                                     --------        -------       -----------
BALANCE FEBRUARY 27, 1999......            --           (475)        1,339,617
Net loss.......................                                     (1,133,043)
Other comprehensive income --
 Minimum pension liability
  adjustment...................                          475               475
                                                                   -----------
 Comprehensive loss ...........                                     (1,132,568)
Issuance of preferred shares...                                        300,000
Exchange of preferred shares...                                             --
Stock options exercised........                                            880
Stock option income tax benefit                                            243
Stock grants...................        (6,188)                           2,062
Issuance of common stock
  warrants.....................                                          8,500
Bond conversion................                                              5
Dividends on preferred stock...                                             --
Increase resulting from sale of
  stock by equity method
  investee.....................                                          2,929
Cash dividends paid on common
  stock ($.3450 per share).....                                        (89,159)
                                     --------        -------       -----------
BALANCE FEBRUARY 26, 2000......        (6,188)            --           432,509
Net loss.......................                                     (1,589,224)
Other comprehensive (loss) --
 Minimum pension liability
  adjustment...................                         (622)             (622)
 Appreciation of investment in
  AdvancePCS...................                       51,031            51,031
                                                                   -----------
 Comprehensive loss ...........                                     (1,538,815)
Preferred stock conversion
  reset........................                                             --
Accretion of convertible
  preferred stock..............                                             --
Stock grants...................       (10,410)                          12,387
Bond conversion................                                        688,698
Deferred compensation plans....        36,380                           36,380
Dividends on preferred stock...                                             --
Increase resulting from sale of
  stock by equity method
  investee.....................                                         14,406
                                     --------        -------       -----------
BALANCE MARCH 3, 2001..........      $ 19,782        $50,409       $  (354,435)
                                     ========        =======       ===========
</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>

                                                                                                         Year Ended
                                                                                         ------------------------------------------
                                                                                           March 3,     February 26,   February 27,
                                                                                             2001           2000           1999
                                                                                         -----------    ------------   ------------
<S>                                                                                      <C>            <C>            <C>
OPERATING ACTIVITIES:
 Net loss............................................................................    $(1,589,224)   $(1,133,043)    $  (461,522)
 Income (loss) from discontinued operations..........................................         11,335          9,178         (12,823)
 Loss on disposal of discontinued operations.........................................       (168,795)            --              --
                                                                                         -----------    -----------     -----------
 Loss from continuing operations.....................................................     (1,431,764)    (1,142,221)       (448,699)
 Adjustments to reconcile to net cash (used in) provided by operations:
   Cumulative effect of change in accounting method..................................             --         27,300              --
   Depreciation and amortization.....................................................        384,066        443,974         379,793
   Store closings and impairment loss................................................        388,078        139,448         195,359
   Gain on sale of fixed assets......................................................         (6,030)       (80,109)             --
   Stock based compensation..........................................................         45,865             --              --
   Write-off of deferred tax asset...................................................        146,917             --              --
   Loss on debt conversions and modifications........................................        100,556             --              --
   Changes in operating assets and liabilities, net of acquisitions:
    Accounts receivable..............................................................       (351,492)       (79,156)         (3,833)
    Inventories......................................................................         27,912         77,963         415,459
    Income taxes receivable/payable..................................................        147,599         25,390        (278,652)
    Accounts payable.................................................................        (66,462)      (278,073)       (129,500)
    Other liabilities................................................................       (148,880)       196,938         103,836
    Other............................................................................         59,081         45,448          43,092
                                                                                         -----------    -----------     -----------
    Net cash (used in) provided by continuing operations.............................       (704,554)      (623,098)        276,855
    Net cash provided by (used in) discontinued operations...........................          3,758        365,375        (227,925)
                                                                                         -----------    -----------     -----------
    Net cash (used in) provided by operating activities..............................       (700,796)      (257,723)         48,930
                                                                                         -----------    -----------     -----------
INVESTING ACTIVITIES:
 Expenditures for property, plant and equipment......................................       (132,504)      (573,287)     (1,222,674)
 Purchases of businesses, net of cash acquired.......................................             --        (24,454)     (1,390,620)
 Net investment in equity method investee............................................             --         (8,125)             --
 Intangible assets acquired..........................................................         (9,000)       (67,783)        (91,749)
 Proceeds from sale of discontinued operations.......................................        710,557             --              --
 Proceeds from dispositions..........................................................        108,600        169,537              --
                                                                                         -----------    -----------     -----------
    Net cash provided by (used in) continuing operations.............................        677,653       (504,112)     (2,705,043)
    Net cash used in discontinued operations.........................................             --        (48,021)         (4,205)
                                                                                         -----------    -----------     -----------
    Net cash provided by (used in) investing activities..............................        677,653       (552,133)     (2,709,248)
                                                                                         -----------    -----------     -----------
FINANCING ACTIVITIES:
 Net proceeds from the issuance of long-term debt....................................             --      1,600,000         895,878
 Net change in bank credit facilities................................................        324,899        716,073              --
 Net (payments) proceeds of commercial paper borrowings..............................       (192,000)    (1,591,125)      1,383,125
 Net proceeds from the issuance of preferred stock...................................             --        300,000              --
 Net proceeds from the issuance of redeemable preferred stock........................             --             --          23,559
 Repurchase of redeemable preferred stock............................................             --        (10,000)             --
 Proceeds from leasing obligations...................................................          6,992         74,898         504,990
 Principal payments on long-term debt................................................       (126,122)       (68,113)        (39,557)
 Cash dividends paid.................................................................             --        (89,159)       (113,111)
 Net proceeds from the issuance of common stock......................................             --            880             683
 Deferred financing costs paid.......................................................        (78,093)       (34,984)         (5,928)
 Other...............................................................................             --          6,621          10,702
                                                                                         -----------    -----------     -----------
    Net cash provided by (used in) financing activities..............................        (64,324)       905,091       2,660,341
                                                                                         -----------    -----------     -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....................................        (87,467)        95,235              23
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.........................................        179,757         84,522          84,499
                                                                                         -----------    -----------     -----------
CASH AND CASH EQUIVALENTS, END OF YEAR...............................................    $    92,290    $   179,757     $    84,522
                                                                                         ===========    ===========     ===========
</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

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

1. Results of Operations and Financing

   During fiscal 2001, 2000 and 1999, the Company incurred net losses of
$1,589,224, $1,133,043 and $461,522, respectively, and during fiscal 2001 net
cash used in operating activities from continuing operations was $704,554.

   Since December 1999, management of the Company has taken a series of steps
intended to stabilize and improve the operating results of the Company.
Management believes that available cash and cash equivalents together with
cash flow from operations, available borrowings under the 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 2002. In addition, management believes that the
Company will be in compliance with its existing debt covenant requirements
throughout fiscal 2002. However, a substantial portion of its indebtedness
which matures in August and September 2002 will require the Company to
refinance the indebtedness at or before that time.

2. Summary of Significant Accounting Policies

 Description of Business

   The Company is a Delaware corporation and through its wholly-owned
subsidiaries, operates retail drugstores in the United States. It is one of
the largest retail drugstore chains in the United States, with 3,648 stores in
operation as of March 3, 2001. The Company's drugstores' primary business is
pharmacy services. It also sells a full selection of health and beauty aids
and personal care products, seasonal merchandise and a large private label
product line.

   The Company's continuing operations consists solely of the retail drug
segment. Revenues from its retail drug stores are derived from:

<TABLE>
<CAPTION>

                                                          Year Ended
                                    ------------------------------------------------------
                                    March 3, 2001   February 26, 2000    February 27, 1999
                                    -------------   -----------------    -----------------
   <S>                              <C>             <C>                  <C>
   Pharmacy.....................     $ 8,639,288       $ 7,788,404          $ 6,737,710
   Front-end....................       5,877,577         5,550,543            5,700,732
                                     -----------       -----------          -----------
                                     $14,516,865       $13,338,947          $12,438,442
                                     ===========       ===========          ===========
</TABLE>


 Discontinued Operations

   On October 2, 2000, the Company sold its wholly owned subsidiary PCS Health
Systems, Inc. ("PCS"), a pharmacy benefits manager ("PBM"). Accordingly, for
financial statement purposes, the assets, liabilities, results of operations
and cash flows of this business have been segregated from those of continuing
operations and are presented in the Company's financial statements as
discontinued operations (see Note 24).

 Fiscal Year

   The Company's fiscal year ends on the Saturday closest to February 28. The
fiscal year ended March 3, 2001 included 53 weeks. The fiscal years ended
February 26, 2000 and February 27, 1999 both included 52 weeks.

 Reclassifications

   Certain reclassifications have been made to prior years' amounts to conform
to current year classifications.

 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.


                                      F-7

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

2. Summary of Significant Accounting Policies -- (Continued)

 Cash and Cash Equivalents

   Cash and cash equivalents consist of cash on hand, and highly liquid
investments which are readily convertible 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 (see Note 3). At March 3,
2001 and February 26, 2000, inventories were $381,466 and $340,740,
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. The LIFO charge was $40,726, $34,614 and $36,469
for fiscal years 2001, 2000 and 1999, respectively.

 Impairment of Long-Lived Assets

   Asset impairments are recorded when the carrying value of assets are not
recoverable. For purposes of recognizing and measuring impairment of long-
lived assets, 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 identifiable 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 is evaluated based on a comparison of undiscounted
future cash flows of the enterprise compared to the related net book value of
the enterprise.

   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 over the following useful lives:
buildings - 30 to 45 years; equipment - 3 to 15 years.

   Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated useful life of the asset or the term of the lease.
Capitalized lease assets are recorded at the present value of minimum lease
payments and amortized over the estimated economic life of the related
property or term of the lease.

   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 2001, 2000 and
1999, the Company capitalized costs of approximately $1,227, $4,595 and
$9,667, respectively.


                                      F-8

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

2. Summary of Significant Accounting Policies -- (Continued)

 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 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 those
acquired in business combinations are amortized over their estimated useful
lives of five to fifteen years. The value of assembled workforce acquired is
amortized over its useful life of five years.

 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.

 Revenue Recognition

   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 revenues and
results of operations in all periods presented.

 Vendor Rebates and Allowances

   Rebates and allowances 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 and allowances 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.

 Stock-Based Compensation

   The Company accounts for its employee and director stock-based compensation
plans under APB Opinion No. 25.

 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. Other store closing and liquidation costs are
expensed when incurred and included in cost of goods sold.

 Advertising

   Advertising costs are expensed as incurred. Advertising expenses, net of
reimbursements, for fiscal 2001, 2000 and 1999 were $214,891, $194,880 and
$223,000, respectively.

 Insurance

   The Company is self-insured for certain general liability and workers'
compensation claims. For claims that are self-insured, stop-loss insurance
coverage is maintained for workers' compensation occurrences exceeding $250
and general liability occurrences exceeding $1,000. 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.


                                      F-9

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

2. Summary of Significant Accounting Policies -- (Continued)

   The Company is self-insured for all covered employee medical claims.

 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.

 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 2001, the Company purchased approximately 93% of the dollar
volume of its prescription drugs from a single supplier, McKesson HBOC, Inc.
("McKesson"), under a contract expiring April 2004. With limited exceptions,
the Company is required to purchase all of its branded pharmaceutical products
from McKesson. If the Company's relationship with McKesson was disrupted, the
Company could have difficulty filling prescriptions, which would negatively
impact the business.

 Derivatives

   The Company enters into interest rate swap agreements to hedge the exposure
to increasing rates with respect to its variable rate debt. The differential
to be paid or received as a result of these swap agreements is accrued as
interest rates change and recognized as an adjustment to interest expense
related to the variable rate debt.

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 is effective for all
fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. All derivatives, whether designated in hedging
relationships or not, will be required to be recorded on the balance sheet at
fair value. If the derivative is designated and effective as a fair value
hedge, the changes in the fair value of the derivative and the changes in the
hedged item attributable to the hedged risk will be recognized in earnings. If
the derivative is designated and effective as a cash-flow hedge, changes in
the fair value of the effective portion of the derivative will be recorded in
other comprehensive income ("OCI") and will be recognized in the income
statement when the hedged item affects earnings. SFAS 133 defines new
requirements for designation and documentation of hedging relationships as
well as ongoing effectiveness assessments in order to use hedge accounting.
For a derivative that does not qualify as a hedge, changes in fair value will
be recognized in earnings. On March 4, 2001, in connection with the adoption
of the new Statement, the Company will record a reduction of approximately
$29,000 in OCI as a cumulative transition adjustment for derivatives
designated as cash flow-type hedges prior to adopting SFAS 133.

   Certain issues currently under consideration by the Derivatives
Implementation Group ("DIG") may make it more difficult to qualify for cash
flow hedge accounting in the future. Pending the results of the DIG
deliberations, changes in the fair value of the Company's interest rate swaps
may be recorded as a component of net income.


                                      F-10

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

3. Change in Accounting Method

   In 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 a charge
of $6,840 (net of income tax benefit 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 income tax benefit 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 benefit of
$4,240) or $.02 per diluted common share for fiscal 1999.

4. Acquisitions and Dispositions

   On March 3, 1999, the Company purchased 25 drugstores from Edgehill Drugs,
Inc. The purchase price was $24,454, net of cash acquired of $12. This
acquisition was accounted for under the purchase method of accounting. The
results of operations have been included in these consolidated financial
statements since the date of acquisition.

   In September 1999, the Company signed a contract to sell 38 drugstores in
California to Longs Drug Stores California, Inc. (Longs). During the third
quarter of fiscal 2000, 32 stores were transferred to Longs and two stores
were transferred in the first quarter of fiscal 2001. The remaining four
stores were retained by the Company. A pre-tax gain of $80,109 was recognized
in the third quarter of fiscal 2000 for the stores that were sold in that
year. The immaterial gain on the sale of the two stores was recognized by the
Company in fiscal 2001.

5. Earnings Per Share

   Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of shares of common stock
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 Company
subject to anti-dilution limitations.


                                      F-11

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

5. Earnings Per Share -- (Continued)

<TABLE>
<CAPTION>
                                                              Year Ended
                                             -------------------------------------------
                                               March 3,      February 26,   February 27,
                                                 2001            2000           1999
                                             ------------    ------------   ------------
<S>                                          <C>             <C>            <C>
Numerator for earnings per share:
   Loss from continuing operations before
    cumulative effect of accounting
    change, net of tax ...................   $ (1,431,764)   $ (1,114,921)  $   (448,699)
   Accretion of redeemable preferred
    stock ................................                            (97)            --
   Preferred stock conversion reset ......       (160,915)
   Cumulative preferred stock dividends ..        (25,724)        (10,110)          (627)
                                             ------------    ------------   ------------
   Loss before cumulative effect of
    accounting change attributable to
    common stockholders ..................     (1,618,403)     (1,125,128)      (449,326)
   Net income (loss) from discontinued
    operations, net of tax ...............         11,335           9,178        (12,823)
   Loss on disposal of discontinued
    operations, net of tax ...............       (168,795)             --             --
                                             ------------    ------------   ------------
   Total income (loss) from discontinued
    operations ...........................       (157,460)          9,178        (12,823)
   Cumulative effect of accounting change              --         (27,300)            --
                                             ------------    ------------   ------------
Net loss attributable to common
  stockholders............................   $ (1,775,863)   $ (1,143,250)  $   (462,149)
                                             ============    ============   ============
Denominator:
   Basic weighted average shares .........    314,189,280     259,139,000    258,516,000
   Diluted weighted average shares .......    314,189,280     259,139,000    258,516,000
Basic and diluted loss per share:
   Loss from continuing operations .......   $      (5.15)   $      (4.34)  $      (1.74)
   Income (loss) from discontinued
    operations ...........................          (0.50)           0.04          (0.05)
   Cumulative effect of accounting
    change, net ..........................             --           (0.11)            --
                                             ------------    ------------   ------------
   Net loss per share ....................   $      (5.65)   $      (4.41)  $      (1.79)
                                             ============    ============   ============
</TABLE>

   In fiscal 2001, 2000 and 1999, no potential shares of common stock have been
included in the calculation of diluted earnings per share because of the
losses reported. At March 3, 2001, an aggregate of 126,526,540 potential
common shares related to stock options, convertible preferred stock,
convertible notes, warrants, stock appreciation rights and other have been
excluded from the computation of diluted earnings per share.

6. Store Closing and Impairment Charges

   Store closing and impairment charges consist of:

<TABLE>
<CAPTION>
                                                            Year Ended
                                             ---------------------------------------
                                             March 3,    February 26,   February 27,
                                               2001          2000           1999
                                             --------    ------------   ------------
<S>                                          <C>         <C>            <C>
Impairment charges .......................   $214,224      $120,593       $ 87,666
Store lease exit costs ...................     57,668        18,855        107,693
Impairment of investments ................    116,186            --             --
                                             --------      --------       --------
                                             $388,078      $139,448       $195,359
                                             ========      ========       ========
</TABLE>

 Impairment charges

   In fiscal 2001, 2000, and 1999 store closing and impairment charges include
non-cash charges of $214,224, $120,593 and $87,666 respectively, for the
impairment of long-lived assets (including allocable

                                      F-12
<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

6. Store Closing and Impairment Charges -- (Continued)

goodwill) at 495, 249 and 270 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.

 Store lease exit costs

   During fiscal 2001, 2000, and 1999, the Company recorded charges for 144,
224, and 422 stores, respectively, to be closed or relocated 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 the date the closure is formally approved by
senior management, 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 calculation includes 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. As a result of focused efforts on cost recoveries for closed
stores during fiscal 2001, the Company has experienced improved results, which
has been reflected in the assumptions about future sublease income. This
liability is discounted using a risk-free rate of interest. The Company
evaluates these assumptions each quarter and adjusts the liability
accordingly. The discount rates used to determine the liability were 4.71%,
6.60% and 5.22% at March 3, 2001, February 26, 2000 and February 27, 1999,
respectively.

   Subsequent to the recording of lease accruals, management determined that
certain stores would remain open or would not relocate. Accordingly, the
Company reversed charges of $13,232 and $10,490 in fiscal 2001 and 2000,
respectively, for lease accruals previously established for those stores.

   The reserve for store lease exit costs includes the following activity:

<TABLE>
<CAPTION>

                                                            Year Ended
                                             ---------------------------------------
                                             March 3,    February 26,   February 27,
                                               2001          2000           1999
                                             --------    ------------   ------------
<S>                                          <C>         <C>            <C>
 Balance--beginning of year ..............   $212,812     $ 246,805       $ 191,453
   Provision for present value of
    noncancellable lease payments of
    stores designated to be closed .......    102,495        58,324          94,404
   Changes in assumptions about future
    sublease income, terminations, etc.
    and change of interest rate ..........    (31,595)      (28,979)         13,289
   Reversals of reserves for stores that
    management has determined will remain
    open .................................    (13,232)      (10,490)             --
   Interest accretion ....................     11,552        13,251           8,069
   Cash payments, net of sublease income .    (49,024)      (66,099)        (60,410)
                                             --------     ---------       ---------
 Balance--end of year ....................   $233,008      $212,812        $246,805
                                             ========     =========       =========
</TABLE>


   In addition to store closings, the Company also closed or relocated certain
distribution centers in its efforts to consolidate operations. 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, as a result, accrued termination benefit payments of $1,634 in the second
quarter of 2000, with the charge included in selling, general and
administrative expenses. Severance payments of $1,165 were made during fiscal
year 2000 leaving a remaining liability of $469 at February 26, 2000, with
remaining 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.


                                      F-13

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

6. Store Closing and Impairment Charges -- (Continued)

   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 $3,858
in the third quarter of fiscal 2000 for all of the 480 employees with the
charge included in selling, general and administrative expenses. 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 $1,040 in severance
costs related to 102 employees. The Company paid $540 in the fourth quarter of
fiscal 2000 and the remaining $500 was paid in fiscal 2001. The remaining
reserve of $2,818 was reversed to selling, general and administrative expenses
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 $2,256 for termination benefits for 500 employees were recorded
through selling, general and administrative expenses in the third quarter of
fiscal 2000 which were subsequently paid. Additionally, an impairment charge
of $7,600 for long-lived assets was recorded in the third quarter of fiscal
2000. The facility was sold in March 2000.

 Impairment of investments

   The Company has an investment in the common stock of drugstore.com, which is
accounted for under the equity method. The initial investment was valued based
upon the initial public offering price of drugstore.com. During fiscal 2001,
the Company recorded an impairment of its investment in drugstore.com of
$112,123. This impairment charge was based upon a decline in the market value
of drugstore.com's stock that the Company believes to be other than temporary.

   Additionally, the company recorded impairment charges of $4,063 for other
investments.

7. 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 accounts receivable
to a wholly owned bankruptcy-remote special purpose funding subsidiary (the
funding subsidiary) of the Company. The funding subsidiary sold an undivided
fractional ownership interest in the pool of receivables to a securitization
company. The accounts receivable sold to the funding subsidiary were not
recognized on the Company's consolidated balance sheet. Under the terms of the
agreement, new receivables were added to the pool as collections reduced
previously sold accounts receivable. The Company serviced, administered and
collected the receivables on behalf of the purchaser. The Company recognized
no servicing asset or liability because the benefits of servicing were
expected to represent adequate compensation for the services performed.

   In connection with the Company's refinancing in June 2000, all borrowings
under the securitization program were repaid and the program was terminated.
At the date of termination, $300,000 of receivables were recognized on the
Company's consolidated balance sheet. Expenses of $7,855 and $18,052
associated with the securitization program through the date of termination
were recognized for the years ended March 3, 2001 and February 26, 2000,
respectively.

   The Company maintains an allowance for doubtful accounts receivable based
upon the expected collectibility of accounts receivable. The allowance for
uncollectible accounts at March 3, 2001 and February 26, 2000 was $37,050 and
$43,371, respectively. The Company's accounts receivable 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.


                                      F-14

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

8. Property, Plant and Equipment

   Following is a summary of property, plant and equipment, including capital
lease assets, at March 3, 2001 and February 26, 2000:

<TABLE>
<CAPTION>

                                                          2001           2000
                                                       -----------   -----------
<S>                                                    <C>           <C>
 Land .............................................    $   668,561   $   733,979
 Buildings ........................................        932,083     1,010,133
 Leasehold improvements ...........................      1,192,815     1,262,590
 Equipment ........................................      1,413,890     1,469,881
 Construction in progress .........................         49,182        85,484
                                                       -----------   -----------
                                                         4,256,531     4,562,067
 Accumulated depreciation .........................     (1,215,523)   (1,116,239)
                                                       -----------   -----------
   Property, plant and equipment, net..............    $ 3,041,008   $ 3,445,828
                                                       ===========   ===========
</TABLE>


   Depreciation expense, which includes the depreciation of assets recorded
under capital leases, was $285,886 in fiscal 2001, $326,873 in fiscal 2000 and
$269,184 in fiscal 1999.

   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 assets to be disposed of is $64,131 and $113,454 at March
3, 2001 and February 26, 2000, respectively.

9. 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, for cash of $8,125,
including legal costs, and the Company's agreement to provide access to the
Company's networks of pharmacies and third-party providers, advertising
commitments and exclusivity agreements. Each of the Series E Convertible
Preferred Shares were converted to one share of common stock at the time of
drugstore.com's initial public offering late in July 1999 and represented
21.6% of the voting stock immediately after the initial public offering. The
investment is recorded in other assets, was initially 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 drugstore.com resulting
from its share of the voting stock, its right to appoint one board member and
a number of significant operating agreements. Included in other noncurrent
liabilities is the unamortized portion of the fair value of the operating
agreements of $133,916 that is being amortized over 10 years, the life of the
arrangements described above. As a result of the start-up nature of the
drugstore.com, the Company recorded an increase to its investment of $14,406
and $2,929 and corresponding increases to equity in connection with the sale
of stock by drugstore.com during fiscal 2001 and 2000, respectively. During
fiscal 2001, the Company recorded an impairment of its investment in
drugstore.com of $112,123. This impairment charge was based upon a decline in
the market value of drugstore.com's stock that the Company believes to be
other than temporary.


                                      F-15

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

9. Investments in Fifty Percent or Less Owned Subsidiaries -- (Continued)

   In June 1999, the Company sold its investment in Diversified Prescription
Delivery LLC, a provider of mail order 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. 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.

10. Goodwill and Other Intangibles

   Following is a summary of intangible assets at March 3, 2001 and February
26, 2000:

<TABLE>
<CAPTION>

                                                              2001          2000
                                                              ----          ----
   <S>                                                     <C>           <C>
   Goodwill ............................................   $  848,121    $  920,241
   Lease acquisition costs and favorable leases ........      670,789       713,970
   Prescription files ..................................      137,700       136,434
   Assembled workforce .................................       47,133        51,021
                                                           ----------    ----------
                                                            1,703,743     1,821,666
   Accumulated amortization ............................     (636,404)     (563,558)
                                                           ----------    ----------
                                                           $1,067,339    $1,258,108
                                                           ==========    ==========
</TABLE>


11. Accrued Salaries, Wages, and Other Current Liabilities

   Accrued salaries wages and other current liabilities consist of the
following at March 3, 2001 and February 26, 2000:

<TABLE>
<CAPTION>

                                                               2001       2000
                                                               ----       ----
<S>                                                          <C>        <C>
Accrued wages, benefits and other personnel costs .......    $280,126   $254,738
Accrued legal and other professional fees ...............      67,621    161,143
Accrued taxes payable ...................................       2,012    111,805
Accrued interest ........................................      85,307     61,427
Accrued lease exit costs ................................      37,042     42,413
Accrued rent and other occupancy costs ..................      79,111     62,087
Deferred income .........................................      24,543     19,143
Accrued store expense ...................................      30,057     38,443
Accrued property taxes ..................................      43,367     44,490
Other ...................................................      46,861     87,314
                                                             --------   --------
                                                             $696,047   $883,003
                                                             ========   ========
</TABLE>



                                      F-16

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

12. Income Taxes

   The provision for income taxes from continuing operations was as follows:

<TABLE>
<CAPTION>

                                                                   Year Ended
                                             ------------------------------------------------------
                                             March 3, 2001    February 26, 2000   February 27, 1999
                                             -------------    -----------------   -----------------
<S>                                          <C>              <C>                 <C>
Current tax expense (benefit):
   Federal ...............................      $     --          $(19,017)           $  22,163
   State .................................         3,078                --                   --
                                                --------          --------            ---------
                                                   3,078           (19,017)              22,163
Deferred tax (benefit):
   Federal ...............................       146,773            20,677             (228,776)
   State .................................          (894)          (10,035)             (10,328)
                                                --------          --------            ---------
                                                 145,879            10,642             (239,104)
                                                --------          --------            ---------
   Total income expense (benefit) ........      $148,957          $ (8,375)           $(216,941)
                                                ========          ========            =========
</TABLE>


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

<TABLE>
<CAPTION>

                                                                   Year Ended
                                             ------------------------------------------------------
                                             March 3, 2001    February 26, 2000   February 27, 1999
                                             -------------    -----------------   -----------------
<S>                                          <C>              <C>                 <C>
Income tax expense (benefit) from
  continuing operations...................      $148,957          $ (8,375)           $ (216,941)
Income tax expense (benefit) from
  discontinued operations.................        13,846            30,903                (5,925)
Income tax (benefit) from loss on
  disposal of discontinued operations.....          (734)               --                    --
Income tax (benefit) related to
  cumulative effect of accounting change..            --           (18,200)                   --
                                                --------          --------            ----------
   Total income tax expense (benefit) ....      $162,069          $  4,328            $(222,866)
                                                ========          ========            ==========
</TABLE>


   A reconciliation of the statutory federal rate and the effective rate, for
continuing operations, is as follows:

<TABLE>
<CAPTION>

                                                                   Year Ended
                                             ------------------------------------------------------
Percentage
  ----------                                 March 3, 2001    February 26, 2000   February 27, 1999
                                             -------------    -----------------   -----------------
<S>                                          <C>              <C>                 <C>
Federal statutory rate ...................       (35.0)%            (35.0)%             (35.0)%
Nondeductible expenses ...................         6.0                3.4                 3.7
State income taxes, net ..................        (6.8)              (4.1)               (4.5)
Tax credits ..............................          --                (.8)               (1.4)
Valuation allowance ......................        47.4               34.9                 3.6
Other ....................................          --                 .9                 1.0
                                                 -----              -----               -----
Effective tax rate .......................        11.6%              (0.7)%             (32.6)%
                                                 =====              =====               =====
</TABLE>


   The difference between the statutory federal rate and the reported amount of
income tax expense attributable to discontinued operations is primarily due to
nondeductible goodwill. The effective rate for fiscal 2001 reflects an
increase in the valuation allowance due to the elimination of PCS deferred tax
liabilities, resulting from its disposition.


                                      F-17

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

12. Income Taxes -- (Continued)

   The tax effect of temporary differences that give rise to significant
components of deferred tax assets and liabilities consist of the following at
March 3, 2001 and February 26, 2000:

<TABLE>
<CAPTION>

                                                            2001          2000
                                                            ----          ----
<S>                                                      <C>           <C>
Deferred tax assets:
   Accounts receivable...............................    $    31,113   $  43,762
   Accrued expenses..................................        147,427     141,332
   Liability for lease exit costs....................        125,284     113,907
   Pension, retirement and other benefits............         96,338      69,476
   Investment impairment.............................        108,733      59,863
   Other ............................................            370          --
   Credits ..........................................         58,533      69,840
   Net operating losses..............................        724,177     466,451
                                                         -----------   ---------
    Total gross deferred tax assets .................      1,291,975     964,631
Valuation allowance .................................     (1,031,287)   (475,174)
                                                         -----------   ---------
    Net deferred tax assets .........................        260,688     489,457
Deferred tax liabilities:
   Inventory.........................................        123,584     121,119
   Long-lived assets.................................        137,104     218,793
   Other.............................................             --       2,628
                                                         -----------   ---------
    Total gross deferred tax liabilities ............        260,688     342,540
                                                         -----------   ---------
Net deferred tax assets, all noncurrent .............    $        --   $ 146,917
                                                         ===========   =========
</TABLE>


 Net Operating Losses, Capital Losses and Tax Credits
   At March 3, 2001 and February 26, 2000, the Company had federal net
operating loss (NOL) carryforwards of $1,572,818 and $841,059, respectively,
the majority of which expire between fiscal 2017 and 2021.

   At March 3, 2001 and February 26, 2000, the Company had state NOL
carryforwards of $1,718,513 and $1,662,602, respectively, the majority of
which expire by fiscal 2005 and the remaining balance by fiscal 2015.

   At March 3, 2001, due to the disposition of PCS, the Company incurred a
$406,220 capital loss which will expire, if not offset by future capital
gains, by fiscal 2006.

   At March 3, 2001 and February 26, 2000, the Company had federal business tax
credit carryforwards of $49,597 and $61,394, the majority of which expire
between fiscal 2017 and 2020. In addition to these credits, the Company has
alternative minimum tax credit carryforwards of $8,935 and $7,512 at fiscal
2001 and 2000, respectively.

 Valuation Allowances

   The valuation allowances as of March 3, 2001, and February 26, 2000 were
$1,031,287 and $475,174 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. As a result of the decision to
dispose of PCS, the Company recognized an increase in the valuation allowance
of $146,917 in fiscal 2001.


                                      F-18

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

13. Indebtedness and Credit Agreements

   Following is a summary of indebtedness and lease financing obligations at
March 3, 2001 and February 26, 2000:

<TABLE>
<CAPTION>

                                                            2001         2000
                                                            ----         ----
<S>                                                      <C>          <C>
Commercial paper borrowings. ........................    $       --   $  192,000
Term loan due 2000 ..................................            --      272,422
5.50% fixed-rate senior notes due 2000 ..............            --      200,000
6.70% notes due 2001 ................................         7,342      350,000
5.25% convertible subordinated notes due 2002 .......       357,324      649,986
Senior Facility .....................................       682,000           --
Revolving Credit facility due 2002 (amended and
  restated) ("RCF")..................................       730,268      716,073
Term loan due 2002 (amended and restated) ("PCS") ...       591,391    1,300,000
Exchange Debt .......................................       216,126           --
10.50% notes due 2002 ...............................       467,500           --
6.00% dealer remarketable securities due 2003 .......       187,650      200,000
6.00% fixed-rate senior notes due 2005 ..............       194,500      200,000
7.625% senior notes due 2005 ........................       198,000      200,000
7.125% notes due 2007 ...............................       350,000      350,000
6.125% fixed-rate senior notes due 2008 .............       150,000      150,000
6.875% senior debentures due 2013 ...................       200,000      200,000
3.50% to 10.475% industrial development bonds due
  through 2009.......................................         4,740        5,196
7.70% notes due 2027 ................................       300,000      300,000
6.875% fixed-rate senior notes due 2028 .............       150,000      150,000
Lease financing obligations .........................     1,100,000    1,148,135
Other ...............................................         7,707       29,056
                                                         ----------   ----------
                                                          5,894,548    6,612,868
Short-term debt, current maturities of long-term
  debt and lease financing obligations...............       (36,956)    (102,050)
                                                         ----------   ----------
Long-term debt and lease financing obligations, less
  current maturities.................................    $5,857,592   $6,510,818
                                                         ==========   ==========
</TABLE>


   In June 2000, the Company entered into an interest rate swap contract that
fixes the LIBOR component of $500,000 of the Company's variable rate debt at
7.083% for a two-year period. In July 2000, the Company entered into an
additional interest rate swap that fixes the LIBOR component of an additional
$500,000 of variable rate debt at 6.946% for a two-year period. The Company
entered into these contracts to hedge its exposure to fluctuations in market
interest rates. The differential to be paid or received as a result of these
swap agreements was recorded as an adjustment to interest expense. At March 3,
2001, the Company would have had to pay $29,000 if it had terminated these
contracts on that date.

 Refinancings

   On June 14, 2000, the Company obtained a $1,000,000 (increased to $1,100,000
in November 2000) 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 those subsidiaries' accounts receivable,
inventory, and intellectual property and a security interest in certain of
their real property. Of this amount, $600,000 is in the form of a term loan
and $500,000 is in the form of a revolving credit facility both due in August
2002 and both with interest at LIBOR plus 3.00%. Funds drawn under the term
loan were used to repay $300,000 of drawings under the accounts receivable
securitization program and to pay $200,000 for working capital and transaction
expenses which are

                                      F-19

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

13. Indebtedness and Credit Agreements -- (Continued)

being amortized over the term of the Senior Facility. Funds drawn from time to
time under the revolving credit facility are used to fund current operations.
In connection with the $100,000 term loan in November 6, 2000, the Company
incurred fees of $3,528 which are being amortized over the period of the new
term loans.

   The Senior 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 the Company to meet various
financial ratios and limits capital expenditures. The Company was in
compliance with its debt covenants as of March 3, 2001. For the three fiscal
quarters ended March 3, 2001, those covenants required the company to maintain
a minimum interest coverage ratio and a minimum fixed charge coverage ratio of
 .95:1, increasing to a minimum interest coverage ratio of 1.40:1 and a minimum
fixed charge ratio of 1.19:1 for the four quarters ending June 1, 2002. For
the three fiscal quarters ended March 3, 2001, the Company was required to
have consolidated EBITDA (as defined in the Senior Facility) of no less than
$364,000, increasing to $720,000 for the four fiscal quarters ending on June
1, 2002. For the three fiscal quarters ended March 3, 2001, capital
expenditures were limited to $186,000, increasing to $243,000 for the four
fiscal quarters ending June 1, 2002. As of March 3, 2001, the Company had
additional borrowing capacity under the Senior Facility of $394,600.

   Also on June 14, 2000, the Company extended the maturity dates of the RCF
credit facility and the PCS credit facility to August 2002. 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%. These credit
facilities contain restrictive covenants that place restrictions on the
assumption of debt, the payment of dividends, mergers, liens and sale-
leaseback transactions. These credit facilities also require the Company to
satisfy financial covenants that are generally slightly less restrictive than
the covenants in the Senior Facility. The facilities also limit the amount of
our capital expenditures to $186,000 for the three quarters ended March 3,
2001, increasing to $243,000 for the four quarters ending June 1, 2002. Under
the terms of these facilities, after giving effect to the $100,000 increase in
the term loan, the Company is permitted to incur up to an additional $35,000
of indebtedness under the Senior Facility without the further consent of
lenders. The PCS credit facility was originally secured by a first lien on the
stock of PCS Health Systems, Inc. and the RCF credit facility was originally
secured by a first lien on the stock of drugstore.com and a second lien on the
stock of PCS Health Systems, Inc. Any amounts repaid under these facilities
with the proceeds of asset sales may not be borrowed.

   In addition, on June 14, 2000 certain affiliates of J.P. Morgan Chase, which
had lent the Company $300,000 under a demand note in June 1999 and who was
also a lender under the RCF and PCS credit facilities, together with certain
other lenders under the two credit facilities, agreed to exchange $274,782 of
their loans for a new secured exchange debt obligation. 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 RCF and PCS credit facilities or demand note, as
applicable, as well as a first lien on the Company's prescription files.
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 amortization was completed during fiscal 2001. The
Company also paid and expensed $4,000 of advisory fees over a period of one
year.

   Upon consummation of the sale of PCS on October 2, 2000, $575,000 of the
cash portion of the proceeds was applied to reduce the outstanding balances of
the PCS credit facility and the PCS exchange debt. In February 2001, the
Company also applied $34,504 received from the final settlement of the PCS
sale to reduce the PCS facilities. At March 3, 2001, the Company had
$1,537,785 of borrowings outstanding under the PCS, RCF and related exchange
debt facilities. Subsequent to March 3, 2001, the Company further

                                      F-20

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

13. Indebtedness and Credit Agreements -- (Continued)

reduced the borrowings outstanding under the PCS and related exchange debt
facilities by $484,104 utilizing the proceeds from the sale of AdvancePCS
stock and repayment of AdvancePCS senior subordinated notes which it had
received as part of the consideration for the sale.

   The Company also amended its existing guarantees of two synthetic lease
transactions to provide substantially the same terms of our RCF and PCS credit
facilities.

   In connection with modifications to the RCF and PCS credit facilities, the
debt exchange for the 10.5% notes due 2002, the guarantee of the Prudential
note, the exchange for exchange debt and the guarantee of the synthetic lease
transactions, substantially all wholly-owned subsidiaries guaranteed the
Company's 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, the Company's
direct obligations under those facilities and guarantees remain unsecured.

 Exchange Offers

   In connection with the above refinancing on June 14, 2000, the Company
exchanged $52,500 of its 5.5% fixed-rate senior notes due in December 2000 and
$321,800 of its 6.7% notes due in December 2001 for $374,300 of 10.5% senior
secured notes due 2002. The Company arranged with certain financial
institutions to refinance $93,200 of the 5.5% notes when they become due with
the 10.5% senior secured notes due 2002. These financial institutions
purchased $16,710 of the 5.5% notes and $20,390 of the 6.7% notes on July 27,
2000; $53,814 of the 5.5% notes on September 13, 2000; and $476 of the 6.7%
notes on December 14, 2000; and exchanged the purchased notes with the Company
for the 10.5% senior secured notes due 2002. The remaining 5.5% notes were
retired in December 2000 with the Company's general corporate funds and the
remaining forward purchase commitment. The Company recognized an aggregate
loss of $6,200 in connection with the exchange and refinancing.

 Exchange of Debt for Equity

   Throughout and subsequent to fiscal 2001, the Company exchanged debt for
equity as outlined in the table below:

<TABLE>
<CAPTION>

                                                                                     Carrying               Additional
Debt Exchanged                                                                        Amount      Common     Paid-In        Gain
  --------------                                                                    Exchanged     Stock      Capital       (Loss)
                                                                                    ---------    -------    ----------   ----------
<S>                                                                                 <C>          <C>        <C>          <C>
Exchanged during the year ended March 3, 2001:
 PCS and RCF facilities and J.P. Morgan demand note .............................    $284,820    $51,785     $220,088    $    5,189
 5.25% convertible subordinated notes ...........................................     292,662     30,241      379,829      (118,769)
 6.00% dealer remarketable securities ...........................................      17,850      1,868        4,053        11,868
 7.625% senior notes ............................................................       2,000        230          604         1,156
                                                                                     --------    -------     --------    ----------
 For the year ended March 3, 2001 ...............................................    $597,332    $84,124     $604,574    $ (100,556)
                                                                                     ========    =======     ========    ==========
Exchanges (including commitments) subsequent to March 3, 2001 through May 15,
  2001 (unaudited):
 5.25% convertible subordinated notes ...........................................    $205,308    $29,750     $307,686    $ (133,129)
 6.00% dealer remarketable securities ...........................................      79,885     12,382       55,633        11,427
 10.5% notes ....................................................................      56,300      8,467       47,461          (656)
 PCS facility ...................................................................       5,000        715        4,390          (105)
 RCF facility ...................................................................     164,858     25,878      150,186       (11,206)
                                                                                     --------    -------     --------    ----------
 Subsequent to March 3, 2001 ....................................................    $511,351    $77,192     $565,356    $(133,669)
                                                                                     ========    =======     ========    ==========
</TABLE>



                                      F-21

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

13. Indebtedness and Credit Agreements -- (Continued)

   Several of the exchanges subsequent to March 3, 2001 have not settled,
including the exchanges for the 10.5% notes, the PCS facility and the RCF
facility. Accordingly, the data presented in the above table for these
exchanges is based on the best available estimates.

 Other

   In fiscal 2000, the Company was required to obtain waivers of compliance
with, and modifications to certain of the covenants contained in its senior
credit and loan agreements and public indentures. In connection with obtaining
the waivers and modifications, the Company paid fees and transaction costs of
$63,332.

   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.

   On April 20, 1995, the Company issued $200,000 of 7.625% senior notes due
April 15, 2005. 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 Company had outstanding letters of credit of $46,952 at March 3, 2001
and $41,624, at February 26, 2000. 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. There were no guarantees
outstanding at March 3, 2001. Guarantees of $33,774 were outstanding at
February 26, 2000.

   The annual weighted average interest rate on the Company's indebtedness was
8.2%, 7.4% and 6.8% for fiscal 2001, fiscal 2000 and fiscal 1999,
respectively.

   The aggregate annual principal payments of long-term debt and capital lease
obligations for the five succeeding fiscal years are as follows: 2002,
$36,956; 2003, $3,082,829; 2004, $218,355; 2005, $229,038; 2006, $216,398 and
$2,110,972 in 2007 and thereafter. The Company is in compliance with
restrictions and limitations included in the provisions of various loan and
credit agreements.

   The subsidiary guarantees related to the Company's credit facilities are
full and unconditional and joint and several and there are no restrictions on
the ability of the parent to obtain funds from its subsidiaries. Also, the
parent company's assets and operations are not material and subsidiaries not
guaranteeing the credit facilities are minor. Accordingly, condensed
consolidating financial information for the parent and subsidiaries is not
presented.


                                      F-22

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

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 10 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 of $10,930, $10,443 and $10,443,
was $537,423, $500,782, and $477,537 in 2001, 2000 and 1999, respectively.
These amounts include contingent rentals of $26,644, $28,625, and $32,960, in
fiscal 2001, 2000 and 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 $6,992 in 2001, $74,898 in 2000 and $504,990 in
1999.

   The net book values of assets under capital leases and sale-leasebacks
accounted for under the financing method are summarized as follows:

<TABLE>
<CAPTION>

                                                           March 3,    February 26,
                                                             2001          2000
                                                           --------    ------------
   <S>                                                     <C>         <C>
   Land ................................................   $326,304     $  343,948
   Buildings ...........................................    532,635        570,604
   Leasehold improvements ..............................    128,122        152,347
   Equipment ...........................................      2,644            757
   Accumulated depreciation ............................    (63,097)       (39,809)
                                                           --------     ----------
                                                           $926,608     $1,027,847
                                                           ========     ==========
</TABLE>


   Following is a summary of lease finance obligations at March 3, 2001 and
February 26, 2000:

<TABLE>
<CAPTION>
                              2001          2000
                           ----------    -------
<S>                        <C>           <C>
   Sale-leaseback
    obligations
    accounted for under
    the financing
    method .............   $  917,211    $  944,805
   Obligations under
    capital leases .....      182,789       203,330
                           ----------    ----------
   Total ...............    1,100,000     1,148,135
   Less current
    obligation .........      (28,603)      (25,964)
                           ----------    ----------
   Long-term lease
    finance obligations    $1,071,397    $1,122,171
                           ==========    ==========
</TABLE>



                                      F-23

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

14. Leases -- (Continued)

   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-cancelable leases
in effect as of March 3, 2001:

<TABLE>
<CAPTION>

Fiscal year                                         Lease Financing    Operating
  -----------                                         Obligations       Leases
                                                    ---------------   ----------
<S>                                                 <C>               <C>
2002 ...........................................      $  114,081      $  511,105
2003 ...........................................         121,463         496,071
2004 ...........................................         113,327         459,983
2005 ...........................................         113,040         417,421
2006 ...........................................          96,382         372,843
Later years ....................................       1,321,703       3,325,522
                                                      ----------      ----------
Total minimum lease payments ...................       1,879,996      $5,582,945
                                                                      ==========
Amount representing interest ...................         779,996
                                                      ----------
Present value of minimum lease payments ........      $1,100,000
                                                      ==========
</TABLE>


15. Redeemable Preferred Stock

   In March 1999 and February 1999, Rite Aid Lease Management Company, a wholly
owned subsidiary of the Company, 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% 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 for the 2000 issuances, 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. There was no accretion in fiscal 2001; accretion was $97 in 2000.

16. Capital Stock

   In October 1999, the Company issued 3,000,000 shares of Series B preferred
stock at $100 per share which is the liquidation preference. The Series B
preferred stock pays dividends at 8% per year which is payable in cash or
additional shares of Series B, at the Company's election. The Series B
preferred stock, when issued, was convertible into shares of the Company's
common stock at a conversion price of $11.00 per share of common stock.
Pursuant to its terms, as a result of the issuance of shares at $5.50 per
share on June 14, 2000, the per share conversion price for the Series B
preferred stock was adjusted to $5.50. As a result of this adjustment the
Company increased its paid in capital, its accumulated deficit, and its loss
attributable to common stockholders by $160.9 million in June 2000
(representing the difference between $5.50 and the market price of the
Company's common stock on the original date of issuance of the Series B
preferred stock).

   For the years ended March 3, 2001 and February 26, 2000, the Company
recognized an increase to its investment in drugstore.com of $14,406 and
$2,929, respectively, and a corresponding increase to paid in capital, in
connection with equity transactions of drugstore.com.


                                      F-24

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

16. Capital Stock -- (Continued)

   In April 2001, the Board of Directors approved, subject to stockholder
approval, an amendment to the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of common stock, $1.00 par value,
from 600,000,000 to 1,000,000,000. If the stockholders approve the
recommendation, the authorized capital stock of the Company will consist of
1,000,000,000 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. At March 3,
2001, the Company has outstanding warrants to purchase 2,500,000 shares of
common stock at $11.00 per share (see Note 13). The Company has no other
warrants outstanding.

17. 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 SARs, at prices that are not less than the fair
market value of a share of common stock on the date of grant. The exercise of
either a SAR or option automatically will cancel any related option or SAR.
Under the 1990 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.

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

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

   All of the plans provide for the Board of Directors (or at its election, the
Compensation Committee) to determine both when and in what manner options may
be exercised; however, it may not be more than 10 years from the date of
grant. All of the plans provide that stock options may be granted at prices
that are not less than the fair market value of a share of common stock on the
date of grant. The aggregate number of shares reserved for issuance for all
plans is 74,000,000 as of March 3, 2001.


                                      F-25

<PAGE>

                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

17. Stock Option and Stock Award Plans -- (Continued)

   Following is a summary of stock option transactions for the fiscal years
ended March 3, 2001, February 26, 2000 and February 27, 1999:

<TABLE>
<CAPTION>

                                                                Weighted Average
                                                                    Price Per
                                                    Shares           Shares
                                                  -----------   ----------------
<S>                                               <C>           <C>
Balance, February 28, 1998 ...................     11,491,774        $ 13.96
   Granted....................................      4,054,000          32.74
   Exercised..................................       (633,575)         14.58
   Cancelled..................................       (241,500)         20.18
                                                  -----------        -------
Balance, February 27, 1999 ...................     14,670,699          19.02
   Granted....................................     18,687,562           7.95
   Exercised..................................        (64,650)         13.61
   Cancelled..................................     (7,488,707)         14.60
                                                  -----------        -------
Balance, February 26, 2000 ...................     25,804,904          12.30
   Granted....................................     47,830,762           4.03
   Exercised..................................             --             --
   Cancelled..................................    (20,438,867)(1)       7.57
                                                  -----------        -------
Balance, March 3, 2001 .......................     53,196,799         $ 6.48
                                                  ===========        =======
</TABLE>

(1) Includes 16,683,962 stock options which have been cancelled and reissued.

   For various price ranges, weighted average characteristics of outstanding
stock options at March 3, 2001 were as follows:

<TABLE>
<CAPTION>

                                             Outstanding Options                Exercisable Options
                                   ----------------------------------------    ---------------------
                                      Number
                                    Outstanding                    Weighted                 Weighted
Range of exercise prices               as of         Remaining     Average                  Average
  ------------------------         March 3, 2001   life (years)     Price       Shares       Price
                                   -------------   ------------    --------   ----------    --------
<S>                                <C>             <C>             <C>        <C>           <C>
$ 2.7500 to $ 2.7500                16,683,962         9.04        $ 2.7500    4,053,041    $ 2.7500
$ 3.0000 to $ 3.9375                 1,221,500         9.79        $ 3.4217           --          --
$ 4.0500 to $ 4.0500                20,142,000         9.95        $ 4.0500           --          --
$ 4.0625 to $ 8.9125                 6,280,788         8.52        $ 5.6437    1,999,813    $ 5.7054
$ 8.9150 to $ 16.9375                5,689,574         4.05        $13.5048    5,689,574    $13.5048
$18.2500 to $ 44.6875                2,940,475         7.39        $28.7612    1,518,475    $29.3870
$45.5625 to $ 45.5625                    3,000         7.76        $45.5625        1,500    $45.5625
$47.5000 to $ 47.5000                  220,000         7.87        $47.5000      127,500    $47.5000
$48.5625 to $ 48.5625                   13,000         7.84        $48.5625        6,500    $48.5625
$48.8125 to $ 48.8125                    2,500         7.85        $48.8125        1,250    $48.8125
                                    ----------                                ----------
$2.7500 to $ 48.8125                53,196,799         8.70        $ 6.4824   13,397,653    $11.2346
                                    ==========         ====        ========   ==========    ========
</TABLE>


   In November 2000, the Company reduced the exercise price of 16,683,962 stock
options issued after December 4, 1999 to $2.75 per share, which represents
fair market value of a share of common stock on the date of the repricing. In
connection with the repricing, the Company recognizes compensation expense for
these options using variable plan accounting. Under variable plan accounting,
the Company recognizes compensation expense over the option vesting period. In
addition, subsequent changes in the market value of the Company's common stock
during the option period, or until exercised, will generate changes in the

                                      F-26

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

17. Stock Option and Stock Award Plans -- (Continued)

compensation expense recognized on the repriced options. The Company
recognized expense of approximately $33,500 during fiscal 2001 related to the
repriced options.

   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.
The pro forma impact on net loss and per share amounts are reported below as
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
is outlined below:

<TABLE>
<CAPTION>

                                                         March 3,     February 26,    February 27,
                                                           2001           2000            1999
                                                        -----------   ------------    ------------
<S>                                                     <C>           <C>             <C>
Net loss............................................    $(1,589,224)   $(1,133,043)    $(461,522)
Pro forma additional compensation expense under fair
  value method......................................        (46,842)       (22,464)      (10,463)
                                                        -----------    -----------     ---------
Pro forma net loss..................................     (1,636,066)    (1,155,507)     (471,985)
Accretion of redeemable preferred stock.............             --            (97)           --
Preferred stock conversion reset....................       (160,915)            --            --
Dividends on preferred stock........................        (25,724)       (10,110)         (627)
                                                        -----------    -----------     ---------
Pro forma net loss attributable to common
  stockholders......................................    $(1,822,705)   $(1,165,714)    $(472,612)
                                                        ===========    ===========     =========
Pro forma basic and diluted loss per share..........    $     (5.80)   $     (4.50)    $  (1.83)
                                                        ===========    ===========     =========
</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>

                                                2001        2000         1999
                                             ---------    ---------   ---------
<S>                                          <C>          <C>         <C>
Expected stock price volatility ..........       67.2%        58.0%       30.7%
Expected dividend yield ..................        0.0%         0.0%        1.0%
Risk-free interest rate ..................       6.25%         6.3%        5.6%
Expected life of options .................   2.8 years    4.2 years   6.7 years
</TABLE>


   The average fair value of each option granted during fiscal 2001, 2000 and
1999 was $1.91, $4.09 and $12.36, respectively.

 Restricted Stock

   In December 1999, certain executive officers received restricted stock
grants of 1,000,000 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
grants to the executives. Under the restricted stock agreement, the
restrictions placed on the shares lapse in equal monthly installments 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 one year.

   In fiscal 2001, restricted stock grants of 4,004,000 shares were awarded to
key employees under plans approved by the stockholders. Shares vest in
installments up to three years and unvested shares are forfeited upon
termination of employment. The Company recorded the issuances at fair value on
the date of grant of $22,797.


                                      F-27

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

17. Stock Option and Stock Award Plans -- (Continued)

   Compensation expense related to all restricted stock grants is being
recorded over a one to three year vesting period of these grants. For the
years ended March 3, 2001 and February 26, 2000, the Company recognized
expense of $12,387 and $2,062 related to restricted share awards. The unearned
compensation associated with these restricted stock shares was $16,598. This
amount is included in stockholders equity as a component of deferred
compensation.

 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 March 3, 2001 and February 26, 2000, there were 5.7 million and 7.0
million stock appreciation rights units outstanding, respectively. Grant
prices for units outstanding at March 3, 2001 ranged from $5.38 to $48.56 per
unit. Amounts charged or (credited) to expense relating to the stock
appreciation rights units for fiscal 2001, 2000 and 1999 were $(407),
$(45,500), $32,200, respectively.

18. 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 $5,350 in 2001, $9,945 in 2000, and $6,091 in 1999. Employer
contributions for other defined contribution plans are generally based upon a
percentage of employee contributions or, in the case of certain executive
officers, in accordance with employment agreements. The expenses recognized
for these plans were $9,141 in 2001, $7,925 in 2000, and $7,779 in 1999. 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.


                                      F-28

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

18. Retirement Plans -- (Continued)

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

<TABLE>
<CAPTION>

                                                                            Defined Benefit Pension        Nonqualified Executive
                                                                                     Plans                     Retirement Plan
                                                                         ----------------------------    --------------------------
                                                                           2001      2000       1999      2001      2000      1999
                                                                         -------    -------   -------    ------    -------   ------
<S>                                                                      <C>        <C>       <C>        <C>       <C>       <C>
Service cost .........................................................   $ 4,004    $ 4,441   $ 5,034    $  908    $   671   $  514
Interest cost ........................................................     4,248      4,166     3,935     2,642      1,497    1,424
Expected return on plan assets .......................................    (6,896)    (5,723)   (4,936)       --         --       --
Amortization of unrecognized net transition (asset)/obligation .......      (160)      (160)     (160)    1,162      1,163    1,163
Amortization of unrecognized prior service cost ......................       346        376       473        --         --       --
Amortization of unrecognized net gain ................................    (2,202)      (226)     (202)     (193)        --       --
Change due to plan amendment                                                  --         --        --        --     18,891       --
                                                                         -------    -------   -------    ------    -------   ------
Net pension (credit) expense .........................................   $  (660)   $ 2,874   $ 4,144    $4,519    $22,222   $3,101
                                                                         =======    =======   =======    ======    =======   ======
</TABLE>


   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 March 3, 2001 and February 26, 2000:


                                      F-29

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

18. Retirement Plans -- (Continued)


<TABLE>
<CAPTION>

                                                                                                                   Nonqualified
                                                                                          Defined Benefit           Executive
                                                                                           Pension Plans         Retirement Plan
                                                                                         ------------------    --------------------
                                                                                          2001       2000        2001        2000
                                                                                        -------    --------    ---------   --------
<S>                                                                                     <C>        <C>         <C>         <C>
Change in benefit obligations:
 Benefit obligation at end of prior year ............................................   $58,791    $ 62,885    $  34,691   $ 21,891
 Service cost .......................................................................     4,004       4,441          908        671
 Interest cost ......................................................................     4,248       4,166        2,642      1,497
 Distributions ......................................................................    (5,349)     (9,728)      (1,429)    (1,224)
 Change due to change in assumptions ................................................     1,431      (4,580)       1,006     (1,281)
 Change due to plan amendment .......................................................        --         187           --     18,891
 Actuarial (gain) or loss ...........................................................     1,794       1,420       (6,179)    (5,754)
                                                                                        -------    --------    ---------   --------
Benefit obligation at end of year ...................................................   $64,919    $ 58,791    $  31,639   $ 34,691
                                                                                        =======    ========    =========   ========
Change in plan assets:
 Fair value of plan assets at beginning of year .....................................   $81,718    $ 71,686    $      --   $     --
 Employer contributions .............................................................     4,211       4,213        1,429      1,224
 Actual return on plan assets .......................................................    (7,959)     18,671           --         --
 Adjustment for fair value at 3/1/2000 ..............................................     5,932          --           --         --
 Distributions (including assumed expenses) .........................................    (6,392)    (10,485)      (1,429)    (1,224)
                                                                                        -------    --------    ---------   --------
Fair value of plan assets at end of year ............................................   $77,510    $ 84,085    $      --   $     --
                                                                                        =======    ========    =========   ========
Funded status .......................................................................   $12,591    $ 25,294    $ (31,639)  $(34,691)
Unrecognized net gain ...............................................................    (5,723)    (22,493)     (10,952)    (5,972)
Unrecognized prior service cost .....................................................     1,463       1,808           --         --
Unrecognized net transition (asset) or obligation ...................................      (179)       (339)      11,628     12,790
                                                                                        -------    --------    ---------   --------
Prepaid or (accrued) pension cost recognized ........................................   $ 8,152    $  4,270    $ (30,963)  $(27,873)
                                                                                        =======    ========    =========   ========
Amounts recognized in consolidated balance sheets
  consisted of:
 Prepaid (accrued) pension cost .....................................................   $ 9,009    $  4,796    $(30,963)   $(27,873)
 Adjustment to recognize additional minimum liability ...............................      (622)         --           --         --
 Accrued pension liability ..........................................................      (857)       (526)          --         --
 Accumulated other comprehensive income .............................................       622          --           --         --
                                                                                        -------    --------    ---------   --------
Net amount recognized ...............................................................   $ 8,152    $  4,270    $ (30,963)  $(27,873)
                                                                                        =======    ========    =========   ========
</TABLE>


   The amounts recognized in the accompanying consolidated balance sheets as of
March 3, 2001 and February 26, 2000 are as follows:

<TABLE>
<CAPTION>

                                                                                                             Nonqualified
                                                                                       Defined Benefit         Executive
                                                                                        Pension Plans       Retirement Plan
                                                                                       ---------------    -------------------
                                                                                        2001     2000       2001       2000
                                                                                       ------   ------    --------   --------
      <S>                                                                              <C>      <C>       <C>        <C>
      Accrued benefit liability....................................................    $ (857)  $ (526)   $(30,963)  $(27,873)
      Prepaid pension cost.........................................................     9,009    4,796          --         --
                                                                                       ------   ------    --------   --------
      Net amount recognized........................................................    $8,152   $4,270    $(30,963)  $(27,873)
                                                                                       ======   ======    ========   ========
</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 $56,272 and $69,873, respectively, as of March 3,
2001, and $58,791 and $84,085, respectively, as of February 26, 2000.


                                      F-30

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

18. Retirement Plans -- (Continued)

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

<TABLE>
<CAPTION>

                                                                       Nonqualified
                                               Defined Benefit           Executive
                                                Pension Plans         Retirement Plan
                                             -------------------    -------------------
                                             2001    2000   1999    2001   2000    1999
                                             ----    ----   ----    ----   ----    ----
<S>                                          <C>     <C>    <C>     <C>    <C>     <C>
Discount rate ............................   7.00    7.25   6.75    7.50   7.83    6.95
Rate of increase in future compensation
  levels..................................   4.50    4.50   4.75    3.00   3.00    3.00
Expected long-term rate of return on plan
  assets..................................   9.00    9.00   9.00    9.00   9.00    9.00
</TABLE>


19. Commitments, Contingencies and Guarantees

Legal Proceedings

   This Company is party to numerous legal proceedings, as discussed below. The
Company has charged $232,778 and $7,916 to expense for the years ended
February 26, 2000, and February 27, 1999, 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. Based upon
changes in estimates in fiscal 2001 relating primarily to resolution of
insurance coverage disputes, the Company credited selling, general and
administrative expenses by $19,625.

 Federal investigations

   There are currently pending federal governmental investigations, both civil
and criminal, by the SEC and the United States Attorney, involving the
Company's financial reporting and other matters. Management 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 the Company's
principal 401(k) plan, which permitted employees to purchase the Company's
common stock. Purchases of the Company's common stock under the plan were
suspended in October 1999. In January 2001, the Company appointed an
independent trustee to represent the interests of these plans in relation to
the Company and to investigate possible claims the plans may have against the
Company. Both the independent trustee and the Department of Labor have
asserted that the plans may have claims against the Company. The
investigations, with which management is cooperating fully, are ongoing and
the Company cannot predict their outcomes. In addition, a purported class
action lawsuit on behalf of the plans and their participants has been filed by
a participant in the plans in the United States District in the Eastern
District of Pennsylvania.

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

 Stockholder litigation

   The Company, 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 stockholders who
purchased the Company's securities on the open market between May 2, 1997 and
November 10, 1999. All of these cases have been consolidated in the U.S.
District Court for the Eastern District of Pennsylvania. On November 9, 2000,
the Company announced that it had reached an agreement to settle the
consolidated securities class action lawsuits pending against the Company in
the U.S. District Court for the Eastern District of Pennsylvania and the
derivative lawsuits pending there and in the U.S. District Court of Delaware.
Under

                                      F-31

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

19. Commitments, Contingencies and Guarantees -- (Continued)

the agreement, which has been submitted to the U.S. District Court for the
Eastern District of Pennsylvania for approval, the Company will pay $45
million in cash, which will be fully funded by the Company's officers' and
directors' liability insurance, and issue shares of common stock in 2002. The
shares will be valued over a 10 day trading period in January 2002. If the
value determined is at least $7.75 per share, the Company will issue 20
million shares. If the value determined is less than $7.75 per share, the
Company has the option to deliver any combination of common stock, cash and
short-term notes, with a total value of $155 million. As additional
consideration for the settlement, the Company has assigned to the plaintiffs
all of the Company's claims against the above named executives and KPMG LLP.
Several members of the class have elected to "opt-out" of the class and, as a
result, if the settlement is approved by the court, they will be free to
individually pursue their claims. Management believes that their claims,
individually and in the aggregate, are not material.

   In fiscal year 2000, the Company recorded a charge of $175,000 for this
case. As a result of the agreement to settle reached in fiscal 2001 and
resolution of insurance coverage disputes, the Company recorded $20,000 as a
credit to selling, general and administrative expense.

 Drug pricing and reimbursement matters

   On October 5, 2000, the Company settled, for an immaterial amount, and
without admitting any violation of the law, the lawsuit filed by the Florida
Attorney General alleging that the Company's non-uniform pricing policy for
cash prescription purchases was unlawful under Florida law.

   The filing of the complaint by the Florida Attorney General, and the
Company's press release issued in conjunction therewith, precipitated the
filing of a purported federal class action in California and several purported
state class actions, all of which (other than those pending in New York that
were filed on October 5, 1999 and those pending in California that were filed
on January 3, 2000) have been dismissed. A motion to dismiss the action in New
York is currently pending. Management believes that the remaining lawsuits are
without merit under applicable state consumer protection laws. As a result,
the Company intends to continue to vigorously defend them and the Company does
not anticipate, that if fully adjudicated, they will result in an award of
damages. However, such outcomes cannot be assured and a ruling against the
Company could have a material adverse effect on the financial position and
results of operations of the Company, as well as necessitate substantial
additional expenditures to cover legal costs as the Company pursues all
available defenses.

   The Company is being investigated by multiple state attorneys general for
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. Management 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. Management also
believes that existing policies and procedures fully comply with the
requirements of applicable law and intend to fully cooperate with these
investigations. Management cannot, however, predict their outcomes at this
time. An individual, acting on behalf of the United States of America, has
filed a lawsuit in the United States District Court for the Eastern District
of Pennsylvania under the Federal False Claims Act alleging that the Company
defrauded federal health care plans by failing to appropriately issue refunds
for partially filled prescriptions and prescriptions which were not picked up
by customers. The Department of Justice has not decided whether to join this
lawsuit, as is its right under the law; its investigation is continuing. The
Company has filed a motion to dismiss the complaint for failure to state a
claim.


                                      F-32

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

19. Commitments, Contingencies and Guarantees -- (Continued)

   If any of these cases result 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.

 Store Management Overtime Litigation

   The Company is a defendant in a class action pending in the California
Superior Court in San Diego with three subclasses, comprised of California
store managers, assistant managers and managers-in-training. The plaintiffs
seek back pay for overtime not paid to them and injunctive relief to require
the Company to treat store management as non-exempt. They allege that the
Company decided to minimize labor costs by causing managers, assistant
managers and managers-in-training to perform the duties and functions of
associates for in excess of forty hours per week without paying them overtime.
Management believes that in-store management were and are properly classified
as exempt from the overtime provisions of California law. The Company has
filed a motion to decertify the class, which is currently pending. The
Company's results of operations and financial position could be materially
adversely affected by an adverse judgment in this matter.

 Other

   The Company is subject from time to time to lawsuits arising in the ordinary
course of business. In the opinion of management, these matters are adequately
covered by insurance or, if not so covered, are without merit or are of such
nature or involve amounts that would not have a material adverse effect on the
Company's financial condition, results of operations, or cash flows if decided
adversely.

 Vendor Arrangements

   As of March 3, 2001, the Company had outstanding commitments to purchase
$7,500 of merchandise inventory per year from a vendor for use in the normal
course of business through fiscal 2005.

 Employment Agreements

   Employment agreements with executive officers and others contain change in
control provisions that entitle them to receive two or three times the sum of
their annual base salary and annual target bonus amount and provide for full
vesting in all outstanding stock options and immediate renewal of restrictions
on stock awards. In the event of change in control, certain executive officers
also receive the total amount of contributions that would have been made to
the special deferred compensation plan if they had been employed through the
end of their employment contract.

   On May 7, 2001, the Company amended the employment agreements of two
executive officers to provide for the payment, subject to certain conditions,
of bonuses representing the difference between the amount called for under
their severance agreements from a former employer and the amount they actually
receive up to $6,647. The bonuses are payable on January 5, 2002 and will be
reduced, and if fully paid are repayable, to the extent of each executives's
recovery of severance due from a former employer.


                                      F-33

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

20. Supplementary Cash Flow Data

<TABLE>
<CAPTION>

                                                                                                   Year Ended
                                                                             ------------------------------------------------------
                                                                             March 3, 2001    February 26, 2000   February 27, 1999
                                                                             -------------    -----------------   -----------------
<S>                                                                          <C>              <C>                 <C>
Cash paid for interest (net of capitalized amounts of $1,836, $5,292 and
  $7,069)................................................................       $543,343          $501,813             $259,100
                                                                                ========          ========             ========
Cash paid for (refunds from) income taxes................................       $(88,078)         $    981             $ 47,667
                                                                                ========          ========             ========
Notes received in connection with the disposition of discontinued
  operations.............................................................       $200,000          $     --             $     --
                                                                                ========          ========             ========
Stock received in connection with the disposition of discontinued
  operations.............................................................       $231,000          $     --             $     --
                                                                                ========          ========             ========
Change in market value of the stock received in connection with the
  disposition of discontinued operations.................................       $ 51,031          $     --             $     --
                                                                                ========          ========             ========
Conversion of debt to common stock.......................................       $597,332          $     --             $     --
                                                                                ========          ========             ========
10.50% notes due 2002 issued in exchange for 5.50% fixed rate senior
  notes due 2000 and 6.70% notes due 2001................................       $467,500          $     --             $     --
                                                                                ========          ========             ========
Exchange of preferred shares.............................................       $     --          $300,000             $     --
                                                                                ========          ========             ========
</TABLE>


21. Related Party Transactions

   Included in accounts receivable at March 3, 2001 and February 26, 2000 were
receivables from related parties of $3,456, and $2,982, respectively,
including employee loans. Included in accounts payable of March 3, 2001 and
February 26, 2000 were payables from related parties of $421 and $3,475,
respectively.

   During fiscal 2001, 2000 and 1999, the Company sold merchandise totaling
$65,259, $16,280 and $6,225, respectively, to drugstore.com (or drugstore.com
customers) and Diversified Prescription Delivery, LLC, equity-method
investees. During fiscal 2000 and 1999, the Company purchased equipment
totaling $26,115 and $27,119, respectively, from Stores Automated Systems,
Inc., an equity-method investee. As of February 26, 2001, the Company had
divested of its interest in Store Automated Systems, Inc. Therefore, purchases
from Store Automated Systems, Inc. in fiscal 2001 are not considered related
party purchases.

   In fiscal 2000 and 1999, the Company purchased $8,814 and $9,430,
respectively, 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 $154 per year a 43,920 square foot storage space in a
warehouse in Camp Hill, Pennsylvania, from a partnership in which a former
director has a 50% interest.

   The Company formerly operated an 8,000 square-foot store in a shopping
center in which 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 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 the former Chairman of the Board and Chief Executive
Officer is or was a partner. The rent is $39 per year.


                                      F-34

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

21. Related Party Transactions -- (Continued)

   The Company paid Leonard Green & Partners L.P. (a) a $3,000 fee for service
provided in connection with its preferred stock investment in October 1999 and
reimbursed $240 of its out-of-pocket expenses; (b) a $3,000 fee for services
provided in connection with the financial restructuring transactions which the
Company completed in June 2000 and reimbursed its out-of-pocket expenses, and
(c) a $2,500 fee for services provided in connection with the sale of PCS
Health Services, Inc. In October 1999, the Company agreed to pay Leonard Green
& Partners L.P. an annual fee of $1,000 for its consulting services. This fee
was increased to $1,500 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 L.P. The Company
has agreed to register the common stock issuable upon conversion of the series
B preferred stock and to pay all expenses and fees (other than underwriting
discounts and commission) related to any registration.

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

22. Interim Financial Results (Unaudited)

<TABLE>
<CAPTION>

                                                                                     Fiscal Year 2001 (53 Weeks)
                                                                  -----------------------------------------------------------------
                                                                    First        Second         Third        Fourth
                                                                   Quarter       Quarter       Quarter      Quarter         Year
                                                                  ----------   ----------    ----------    ----------   -----------
<S>                                                               <C>          <C>           <C>           <C>          <C>
Revenues......................................................    $3,442,186   $3,439,469    $3,531,691    $4,103,519   $14,516,865
Costs and expenses excluding store closing and impairment
  charges.....................................................     3,685,301    3,776,210     3,677,367     4,272,716    15,411,594
Store closing and impairment charges..........................        15,879       88,292        95,571       188,336       388,078
                                                                  ----------   ----------    ----------    ----------   -----------
Income (loss) from continuing operations before taxes.........      (258,994)    (425,033)     (241,247)     (357,533)   (1,282,807)
Income tax expense............................................       144,382           --            --         4,575       148,957
                                                                  ----------   ----------    ----------    ----------   -----------
Income (loss) from continuing operations......................      (403,376)    (425,033)     (241,247)     (362,108)   (1,431,764)
Income (loss) from discontinued operations, net of tax........        11,335           --            --            --        11,335
Loss on disposal of discontinued operations, net of tax.......      (303,330)    (31,433)       135,534        30,434      (168,795)
                                                                  ----------   ----------    ----------    ----------   -----------
Net loss......................................................    $ (695,371)  $ (456,466)   $ (105,713)   $ (331,674)  $(1,589,224)
                                                                  ==========   ==========    ==========    ==========   ===========
Basic and diluted earnings (loss) per share:
Loss from continuing operations...............................    $    (1.57)  $    (1.87)   $    (0.74)   $    (1.07)  $     (5.15)
Income (loss) from discontinued operations....................         (1.12)       (0.10)         0.40          0.09         (0.50)
                                                                  ----------   ----------    ----------    ----------   -----------
Net loss......................................................    $    (2.69)  $    (1.97)   $    (0.34)   $    (0.98)  $     (5.65)
                                                                  ==========   ==========    ==========    ==========   ===========
</TABLE>



                                      F-35

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

22. Interim Financial Results (Unaudited) -- (Continued)


<TABLE>
<CAPTION>

                                                                                     Fiscal Year 2000 (52 Weeks)
                                                                  -----------------------------------------------------------------
                                                                    First        Second         Third        Fourth
                                                                   Quarter       Quarter       Quarter      Quarter         Year
                                                                  ----------   ----------    ----------    ----------   -----------
<S>                                                               <C>          <C>           <C>           <C>          <C>
Revenues......................................................    $3,354,621   $3,203,964    $3,279,138    $3,501,224   $13,338,947
Costs and expenses excluding store
 closing and impairment charges...............................     3,339,205    3,313,458     3,480,935     4,189,197    14,322,795
Store closing and impairment charges..........................        24,490       53,188        30,601        31,169       139,448
                                                                  ----------   ----------    ----------    ----------   -----------
Income (loss) from continuing operations before taxes and
  cumulative effect of change in accounting method............        (9,074)    (162,682)     (232,398)     (719,142)   (1,123,296)
Income tax expense (benefit)..................................       (28,959)      (8,280)       17,403        11,461        (8,375)
                                                                  ----------   ----------    ----------    ----------   -----------
Income (loss) from continuing operations before cumulative
  effect of change in accounting method, net..................        19,885     (154,402)     (249,801)     (730,603)   (1,114,921)
Income (loss) from discontinued operations, net of tax........         3,345        4,247            (4)        1,590         9,178
Cumulative effect of change in accounting method, net of tax..       (27,300)          --            --            --       (27,300)
                                                                  ----------   ----------    ----------    ----------   -----------
Net loss......................................................    $   (4,070)  $ (150,155)   $ (249,805)   $ (729,013)  $(1,133,043)
                                                                  ==========   ==========    ==========    ==========   ===========
Basic and diluted earnings (loss) per share:
Loss from continuing operations...............................    $     0.08   $    (0.60)   $    (1.00)   $    (2.82)  $     (4.34)
Income (loss) from discontinued operations....................          0.01         0.02            --          0.01          0.04
Cumulative effect of change in accounting method..............         (0.11)          --            --            --         (0.11)
                                                                  ----------   ----------    ----------    ----------   -----------
Net loss......................................................    $    (0.02)  $    (0.58)   $    (1.00)   $    (2.81)  $     (4.41)
                                                                  ==========   ==========    ==========    ==========   ===========
</TABLE>


   Certain reclassifications have been made to the previously issued quarterly
amounts to conform to fiscal 2001 year end classifications.

   During the third and fourth quarters of fiscal 2000, the Company incurred
significant non-recurring charges. These included charges of $232,800 for
litigation expenses, $63,300 for debt restructuring, $67,600 for sale of
discontinued merchandise, and $49,800 for markdowns at retail stores.

   During the third quarter of fiscal 2001, the Company recorded a $20,000
credit for resolution of insurance coverage disputes and $20,000 credit for
the reversal of previously amortized cost of issuance related to financings
resulting from a contract settlement.

   During the fourth quarter of fiscal 2001 (the 14 week quarter), the Company
incurred $188,336 of store closing and impairment charges and $33,500 of
expense related to stock options under variable accounting plans.


                                      F-36

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

23. Financial Instruments

   The carrying amounts and fair values of financial instruments at March 3,
2001 and February 26, 2000 are listed as follows:

<TABLE>
<CAPTION>

                                                                                          2001                       2000
                                                                                 -----------------------    -----------------------
                                                                                 Carrying        Fair        Carrying       Fair
                                                                                  Amount         Value        Amount        Value
                                                                                ----------    ----------    ----------   ----------
<S>                                                                             <C>           <C>           <C>          <C>
Variable rate indebtedness ..................................................   $1,219,785    $1,219,785    $2,480,495   $2,480,495
Fixed rate indebtedness .....................................................    3,574,763     2,824,904     2,984,238    1,959,252
Note receivable .............................................................       37,041        37,962        32,889       36,102
AdvancePCS securities .......................................................      491,198       491,198            --           --
Interest rate swaps .........................................................           --       (29,000)           --           --
</TABLE>


   Cash, trade receivables and trade payables are carried at market value,
which approximates 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 interest rate
swaps and LIBOR-based borrowings under the credit facilities, term loans and
term notes approximate their fair values due to the short-term nature of the
obligations and the variable interest rates.

 Long-term indebtedness and interest rate swaps:

   The fair values of long-term indebtedness and interest rate swaps 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.

 AdvancePCS Securities:

   The fair value of AdvancePCS securities are estimated based on the quoted
market prices of the financial instruments.


                                      F-37

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

24. Discontinued Operations

   On October 2, 2000, the Company sold its wholly owned subsidiary, PCS Health
Systems Inc., to Advance Paradigm, Inc. (now known as AdvancePCS). The
proceeds from the sale of PCS consisted of $710,557 in cash, $200,000 in
principal amount of AdvancePCS's unsecured 11% senior subordinated notes and
equity securities of AdvancePCS.

   PCS is reported as a discontinued operation for all periods presented in the
accompanying financial statements and the operating results of PCS through
October 2, 2000, the date of sale, are reflected separately from the results
of continuing operations. The loss on the disposal of PCS is $168,795. This
loss includes net operating results of PCS from July 12, 2000 to October 2,
2000, transaction expenses, the final settlement of the purchase price between
the Company and AdvancePCS and the fair value of the non-cash consideration
received.

   As a result of the sale, the Company recorded an increase to the tax
valuation allowance and income tax expense of $146,917 for the year ended
March 3, 2001.

   Summarized operating results and net loss of PCS for thirty-one weeks ended
October 2, 2000 and the years ended February 26, 2000, and February 27, 1999
were as follows:

<TABLE>
<CAPTION>

                                                                                                                Year Ended
                                                                                                        ---------------------------
                                                                                  Thirty-One Weeks      February 26,   February 27,
                                                                               Ended October 2, 2000        2000           1999
                                                                               ---------------------    ------------   ------------
<S>                                                                            <C>                      <C>            <C>
Net sales..................................................................          $ 779,748           $1,342,495      $ 344,448
Income (loss) from operations before income tax expense....................             25,181               40,081        (18,748)
Income tax expense (benefit)...............................................             13,846               30,903         (5,925)
                                                                                     ---------           ----------      ---------
Income (loss) from discontinued operations.................................             11,335                9,178        (12,823)
Loss on disposal before income tax benefit.................................           (169,529)                  --             --
Income tax benefit.........................................................                734                   --             --
                                                                                     ---------           ----------      ---------
Loss on disposal...........................................................           (168,795)                  --             --
                                                                                     ---------           ----------      ---------
Total income (loss) from discontinued operations...........................          $(157,460)          $    9,178      $(12,823)
                                                                                     =========           ==========      =========
</TABLE>

<TABLE>
<CAPTION>

                                                                        February 26, 2000
                                                                        -----------------
         <S>                                                            <C>
         Net current liabilities:
          Cash and cash equivalents.................................       $    4,843
          Accounts and other receivables, net.......................          614,432
          Other currents assets.....................................           42,707
          Claims and rebates payable................................         (924,951)
          Other current liabilities.................................         (127,084)
                                                                           ----------
                                                                           $ (390,053)
                                                                           ----------
         Net non-current assets:
          Property and equipment, net...............................       $  147,733
          Goodwill and intangibles, net.............................        1,816,221
          Noncurrent liabilities....................................         (220,126)
                                                                           ----------
                                                                           $1,743,828
                                                                           ==========
</TABLE>


 Acquisition of Discontinued Operations

   On January 22, 1999, the Company purchased PCS for $1.5 billion, of which
$1.3 billion was financed using commercial paper and $200 million was paid in
cash. The PCS acquisition was accounted for using the

                                      F-38

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

24. Discontinued Operations -- (Continued)

purchase method. In accordance with APB Opinion No. 16, the Company 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 was recorded as goodwill.

 Intangible Assets of Discontinued Operations

<TABLE>
<CAPTION>

                                                                        February 26, 2000
                                                                        -----------------
         <S>                                                            <C>
         Goodwill...................................................       $1,298,520
         Prescription files and customer lists......................          434,100
         Trade name.................................................          113,100
         Internally developed software..............................           21,900
         Assembled workforce........................................           13,400
                                                                           ----------
                                                                            1,881,020
         Accumulated amortization...................................          (64,799)
                                                                           ----------
                                                                           $1,816,221
                                                                           ==========
</TABLE>


   At acquisition, the Company determined that the estimated useful life of the
goodwill recorded with the PCS acquisition was primarily indeterminate and
likely exceeded 40 years. This estimate was 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 found no persuasive evidence that any material
portion of these intangible assets would be depleted in less than 40 years.
Accordingly, the Company amortized goodwill over the maximum allowable period
of 40 years on a straight-line basis.

   The value of the PCS trade name was amortized over its estimated useful life
of 40 years. The value of the customer base and pharmacy network acquired in
the purchase of PCS was amortized over their estimated lives of 30 years. The
value of assembled workforce and internally developed software acquired was
amortized over their useful lives of six and five years, respectively.

 Impairment of Long-Lived Assets

   Long-lived assets of PCS consist principally of intangibles. The Company
compared 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 impairment occurred. Long-lived assets and certain identifiable
intangibles to be disposed of, whether by sale or abandonment, were reported
at the lower of carrying amount or fair value less cost to sell.

 Revenue Recognition of Discontinued Operations

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

25. Subsequent Events

   In March 2001, the Company reduced the outstanding balances of the PCS
credit facility and the PCS exchange debt by $484,104 with the net proceeds
from the sale of equity securities of AdvancePCS and by $200,000 when
AdvancePCS repaid the senior subordinated notes.


                                      F-39

<PAGE>
                     RITE AID CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

   For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999
              (In thousands of dollars, except per share amounts)

25. Subsequent Events -- (Continued)

   Subsequent to March 3, 2001, the Company committed to issue 77,192,000
shares of its common stock in exchange for $511,351 of debt (see Note 13).

   Subsequent to March 3, 2001, the Company committed to $149,600 private
placements comprised of 26,500,000 shares of common stock.

   On May 15, 2001, the Company entered into a $1,900,000 commitment agreement
with a group of banks whereby the Company and the banks would enter into a new
senior secured credit facility to replace the existing Senior Credit facility.
The closing of the new credit facility is subject to the satisfaction of
customary closing conditions and the issuance by the Company of approximately
$1,050,000 in new debt or equity securities, of which $527,000 has already
been committed or arranged. The Company plans to raise the additional $523,000
by issuing equity and fixed income securities and through real estate mortgage
financings. The new credit facility will be secured by inventory, accounts
receivable and certain other assets of the Company. While management believes
that it will be successful in completing the refinancing, there is no
assurance that the refinancing transaction will be consummated.

   On May 16, 2001, the Company agreed to issue five year warrants to purchase
3,040,000 shares of common stock at $6.00 per share in connection with the
exchange by a holder of $152,000 of 10.5% notes due 2002 for a like principal
amount of new 12.5% notes due 2006.


                                      F-40
<PAGE>

                      RITE AID CORPORATION AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
  For the Years Ended March 3, 2001, February 26, 2000, and February 27, 1999
                             (dollars in thousands)


<TABLE>
<CAPTION>

                                                                Additions
                                                  Balance at    Charged to                 Balance at
Allowances deducted from accounts receivable      Beginning     Costs and                   End of
for estimated uncollectible amounts:              Of Period     Expenses     Deductions     Period
- ------------------------------------              ----------    ---------    ----------    ----------
<S>                                               <C>           <C>           <C>          <C>
Year ended March 3, 2001 .....................    $ 43,371      $ 21,147      $ 27,468     $ 37,050
Year ended February 26, 2000 .................      30,296        29,268        16,193       43,371
Year ended February 27, 1999 .................      47,268        15,916        32,888       30,296
</TABLE>


                                      F-41
<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: May 18, 2001

                                     RITE AID CORPORATION



                                     By:  /s/ ROBERT G. MILLER
                                          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 May 18, 2001.

<TABLE>
<CAPTION>
                Signature                                     Title
                ---------                                     -----
<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
- -------------------------------------            Senior Executive Vice President
             John T. Standley

           /s/ CHRISTOPHER HALL                 Executive Vice President, Finance and Accounting
- -------------------------------------
             Christopher Hall

             /s/ KEVIN TWOMEY                   Chief Accounting Officer and Senior Vice President
- -------------------------------------
               Kevin Twomey

          /s/ WILLIAM J. BRATTON                Director
- -------------------------------------
            William J. Bratton

          /s/ ALFRED M. GLEASON                 Director
- -------------------------------------
            Alfred M. Gleason

</TABLE>



                                      S-1

<PAGE>

<TABLE>
<CAPTION>
                Signature                                   Title
                ---------                                   -----
<S>                                          <C>
           /s/ LEONARD I. GREEN                 Director
- -------------------------------------
             Leonard I. Green

          /s/ NANCY A. LIEBERMAN                Director
- -------------------------------------
            Nancy A. Lieberman

           /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/ GERALD TSAI, JR.                 Director
- -------------------------------------
             Gerald Tsai, Jr.

</TABLE>



                                      S-2



<PAGE>
                                 EXHIBIT INDEX

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

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

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

 3.3      By-laws, as amended on November 8, 2000                                                Exhibit 3.1 to Form 8-K filed on
                                                                                                 November 13, 2000

 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.

 4.2      Waiver dated as of January 11, 2000 to Guaranty dated as of March 19, 1998, as         Exhibit 4.7 to Form 8-K filed on
          amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by       January 18, 2000
          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

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

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

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

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

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

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

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

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

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

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
 4.13     Amendment No. 1 dated as of October 25, 1999 to Guaranty dated as of May 30, 1997       Exhibit 4.18 to Form 8-K filed on
          from Rite Aid Corporation to Sumitomo Bank Leasing and Finance, Inc.                    January 18, 2000

 4.14     Amendment No. 4, dated as of October 25, 1999 to Master Lease and Security              Exhibit 4.19 to Form 8-K filed on
          Agreement, dated as of May 30, 1997, as amended by Amendment No. 1, dated as of         January 18, 2000
          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.

 4.15     Amendment No. 3, dated as of May 26, 1999, to Master Lease and Security Agreement,      Exhibit 4.20 to Form 8-K filed on
          dated as of May 30, 1997, (as amended by Amendment No. 1, dated as of March 11,         January 18, 2000
          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.

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

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

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

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

 4.20     Waiver No. 1 dated as of January 10, 2000 to Note Agreement dated as of September       Exhibit 4.25 to Form 8-K filed on
          30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25,     January 18, 2000
          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

 4.21     Amendment No. 2 dated as of December 2, 1999 to Note Agreement dated as of              Exhibit 4.26 to Form 8-K filed on
          September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of       January 18, 2000
          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
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
 4.22     Amendment No. 1 dated as of October 25, 1999 to Note Agreement dated as of              Exhibit 4.27 to Form 8-K filed on
          September 30, 1996 among Finco, Inc., Rite Aid Corporation, The Prudential              January 18, 2000
          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

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

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

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

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

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

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

 4.29     Indenture, dated as of June 14, 2000, among Rite Aid Corporation, as Issuer, each       Exhibit 4.1 to Form 8-K filed on
          of the Subsidiary Guarantors named therein and State Street Bank and Trust Company,     June 21, 2000
          as Trustee.

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

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

10.1      1999 Stock Option Plan*                                                                 Filed Herewith

10.2      2000 Omnibus Equity Plan*                                                               Included in Proxy Statement dated
                                                                                                  October 24, 2000

10.3      2001 Stock Option Plan*                                                                 Filed Herewith

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

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

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

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
10.7      Commitment Letter, dated October 18, 1999, by and between Rite Aid Corporation and      Exhibit 10.1 to Form 8-K filed on
          Green Equity Investors III, L.P.                                                        November 2, 1999

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

10.9      Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and         Filed Herewith
          Robert G. Miller, dated as of May 7, 2001*

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

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

10.12     Amendment No. 1 to Employment Agreement by and between Rite Aid Corporation and         Filed Herewith
          Mary F. Sammons, dated as of May 7, 2001*

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

10.14     Employment Agreement by and between Rite Aid Corporation and David R. Jessick,          Exhibit 10.3 to Form 8-K filed on
          dated as of December 5, 1999*                                                           January 18, 2000

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

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

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

10.18     Employment Agreement by and between Rite Aid Corporation and Elliot S. Gerson,          Filed Herewith
          dated as of November 16, 2000*

10.19     Employment Agreement by and between Rite Aid Corporation and Eric Sorkin, dated as      Filed Herewith
          of April 2, 1999*

10.20     Employment Agreement by and between Rite Aid Corporation and James Mastrain, dated      Filed Herewith
          as of September 27, 2000*

10.21     Rite Aid Corporation Special Deferred Compensation Plan*                                Exhibit 10. 20 to Form 10-K filed
                                                                                                  on July 11, 2000

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

10.23     Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite     Exhibit 10.2 to Form 8-K filed on
          Aid Corporation, each Subsidiary Guarantor of Rite Aid Corporation listed therein,      June 21, 2000
          Wilmington Trust Company, Citicorp 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 as of June 12, 2000, made by the            Exhibit 10.3 to Form 8-K filed
          Subsidiary Guarantors identified therein and any other person that becomes a            June 21, 2000
          Subsidiary Guarantor pursuant to the Senior Credit Facility, in favor of Citicorp
          USA, Inc., as Senior Collateral Agent.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
10.25     Senior Subsidiary Guarantee Agreement, dated as of June 12, 2000, among each of the     Exhibit 10.4 to Form 8-K filed
          Subsidiary Guarantors of Rite Aid Corporation listed therein and Citicorp USA,          June 21, 2000
          Inc., as Senior Collateral Agent.

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

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

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

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

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

10.31     Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by       Exhibit 10.10 to Form 8-K filed
          the Subsidiary Guarantors identified therein and any other person that becomes a        June 21, 2000
          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 Contribution Agreement, dated as of June     Exhibit 10.11 to Form 8-K filed
          12, 2000, among Rite Aid Corporation, each Subsidiary Guarantor listed therein and      June 21, 2000
          Wilmington Trust Company, as Second Priority Collateral Trustee.

10.33     First Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by        Exhibit 10.12 to Form 8-K filed
          the Domestic Subsidiaries identified therein and any other person that becomes a        June 21, 2000
          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 Agreement, dated as of June 12, 2000,         Exhibit 10.13 to Form 8-K filed
          between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as          June 21, 2000
          Agent.

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

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

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
10.37     Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, and           Exhibit 10.16 to Form 8-K filed
          Amendment No. 1 to Put Agreement, for Adjustable Rate Senior Secured Notes due          June 21, 2000
          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 June 12, 2000, from Rite Aid Corporation,      Exhibit 10.17 to Form 8-K filed
          as Guarantor, to RAC Leasing LLC, as Lessor.                                            June 21, 2000

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

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

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

10.42     Executive Separation Agreement and General Release, dated February 28, 2000,            Exhibit 10.46 to Form
          between Rite Aid Corporation and Timothy Noonan.                                        10-K filed on July 11, 2000

10.43     Letter Agreement, dated February 28, 2000, between Rite Aid Corporation and Timothy     Exhibit 10.47 to Form
          Noonan, amending Executive Separation Agreement and General Release, dated February     10-K filed on July 11, 2000
          28, 2000, between Rite Aid Corporation and Timothy Noonan.

10.44     Commitment letter dated May 15, 2001 by and between Rite Aid Corporation, Solomon       Filed herewith
          Smith Barney Inc., Citicorp North America, Inc., The Chase Manhattan Bank, J.P.
          Morgan Securities Inc., Credit Suisse First Boston, Fleet Retail Finance Inc., and
          Fleet Securities, Inc.

10.45     Equity for Bank Debt Exchange Agreement dated April 12, 2001 between Rite Aid           Filed herewith
          Corporation, Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P.,
          Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.

10.46     Side Letter to Equity for Bank Debt Exchange Agreement dated April 30, 2001 between     Filed herewith
          Rite Aid Corporation, Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund,
          L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.

10.47     Intentionally left blank

10.48     Employment Agreement by and between Rite Aid Corporation and Christopher Hall,          Filed herewith
          dated as of January 26, 2000*

10.49     Employment Agreement by and between Rite Aid Corporation and Robert B. Sari, dated      Filed herewith
          as of February 28, 2001*

11        Not Applicable

12        Statement regarding computation of ratios of earnings to fixed charges                  Filed herewith

13        Not Applicable

16        Not Applicable
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Numbers                            Description                                                    Incorporation by reference to
- -------                            -----------                                                    -----------------------------
<S>       <C>                                                                                     <C>
18        Letter re change in accounting principles                                               Exhibit 18 to the Form
                                                                                                  10-K filed on July 11, 2000

21        Subsidiaries of the registrant                                                          Filed herewith

22        Not Applicable

23        Consent of Independent Certified Public Accountants                                     Not applicable

24        Not Applicable
</TABLE>

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

(b)
Reports on Form 8-K

   We did not file any current reports on Form 8-K during the fourth quarter of
fiscal 2001.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>b311659_ex10-1.txt
<DESCRIPTION>MATERIAL CONTRACTS
<TEXT>

<PAGE>
                                                                    EXHIBIT 10.1

                              RITE AID CORPORATION
                             1999 STOCK OPTION PLAN
                        (As amended on January 19, 2000)

                  1.       Purpose.
                           --------

                  The purposes of the 1999 Stock Option Plan of Rite Aid
Corporation, (the "Plan") are to afford an incentive to employees of Rite Aid
Corporation (the "Company") or any Subsidiary or Affiliate that now exists or
hereafter is organized or acquired, to continue as employees to increase their
efforts on behalf of the Company and to promote the success of the Company's
business. This Plan is designed to comply and conform with the exemption for
"broadly-based plans" as set forth in Section 312.03(a)(2) of the New York Stock
Exchange Listed Company Manual, as in effect as of the Effective Date, and shall
be interpreted accordingly.

                  2.       Definitions.
                           ------------

                           (a) "Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.


                           (b) "Board" means the Board of Directors of the
Company.

                           (c) "Code" means the Internal Revenue Code of 1986,
as amended from time to time.

                           (d) "Committee" means the Compensation Committee of
the Board which shall administer the Plan.

                           (e) "Company" means Rite Aid Corporation, a
corporation organized under the laws of the State of Delaware, or any successor
corporation.

                           (f) "Effective Date" means November 10, 1999.

                           (g) "Employee" means an Employee of the Company or
any Subsidiary or Affiliate.

                           (h) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.


<PAGE>

                           (i) "Fair Market Value" means the fair market value
of such Stock determined by such methods or procedures as shall be established
from time to time by the Committee. Unless otherwise determined by the Committee
in good faith, the per share Fair Market Value of Stock as of a particular date
shall mean (i) the closing price per share of Stock on such date on the national
securities exchange on which the Stock is principally traded, or (ii) if the
shares of Stock are then traded in an over-the-counter market, the average of
the closing bid and asked prices for the shares of Stock in such
over-the-counter market for the last preceding date on which there was a sale of
such Stock in such market, or (iii) if the shares of Stock are not then listed
on a national securities exchange or traded in an over-the-counter market, such
value as the Committee, in its sole discretion, shall determine.

                           (j) "NQSO" means an Option that is designated as a
nonqualified stock option.

                           (k) "Option" means a right granted to an Employee
under Section 6, to purchase shares of Stock.

                           (l) "Option Agreement" means any written agreement,
contract, or other instrument or document evidencing an Option.

                           (m) "Plan" means this Rite Aid Corporation 1999 Stock
Option Plan, as amended from time to time.

                           (n) "Stock" means shares of common stock, par value
$1.00 per share, of the Company.

                           (o) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company if, at the time of granting of
an Option, each of the corporations (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.

                  3.       Administration.
                           --------------

                  The Plan shall be administered by the Committee. The Committee
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Options; to determine the persons to whom and
the time or times at which Options shall be granted;



                                       2
<PAGE>

to determine the number of shares of Stock to which an Option may relate and the
terms, conditions and restrictions relating to any Option; to determine whether,
to what extent, and under what circumstances an Option may be settled,
cancelled, forfeited, exchanged, or surrendered; to make adjustments in the
terms and conditions applicable to Options; to designate Affiliates; to construe
and interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Option
Agreements (which need not be identical for each Employee); and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.

                  All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at a meeting or by written consent. The Committee may delegate to one
or more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the Plan. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all persons, including the Company, and any Subsidiary, Affiliate
or Employee (or any person claiming any rights under the Plan from or through
any Employee) and any stockholder.

                  No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Option granted hereunder.

                  4.       Eligibility.
                           -----------

                  Options may be granted only to Employees of the Company, or of
any of its Subsidiaries and Affiliates. In determining the persons to whom
Options shall be granted, the Committee shall take into account such factors as
the Committee shall deem relevant in connection with accomplishing the purposes
of the Plan.

                  5.       Stock Subject to the Plan.
                           -------------------------

                  The maximum number of shares of Stock reserved for the grant
of Options under the Plan shall be 10,000,000, subject to adjustment as provided
herein. Notwithstanding anything contained in the Plan to the contrary, at least
a majority of the shares subject to Options awarded under the Plan shall be
awarded to Employees of the Company who are neither "officers" (within the
meaning of Rule 16a-(f) promulgated under the Exchange Act) nor directors of the
Company. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares


                                       3
<PAGE>

subject to an Option are forfeited, cancelled, exchanged or surrendered or if an
Option otherwise terminates or expires without a distribution of shares to the
Employee, the shares of stock with respect to such Option shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Options under the Plan.

                  In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock, or other
property), recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of any Employee to whom an Option has been granted under the Plan, then
the Committee shall make such equitable changes or adjustments as it deems
necessary or appropriate to any or all of (i) the number and kind of shares of
Stock or other property (including cash) that may thereafter be issued in
connection with Options, (ii) the number and kind of shares of Stock or other
property (including cash) issued or issuable in respect of outstanding Options
and (iii) the exercise price relating to any Option.

                  6.       Terms and Conditions of Options.
                           -------------------------------

                           (a)      The Committee is authorized to grant
Options to Employees, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions of
such Options at the date of grant or thereafter. The Option Agreement evidencing
the grant of an Option under the Plan shall designate the Option as a
Nonqualified Stock Option.

                           (b)      The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; provided,
however, that the Option price shall not be less than the Fair Market Value on
the date of the grant. The exercise price for Stock subject to an Option may be
paid in cash or by an exchange of Stock previously owned by the Employee, or a
combination of both, in an amount having a combined value equal to such exercise
price. An Employee to whom an Option has been granted may also elect to pay all
or a portion of the aggregate exercise price by having shares of Stock with a
Fair Market Value on the date of exercise equal to the aggregate exercise price
withheld by the Company or sold by a broker-dealer.

                           (c)       Options shall be exercisable over the
exercise period (which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may determine, as reflected
in the Option Agreement; provided that, the Committee shall have the authority
to accelerate the exercisability of any outstanding Option at such time and
under such circumstances, as it, in its sole


                                       4
<PAGE>


discretion, deems appropriate. An Option may be exercised to the extent of any
or all full shares of Stock as to which the Option has become exercisable, by
giving written notice of such exercise to the Committee or its designated agent.

                           (d)      Except as otherwise provided in this
subsection, an Option may not be exercised unless the Employee is then in the
employ of the Company or a Subsidiary or an Affiliate (or a company or a parent
or subsidiary company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies), and unless the
Employee has remained continuously so employed, or continuously maintained such
relationship, since the date of grant of the Option; provided that (1) an
employee whose employment terminates other than for cause shall be entitled to
exercise all Options which were vested at the date of termination of employment
until the earlier of the close of business on the date that is (a) 90 days from
the date of termination of employment or (b) 10 years from the date the Option
was granted, (2) an employee whose employment terminates by reason of death
shall be entitled to exercise all Options which were vested at the date of death
until the earlier of the close of business on the date that is (a) one year from
the date of death or (b) 10 years from the date the Option was granted and (3)
the Option Agreement may contain provisions extending the exercisability of
Options, in such events as the Committee may determine at the date of grant, or
thereafter, to a date not later than 10 years from the date the Option was
granted.

                           (e)      Options may be subject to such other
conditions including, but not limited to, restrictions on transferability of the
shares acquired upon exercise of such Options, as the Committee may prescribe in
its discretion or as may be required by applicable law.

                  7.       General Provisions.
                           ------------------

                           (a)  Nontransferability.  Unless otherwise provided
in an Option Agreement, Options shall not be transferable by an Employee except
by will or the laws of descent and distribution and shall be exercisable during
the lifetime of an Employee only by such Employee or his guardian or legal
representative.

                           (b)  No Right to Continued Employment.  Nothing in
the Plan or in any Option granted under the Plan or in any Option Agreement or
other agreement entered into pursuant hereto shall confer upon any Employee the
right to continue in the employ of the Company, any Subsidiary or any Affiliate
or to be entitled to any remuneration or benefits not set forth in the Plan or
such Option Agreement or other agreement or to interfere with or limit in any
way the right of the Company or any such Subsidiary or Affiliate to terminate
such Employee's employment.


                                       5
<PAGE>

                           (c)  Withholding and Other Taxes.  The Company or
any Subsidiary or Affiliate is authorized to withhold from any payment relating
to an Option under the Plan, amounts of withholding and other taxes due with
respect thereto, and to take such other action as the Committee may deem
advisable to enable the Company and Employee to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Option.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of an
Employee's tax obligations.

                           (d)  Amendment and Termination.  The Board may at
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part. Notwithstanding the foregoing, no amendment shall affect
adversely any of the rights of any Employee, without such Employee's consent,
under any Option theretofore granted under the Plan. Unless earlier terminated
by the Board pursuant to the provisions of the Plan, the Plan shall terminate on
the tenth anniversary of its Effective Date. No Options shall be granted under
the Plan after such termination date.

                           (e)  No Rights to Options; No Stockholder Rights.
No Employee shall have any claim to be granted any Option under the Plan, and
there is no obligation for uniformity of treatment of Employees. Except as
provided specifically herein, an Employee or a transferee of an Option shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a stock certificate to him for such shares.

                           (f)  No Fractional Shares.  No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Option. The
Committee shall determine whether cash or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

                           (g)  Regulations and Other Approvals.
                                -------------------------------

                                    (i)  The obligation of the Company to sell
or deliver Stock with respect to any Option granted under the Plan shall be
subject to all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.

                                    (ii)  Each Option is subject to the
requirement that, if at any time the Committee determines, in its absolute
discretion, that the listing, registration or qualification of Stock issuable
pursuant to the Plan is required by any securities exchange


                                       6
<PAGE>


or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Option or the issuance of Stock, no such Option
shall be granted or payment made or Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Committee.

                                     (iii)  In the event that the disposition
of Common Stock acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), and is not otherwise exempt from such registration, such
Stock shall be restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee may require an
Employee receiving Stock pursuant to the Plan, as a condition precedent to
receipt of such Stock, to represent to the Company in writing that the Stock
acquired by such Employee is acquired for investment only and not with a view to
distribution.

                                    (iv)  In the event that at the date a
vested Option is to expire, the disposition of Common Stock issuable upon
exercise of that Option is not covered by a then current registration statement
under the Securities Act, the expiration date of such Option shall be extended
to the close of business on that date which is the earlier of the close of
business on that date which is (1) 90 days after the date the disposition of
Common Stock issuable upon exercise of that Option is covered by a then current
registration statement under the Securities Act or (2) 10 years from the date
the Option was granted.

                           (h)  Governing Law.  The Plan and all determinations
made and actions taken pursuant hereto shall be governed by the laws of the
State of Delaware without giving effect to the conflict of laws principles
thereof.


                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>3
<FILENAME>b311659_ex10-3.txt
<DESCRIPTION>MATERIAL CONTRACTS
<TEXT>

<PAGE>
                                                                    EXHIBIT 10.3

AS AMENDED THROUGH APRIL 4, 2001

                              RITE AID CORPORATION
                             2001 STOCK OPTION PLAN

                  1.       Purpose.
                           -------

                  The purposes of the 2001 Stock Option Plan of Rite Aid
Corporation, (the "Plan") are to afford an incentive to employees of Rite Aid
Corporation (the "Company") or any Subsidiary or Affiliate that now exists or
hereafter is organized or acquired, to continue as employees to increase their
efforts on behalf of the Company and to promote the success of the Company's
business. This Plan is designed to comply and conform with the exemption for
"broadly-based plans" as set forth in Section 312.03(a)(2) of the New York Stock
Exchange Listed Company Manual, as in effect as of the Effective Date, and shall
be interpreted accordingly.

                  2.       Definitions.
                           -----------

                           (a)  "Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.


                           (b)  "Board" means the Board of Directors of the
Company.

                           (c) "Code" means the Internal Revenue Code of 1986,
as amended from time to time.

                           (d)  "Committee" means the Compensation Committee of
the Board which shall, subject to the unfettered right of the Board to act as
the Committee, administer the Plan.

                           (e)  "Company" means Rite Aid Corporation, a
corporation organized under the laws of the State of Delaware, or any successor
corporation.

                           (f)  "Effective Date" means February 13, 2001

                           (g)  "Employee" means an Employee of the Company or
any Subsidiary or Affiliate.

                           (h) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.


<PAGE>

                           (i)  "Fair Market Value" means the fair market value
of such Stock determined by such methods or procedures as shall be established
from time to time by the Committee. Unless otherwise determined by the Committee
in good faith, the per share Fair Market Value of Stock as of a particular date
shall mean (i) the closing price per share of Stock on such date on the national
securities exchange on which the Stock is principally traded, or (ii) if the
shares of Stock are then traded in an over-the-counter market, the average of
the closing bid and asked prices for the shares of Stock in such
over-the-counter market for the last preceding date on which there was a sale of
such Stock in such market, or (iii) if the shares of Stock are not then listed
on a national securities exchange or traded in an over-the-counter market, such
value as the Committee, in its sole discretion, shall determine.

                           (j)  "NQSO" means an Option that is designated as a
nonqualified stock option.

                           (k) "Option" means a right granted to an Employee
under Section 6, to purchase shares of Stock.

                           (l)  "Option Agreement" means any written agreement,
contract, or other instrument or document evidencing an Option.

                           (m) "Plan" means this Rite Aid Corporation 2001 Stock
Option Plan, as amended from time to time.

                           (n)   "Stock" means shares of common stock, par
value $1.00 per share, of the Company.

                           (o)  "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of an Option, each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.

                  3.       Administration.
                           --------------

                  The Plan shall be administered by the Committee. The Committee
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Options; to determine the persons to whom and
the time or times at which Options shall be granted;


                                       2
<PAGE>


to determine the number of shares of Stock to which an Option may relate and the
terms, conditions and restrictions relating to any Option; to determine whether,
to what extent, and under what circumstances an Option may be settled, canceled,
forfeited, exchanged, or surrendered; to make adjustments in the terms and
conditions applicable to Options; to designate Affiliates; to construe and
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Option
Agreements (which need not be identical for each Employee); and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.

                  All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at a meeting or by written consent. The Committee may delegate to one
or more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the Plan. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all persons, including the Company, and any Subsidiary, Affiliate
or Employee (or any person claiming any rights under the Plan from or through
any Employee) and any stockholder.

                  No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Option granted hereunder.

                  4.       Eligibility.
                           -----------

                  Options may be granted only to Employees of the Company, or of
any of its Subsidiaries and Affiliates. In determining the persons to whom
Options shall be granted, the Committee shall take into account such factors as
the Committee shall deem relevant in connection with accomplishing the purposes
of the Plan.

                  5.       Stock Subject to the Plan.
                           -------------------------

                  The maximum number of shares of Stock reserved for the grant
of Options under the Plan shall be 20,000,000, subject to adjustment as provided
herein. Notwithstanding anything contained in the Plan to the contrary, at least
a majority of the shares subject to Options awarded under the Plan shall be
awarded to Employees of the Company who are neither "officers" (within the
meaning of Rule 16a-(f) promulgated under the Exchange Act) nor directors of the
Company. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares


                                       3
<PAGE>


subject to an Option are forfeited, canceled, exchanged or surrendered or if an
Option otherwise terminates or expires without a distribution of shares to the
Employee, the shares of stock with respect to such Option shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Options under the Plan.

                  In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock, or other
property), recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of any Employee to whom an Option has been granted under the Plan, then
the Committee shall make such equitable changes or adjustments as it deems
necessary or appropriate to any or all of (i) the number and kind of shares of
Stock or other property (including cash) that may thereafter be issued in
connection with Options, (ii) the number and kind of shares of Stock or other
property (including cash) issued or issuable in respect of outstanding Options
and (iii) the exercise price relating to any Option.

                  6.       Terms and Conditions of Options.
                           -------------------------------

                           (a)      The Committee is authorized to grant
Options to Employees, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions of
such Options at the date of grant or thereafter. The Option Agreement evidencing
the grant of an Option under the Plan shall designate the Option as a
Nonqualified Stock Option.

                           (b)      The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; provided,
however, that the Option price shall not be less than the Fair Market Value on
the date of the grant. The exercise price for Stock subject to an Option may be
paid in cash or by an exchange of Stock previously owned by the Employee, or a
combination of both, in an amount having a combined value equal to such exercise
price. An Employee to whom an Option has been granted may also elect to pay all
or a portion of the aggregate exercise price by having shares of Stock with a
Fair Market Value on the date of exercise equal to the aggregate exercise price
withheld by the Company or sold by a broker-dealer.

                           (c)       Options shall be exercisable over the
exercise period (which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may determine, as reflected
in the Option Agreement; provided that, the Committee shall have the authority
to accelerate the exercisability of any outstanding Option at such time and
under such circumstances, as it, in its sole


                                       4
<PAGE>

discretion, deems appropriate. An Option may be exercised to the extent of any
or all full shares of Stock as to which the Option has become exercisable, by
giving written notice of such exercise to the Committee or its designated agent.

                           (d)      Except as otherwise provided in this
subsection, an Option may not be exercised unless the Employee is then in the
employ of the Company or a Subsidiary or an Affiliate (or a company or a parent
or subsidiary company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies), and unless the
Employee has remained continuously so employed, or continuously maintained such
relationship, since the date of grant of the Option; provided that (1) an
employee whose employment terminates other than for cause shall be entitled to
exercise all Options which were vested at the date of termination of employment
until the earlier of the close of business on the date that is (a) 90 days from
the date of termination of employment or (b) 10 years from the date the Option
was granted, (2) an employee whose employment terminates by reason of death
shall be entitled to exercise all Options which were vested at the date of death
until the earlier of the close of business on the date that is (a) one year from
the date of death or (b) 10 years from the date the Option was granted and (3)
the Option Agreement may contain provisions extending the exercisability of
Options, in such events as the Committee may determine at the date of grant, or
thereafter, to a date not later than 10 years from the date the Option was
granted.

                           (e)      Options may be subject to such other
conditions including, but not limited to, restrictions on transferability of the
shares acquired upon exercise of such Options, as the Committee may prescribe in
its discretion or as may be required by applicable law.

                  7.       General Provisions.
                           ------------------

                           (a)  Nontransferability.  Unless otherwise provided
in an Option Agreement, Options shall not be transferable by an Employee except
by will or the laws of descent and distribution and shall be exercisable during
the lifetime of an Employee only by such Employee or his guardian or legal
representative.

                           (b)  No Right to Continued Employment.  Nothing in
the Plan or in any Option granted under the Plan or in any Option Agreement or
other agreement entered into pursuant hereto shall confer upon any Employee the
right to continue in the employ of the Company, any Subsidiary or any Affiliate
or to be entitled to any remuneration or benefits not set forth in the Plan or
such Option Agreement or other agreement or to interfere with or limit in any
way the right of the Company or any such Subsidiary or Affiliate to terminate
such Employee's employment.


                                       5
<PAGE>

                           (c)  Withholding and Other Taxes.  The Company or any
Subsidiary or Affiliate is authorized to withhold from any payment relating to
an Option under the Plan, amounts of withholding and other taxes due with
respect thereto, and to take such other action as the Committee may deem
advisable to enable the Company and Employee to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Option.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of an
Employee's tax obligations.

                           (d)  Amendment and Termination.  The Board may at any
time and from time to time alter, amend, suspend, or terminate the Plan in whole
or in part. Notwithstanding the foregoing, no amendment shall affect adversely
any of the rights of any Employee, without such Employee's consent, under any
Option theretofore granted under the Plan. Unless earlier terminated by the
Board pursuant to the provisions of the Plan, the Plan shall terminate on the
tenth anniversary of its Effective Date. No Options shall be granted under the
Plan after such termination date.

                           (e)  No Rights to Options; No Stockholder Rights.
No Employee shall have any claim to be granted any Option under the Plan, and
there is no obligation for uniformity of treatment of Employees. Except as
provided specifically herein, an Employee or a transferee of an Option shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a stock certificate to him for such shares.

                           (f)  No Fractional Shares.  No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Option. The
Committee shall determine whether cash or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

                           (g)  Regulations and Other Approvals.
                                -------------------------------

                                    (i)  The obligation of the Company to sell
or deliver Stock with respect to any Option granted under the Plan shall be
subject to all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.

                                    (ii)  Each Option is subject to the
requirement that, if at any time the Committee determines, in its absolute
discretion, that the listing, registration or qualification of Stock issuable
pursuant to the Plan is required by any securities exchange


                                       6
<PAGE>


or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Option or the issuance of Stock, no such Option
shall be granted or payment made or Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been effected or
obtained free of any conditions not acceptable to the Committee.

                                     (iii)  In the event that the disposition of
Common Stock acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), and is not otherwise exempt from such registration, such
Stock shall be restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee may require an
Employee receiving Stock pursuant to the Plan, as a condition precedent to
receipt of such Stock, to represent to the Company in writing that the Stock
acquired by such Employee is acquired for investment only and not with a view to
distribution.

                                    (iv)  In the event that at the date a
vested Option is to expire, the disposition of Common Stock issuable upon
exercise of that Option is not covered by a then current registration statement
under the Securities Act, the expiration date of such Option shall be extended
to the close of business on that date which is the earlier of the close of
business on that date which is (1) 90 days after the date the disposition of
Common Stock issuable upon exercise of that Option is covered by a then current
registration statement under the Securities Act or (2) 10 years from the date
the Option was granted.

                           (h)  Governing Law.  The Plan and all determinations
made and actions taken pursuant hereto shall be governed by the laws of the
State of Delaware without giving effect to the conflict of laws principles
thereof.


                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>b311659_ex10-9.txt
<DESCRIPTION>MATERIAL CONTRACTS
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.9

                               AMENDMENT NO. 1 TO
                              EMPLOYMENT AGREEMENT

         THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, by and between Rite Aid
Corporation, a Delaware corporation (the "Company") and Robert G. Miller
("Executive") is entered into as of the 7th day of May, 2001 (the "Effective
Date").

         WHEREAS, Executive and the Company have previously entered into that
certain Employment Agreement, dated as of December 5, 1999, as supplemented by
side letter dated April 5, 2000 between counsel (the "Employment Agreement");
and

         WHEREAS, the Company wishes to provide Executive additional bonus
compensation to further incentivize Executive to remain in the employment of the
Company;

         NOW, THEREFORE, in consideration of the mutual premises set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company and Executive hereby agree as
follows:

         1. Amendment to Employment Agreement. As of the Effective Date, the
Employment Agreement is hereby amended to incorporate by reference therein a new
Appendix B, which is attached hereto as Exhibit 1.

         2. Employment Agreement to Remain in Effect. Except as modified by this
Amendment No. 1, the Employment Agreement shall remain in full force and effect
in accordance with its terms. Without limiting the generality of the foregoing,
the Additional Incentive Bonus payable to Executive as provided in Exhibit 1
shall not in any way limit and is not in derogation of the Company's obligations
to fully indemnify Executive for fees, costs and expenses and any other matters
(including the Kroger Suit referred to in Exhibit 1) pursuant to Section 3(f) of
the Employment Agreement. In the event of a conflict between the provisions of
this Amendment No. 1 and the Employment Agreement, this Amendment No. 1 shall be
controlling.

         3. Capitalized Terms. Capitalized terms used herein or in Exhibit 1 and
not otherwise defined shall have the respective meanings set forth in the
Employment Agreement.

         4. Fees and Expenses. Promptly following the execution and delivery of
this Amendment No. 1 by Executive, the Company shall reimburse Executive for
legal fees and expenses incurred by Executive in negotiating and entering into
this Amendment No. 1 (and incidental matters contemplated hereby).

                                       1

<PAGE>

         IN WITNESS WHEREOF, Executive has hereunto set Executive's hand and,
pursuant to due authorization, the Company has caused this Amendment No. 1 to be
executed in its name and on its behalf, all as of the date and year first above
written.


                                           RITE AID CORPORATION


                                           By   /s/ Elliot Gerson
                                              --------------------------------
                                           Its Senior Executive Vice President

                                            /s/ Robert G. Miller
                                           -----------------------------------
                                           Robert G. Miller


                                       2

<PAGE>
                                    Exhibit 1

                                   APPENDIX B

         1. Entitlement to Incentive Bonus. In addition to the bonus and other
compensation provided in the Employment Agreement, the Company shall pay
Executive an incentive bonus in the amount set forth in Section 2 below (the
"Additional Incentive Bonus") on or within 5 days after the date first described
below:

             (a) The Additional Incentive Bonus shall be paid on January 1,
2002, if Executive is either an employee or a member of the Board of Directors
of the Company on that date; or

             (b) The Additional Incentive Bonus shall be paid on the Date of
Termination under the Employment Agreement, if Executive's employment is
terminated, prior to, January 1, 2002 (i) by reason of Executive's death or
Disability, (ii) by the Company without Cause, or (iii) by Executive for Good
Reason; or

             (c) The Additional Incentive Bonus shall be paid on the Date of
Termination under the Employment Agreement, if Executive terminates his
employment for any reason (or the Company terminates Executive's employment for
any reason) prior to January 1, 2002 but such Date of Termination is
simultaneous with or after the occurrence of a Change in Control of the Company;
or

             (d) The Additional Incentive Bonus shall be paid on the date
Executive is neither an employee nor a member of the Board of Directors of the
Company (except that this clause (d) shall not apply if Executive is no longer a
member of the Board of Directors as a result of Executive's voluntary
resignation from the Board or the termination by the Company of his Board
service simultaneously with or following termination by the Company of his
employment for Cause) if such date is prior to January 1, 2002.

The date as of which Executive first becomes entitled to receive the Additional
Incentive Bonus is referred to as the "Bonus Payment Date." For purposes of this
Amendment No. 1, Executive shall be deemed to be an employee of the Company (and
accordingly his employment shall be deemed not to have terminated) unless and
until the Date of Termination has occurred. Notwithstanding anything to the
contrary herein, Executive shall not be entitled to receive any Additional
Incentive Bonus if the company properly terminates Executive's employment for
Cause and the actual Date of Termination is prior to January 1, 2002 and no
Change in Control of the Company has occurred on or prior to such Date of
Termination.

         2. Amount of Incentive Bonus. The amount of the Additional Incentive
Bonus shall be equal to the sum of(i) $5,022,658 (the "Base Amount"), plus (ii)
simple interest thereon at the rate of nine percent (9%) per annum from December
5, 1999 through the applicable Bonus Payment Date (such sum, the "Additional
Bonus Amount") subject to offset only in accordance with Section 3 below and
repayment only in accordance with Section 4 below.

         3. Reduction in the Amount of the Incentive Bonus. If, on or prior to
the Bonus Payment Date, there has occurred a final settlement and/or a binding,
nonappealable judgment by a court or other tribunal of competent jurisdiction
(in either case, a "Final Determination") of all claims (including all Related
Claims as defined below) in the lawsuit captioned Robert G. Miller v. The Kroger
Co. (U.S. District Court, District of Oregon No. CV 00-182 NA) including any
substitute or successor litigation thereto (collectively, the "Kroger Suit"),
then the Additional Bonus Amount payable to Executive shall be reduced (but not
below zero) by an amount equal to the excess, if any, of (i) the amount of any
consideration paid by The Kroger Co. to Executive, that is not subject to
forfeiture or offset, pursuant to such Final Determination (but excluding any
payment in respect of punitive damages or by way of penalty) less (ii) the sum,
without double counting, of (x) any consideration paid or payable by Executive


                                       3
<PAGE>

pursuant to or in connection with such Final Determination (and any
counterclaims or cross-claims ("Related Claims") arising from, related to or in
connection with the departure by Executive and/or any other employee from The
Kroger Co., their consideration of and conduct in relation to employment by the
Company and/or their, or anyone else's subsequent employment with the Company)
and (y) all unpaid amounts (including, in any event, attorneys' fees and costs
incurred by Executive in connection with the Kroger Litigation or Related Claims
that have not been paid by the Company) required to be indemnified by the
Company pursuant to Section 3(f) of the Employment Agreement (any such excess,
the "Net Recovery Amount"). It is understood that there shall be no reduction of
or offset to the Additional Incentive Bonus required to be paid by the Company
to Executive by virtue of any Net Recovery Amount unless Executive shall have
received the Net Recovery Amount prior to the Bonus Payment Date and a Final
Determination has resolved all Related Claims against Executive by or in the
right of The Kroger Co. and its affiliates.

         4. Reimbursement of Amounts by Executive. Subject to the limitations
set forth in Section 4(d), in the event the Company timely pays the full
Additional Incentive Bonus to Executive pursuant to Section 1(a) (A) on January
1, 2002 or within 5 days thereafter (in the ease of subsection (a) below) or (B)
prior to a Final Determination (in the Case of subsection (b) below), Executive
shall be required to reimburse the Company for the amounts set forth in
subsections (a) and (b) below (in the aggregate, the "Reimbursement
Obligation"), provided, that in no event shall the aggregate amount of the
Reimbursement Obligation exceed the amount of the Additional Incentive Bonus
actually paid by the Company to Executive, plus attorneys' fees, if any,
received by Executive pursuant to the Final Determination and already reimbursed
by the Company.

             (a) Proration of Incentive Bonus if Executive Terminates Employment
Without Good Reason or Company Terminates for Cause between January 1, 2002 and
December 5, 2002, Executive is not a Director and No Change in Control Has
Occurred. If (i) Executive's employment is terminated by Executive without Good
Reason or by the Company with Cause, (ii) the applicable Date of Termination is
after January 1, 2002 and before December 5, 2002, (iii) no Change in Control of
the Company has occurred prior to such Date of Termination (iv) Executive is not
a member of the Board of Directors of the Company by reason of his voluntary
resignation from the Board or the termination by the Company of his Board
service prior to December 5, 2002 simultaneously with or following termination
by the Company of his employment for Cause and (v) as provided above, the
Company timely paid the full Additional Incentive Bonus pursuant to Section 1(a)
on January 1, 2002, then the Additional Incentive Bonus to which Executive is
entitled (the "Pro Rated Bonus") shall be deemed retroactively prorated, such
that Executive shall be obligated to reimburse the Company for an amount equal
to the excess, if any, of (x) the amount of the Additional Incentive Bonus
actually paid to Executive over (y) the product of (A) the Additional Incentive
Bonus actually paid and (B) a fraction, the numerator of which is the number of
days between December 5, 1999 and the applicable Date of Termination (or, if
later, the date of termination, of Board service), and the denominator of which
is 1096, less any amount theretofore paid or payable by Executive to the Company
pursuant to Section 4(b).

             (b) Reimbursement if Executive Receives an Award in the Kroger
Litigation After Receipt of Additional Incentive Bonus. If the Final
Determination occurs after the Bonus Payment Date and, as provided above, the
Company timely paid the full Additional Incentive Bonus pursuant to Section 1(a)
on the Bonus Payment Date, Executive shall be obligated to reimburse the Company
for an amount equal to the Net Recovery Amount received by Executive (not to
exceed the Additional Bonus Amount theretofore actually paid by the Company to
Executive, less any amount theretofore paid or payable by Executive to the
Company pursuant to Section 4(a)), plus attorneys' fees, if any, received by
Executive pursuant to the Final Determination and already reimbursed by the
Company.

                                       4
<PAGE>

             (c) Reimbursement Obligation Deferred Until Executive Receives
Amounts in Excess of What Executive Is Entitled to Retain. Executive shall pay
the Company the amounts required under Section 4(a) or (b) within 15 days
following the date as to which any such Reimbursement Obligation arises,
provided, that any such payment obligation (or portion thereof) shall not arise
and shall be deferred until such time or times as Executive shall actually have
received payment from the Additional Incentive Bonus and any Net Recovery Amount
an amount that, in the aggregate, is in excess of the Pro Rated Bonus actually
paid (in the case of Section 4(a)) or the full Additional Bonus Amount (in the
case of Section 4(b)) and all legal fees then due in connection with the Kroger
Suit have been paid or reimbursed. Any excess recovery in the Kroger Suit beyond
the amount of the Reimbursement Obligation shall be retained by Executive.

             (d) Amounts Payable to the Company. Any amount payable by Executive
to the Company pursuant to this Section 4 shall be net of: (x) any tax detriment
of any nature whatsoever suffered by Executive with respect to receipt of the
Additional Incentive Bonus, or portion thereof, the payment of the Reimbursement
Obligation and/or the receipt of any funds giving rise to the Reimbursement
Obligation, including without limitation, the tax detriments set forth in
Schedule 1 attached hereto (it being the intent of the parties that Executive be
in the same net after-tax position as if Executive (i) could deduct one-hundred
percent (100%) of the amount reimbursed to the Company in the year such
reimbursement is made and (ii) was not subject to any withholding, employment or
other incremental taxes from having received an excess payment from the Company
or Kroger Co., as the case may be, that is thereafter paid to the Company) and
(y) without duplication of any amounts already deducted in the calculation, all
amounts then owed, or which Executive in his good faith believes are owed, by
the Company to Executive pursuant to Section 3(f) of the Employment Agreement.

         5. Amendment to Section 2(a) of Employment Agreement. The last line of
Section 2(a) of the Employment Agreement shall be amended to delete the words
"from the Board and." It is understood that Executive shall not be required to
resign from the Company's Board of Directors as a result of termination of his
employment prior to December 5, 2002 unless his employment simultaneously or
previously has been terminated by the Company for "Cause."

         6. Payments. All amounts payable by the Company to Executive pursuant
to this Amendment No. 1 (including without limitation any amounts due as a
result of the application of Section 5(e) of the Employment Agreement) shall, be
paid in a lump sum in cash, by wire transfer to an account designated by
Executive.

         7. Conduct of Kroger Litigation Settlement. The Company acknowledges
and agrees that Executive shall have the full right to conduct the litigation
with The Kroger Co. and its affiliates, including the defense of any
counterclaim arising in connection therewith, in such manner as Executive may
determine in his sole discretion. The Company further acknowledges and agrees
that Executive has and shall have no duty to the Company to enter into or
refrain from entering into any proposed settlement agreement, or to agree to or
reject any particular term or condition thereof, and that Executive may enter
into a settlement agreement with The Kroger Co. and its affiliates on terms and
conditions acceptable to the Executive, or reject any proposed settlement in his
sole discretion.

                                       5
<PAGE>

                                   Schedule I

                                 TAX DETRIMENTS


Detriments to be taken into account shall, include:

         (a) any decrease in personal itemized deductions resulting from an
increase in Executive's adjusted gross income ("AGI") (including the 7.5%
(medical), 2% (miscellaneous) and 3% (general) AGI adjustments);

         (b) Executive's portion of the increased Medicare premium resulting
from the receipt of the Additional Incentive Bonus and the Net Recovery Amount;
and

         (c) any increased alternative minimum tax ("AMT") resulting from the
treatment of state income taxes claimed as a deduction by Executive in respect
of the Additional Incentive Bonus and the Net Recovery Amount.

         (d) the amount of the Reimbursement Obligation disallowed as a
deduction or as a result of the 2% floor imposed on miscellaneous itemized
deductions in the year in which it is paid;

         (e) any increased AMT resulting from the treatment of the Reimbursement
Obligation for AMT purposes;

         (f) any detriment related to the time value of money determined on the
basis of an 8% annual discount rate resulting from a carryover or carry back, if
any, of any portion of such Reimbursement Obligation that is not currently
deductible in the year in which it is paid;

         (g) any detriment resulting from the application of any limitation
imposed upon the deductibility of the Reimbursement Obligation for state law
purposes in the year in which it is paid;

         (h) any detriment resulting from differences in tax brackets applied to
Executive's taxable income for the taxable year that the Additional Incentive
Bonus is received versus the tax brackets applied to Executive's taxable income
for the taxable year that the Reimbursement Obligation is claimed as a
deduction; and

         (i) any detriment resulting from a change in either Federal, state, or
local tax laws, including changes in the tax rates.


                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>5
<FILENAME>b311659_ex10-12.txt
<DESCRIPTION>MATERIAL CONTRACTS
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.12


                               AMENDMENT NO. 1 TO
                              EMPLOYMENT AGREEMENT
                              --------------------

         THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, by and between Rite Aid
Corporation, a Delaware corporation (the "Company") and Mary Sammons
("Executive") is entered into as of the 7th day of May, 2001 (the "Effective
Date ).

         WHEREAS, Executive and the Company have previously entered into that
certain Employment Agreement, dated as of December 5, 1999, as supplemented by
side letter dated April 5, 2000 between counsel (the "Employment Agreement");
and

         WHEREAS, the Company wishes to provide Executive additional bonus
compensation to further incentivize Executive to remain in the employment of the
Company;

         NOW, THEREFORE, in consideration of the mutual premises set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Company and Executive hereby agree as
follows:

         1. Amendment to Employment. As of the Effective Date, the Employment
Agreement is hereby amended to incorporate by reference therein a new Appendix
13, which is attached hereto as Exhibit 1.

         2. Employment Agreement to Remain in Effect. Except as modified by this
Amendment No. 1, the Employment Agreement shall remain in lull force and effect
in accordance with its terms. Without limiting the generality of the foregoing,
the Additional Incentive Bonus payable to Executive as provided in Exhibit 1
shall not in any way limit and is not in derogation of the Company's obligations
to fully indemnify Executive for fees, costs and expenses and any other matters
pursuant to Section 3(1) of the Employment Agreement. In the event of a conflict
between the provisions of flier Amendment No. 1 and the Employment Agreement,
this Amendment No. 1 shall be controlling.

         3. Capitalized Terms. Capitalized terms used herein or in Exhibit 1 and
not otherwise defined shall have the respective meanings set forth in the
Employment Agreement.

         4. Fees and Expenses. Promptly following the execution and delivery of
this Amendment No. 1 by Executive, the Company shall reimburse Executive for
legal fees and expenses incurred by Executive in negotiating and entering into
this Amendment No. 1 (and incidental matters contemplated hereby).




                                        1
<PAGE>



         IN WITNESS WHEREOF, Executive has hereunto set Executive's hand and,
pursuant to due authorization, the Company has caused this Amendment No, 1 to be
executed in its name and on its behalf all as of the date and year first above
written.

                                             RITE AID CORPORATION


                                             By: /s/ Elliot Gerson
                                                 -------------------------------
                                             Its Senior Executive Vice President

                                             /s/ Mary Sammon
                                             -----------------------------------
                                             Mary Sammons















                                        2
<PAGE>




                                                                       Exhibit 1
                                                                       ---------

                                   APPENDIX B


         1. Entitlement to Incentive Bonus. In addition to the bonus and other
compensation provided in the Employment Agreement, the Company shall pay
Executive an incentive bonus in the amount set forth in Section 2 below (the
"Additional Incentive Bonus") on or within 5 days after the date first described
below:

            (a) The Additional Incentive Bonus shall be paid on January 1, 2002,
if Executive is an employee of the Company on that date; or

            (b) The Additional Incentive Bonus shall be paid on the Date of
Termination under the Employment Agreement, if Executive's employment is
terminated prior to January 1, 2002 (i) by reason of Executive's death or
Disability, (ii) by the Company without Cause, or (iii) by Executive for Good
Reason; or

            (c) The Additional Incentive Bonus shall be paid on the Date of
Termination under the Employment Agreement, if Executive terminates her
employment for any reason (or the Company terminates Executive's employment for
any reason) prior to January 1, 2002 but such Date of Termination is
simultaneous with or after the occurrence of a Change in Control of the Company;
or

The date as of which Executive first becomes entitled to receive the Additional
Incentive Bonus is referred to as the "Bonus Payment Date." For purposes of the
Amendment No. 1, Executive shall be deemed to be an employee of the Company (and
accordingly her employment shall be deemed not to have terminated) unless and
until the Date of Termination has occurred. Notwithstanding anything to the
contrary herein, Executive shall not be entitled to receive any Additional
Incentive Bonus if the Company properly terminates Executive's employment for
Cause and the actual Date of Termination is prior to January 1, 2002 and no
Change in Control of the Company has occurred on or prior to such Date of
Termination.

         2. Amount of Incentive Bonus. The amount of the Additional Incentive
Bonus shall be equal to the sum of (i) $1,624,000 (the "Base Amount"), plus (ii)
simple interest thereon at the rate of nine percent (9%) per annum from December
5, 1999 through the applicable Bonus Payment Date (such sum, the "Additional
Bonus Amount") subject to offset only in accordance with Section 3 below and
repayment only in accordance with Section 4 below.




<PAGE>

         3. Reduction in the Amount of the Incentive Bonus. If, on or prior to
the Bonus Payment Date, there has occurred a final settlement and/or a binding,
nonappealable judgment by a court or other tribunal of competent jurisdiction
(in either case, a "Final Determination") of all claims which Executive has
arising out of or relating to Executive's Employment Protection Agreement, dated
September 22, 1998, Fred Meyer, Inc., a subsidiary of with The Kroger Co.
(collectively, the "Kroger Claim"), then the Additional Bonus Amount payable to
Executive shall be reduced (but not below zero) by an amount equal to the
excess, if any, of (i) the amount of any consideration paid by The Kroger Co. to
Executive, that is not subject to forfeiture or offset, pursuant to such Final
Determination (but excluding any payment in respect of punitive damages or by
way of penalty) less (ii) the sum, without double counting, of (x) any
consideration paid or payable by Executive pursuant to or in connection with
such Final Determination (and any counterclaims or cross-claims ("Related
Claims") arising from, related to or in connection with the departure by
Executive and/or any other employee from The Kroger Co., their consideration of
and conduct in relation to employment by the Company and/or their, or anyone
else s subsequent employment with the Company) and (y) all unpaid amounts
(including, in any event, attorneys fees and costs incurred by Executive in
connection with the Kroger Claims or Related Claims that have not been paid by
the Company) required to be indemnified by the Company pursuant to Section 3(f)
of the Employment Agreement (any such excess, the "Net Recovery Amount"). It is
understood that there shall be no reduction of or offset to the Additional
Incentive Bonus required to be paid by the Company to Executive by virtue of any
Net Recovery Amount unless Executive shall have received the Net Recovery Amount
prior to the Bonus Payment Date and a Final Determination has resolved all
Related Claims against Executive by or in the right of The Kroger Co. and its
affiliates,

         4. Reimbursement Amounts by Executive. Subject to the limitations set
forth in Section 4(d), in the event the Company timely pays the full Additional
Incentive Bonus to Executive pursuant to Section l(a) (A) on January 1, 2002 or
within 5 days thereafter (in the case of subsection (a) below) or (B) prior to a
Final Determination (in the case of subsection (b) below), Executive shall be
required to reimburse the Company for the amounts set forth in subsections (a)
and (b) below (in the aggregate, the "Reimbursement Obligation"), provided, that
in no event shall the aggregate amount of the Reimbursement Obligation exceed
the amount of the Additional Incentive Bonus actually paid by the Company to
Executive, plus attorneys' fees, if any, received by Executive pursuant to the
Final Determination and already reimbursed by the Company.

            (a) Reimbursement if Executive Receives an Award in the Kroger
Litigation After Receipt of Additional Incentive Bonus. If the Final
Determination occurs after the Bonus Payment Date and, as provided above, the
Company timely paid the full Additional Incentive Bonus pursuant to Section 1(a)
on the Bonus Payment Date, Executive shall be obligated to reimburse the Company
for an amount equal to the Net Recovery Amount received by Executive (not to
exceed the Additional Bonus Amount theretofore actually paid by the Company to




                                        2

<PAGE>

Executive, less any amount theretofore paid or payable by Executive to the
Company pursuant to Section 4(a)), plus attorneys fees, if any, received by
Executive pursuant to the Final Determination and already reimbursed by the
Company.

            (b) Reimbursement Obligation Deferred Until Executive Receives
Amounts in Excess of What Executive is Entitled to Retain. Executive shall pay
the Company the amounts required under Section 4(a) or (b) within 15 days
following the date as to which any such Reimbursement Obligation arises,
provided, that any such payment obligation (or portion thereof) shall not arise
and shall be deferred until such time or times as Executive shall actually have
received payment from the Additional Incentive Bonus and any Net Recovery Amount
an amount that, in the aggregate, is in excess of the full Additional Bonus
Amount and all legal fees then due in connection with the Kroger Claim have been
paid or reimbursed. Any excess recovery in the Kroger Claim beyond the amount of
the Reimbursement Obligation shall be retained by Executive.

            (c) Amounts Payable to the Company. Any amount payable by Executive
to the Company pursuant to this Section 4 shall be net of: (x) any tax detriment
of any nature whatsoever suffered by Executive with respect to receipt of the
Additional Incentive Bonus, or portion thereof, the payment of the Reimbursement
Obligation and/or the receipt of any funds giving rise to the Reimbursement
Obligation, including without limitation, the tax detriments set forth in
Schedule I attached hereto (it being the intent of the parties that Executive be
in the same net after-tax position as if Executive (i) could deduct one-hundred
percent (100%) of the amount reimbursed to the Company in the year such
reimbursement is made and (ii) was not subject to any withholding, employment or
other incremental taxes from having received an excess payment from the Company
or Kroger Co., as the case may be, that is thereafter paid to the Company) and
(y) without duplication of any amounts already deducted in the calculation, all
amounts then owed, or which Executive in her good faith believes are owed, by
the Company to Executive pursuant to Section 3(1) of the Employment Agreement.

         5. Amendment to Section 2(a) of Employment Agreement. The last line of
Section 2(a) of the Employment Agreement shall be amended to delete the words
"from the Board and." It is understood that Executive shall not be required to
resign from the Company s Board of Directors as a result of termination of her
employment prior to December 5, 2002 unless her employment simultaneously or
previously has been terminated by the Company for "Cause."



                                        3

<PAGE>

         6. Payments. All amounts payable by the Company to Executive pursuant
to this Amendment No. 1 (including without limitation any amounts due as a
result of the application of Section 5(e) of the Employment Agreement) shall be
paid in a lump sum in cash, by wire transfer to an account designated by
Executive.

         7. Conduct of Claim Against Kroger; Settlement. The Company
acknowledges and agrees that Executive shall have the full right to pursue her
claim against The Kroger Co. and its affiliates and to fully control any
litigation she institutes and the defense of any counterclaim arising in
connection therewith, in such manner as Executive may determine in her sole
discretion. The Company further acknowledges and agrees that Executive has and
shall have no duty to the Company to enter into or refrain from entering into
any proposed settlement agreement, or to agree to or reject any particular term
or condition thereof, and that Executive may enter into a settlement agreement
with The Kroger Co. and its affiliates on terms and conditions acceptable to the
Executive, or reject any proposed settlement in her sole discretion.








                                        4
<PAGE>



                                   Schedule 1

                                 TAX DETRIMENTS
                                 --------------

Detriments to be taken into account shall include:

            (a) any decrease in personal itemized deductions resulting from an
increase in Executive's adjusted gross income ("AGI") (including the 7.5%
(medical), 2% (miscellaneous) and 3% (general) AGI adjustments);

            (b) Executive's portion of the increased Medicare premium resulting
from the receipt of the Additional Incentive Bonus and the Net Recovery Amount;
and

            (c) any increased alternative minimum tax ("AMT") resulting from the
treatment of state income taxes claimed as a deduction by Executive in respect
of the Additional Incentive Bonus and the Net Recovery Amount;

            (d) the amount, of the Reimbursement Obligation disallowed as a
deduction or as a result of the 2% floor imposed on miscellaneous itemized
deductions in the year in which it is paid;

            (e) any increased AMT resulting from the treatment of the
Reimbursement Obligation for AMT purposes;

            (f) any detriment related to the time value of money determined on
the basis of an 8% annual discount rate resulting from a carryover or carryback,
if any, of any portion of such Reimbursement Obligation that is not currently
deductible in the year in which it is paid;

            (g) any detriment resulting from the application of any limitation
imposed upon the deductibility of the Reimbursement Obligation for state law
purposes in the year in which it is paid;

            (h) any detriment resulting from differences in tax brackets applied
to Executive's taxable income for the taxable year that the Additional Incentive
Bonus is received versus the tax brackets applied to Executive's taxable income
for the taxable year that the Reimbursement Obligation is claimed as a
deduction; and

            (i) any detriment resulting from a change in either Federal, state,
or local tax laws, including changes in the tax rates.





                                        5




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>6
<FILENAME>b311659_ex10-18.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.18

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
16th day of November, 2000 (the "Effective Date") by and between Rite Aid
Corporation, a Delaware corporation (the "Company"), and Elliot S. Gerson
("Executive").

         WHEREAS, Executive desires to provide the Company with his services and
the Company desires to employ Executive in the capacity of Senior Executive Vice
President and General Counsel on the terms and subject to the conditions set
forth herein.

         NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

1.       Term of Employment.

         The term of Executive's employment with the Company hereunder (the
"Term") pursuant to this Agreement shall commence on the Effective Date and,
unless earlier terminated pursuant to Section 5 below, shall continue for a
period ending on the date that is two (2) years following the Effective Date;
provided, however, that on each anniversary of the Effective Date occurring
prior to the termination of Executive's employment hereunder (each such date a
"Renewal Date"), an additional year shall be added to the Term, unless notice of
non-renewal has been delivered by one party to the other party at least 180 days
prior to such Renewal Date. For purposes of this Agreement, except as otherwise
provided herein, the phrases "year during the Term" or "during any year of the
Term" or similar language shall refer to each 12-month period commencing on the
Effective Date or applicable anniversaries thereof.

2.       Position And Duties.

         2.1 Position. During the Term, Executive shall be employed as Senior
Executive Vice President and General Counsel. Following termination of
Executive's employment for any reason, Executive shall immediately resign from
all offices and positions he holds with the Company or any subsidiary.

         2.2 Duties. Subject to the supervision and control of the Senior
Executive Vice President and Chief Administrative Officer of the Company (or any
designee), to whom he shall report, Executive shall do and perform all services
and acts necessary or advisable to fulfill the duties and responsibilities of
his position as Senior Executive Vice President and General Counsel and shall
render such service on the terms set forth herein. In addition, Executive shall
have such other executive and managerial powers and duties with respect to the
Company and its subsidiaries, affiliates and strategic partners as may be
assigned to him by the Senior Executive Vice President and Chief Administrative
Officer of the Company or any designee. Except for sick leave, vacations (as
provided in Section 4.3 below), and excused leaves of absence, Executive shall,
throughout the Term, devote substantially all his working time, attention,
knowledge and skills faithfully and to the best of his ability, to the duties
and responsibilities of his position in furtherance of the business affairs and
activities of the Company and its subsidiaries, affiliates and strategic
partners. Executive shall at all times be subject to, observe and carry out such
rules, regulations, policies, directions, and restrictions as the Company may
from time to time establish for senior executive officers of the Company.

<PAGE>

3.       Compensation.

         3.1 Base Salary. During the Term, as compensation for his services
hereunder, Executive shall receive a salary at the annualized rate of Five
Hundred Thousand Dollars ($500,000) per year ("Base Salary"), which shall be
paid in accordance with the Company's normal payroll practices and procedures,
less such deductions or offsets required by applicable law or otherwise
authorized by Executive.

         3.2 Annual Performance Bonus. Executive shall participate each fiscal
year during the Term in the Company's annual bonus plan as adopted and approved
by the Board or the Compensation Committee from time to time. Executive's annual
target bonus opportunity pursuant to such plan (the "Annual Target Bonus") shall
equal 50% of the Base Salary in effect for Executive at the beginning of such
fiscal year.

         3.3 Stock Awards.

             (a) Executive currently holds options (the "Options") to purchase
985,000 shares of the Company's common stock, par value $1.00 per share
("Company Stock"). These Options are non-qualified stock options with varying
exercise prices and are subject to the acceleration, exercise and termination
provisions set forth in Section 3.3(b) and Article 5 hereof and otherwise will
be evidenced by and subject to the terms of the Company's form of stock option
agreement for officers.

             (b) Upon the occurrence of a Change in Control of the Company prior
to the termination of Executive's employment with the Company, the Options or
any other option to purchase Common Sock then held by Executive shall
immediately vest and become exercisable in full and all remaining restrictions
on any restricted stock granted to executive shall immediately lapse. For
purposes of this Agreement "Change in Control" shall have the meaning set forth
in the attached Appendix A.

             It is understand and acknowledged by Executive that the securities
underlying the Options will not be subject to an effective registration
statement under the federal securities laws until some time after the Effective
Date. The Company agrees that if, as of the date of termination of Executive's
employment under the circumstances described in Sections 5.3 and 5.5, the
securities underlying the then vested and exercisable portion of the Options (or
any other option to purchase Company Stock then held by Executive) are not
subject to an effective registration statement, the 90-day periods in Section
5.3 and 5.5, as applicable, will be deemed to run from the first date such
securities become subject to an effective registration statement. The Company
further agrees that if, as of the date of Executive's voluntary termination of
employment other than for Good Reason, the securities underlying the then vested
and exercisable portion of the Options (or any other option to purchase Company
Stock then held by Executive) are not subject to an effective registration
statement, Executive will be permitted to exercise the Options and any other
option to purchase Common Stock then held by Executive, to the extent vested and
exercisable as of the date of such termination of employment, during the 30-day
period following the first date such securities become subject to an effective
registration statement.

                                       2
<PAGE>

4.       Additional Benefits.

         4.1 Employee Benefits. During the Term, Executive shall be entitled to
participate in the employee benefit plans in which management employees of the
Company are generally eligible to participate, subject to any eligibility
requirements and the other generally applicable terms of such plans.

         4.2 Expenses. During the Term, the Company shall reimburse Executive
for any expenses reasonably incurred by him in furtherance of his duties
hereunder, including, without limitation, travel, meals and accommodations, upon
submission of vouchers or receipts and in compliance with such rules and
policies relating thereto as the Company may from time to time adopt or as may
be required in order to permit such payments to be taken as proper deductions by
the Company or any subsidiary under the Internal Revenue Code of 1986, as
amended, and the rules and regulations adopted pursuant thereto now or hereafter
in effect.

         4.3 Vacation. Executive shall be entitled to four weeks paid vacation
during each year of the Term.

         4.4 Automobile Allowance. During the Term, the Company shall provide
Executive with an automobile allowance of $750.00 per month.

         4.5 Annual Financial Planning Allowance. During each year of the Term,
the Company shall provide Executive with an executive planning allowance in the
amount of $5,000.

         4.6 Indemnification. The Company shall (a) indemnify and hold Executive
harmless, to the full extent permitted under applicable law, for, from and
against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) relating to or
arising out of Executive's employment with and service as an Officer of the
Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred
by Executive in connection with or relating to the defense of any such loss,
claim, cost, expense, damage, liability or action. Following any termination of
Executive's employment or service with the Company, the Company shall cause any
Director and Officer liability insurance policies applicable to Executive prior
to such termination to remain in effect for six (6) years following the date of
termination of employment.

                                       3
<PAGE>

5.       Termination.

         5.1 Termination of Executive's Employment by the Company for Cause. The
Company may terminate Executive's employment hereunder for Cause (as defined
below). Such termination shall be effected by written notice thereof delivered
by the Company to Executive, indicating in reasonable detail the facts and
circumstances alleged to provide a basis for such termination, and shall be
effective as of the date of such notice in accordance with Section 12 hereof.
"Cause" shall mean (i) Executive's gross negligence or willful misconduct in the
performance of the duties or responsibilities of his position with the Company
or any subsidiary, or failure to timely carry out any lawful directive of the
Senor Executive Vice President and Chief Administrative Officer or any designee;
(ii) Executive's misappropriation of any funds or property of the Company or any
subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty
toward the Company or any subsidiary; or (iv) the use or imparting by Executive
of any confidential or proprietary information of the Company, or any subsidiary
in violation of any confidentiality or proprietary agreement to which Executive
is a party.

         5.2 Compensation upon Termination by the Company for Cause or by
Executive without Good Reason. In the event of Executive's termination of
employment (i) by the Company for Cause or (ii) by Executive's voluntarily
without Good Reason:

             (a) Executive shall be entitled to receive (i) all amounts of
accrued but unpaid Base Salary through the effective date of such termination,
(ii) reimbursement for reasonable and necessary expenses incurred by Executive
through the date of notice of such termination, to the extent otherwise provided
under Section 4.2 above and (iii) all other vested payments and benefits to
which Executive may otherwise be entitled pursuant to the terms of the
applicable benefit plan or arrangement through the effective date of such
termination ((i), (ii) and (iii), the "Accrued Benefits"). All other rights of
Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder or otherwise in connection with Executive's employment with
the Company shall terminate effective as of the date of such termination of
employment.

             (b) Except as provided in Section 3.3(c), any portion of the
Options or any other then outstanding stock options that has not been exercised
prior to the date of termination shall immediately terminate as of such date,
and any portion of any Restated Stock or any other equity incentive awards as to
which the restrictions have not lapsed or as to which any other conditions shall
not have been satisfied prior to the date of termination shall be forfeited as
of such date.

Any termination of Executive's employment by Executive voluntarily without Good
Reason shall be effective upon 30 days' notice to the Company.

                                       4
<PAGE>

         5.3 Compensation upon Termination of Executive's Employment by the
Company Other Than for Cause or by Executive for Good Reason. Executive's
employment hereunder may be terminated by the Company other than for Cause or by
Executive for Good Reason. In the event that Executive's employment hereunder is
terminated by the Company other than for Cause or by Executive for Good Reason:

             (a) Executive shall be entitled to receive (i) the Accrued
Benefits, (ii) an amount equal to two times the sum of Executive's then Base
Salary plus Annual Target Bonus as of the date of termination of employment,
such amount payable in equal installments pursuant to the Company's standard
payroll procedures for management employees over a period of two years following
the date of termination of employment, and (iii) continued health insurance
coverage for Executive and his immediate family for a period of two years
following the date of termination of employment. In addition, if such
termination occurs following the start of the Company's fiscal year beginning on
or about March 2001, Executive shall also be entitled to receive a pro rata
annual bonus determined by multiplying Executive's then Annual Target Bonus by a
fraction, (x) the numerator of which is the number of days between the beginning
of the then current fiscal year of the Company and the date of termination of
employment and (y) the denominator of which is 365.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.3(c),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any remaining portions of Executive's stock options that have not
vested as of the date of termination shall terminate as of such date; and all
shares of Restricted Stock as to which the restrictions shall not have lapsed as
of the date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.65 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.

Any termination of employment pursuant to this Section 5.3 shall be effective
upon thirty (30) days notice thereof.

         5.4 Definition of Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any one of the following:

             (a) Any material adverse alteration in Executive's titles,
positions, status, duties, authorities, reporting relationship or
responsibilities with the Company or its subsidiaries from those specified in
this Agreement, as the same may be augmented from time to time;

                                       5
<PAGE>

             (b) The assignment to Executive of any duties or responsibilities
materially inconsistent with Executive's status as Senior Executive Vice
President and General Counsel of the Company; or

             (c) Any other material breach of this Agreement by the Company,
including, without limitation, any decrease in Executive's then Base Salary or
Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2;

provided, however, that in each such case the Company shall have the right,
within ten (10) days after receipt of notice from Executive of the Company's
violation of any of the foregoing, to cure the event or circumstances giving
rise to such Good Reason, in the event of which cure such event or circumstances
shall be deemed not to constitute Good Reason hereunder.

         5.5 Compensation upon Termination of Executive's Employment by Reason
of Executive's Death or Total Disability. In the event that Executive's
employment with the Company is terminated by reason of Executive's death or
Total Disability (as defined below):

             (a) Executive or Executive's estate, as the case may be, shall be
entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable
under the then current disability and/or death benefit plans, as applicable, in
which Executive is a participant and (iii) continued health insurance coverage
for Executive and/or his immediate family, as applicable, for a period of two
years following the date of termination of employment.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
Restricted Stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.3(c),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any remaining portion of Executive's stock option that have not
vested as of the date of termination shall terminate as of such date; and all
shares of Restricted Stock as to which the restrictions shall not have lapsed as
of the date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder in connection with
Executive's employment with the Company shall terminate effective as of the date
of such termination of employment.

                                       6
<PAGE>

"Total Disability" shall mean any physical or mental disability that prevents
Executive from performing one or more of the essential functions of his position
for a period of not less than 90 days in any 12-month period and/or which is
expected to be of permanent duration.

         5.6 Survival. In the event of any termination of Executive's employment
for any reason, Executive and the Company nevertheless shall continue to be
bound by the terms and conditions set forth in Sections 5.8, 6 through 10 below,
which shall survive the expiration of the Term.

         5.7 Exercise Tax Gross-Up.

             (a) In the event that any payment or benefit received or to be
received by Executive pursuant to the Terms of this Agreement or any other plan,
arrangement or agreement of the Company (or any affiliate) (collectively, the
"Payments") would be equal to the Excise Tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as
determined as provided below, the Company shall pay to Executive, at the time
specified in Section 5.7(b) below, an additional amount (the "Gross-Up Payment")
such that the net amount retained by Executive, after deduction of the Excise
Tax on payments and any federal, state and local income and employment or other
tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or
additions to tax payable by the Company Executive with respect thereto, shall be
equal to the Total Payments. For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amounts of such Excise Tax,
(1) the total amount of the Payments shall be treated as "parachute payments"
within the meaning of section 280G(b)(2) of the Code, and all "excise parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, except to the extent that, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the
accounting firm which was, immediately prior to the event giving rise to the
Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole
or in part) does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or
in part) are not subject to the Excise Tax, (2) the amount of the Payments that
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Payments or (B) the amount of "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code (after applying
clause (1) hereof), and (3) the value of any noncash benefits or any deferred
payment or benefit shall be determined by the Auditor in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to pay
federal income taxes at the highest marginal rates of federal income taxation
applicable to individuals in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rates of
taxation applicable to individuals as are in effect in the state and locality of
Executive's residence in the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes that can be
obtained from deduction of such state and local taxes, taking into account any
limitations applicable to individuals subject to federal income tax at the
highest marginal rates.

                                       7
<PAGE>

             (b) The Gross-Up Payment provided for in Section 5.7(a) hereof
shall be made upon the earlier of (i) ten days following the date of termination
of Executive's employment or (ii) the imposition upon Executive or payment by
Executive of any Excise Tax.

             (c) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that the Excise Tax is less than
the amount taken into account under Section 5.7(a) hereof, Executive shall repay
to the Company within thirty (30) days of Executive's receipt of notice of such
final determination the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to the Excise
Tax and federal, state and local income tax imposed on the portion of the
Gross-Up Payment being repaid by Executive if and to the extent that such
repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction
in Executive's taxable income and wages for the purpose of federal, state and
local income taxes) plus any interest received by Executive on the amount of
such repayment. If it is established pursuant to a final determination of a
court or an Internal Revenue Service preceding that the Excise Tax exceeds the
amount taken into account hereunder (including, without limitation, by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment
pursuant to Section 5.7(a) in respect of such excess within thirty (30) days of
the Company's receipt of notice of such final determination or proceeding.
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Payments.

             (d) In the event of any change in, or further interpretation of,
sections 280G or 4999 of the Code and the regulations promulgated thereunder,
Executive shall be entitled, by written notice to the Company, to request an
opinion of Tax Counsel regarding the application of such change to any of the
foregoing, and the Company shall use its best efforts to cause such opinion to
be rendered as promptly as practicable. All fees and expense of the Auditor and
Tax Counsel incurred in connection with this Agreement shall be borne by the
Company.

         5.8 No Other Severance or Termination Benefits. Except as expressly set
forth herein, Executive shall not be entitled to damages or to any severance or
other benefits, upon termination of employment with the Company other than by
reason of death or total disability.

6.       Protection of Confidential Information.

         Executive acknowledges that during the course of his employment with
the Company, its subsidiaries, affiliates and strategic partners, he will be
exposed to documents and other information regarding the confidential affairs of
the Company, its subsidiaries, affiliates and strategic partners, 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, affiliates and strategic partners not readily available to
the public (the "Confidential Information"). Executive further acknowledges that
the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. In recognition of the
foregoing, Executive covenants and agrees as follows:

                                       8
<PAGE>

         6.1 No Disclosure or Use of Confidential Information. At no time shall
Executive ever divulge, disclose, or otherwise use any Confidential Information,
unless and until such information is readily available in the public domain by
reason other than Executive's disclosure or use thereof in violation of the
first clause of this Section 6.1.

         6.2 Return of Company Property, Record and Files. Upon the termination
of Executive's employment at any time and for any reason, or at any other time
the Board may so direct, Executive shall promptly deliver to the Company's
offices in Harrisburg, Pennsylvania all of the property and equipment of the
Company, its subsidiaries, affiliates and strategic partners (including any cell
phones, pagers, credit cards, personal computers, etc.) and any and all
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, strategic partners, successors or assigns, and/or their respective
past and present officers, directors, employees or consultants (collectively,
the "Company Property, Records and Files"); it being expressly understood that,
upon termination of Executive's employment at any time and for any reason,
Executive shall not be authorized to retain any of the Company Property, Records
and Files.

7.       Noncompetition and Other Matters.

         7.1 Noncompetition. During the Term and, as applicable, for the
two-year period immediately following the date of termination of Executive's
employment either (x) by the Company for Cause or (y) by Executive other than
for Good Reason, executive shall not, directly or indirectly, in any city, town,
county, parish or other municipality in any state of the United States (the
names of each such city, town, parish, or other municipality, including, without
limitation, the name of each county in the Commonwealth of Pennsylvania being
expressly incorporated by reference herein), or any other place in the world,
where the Company, or its subsidiaries, affiliates, strategic partners,
successors, or assigns, engages in the ownership, management and operation of
retail drugstores (i) engage in a Competing Business for Executive's own
account; (ii) enter the employ of, or render any consulting services to, any
Competing Business; or (iii) become interested in any Competing Business in any
capacity, including, without limitation, as an individual, partner, shareholder,
officer, director, principal, agent, trustee or consultant; provided, however,
Executive may (i) own, directly or indirectly, solely as a passive investment,
securities of any entity traded on any national securities exchange if Executive
is not a controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own 1% or more of any class of
securities of such entity and (ii) provide legal services as an independent
contractor. For purposes of this Section 7.1, the phrase "Competing Business"
shall mean any entity a majority of whose business involves the ownership and
operation of retail drug stores.

                                       9
<PAGE>

         7.2 Noninterference. During the Term and for the two-year period
immediately following the date of termination of Executive's employment at any
time and for any reason (the "Restricted 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, strategic partners, successors or assigns to terminate
his, her or its employment or other relationship with the company or its
subsidiaries, affiliates, strategic partners, successors or assigns for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, 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, strategic
partners, successors or assigns for any other reason.

         7.3 Nonsolicitation. During the Restricted Period, Executive shall not,
directly or indirectly, solicit, induce or attempt to solicit or induce any
customers, clients, vendors, suppliers or consultants then under contract to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns, to terminate his, her or its relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, or otherwise encourage
such customers, clients, vendors, suppliers or consultants then under contract
to terminate his, her or its relationship with the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns for any reason.

8.       Rights and Remedies upon Breach.

         If Executive breaches, or threatens to commit a breach of, any of the
provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company
and its subsidiaries, affiliates, strategic partners, 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, strategic partners, successors or assigns at law
or in equity.

         8.1 Specific Performance. 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, strategic partners, successors or
assigns and that money damages would not provide an adequate remedy to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns.

         8.2 Accounting. The right and remedy to require Executive to account
for and pay over to the Company or its subsidiaries, affiliates, strategic
partners, 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.

                                       10
<PAGE>

         8.3 Severability of Covenants. 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.

         8.4 Modification by the Court. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or scope of such provision, such court shall have the power (and is
hereby instructed by the parties) to reduce the duration or scope of such
provision, as the case may be (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.

         8.5 Enforceability in Jurisdictions. Executive intends to and hereby
confers jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographic scope of such covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breach of such scope or otherwise, it is the intention of
Executive that such determination not bar or in any way affect the right of the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns to the relief provided herein in the courts of any jurisdiction within
the geographic scope of such covenants, as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.

9.       No Violation of Third-Party Rights.

         Executive represents, warrants and covenants that he:

             (i) will not, in the course of employment, infringe upon or violate
         any proprietary rights of any third party (including, without
         limitation, any third party confidential relationships, patents,
         copyrights, mask words, trade secrets, or other proprietary rights);

             (ii) it is not a party to any conflicting agreements with third
         parties, which will prevent him from fulfilling the terms of employment
         and the obligations of this Agreement;

             (iii) does not have in his possession any confidential or
         proprietary information or documents belonging to others and will not
         disclose to the Company, use, or induce the Company to use, any
         confidential or proprietary information or documents of others; and

                                       11
<PAGE>

             (iv) agrees to respect any and all valid obligations which he may
         now have to prior employers or to others relating to confidential
         information, inventions, discoveries or other intellectual property
         which are the property of those prior employers or others, as the case
         may be.

         Executive agrees to indemnify and save harmless the Company from any
loss, claim, damage, cost or expense of any kind (including, without limitation,
reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Executive of the foregoing representations, warranties, and covenants.

10.      Arbitration.

         Except as necessary for the Company and its subsidiaries, affiliates,
strategic partners, successors or assigns or Executive to specifically enforce
or enjoin a breach of this Agreement (to the extent such remedies are otherwise
available), the parties agree that any and all disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to Executive's employment with the
Company or any subsidiary, affiliate or strategic partner, the termination of
that employment or any other dispute by and between the parties or their
subsidiaries, affiliates, strategic partners, successors or assigns, shall be
submitted to binding arbitration in Harrisburg, Pennsylvania according to the
National Employment Dispute Resolution Rules and procedures of the American
Arbitration Association. The parties agree that the parties shall each bear his
or its own attorney's fees and costs in connection with any such arbitration.
This arbitration obligation extends to any and all claims that may arise by and
between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, and expressly extends to, without limitation, claims or
causes of action for wrongful termination, impairment of ability to compete in
the open labor market, breach of an express or implied contract, breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the Pennsylvania
Constitution, the United States Constitution, and applicable state and federal
fair employment laws, federal and state equal employment opportunity laws, and
federal and state labor statutes and regulations, including, but not limited to,
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the
Rehabilitation Act of 1973, as amended, the Employment Retirement Income
Security Act of 1974, as amended, the Age Discrimination in Employment Act of
1967, as amended, and any other state or federal law.

11.      Assignment.

         Neither this Agreement, nor any of Executive's rights or obligations
hereunder, may be assigned or otherwise subject to hypothecation by Executive.
The Company may assign its rights and obligations hereunder, in whole or in
part, (i) to any of the Company's subsidiaries, affiliates, or parent
corporations; or (ii) to any other successor or assign in connection with the
sale of all or substantially all of the Company's assets or stock or in
connection with any merger, acquisition and/or reorganization involving the
Company.

                                       12
<PAGE>

12.      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, Pennsylvania 17011
                                  Attention:  Chief Administrative Officer
                                  Fax: (717) 975-5905

              with a copy to:     Kaye, Scholer, Fierman, Hays & Handler, LLP
                                  1999 Avenue of the Stars, Suite 1600
                                  Los Angeles, California 90067
                                  Attention:  Andrew Ash, Esq.
                                  Fax: (310) 788-1200

              If to Executive:    Elliot S. Gerson
                                  538 Bridgeview Drive
                                  Lemoyne, Pennsylvania 17043
                                  Fax: 717-731-1438

Any party may change such party's address for notices by notice duly given
pursuant hereto.

13.      General.

         13.1 No Offset or Mitigation. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under, this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against
Executive or others whether in respect of claims made under this Agreement or
otherwise. In no event shall Executive 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 any of the
provisions of this Agreement, and such amounts shall not be reduced, regardless
of whether Executive obtains other employment.

         13.2 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to conflicts of laws principles thereof which might refer
such interpretations to the laws of a different state or jurisdiction.

                                       13
<PAGE>

         13.3 Entire Agreement. This Agreement sets forth the entire
understanding of the parties relating to Executive's employment with the Company
and cancels and supersedes all agreements, arrangements and understandings
relating thereto made prior to the date hereof, written or oral, between
Executive and the Company and/or any subsidiary or affiliate, except for the
Deferred Compensation Agreement, dated November 15, 1999 between the Company and
Executive.

         13.4 Amendments; Waivers. 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 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 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.

         13.5 Conflict with Other Agreements. Executive represents and warrants
that neither his execution of this Agreement nor the full and complete
performance of his obligations hereunder will violate or conflict in any respect
with any written or oral agreement or understanding with any person or entity.

         13.6 Successors and Assigns. This Agreement shall inure to the benefit
of and shall be binding upon the Company (and its successors and assigns) and
Executive and his heirs, executors and personal representatives.

         13.7 Withholding. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.

         13.8 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.

         13.9 No Assignment. The rights and benefits of Executive under this
Agreement may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by Executive to anticipate, alienate, assign, sell,
transfer, pledge, encumber or charge the same shall be void. Payments hereunder
shall not be considered assets of Executive in the event of insolvency or
bankruptcy.

                                       14
<PAGE>

         13.10 Survival. This Agreement shall survive the termination of
Executive's employment and the expiration of the Term to the extent necessary to
give effect to its provisions.

         13.11 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

         13.12 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.

         IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first written above.

                                   RITE AID CORPORATION


                                   /s/ David R. Jessick
                                   ------------------------------------------


                                   By:               David R. Jessick
                                      ---------------------------------------

                                   Its: Sr. Exec. V.P. & Chief Admin. Officer
                                        -------------------------------------


                                   EXECUTIVE:

                                   /s/ Elliot Gerson
                                   ------------------------------------------



                                       15
<PAGE>
                                   APPENDIX A

         A "Change in Control of the Company" shall be deemed to have occurred
if, as the result of a single transaction or a series of transactions, the event
set forth in any one of the following paragraphs shall have occurred:

ARTICLE  1 any Person is or becomes the Beneficial Owner, directly or
         indirectly, of securities of the Company representing 25% or more of
         the combined voting power of the Company's then outstanding voting
         securities; or

ARTICLE  2 Incumbent Directors cease at any time and for any reason to
         constitute a majority of the number of directors then serving on the
         Board. "Incumbent Directors" shall mean directors who either (A) are
         directors of the Company as of the Effective Date or (B) are elected,
         or nominated for election, to the Board with the affirmative votes of
         at least a majority of the Incumbent Directors at the time of such
         election or nomination (but shall not include an individual whose
         election or nomination is in connection with an actual or threatened
         election contest, including but not limited to a consent solicitation,
         relating to the election of directors to the Board); or

ARTICLE  3 there is consummated a merger or consolidation of the Company or any
         direct or indirect subsidiary of the Company with any other
         corporation, other than (i) a merger or consolidation which would
         result in the voting securities of the Company outstanding immediately
         prior to such merger or consolidation continuing to represent (either
         by remaining outstanding or by being converted into voting securities
         of the surviving entity or any parent thereof) at least 60% of the
         combined voting power of the securities of the Company or such
         surviving entity or any parent thereof outstanding immediately after
         such merger or consolidation, or (ii) a merger or consolidation
         effected to implement a recapitalization of the Company (or similar
         transaction) in which no Person is or becomes the Beneficial Owner,
         directly or indirectly, of securities of the Company representing 25%
         or more of the combined voting power of the Company's then outstanding
         voting securities; or

ARTICLE  4 the stockholders of the Company approve a plan of complete
         liquidation or dissolution of the Company or an agreement for the sale
         or disposition by the Company of all or substantially all of the
         Company's assets, other than a sale or disposition by the Company of
         all or substantially all of the Company's assets to an entity, at least
         60% of the combined voting power of the voting securities of which are
         owned by stockholders of the Company in substantially the same
         proportions as their ownership of the Company immediately prior to such
         sale.

         "Affiliate" shall have the meaning set forth in Rule 12b-2 under
Section 12 of the Exchange Act.

<PAGE>

         "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act, except that a Person shall not be deemed to be the Beneficial
Owner of any securities which are properly filed on a Form 13G.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

         "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.

                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>7
<FILENAME>b311659_ex10-19.txt
<DESCRIPTION>CORRESPONDENCE
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.19

Rite Aid Corporation

MARTIN L. GRASS
Chairman
Chief Executive Officer


April 2, 1999


Mr. Eric Sorkin


Dear Eric,

We appreciate your good nature in allowing us to turn you right around again
and, this time, send you and your lovely wife to Phoenix, Arizona. You will no
longer be based at Rite Aid headquarters, but, as you know, Rite Aid is the sole
shareholder of PCS and your duties will be performed for both PCS and Rite Aid.

You have expressed concerns about this move and the remoteness to Rite Aid. For
your assurance, Rite Aid Corporation agrees that if you are no longer employed
by either PCS or Rite Aid ("Such Termination") you will be paid for a period of
three years from the date of Such Termination at the rate of your then
established salary together with a guarantee of the most recent annual bonus
which you had received prior to Such Termination.

In addition, in the event of Such Termination, any stock options in Rite Aid
Corporation held by you at such time shall vest and shall be exercisable in
whole or in part from time to time for the ensuing three years.

Further, starting three years after Such Termination, if at any time you are not
gainfully employed for a period of at least one month you shall have the right
to call for commencement of payments under your Deferred Compensation contract.
If you have done so and thereafter you resume gainful employment, such payments
shall suspend until your 58th birthday at which time you may accelerate the
re-commencement date thereof.

We wish you success and pleasure in Phoenix.


                                            Sincerely,


/jsk                                        /s/ Martin L. Grass
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>8
<FILENAME>b311659_ex10-20.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.20

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
27th day of September, 2000 (the "Effective Date"), by and between Rite Aid
Corporation, a Delaware corporation (the "Company"), and James Mastrian (the
"Executive").

         WHEREAS, Executive is currently employed as Senior Executive Vice
President, Marketing and Logistics and desires to continue to provide the
Company with his services, and the Company desires to continue to employ
Executive in such capacity on the terms and subject to the conditions set forth
herein.

         NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follow:

1.       Term of Employment

         The term of Executive's employment with the Company hereunder (the
"Term") shall commence on the Effective Date and, unless earlier terminated
pursuant to Section 5 below, shall continue for a period ending on the date that
is three (3) years following the Effective Date; provided, however, that on each
anniversary of the Effective Date occurring prior to the termination of
Executive's employment hereunder (each such date a "Renewal Date"), an
additional year shall be added to the Term, unless notice of non-renewal has
been delivered by one party to the other party at least 180 days prior to such
Renewal Date. For purposes of this Agreement, the phrases "year during the Term"
or "during any year of the Term" or similar language shall refer to each
12-month period commencing on the Effective Date or applicable anniversaries
thereof.

2.       Position and Duties.

         2.1 Position. During the Term, Executive shall be employed as Senior
Executive Vice President, Marketing and Logistics of the Company. Following
termination of Executive's employment for any reason, Executive shall
immediately resign from all offices and positions he holds with the Company or
any subsidiary.

         2.2 Duties. Subject to the supervision and control of the President and
Chief Operating Officer of the Company, to whom he shall report, Executive shall
do and perform all services and acts necessary or advisable to fulfill the
duties and responsibilities of his position as Senior Executive Vice President,
Marketing and Logistics, and shall render such services on the terms set forth
herein. In addition, Executive shall have such other executive and managerial
powers and duties with respect to the Company and its subsidiaries, affiliates
and strategic partners as may be assigned to him by the President and Chief
Operating Officer. Except for sick leave, vacations (as provided in Section 4.3
below), and excused leaves of absence, Executive shall, throughout the Term,
devote substantially all his working time, attention, knowledge and skills
faithfully and to the best of his ability, to the duties and responsibilities of
his position in furtherance of the business affairs and activities of the
Company and its subsidiaries, affiliates and strategic partners. Executive shall
at all times be subject to, observe and carry out such rules, regulations,
policies, directions, and restrictions as the Board of Directors of the Company
(the "Board") or the Chief Executive Officer of the Company may from time to
time establish for senior executive officers of the Company.

<PAGE>

3.       Compensation.

         3.1 Base Salary. During the Term, as compensation for his services
hereunder, Executive shall receive a salary at the annualized rate of Five
Hundred Seventy Five Thousand Dollars ($575,000) per year ("Base Salary"), which
shall be paid in accordance with the Company's normal payroll practices and
procedures, less such deductions or offsets required by applicable law or
otherwise authorized by Executive. During the Term the Base Salary shall be
reviewed periodically by the Compensation Committee of the Board for possible
increase. Any increase in the Base Salary shall not limit or reduce any other
obligation of the Company under this Agreement. The Base Salary shall not be
reduced after any such increase, and the term "Base Salary" shall thereafter
refer to the Base Salary as from time to time so increased.

         3.2 Annual Performance Bonus. The Executive shall participate each
fiscal year during the Term in the Company's annual bonus plan as adopted and
approved by the Board or the Compensation Committee from time to time. The
Executive's annual target bonus opportunity pursuant to such plans (the "Annual
Target Bonus") shall equal 60% of the Base Salary payable to Executive with
respect to such fiscal year.

         3.3 Stock Awards.

             (a) Upon the occurrence of a Change in Control of the Company prior
to the termination of Executive's employment with the Company, all of
Executive's then outstanding options to purchase common stock of the Company,
par value $1.00 per share ("Company Stock"), shall immediately vest and become
exercisable in full, and all remaining restrictions on any shares of restricted
stock shall immediately lapse. For purposes of this Agreement "Change in
Control" shall have the meaning set forth in the attached Appendix A.

             (b) It is understood and acknowledged by Executive that the
securities underlying his options will not be subject to an effective
registration statement under the federal securities laws until some time after
the Effective Date. The Company agrees that if, as of the date of termination of
Executive's employment under the circumstances described in Sections 5.3 and
5.5, the securities underlying the then vested and exercisable portion of any
option to purchase Company Stock then held by Executive are not subject to an
effective registration statement, the 90-day periods in Sections 5.3 and 5.5, as
applicable, will be deemed to run from the first date such securities become
subject to an effective registration statement. The Company further agrees that
if, as of the date of Executive's voluntary termination of employment other than
for Good Reason, the securities underlying the then vested and exercisable
portion of any option to purchase Company Stock then held by Executive are not
subject to an effective registration statement, Executive will be permitted to
exercise such option, to the extent vested and exercisable as of the date of
such termination of employment, during the 30-day period following the first
date such securities become subject to an effective registration statement.

                                       2
<PAGE>

4.       Additional Benefits.

         4.1 Employee Benefits. During the Term, Executive shall be entitled to
participate in the employee benefit plans in which executive officers of the
Company are generally eligible to participate, subject to any eligibility
requirements and the other generally applicable terms of such plans.

         4.2 Expense. During the Term, the Company shall reimburse Executive for
any expenses reasonably incurred by him in furtherance of his duties hereunder,
including, without limitation travel, meals and accommodations, upon submission
of vouchers or receipts and in compliance with such rules and policies relating
thereto as the Company may from time to time adopt or as may be required in
order to permit such payments to be taken as proper deductions by the Company or
any subsidiary under the Internal Revenue Code of 1986, as amended, and the
rules and regulations adopted pursuant thereto now or hereafter in effect.

         4.3 Vacation. Executive shall be entitled to four weeks paid vacation
during each year of the Term.

         4.4 Automobile Allowance. During the Term, the Company shall provide
Executive with an automobile allowance of $750 per month.

         4.5 Annual Financial Planning Allowance. During each year of the Term,
the Company shall provide Executive with a financial planning allowance in the
amount of $5,000.

         4.6 Certain Travel Expenses. Executive shall continue to receive
reimbursement for travel between Harrisburg, Pennsylvania and Cleveland, Ohio on
the same basis as currently provided by the Company.

         4.7 Indemnification. The Company shall (a) indemnify and hold Executive
harmless, to the full extent permitted under applicable law, for, from and
against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) related to or
arising out of the Executive's employment with and service as an officer of the
Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred
by Executive in connection with or relating to the defense of any such loss,
claim, cost, expense, damage, liability or action. Following any termination of
the Executive's employment or service with the Company, the Company shall cause
any director and officer liability insurance policies applicable to the
Executive prior to such termination to remain in effect for six (6) years
following the date of termination of employment. In addition, the
indemnification provisions regarding the investigation of the Company by the
Securities and Exchange Commission set forth in that certain letter agreement
between Executive and the Company shall remain in full force and effect.

                                       3
<PAGE>

5.       Termination.

         5.1 Termination of Executive's Employment by the Company for Cause. The
Company may terminate Executive's employment hereunder for Cause (as defined
below). Such termination shall be effected by written notice thereof delivered
by the Company to Executive, indicating in reasonable detail the facts and
circumstances alleged to provide a basis for such termination, and shall be
effective as of the date of such notice in accordance with Section 12 hereof.
"Cause" shall mean (i) Executive's gross negligence or willful misconduct in the
performance of the duties or responsibilities of his position with the Company
or any subsidiary, or failure to timely carry out any lawful directive of the
Board, the Chief Executive Officer or the President and Chief Operating Officer;
(ii) Executive's misappropriation of any funds or property of the Company or any
subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty
toward the Company or any subsidiary; or (iv) the use or imparting by Executive
of any confidential or proprietary information of the Company or any subsidiary
in violation of any confidentiality or proprietary agreement to which Executive
is a party.

         5.2 Compensation upon Termination by the Company for Cause or by
Executive without Good Reason. In the event of Executive's termination of
employment (i) by the Company for Cause or (ii) by Executive voluntarily without
Good Reason:

             (a) Executive shall be entitled to receive (i) all amounts of
accrued but unpaid Base Salary through the effective date of such termination,
(ii) reimbursement for reasonable and necessary expenses incurred by Executive
through the date of notice of such termination, to the extent otherwise provided
under Section 4.2 above and (iii) all other vested payments and benefits to
which Executive may otherwise be entitled pursuant to the terms of the
applicable benefit plan or arrangement through the effective date of such
termination ((i), (ii) and (iii), the "Accrued Benefits"). All other rights of
Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder or otherwise in connection with Executive's employment with
the Company shall terminate effective as of the date of such termination of
employment.

             (b) Except as provided in Section 3.3(b), any portion of any then
outstanding stock option that has not been exercised prior to the date of
termination shall immediately terminate as of such date, and any portion of any
restricted stock or other equity incentive awards as to which the restrictions
have not lapsed or as to which any other conditions shall not have been
satisfied prior to the date of termination shall be forfeited as of such date.

                                       4
<PAGE>

Any termination of Executive's employment by Executive voluntarily without Good
Reason shall be effective upon 30 days' notice to the Company.

         5.3 Compensation upon Termination of Executive's Employment by the
Company Other Than for Cause or by Executive for Good Reason. Executive's
employment hereunder may be terminated by the Company other than for Cause or by
Executive for Good Reason. In the event that Executive's employment hereunder is
terminated by the Company other than for Cause or by Executive for Good Reason:

             (a) Executive shall be entitled to receive (i) the Accrued
Benefits, (ii) a pro rata annual bonus determined by multiplying Executive's
then Annual Target Bonus by a fraction, (x) the numerator of which is the number
of days between the beginning of the then current fiscal year of the Company and
the date of termination of employment and (y) the denominator of which is 365,
(iii) an amount equal to two times the sum of Executive's Base Salary plus
Annual Target Bonus as of the date of termination of employment, such amount
payable in equal installments pursuant to the Company's standard payroll
procedures for executive officers over a period of two years following the date
of termination of employment, and (iv) continued health insurance coverage for
Executive and his immediate family for a period of two years following the date
of termination of employment.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.3(b),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any portion of Executive's stock options that have not vested as of
the date of termination shall terminate as of such date; and all shares of
restricted stock as to which the restrictions shall not have lapsed as of the
date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.

Any termination of employment pursuant to this Section 5.3 shall be effective
upon thirty (30) days notice thereof.

         5.4 Definition of Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any one of the following:

             (a) any material adverse alteration in Executive's titles,
positions, status, duties, authorities, reporting relationships or
responsibilities with the Company or its subsidiaries from those specified in
this Agreement, as the same may be augmented from time to time;

                                       5
<PAGE>

             (b) the assignment to Executive of any duties or responsibilities
materially inconsistent with Executive's status as Senior Executive Vice
President, Marketing and Logistics of the Company; or

             (c) any other material breach of this Agreement by the Company,
including without limitation any decrease in Executive's Base Salary or Annual
Target Bonus opportunity as set forth in Sections 3.1 and 3.2;

provided, however, that in each such case the Company shall have the right,
within ten (10) days after receipt of notice from Executive of the Company's
violation of any of the foregoing, to cure the event or circumstances giving
rise to such Good Reason, in the event of which cure such event or circumstances
shall be deemed not to constitute Good Reason hereunder.

         5.5 Compensation upon Termination of Executive's Employment by Reason
of Executive's Death or Total Disability. In the event that Executive's
employment with the Company is terminated by reason of Executive's death or
Total Disability (as defined below):

             (a) Executive or Executive's estate, as the case may be, shall be
entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable
under the then current disability and/or death benefit plans, as applicable, in
which Executive is a participant and (iii) continued health insurance coverage
for Executive and/or his immediately family, as applicable, for a period of two
years following the date of termination of employment.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.3(b),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any portion of Executive's stock options that have not vested as of
the date of termination shall terminate as of such date; and all shares of
restricted stock as to which the restrictions shall not have lapsed as of the
date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.

"Total Disability" shall mean any physical or mental disability that prevents
Executive from performing one or more of the essential functions of his position
for a period of not less than 90 days in any 12-month period and/or which is
expected to be of permanent duration.

                                       6
<PAGE>

         5.6 Survival. In the event of any termination of Executive's employment
for any reason, Executive and the Company nevertheless shall continue to be
bound by the terms and conditions set forth in Sections 6 through 10 below,
which shall survive the expiration of the Term.

         5.7 Excise Tax Gross-Up.

             (a) In the event that any payment or benefit received or to be
received by the Executive pursuant to the terms of this Agreement or of any
other plan, arrangement or agreement of the Company (or any affiliate)
(collectively, the "Payments") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), as determined as provided below, the Company shall pay to the
Executive, at the time specified in Section 5.7(b) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of the Excise Tax on Payments and any federal, state and local
income and employment or other tax and the Excise Tax upon the Gross-Up Payment,
and any interest, penalties or additions to tax payable by the Executive with
respect thereto, shall be equal to the total Payments. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amounts of such Excise Tax, (1) the total amount of the Payments shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
code, and all "excess parachute payments" within the meaning of section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to
the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to Executive and selected by the accounting firm which was,
immediately prior to the event giving rise to the Payment, the Company's
independent auditor (the "Auditor"), a Payment (in whole or in part) does not
constitute a "parachute payment" within the meaning of section 280G(b)(2) of the
Code, or such "excess parachute payments" (in whole or in part) are not subject
to the Excise Tax, (2) the amount of the Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Payments or (B) the amount of "excess parachute payments" within the
meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof),
and (3) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rates of federal income taxation applicable to individuals
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of the Executive's
residence in the calendar year in which the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rates.

                                       7
<PAGE>

             (b) The Gross-Up Payment provided for in Section 5.7(a) hereof
shall be made upon the earlier of (i) ten days following the date of termination
of Executive's employment or (ii) the imposition upon the Executive or payment
by the Executive of any Excise Tax.

             (c) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that the Excise Tax is less than
the amount taken into account under Section 5.7(a) hereof, the Executive shall
repay to the Company within thirty (30) days of the Executive's receipt of
notice of such final determination the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Gross-Up Payment being repaid by the Executive if and to
the extent that such repayment results in a reduction in Excise Tax and a
dollar-for-dollar reduction in the Executive's taxable income and wages for the
purpose of federal, state and local income taxes) plus any interest received by
the Executive on the amount of such repayment. If it is established pursuant to
a final determination of a court or an Internal Revenue Service proceeding that
the Excise Tax exceeds the amount taken into account hereunder (including
without limitation by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of
such excess within thirty (30) days of the Company's receipt of notice of such
final determination or proceeding. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Payments.

             (d) In the event of any change in, or further interpretation of,
sections 280G or 4999 of the Code and the regulations promulgated thereunder,
the Executive shall be entitled, by written notice to the Company, to request an
opinion of Tax Counsel regarding the application of such change to any of the
foregoing, and the Company shall use its best efforts to cause such opinion to
be rendered as promptly as practicable. All fees and expenses of the Auditor and
Tax Counsel incurred in connection with this Agreement shall be borne by the
Company.

         5.8 No Other Severance or Termination Benefits. Except as expressly set
forth herein, Executive shall not be entitled to damages or to any severance or
other benefits upon termination of employment with the Company under any
circumstances and for any or no reason.

6.       Protection of Confidential Information.

         Executive acknowledges that during the course of his employment with
the Company, its subsidiaries, affiliates and strategic partners, he will be
exposed to documents and other information regarding the confidential affairs of
the Company, its subsidiaries, affiliates and strategic partners, 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, affiliates and strategic partners not readily available to
the public (the "Confidential Information"). Executive further acknowledges that
the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. In recognition of the
foregoing, the Executive covenants and agrees as follows:

                                       8
<PAGE>

         6.1 No Disclosure or Use of Confidential Information. At no time shall
Executive ever divulge, disclose, or otherwise use any Confidential Information,
unless and until such information is readily available in the public domain by
reason other than Executive's disclosure or use thereof in violation of the
first clause of this Section 6.1.

         6.2 Return of Company Property, Records and Files. Upon the termination
of Executive's employment at any time and for any reason, or at any other time
the Board may so direct, Executive shall promptly deliver to the Company's
offices in Harrisburg, Pennsylvania all of the property and equipment of the
Company, its subsidiaries, affiliates and strategic partners (including all 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, strategic partners, successors or assigns, and/or
their respective past and present officers, directors, employees or consultants
(collectively, the "Company Property, Records and Files"); it being expressly
understood that, upon termination of Executive's employment at any time and for
any reason, Executive shall not be authorized to retain any of the Company
Property, Records and Files.

7.       Noncompetition and Other Matters.

         7.1 Noncompetition. During the Term and, as applicable, for the
two-year period immediately following the date of termination of Executive's
employment either (x) by the Company for Cause or (y) by Executive other than
for Good Reason, Executive shall not, directly or indirectly, in any city, town,
county, parish or other municipality in any state of the United States (the
names of each such city, town, parish, or other municipality, including, without
limitation, the name of each county in the Commonwealth of Pennsylvania being
expressly incorporated by reference herein), or any other place in the world,
where the Company, or its subsidiaries, affiliates, strategic partners,
successors, or assigns, engaged in the ownership, management and operation of
retail drugstores (i) engage in a Competing Business for Executive's own
account; (ii) enter the employ of, or render any consulting services to, any
Competing Business; or (iii) become interested in any Competing Business in any
capacity, including, without limitation, as an individual, partner, shareholder,
officer, director, principal, agent, trustee or consultant; provided, however,
Executive may own, directly or indirectly, solely as a passive investment,
securities of any entity traded on any national securities exchange if Executive
is not a controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own 1% or more of any class of
securities of such entity. For purposes of this Section 7.1, the phrase
"Competing Business" shall mean any entity a majority of whose business involves
the ownership and operation of retail drug stores.

         7.2 Noninterference. During the Term and for the two-year period
immediately following the date of termination of Executive's employment at any
time and for any reason (the "Restricted 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, strategic partners, successors or assigns to terminate
his, her or its employment or other relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, 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, strategic
partners, successors or assigns for any other reason.

                                       9
<PAGE>

         7.3 Nonsolicitation. During the Restricted Period, Executive shall not,
directly or indirectly, solicit, induce, or attempt to solicit or induce any
customers, clients, vendors, suppliers or consultants then under contract to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns, to terminate his, her or its relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, or otherwise encourage
such customers, clients, vendors, suppliers or consultants then under contract
to terminate his, her or its relationship with the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns for any reason.

8.       Rights and Remedies upon Breach.

         If Executive breaches, or threatens to commit a breach of, any of the
provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company
and its subsidiaries, affiliates, strategic partners, 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, strategic partners, successors or assigns at law
or in equity.

         8.1 Specific Performance. 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, strategic partners, successors or
assigns and that money damages would not provide an adequate remedy to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns.

         8.2 Accounting. The right and remedy to require Executive to account
for and pay over to the Company or its subsidiaries, affiliates, strategic
partners, 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.

         8.3 Severability of Covenants. 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.

                                       10
<PAGE>

         8.4 Modification by the Court. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or scope of such provision, such court shall have the power (and is
hereby instructed by the parties) to reduce the duration or scope of such
provision, as the case may be (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.

         8.5 Enforceability in Jurisdictions. Executive intends to and hereby
confers jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographic scope of such covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of
Executive that such determination not bar or in any way affect the right of the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns to the relief provided herein in the courts of any other jurisdiction
within the geographic scope of such covenants, as to breaches of such covenants
in such other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.

9.       No Violation of Third-Party Rights.  Executive represents, warrants and
         covenants that he:

         (i) will not, in the course of employment, infringe upon or violate any
proprietary rights of any third party (including, without limitation, any third
party confidential relationships, patents, copyrights, mask works, trade
secrets, or other proprietary rights);

         (ii) is not a party to any conflicting agreements with third parties
which will prevent him from fulfilling the terms of employment and the
obligations of this Agreement;

         (iii) does not have in his possession any confidential or proprietary
information or documents belonging to others and will not disclose to the
Company, use, or induce the Company to use, any confidential or proprietary
information or documents of others; and

                                       11
<PAGE>

         (iv) agrees to respect any and all valid obligations which he may now
have to prior employers or to others relating to confidential information,
inventions, discoveries or other intellectual property which are the property of
those prior employers or others, as the case may be.

         Executive has supplied to the Company a copy of each written agreement
to which Executive is subject which includes any obligation of confidentiality,
assignment of intellectual property or non-competition.

         Executive agrees to indemnify and save harmless the Company from any
loss, claim, damage, cost or expense of any kind (including without limitation
reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Executive of the foregoing representations, warranties, and covenants.

10.      Arbitration.

         Except as necessary for the Company and its subsidiaries, affiliates,
strategic partners, successors or assigns or Executive to specifically enforce
or enjoin a breach of this Agreement (to the extent such remedies are otherwise
available), the parties agree that any and all disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to Executive's employment with the
Company or any subsidiary, affiliate or strategic partner, the termination of
that employment or any other dispute by and between the parties or their
subsidiaries, affiliates, strategic partners, successors or assigns, shall be
submitted to binding arbitration in Harrisburg, Pennsylvania according to the
National Employment Dispute Resolution Rules and procedures of the American
Arbitration Association. The parties agree that the parties shall each bear his
or its own attorneys' fees and costs in connection with any such arbitration.
This arbitration obligation extends to any and all claims that may arise by and
between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, and expressly extends to, without limitation, claims or
causes of action for wrongful termination, impairment of ability to compete in
the open labor market, breach of an express or implied contract, breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the Pennsylvania
constitution, the United States Constitution, and applicable state and federal
fair employment laws, federal and state equal employment opportunity laws, and
federal and state labor statutes and regulations, including, but not limited to,
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and any other state or federal law.

11.      Assignment.

         Neither this Agreement, nor any of Executive's rights or obligations
hereunder, may be assigned or otherwise subject to hypothecation by Executive.
The Company may assign its rights and obligations hereunder, in whole or in
part, (i) to any of the Company's subsidiaries, affiliates, or parent
corporations; or (ii) to any other successor or assign in connection with the
sale of all or substantially all of the Company's assets or stock or in
connection with any merger, acquisition and/or reorganization involving the
Company.

                                       12
<PAGE>

12.      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, Pennsylvania 17011
                           Attention:  General Counsel
                           Fax:  (717) 760-7867

with a copy to:            Kaye, Scholer, Fierman, Hays & Handler, LLP
                           1999 Avenue of the Stars, Suite 1600
                           Los Angeles, California 90067
                           Attention:  Andrew Ash, Esq.
                           Fax:  (310) 788-1200

If to Executive:           James Mastrian
                           ____________________
                           ____________________
                           Fax: _______________

Any party may change such party's address for notices by notice duly given
pursuant hereto.

13.      General.

         13.1 No Offset or Mitigation. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under, this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others whether in respect of claims made under this Agreement or
otherwise. In no event shall the Executive 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 the Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced, regardless
of whether the Executive obtains other employment.

                                       13
<PAGE>

         13.2 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to conflicts of laws principles thereof which might refer
such interpretations to the laws of a difference state or jurisdiction.

         13.3 Entire Agreement. Subject to the last sentence of Section 4.7,
this Agreement sets forth the entire understanding of the parties relating to
Executive's employment with the Company and cancels and supersedes all
agreements, arrangements and understandings relating thereto made prior to the
date hereof, written or oral, between the Executive and the Company and/or any
subsidiary or affiliate.

         13.4 Amendments; Waivers. 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 waving 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.

         13.5 No Conflict with Other Agreements. Executive represents and
warrants that neither his execution of this Agreement nor the full and complete
performance of his obligations hereunder will violate or conflict in any respect
with any written or oral agreement or understanding with any person or entity.

         13.6 Successors and Assigns. This Agreement shall inure to the benefit
of and shall be binding upon the Company (and its successors and assigns) and
Executive and his heirs, executors and personal representatives.

         13.7 Withholding. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.

         13.8 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.

         13.9 No Assignment. The rights and benefits of the Executive under this
Agreement may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be void. Payments
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.

                                       14
<PAGE>

         13.10 Survival. This Agreement shall survive the termination of
Executive's employment and the expiration of the Term to the extent necessary to
give effect to its provisions.

         13.11 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

         13.12 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.



                                       15
<PAGE>



         IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first written above.

                                         RITE AID CORPORATION

                                         /s/ Mary Sammons
                                         -----------------------------
                                         By:  Mary Sammons
                                         Its: President & COO


                                         EXECUTIVE

                                           /s/  James Mastrian
                                         -----------------------------



                                       16
<PAGE>

                                   APPENDIX A

         A "Change in Control of the Company" shall be deemed to have occurred
if, as the result of a single transaction or a series of transactions, the event
set forth in any one of the following paragraphs shall have occurred:

                  (1) any Person is or becomes the Beneficial Owner, directly or
         indirectly, of securities of the Company representing 25% or more of
         the combined voting power of the Company's then outstanding voting
         securities; or

                  (2) Incumbent Directors cease at any time and for any reason
         to constitute a majority of the number of directors then serving on the
         Board. "Incumbent Directors" shall mean directors who either (A) are
         directors of the Company as of the Effective Date or (B) are elected,
         or nominated for election, to the Board with the affirmative votes of
         at least a majority of the Incumbent Directors at the time of such
         election or nomination (but shall not include an individual whose
         election or nomination is in connection with an actual or threatened
         election contest, including but not limited to a consent solicitation,
         relating to the election of directors to the Board); or

                  (3) there is consummated a merger or consolidation of the
         Company or any direct or indirect subsidiary of the Company with any
         other corporation, other than (i) a merger or consolidation which would
         result in the voting securities of the Company outstanding immediately
         prior to such merger or consolidation continuing to represent (either
         by remaining outstanding or by being converted into voting securities
         of the surviving entity or any parent thereof) at least 60% of the
         combined voting power of the securities of the Company or such
         surviving entity or any parent thereof outstanding immediately after
         such merger or consolidation, or (ii) a merger or consolidation
         effected to implement a recapitalization of the Company (or similar
         transaction) in which no Person is or becomes the Beneficial Owner,
         directly or indirectly, of securities of the Company representing 25%
         or more of the combined voting power of the Company's then outstanding
         voting securities; or

                  (4) the stockholders of the Company approve a plan of complete
         liquidation or dissolution of the Company or an agreement for the sale
         or disposition by the Company of all or substantially all of the
         Company's assets, other than a sale or disposition by the Company of
         all or substantially all of the Company's assets to an entity, at least
         60% of the combined voting power of the voting securities of which are
         owned by stockholders of the Company in substantially the same
         proportions as their ownership of the Company immediately prior to such
         sale.

         "Affiliate" shall have the meaning set forth in Rule 12b-2 under
Section 12 of the Exchange Act.

                                       17
<PAGE>

         "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act, except that a Person shall not be deemed to be the Beneficial
Owner of any securities which are properly filed on a Form 13G.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

         "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.


                                       18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>9
<FILENAME>b311659_ex10-44.txt
<DESCRIPTION>EXECUTION COPY
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.44

                                                                  EXECUTION COPY


                            SALOMON SMITH BARNEY INC.
                              390 GREENWICH STREET
                            NEW YORK, NEW YORK 10013

CITICORP NORTH AMERICA, INC.                          THE CHASE MANHATTAN BANK
    388 GREENWICH STREET                             J.P. MORGAN SECURITIES INC.
  NEW YORK, NEW YORK 10013                                 270 PARK AVENUE
                                                      NEW YORK, NEW YORK 10017

 CREDIT SUISSE FIRST BOSTON                           FLEET RETAIL FINANCE INC.
   ELEVEN MADISON AVENUE                               FLEET SECURITIES, INC.
  NEW YORK, NEW YORK 10010                           40 BROAD STREET, 10TH FLOOR
                                                     BOSTON, MASSACHUSETTS 02109


                                                                    May 15, 2001


Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Mr. Robert G. Miller
           Chairman of the Board of Directors
           and Chief Executive Officer

                              Rite Aid Corporation
                  $1,900,000,000 Senior Secured Credit Facility
                                Commitment Letter

Ladies and Gentlemen:

Rite Aid Corporation ("Rite Aid") has advised Citi/SSB, JPMorgan, CSFB and Fleet
(as defined below) that Rite Aid desires to establish the Senior Facility (as
defined in Exhibit A) in connection with the transactions described in Exhibit A
hereto (the "Transaction Description"). Capitalized terms used in this
Commitment Letter but not defined herein shall have the meanings given to them
in the Transaction Description.

Subject to the terms and conditions described in this Commitment Letter
(including Exhibits A, B and C hereto), and in the Fee Letters referred to
below, Citi/SSB, JPMorgan, CSFB and Fleet are pleased to inform Rite Aid of
their several commitments to provide the following principal amounts of the
Senior Facility:

<PAGE>

                             Citi/SSB     $475,000,000
                             JPMorgan     $475,000,000
                             CSFB         $475,000,000
                             Fleet        $475,000,000
                                        --------------
                             Total      $1,900,000,000

Each of Citi/SSB, JPMorgan, CSFB and Fleet shall be liable only for its own
commitment hereunder, and shall not have any liability with respect to the
commitment of any other party.

The commitments of each of Citi/SSB, JPMorgan, CSFB and Fleet hereunder will be
irrevocably reduced by the amount of the commitments of any other prospective
Senior Lenders (as defined below) which execute commitments relating to the
Senior Facility to the extent expressly stated in such commitment of such other
prospective Senior Lenders. Such reductions will be allocated among the
commitments of Citi/SSB, JPMorgan, CSFB and Fleet as agreed by them.

For purposes of this Commitment Letter, "Citi/SSB" shall mean Citicorp North
America, Inc. and/or any affiliate thereof, including Salomon Smith Barney Inc.
("SSBI"), as Citi/SSB shall determine to be appropriate to provide the services
contemplated herein. "CSFB" means Credit Suisse First Boston or any affiliate
thereof. "Fleet" means Fleet Retail Finance Inc. and/or any affiliate thereof,
including Fleet Securities, Inc., as Fleet Retail Finance Inc. shall determine
to be appropriate to provide the services contemplated herein. "JPMorgan" means
J.P. Morgan Securities Inc. and/or any affiliate thereof, including The Chase
Manhattan Bank, as JPMorgan shall determine to be appropriate to provide the
services contemplated herein. Citi/SSB, JPMorgan, Fleet and CFSB are referred to
collectively as the "Agents".

1.  Conditions Precedent. The commitments of Citi/SSB, JPMorgan, CSFB and Fleet
hereunder are subject to:

    (a) The Agents' completion of, and satisfaction in all respects with, the
results of its ongoing due diligence investigation of the business, assets,
operations, properties, condition (financial or otherwise), contingent
liabilities, prospects and material agreements of Rite Aid. Each of the Agents
confirms its satisfaction with the results of its due diligence investigation of
Rite Aid to date and expects that its due diligence investigation will be
completed within 30 days of the date of delivery to the Agents of Rite Aid's
Annual Report on Form 10-K for the fiscal year ended March 3, 2001.

    (b) The preparation, execution and delivery of definitive documentation with
respect to the Senior Facility, including a credit agreement, security
agreements and guarantees incorporating substantially the terms and conditions
outlined in this Commitment Letter and otherwise reasonably satisfactory to the
Agents and Citi/SSB's counsel (the "Operative Documents"), on or before August
31, 2001.


                                       2
<PAGE>

    (c) There not having occurred any material adverse change in the business,
assets, operations, properties, condition (financial or otherwise), contingent
liabilities, prospects or material agreements of Rite Aid and its subsidiaries,
taken as a whole, since March 3, 2001.

    (d) There not having occurred any disruption of or change in loan
syndication, financial, banking or capital market conditions that, in the
reasonable judgment of the Agents, could materially impair the syndication of
the Senior Facility.

    (e) The accuracy and completeness of all representations that Rite Aid and
its affiliates make to the Agents and all information that Rite Aid and its
affiliates furnish to the Agents.

    (f) The payment in full of all fees, expenses and other amounts payable
under this Commitment Letter and the Fee Letters.

    (g) The Agents' reasonable satisfaction with (i) the structure of the
Transactions and all related tax, legal and accounting matters, (ii) the
material terms of the Transactions and of all agreements and instruments to be
entered into in connection with the Transactions and (iii) the capitalization,
structure and equity ownership of Rite Aid and its subsidiaries after giving
effect to the Transactions.

    (h) The Agents' satisfaction that Rite Aid is not subject to material
contractual or other material restrictions that would be violated by the
Transactions, including the granting of perfected first priority security
interests and guarantees and the payment of dividends by subsidiaries.

    (i) The execution, delivery and compliance with the terms of (i) this
Commitment Letter and (ii) the Fee Letters.

    (j) The completion of the Additional Financings on substantially similar
terms and conditions as those described in this Commitment Letter (including
Exhibits A, B and C hereto).

    (k) There not having been any material changes to the five-year business
plan of Rite Aid which has been previously delivered to the Agents.

    (l) The Agents' receipt of valuations and appraisals of the Collateral by
independent appraisal firms satisfactory to the Agents which valuations and
appraisals shall be satisfactory to the Agents.

    (m) Citi/SSB's completion of a field examination of the Collateral, the
results of which shall be satisfactory to the Agents.

Please note that the terms and conditions of Citi/SSB's, JPMorgan's, CSFB's and
Fleet's commitments hereunder are not limited to those set forth in this
Commitment Letter and that those matters that are not covered or made clear in
this Commitment Letter are subject to mutual agreement of the parties.


                                       3
<PAGE>

2.  Commitment Termination. The commitments set forth in this Commitment Letter
will terminate on the earlier of August 31, 2001 and the date of execution and
delivery of the Operative Documents. Before such date, the Agents may terminate
this Commitment Letter if any event occurs or information becomes available
that, in their reasonable judgment, results or is likely to result in the
failure to satisfy any condition set forth in Section 1, unless, in the judgment
of the Agents, such event or condition is capable of being cured and Rite Aid is
working diligently to the satisfaction of the Agents to effect such a cure.

3.  Syndication. Each of the Agents reserves the right, before or after the
execution of the Operative Documents, to syndicate all or a portion of its
commitment to one or more other financial institutions, in consultation with
Rite Aid, that will become parties to the Operative Documents pursuant to
syndications to be managed by the Joint Lead Arrangers (as defined below) (the
financial institutions becoming parties to the Operative Documents being
collectively referred to herein as the "Senior Lenders"). Rite Aid understands
that the Joint Lead Arrangers intend to commence such syndication of the Senior
Facility promptly and that the Joint Lead Arrangers may elect to appoint one or
more syndication agents to direct such syndication efforts on their behalf.

The Joint Lead Arrangers will act as the joint lead syndication agents with
respect to the Senior Facility and will manage all aspects of the syndications
in consultation with Rite Aid and the Syndication Agents, including the timing
of all offers to potential Senior Lenders, the determination of all amounts
offered to potential Senior Lenders, the selection of Senior Lenders, the
allocation of commitments among the Senior Lenders, the assignment of any titles
and the compensation to be provided to the Senior Lenders.

Rite Aid shall take all action that the Joint Lead Arrangers may reasonably
request to assist them in forming syndicates acceptable to each of the Joint
Lead Arrangers and Rite Aid. Rite Aid's assistance in forming such syndicates
shall include but not be limited to: (i) making senior management,
representatives and advisors of Rite Aid available to participate in
informational meetings with potential Senior Lenders at such times and places as
the Joint Lead Arrangers may reasonably request; (ii) using its reasonable best
efforts to ensure that the syndication efforts benefit from Rite Aid's existing
lending relationships; (iii) assisting (including using its best efforts to
cause its affiliates and advisors to assist) in the preparation of a
confidential information memorandum for the Senior Facility and other marketing
materials to be used in connection with the syndications; and (iv) promptly
providing the Joint Lead Arrangers with all information reasonably deemed
necessary by them to successfully complete the syndications.

To ensure an orderly and effective syndication of the Senior Facility, Rite Aid
agrees that, from the date hereof until the termination of the syndications (as
determined by the Joint Lead Arrangers), it will not and will not permit any of
its affiliates to, syndicate or issue, attempt to syndicate or issue, announce
or authorize the announcement of the syndication or issuance of, or engage in
discussions concerning the syndication or issuance of, any debt security or
commercial bank or other debt facility (including any renewals thereof), without
the prior written consent of the Joint Lead Arrangers other than as contemplated
by the Transactions.


                                       4
<PAGE>

Rite Aid agrees that (a) Citicorp USA, Inc. will act as the sole administrative
agent for the Senior Facility, (b) SSBI and JPMorgan will act as joint lead
arrangers and joint book managers (the "Joint Lead Arrangers") for the Senior
Facility, and (c) JPMorgan, CSFB and Fleet will act as syndication agents for
the Senior Facility. No additional agents, co-agents, arrangers or co-
arrangers, will be appointed, or other titles conferred, without the consent of
the Joint Lead Arrangers. Rite Aid agrees that no Senior Lender will receive any
compensation of any kind for its participation in the Senior Facility, except as
expressly provided in the Fee Letters or in Exhibit A, B or C.

4.  Fees. In addition to the fees described in Exhibits B and C, Rite Aid will
pay the fees set forth in the fee letter relating to the Senior Facility dated
the date hereof between Rite Aid and the Agents (the "Senior Facility Fee
Letter") and the fee letter dated the date hereof between Rite Aid and Citi/SSB
(the "Arrangement Fee Letter" and, together with the Senior Facility Fee Letter,
the "Fee Letters"). The terms of the Senior Facility Fee Letter are an integral
part of the Agents' commitments hereunder and constitute part of this Commitment
Letter for all purposes hereof. Each of the fees described in the Fee Letters
and Exhibits B and C shall be nonrefundable when paid.

5.  Indemnification. Rite Aid agrees to indemnify and hold harmless the Agents,
each Senior Lender and each of their respective affiliates and each of their
respective officers, directors, employees, agents, advisors and representatives
(each, an "Indemnified Person") from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, reasonable fees
and disbursements of counsel), joint or several, that may be incurred by or
asserted or awarded against any Indemnified Person, (including, without
limitation, in connection with any investigation, litigation or proceeding or
the preparation of a defense in connection therewith), in each case arising out
of or in connection with or by reason of this Commitment Letter or the Operative
Documents or the Transactions contemplated hereby or thereby, or any use made or
proposed to be made with the proceeds of the Senior Facility, except to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Person's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this paragraph applies, such indemnity shall be effective, whether or not
such investigation, litigation or proceeding is brought by Rite Aid, any of its
directors, securityholders or creditors, an Indemnified Person or any other
person, or an Indemnified Person is otherwise a party thereto and whether or not
the Transactions contemplated hereby are consummated.

No Indemnified Person shall have any liability (whether in contract, tort or
otherwise) to Rite Aid or any of its directors, securityholders or creditors for
or in connection with the Transactions contemplated hereby, except for direct
damages (as opposed to special, indirect, consequential or punitive damages
including, without limitation, any loss of profits, business or anticipated
savings) determined in a final non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Person's gross negligence or
willful misconduct.

If any litigation or proceeding is brought against any Indemnified Person in
respect of which indemnification may be sought against Rite Aid pursuant to this
Section 5, such Indemnified Person shall promptly notify Rite Aid in writing of


                                       5
<PAGE>

the commencement of such litigation or proceeding, but the failure so to notify
Rite Aid shall relieve Rite Aid from any liability which it may have hereunder
only if, and to the extent that, it has been materially prejudiced by such
failure and will not in any event relieve Rite Aid from any other obligation or
liability that it may have to any Indemnified Person other than under this
Commitment Letter. In case any such litigation or proceeding shall be brought
against any Indemnified Person and such Indemnified Person shall notify Rite Aid
in writing of the commencement of such litigation or proceeding, Rite Aid shall
be entitled to participate in such litigation or proceeding, and, after written
notice from Rite Aid to such Indemnified Person, to assume the defense of such
litigation or proceeding with counsel of its choice at its expense; provided,
however, that such counsel shall be satisfactory to the Indemnified Person in
the exercise of its reasonable judgment; and provided further, however, that
Rite Aid shall not have the right to assume the defense of any litigation or
proceeding related to the security interests granted in favor of the Senior
Lenders or the validity or enforceability of the documentation for the Senior
Facility. Notwithstanding the election of Rite Aid to assume the defense of such
litigation or proceeding, such Indemnified Person shall have the right to employ
separate counsel and to participate in the defense of such litigation or
proceeding, and Rite Aid shall bear the reasonable fees, costs and expenses of
such separate counsel and shall pay such fees, costs and expenses at least
quarterly (provided that with respect to any single litigation or proceeding or
with respect to several litigations or proceedings involving substantially
similar legal claims, Rite Aid shall not be required to bear the fees, costs and
expenses of more than one such counsel except where such Indemnified Person
requires local counsel, in which case Rite Aid shall also be required to bear
the fees, costs and expenses of such local counsel) if (i) the use of counsel
chosen by Rite Aid to represent such Indemnified Person would present such
counsel with a conflict of interest (based upon written advice of counsel to the
Indemnified Person), (ii) the defendants in, or targets of, any such litigation
or proceeding include both an Indemnified Person and Rite Aid, and such
Indemnified Person shall have reasonably concluded that there may be legal
defenses available to it or to other Indemnified Persons which are different
from or additional to those available to Rite Aid (in which case Rite Aid shall
not have the right to direct the defense of such action on behalf of the
Indemnified Person), (iii) Rite Aid shall not have employed counsel satisfactory
to such Indemnified Person, in the exercise of the Indemnified Person's
reasonable judgment, to represent such Indemnified Person within a reasonable
time after notice of the institution of such litigation or proceeding or (iv)
Rite Aid shall authorize in writing such Indemnified Person to employ separate
counsel at the expense of Rite Aid. In any action or proceeding the defense of
which Rite Aid assumes, the Indemnified Person shall have the right to
participate in such litigation and retain its own counsel at such Indemnified
Person's own expense. Rite Aid and each Indemnified Person agrees to use all
reasonable efforts to cooperate in the defense of any action or proceeding
pursuant to which a claim for indemnification is made under this Section 5.

No Indemnified Person seeking indemnification under this Commitment Letter
shall, without Rite Aid's prior written consent (which consent shall not be
unreasonably withheld), settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indemnification may be sought hereunder.

6.  Costs and Expenses. Rite Aid shall pay or reimburse Citi/SSB on demand for
all reasonable out-of-pocket costs and expenses incurred by Citi/SSB (whether
incurred before or after the date hereof), in each case in connection with the


                                       6
<PAGE>

Senior Facility and the preparation, negotiation, execution and delivery of this
Commitment Letter, the Operative Documents and any security arrangements in
connection with the Senior Facility, including valuation and appraisal of the
Collateral (which costs and expenses will be documented in reasonable detail),
and the reasonable fees and disbursements of counsel and appraisal firms
(whether incurred before or after the date hereof), whether or not any of the
Transactions contemplated hereby are consummated. Rite Aid further agrees to pay
all costs and expenses of Citi/SSB (including, without limitation, reasonable
fees and disbursements of counsel) incurred in connection with the enforcement
of any of its rights and remedies hereunder.

7.  Confidentiality. By accepting delivery of this Commitment Letter, Rite Aid
agrees that this Commitment Letter is for its confidential use only and that
neither its existence nor the terms hereof will be disclosed by it to any person
other than its officers, directors, employees, accountants, attorneys and other
advisors, and then only on a confidential and "need to know" basis in connection
with the Transactions contemplated hereby. Notwithstanding the foregoing,
following Rite Aid's acceptance of the provisions hereof and its return of an
executed counterpart of this Commitment Letter to Citi/SSB as provided below,
(i) Rite Aid may file a copy of this Commitment Letter (other than the Fee
Letters) in any public record in which it is required by law to be filed and
(ii) Rite Aid may make such other public disclosures of the terms and conditions
hereof as (a) Rite Aid is required by law, in the opinion of its counsel, to
make and (b) may be necessary or advisable in connection with the Transactions.

8.  Representations and Warranties. Rite Aid represents and warrants that (i)
all information (other than financial projections) that has been or will
hereafter be made available to the Agents, any Senior Lender or any potential
Senior Lender by or on behalf of Rite Aid or any of its representatives in
connection with the Transactions contemplated hereby is and will be complete and
correct in all material respects and does not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances under which such statements were or are made and (ii) all
financial projections, if any, that have been or will be prepared by or on
behalf of Rite Aid or any of its representatives and made available to the
Agents, any Senior Lender or any potential Senior Lender have been or will be
prepared in good faith based upon assumptions that are reasonable at the time
made and at the time the related financial projections are made available to the
Agents. If, at any time from the date hereof until the execution and delivery of
the Operative Documents, any of the representations and warranties in the
preceding sentence would be incorrect if the information or financial
projections were being furnished, and such representations and warranties were
being made, at such time, then Rite Aid will promptly supplement the information
and the financial projections so that such representations and warranties will
be correct under those circumstances.

In issuing this Commitment Letter and in arranging the Senior Facility including
the syndication of the Senior Facility, the Agents will be entitled to use, and
to rely on the accuracy of, the information furnished to it by or on behalf of
Rite Aid or any of its representatives without responsibility for independent
verification thereof.


                                       7
<PAGE>

9.  No Third Party Reliance, Etc. The agreements of the Agents hereunder and of
any Senior Lender that issues a commitment to provide financing under the Senior
Facility are made solely for the benefit of Rite Aid and may not be relied upon
or enforced by any other person (other than Indemnified Persons pursuant to
Section 5). This Commitment Letter is not intended to create a fiduciary
relationship among the parties hereto.

10. Sharing Information. Rite Aid acknowledges that the Agents may provide debt
financing, equity capital or other services (including financial advisory
services) to parties whose interests regarding the Transactions described herein
and otherwise may conflict with Rite Aid's interests. Consistent with the
Agents' policy to hold in confidence the affairs of its customers, the Agents
will not furnish confidential information obtained from Rite Aid or its
affiliates to any of its other customers. Furthermore, the Agents will not use
in connection with the Transactions contemplated hereby, or furnish to Rite Aid,
confidential information obtained by the Agents from any other person.

11. Assignments. Rite Aid may not assign this Commitment Letter or the Agents'
commitments hereunder without the Agents' prior written consent, and any
attempted assignment without such consent shall be void.

12. Amendments. This Commitment Letter may not be amended or any provision
hereof waived or modified except by an instrument in writing signed by each
party hereto.

13. Governing Law, Etc. This Commitment Letter shall be governed by, and
construed in accordance with, the laws of the State of New York. This Commitment
Letter sets forth the entire agreement among the parties with respect to the
matters addressed herein and supersedes all prior communications, written or
oral, with respect hereto. This Commitment Letter may be executed in any number
of counterparts, each of which, when so executed, shall be deemed to be an
original and all of which, taken together, shall constitute one and the same
Commitment Letter. Delivery of an executed counterpart of a signature page to
this Commitment Letter by telecopier shall be as effective as delivery of a
manually executed counterpart of this Commitment Letter. Sections 3 through 8,
10, 13 and 14 shall survive the expiration or termination of this Commitment
Letter whether or not the Operative Documents shall be executed and delivered,
but, after the effectiveness of the Operative Documents, only to the extent not
inconsistent with the Operative Documents.

14. Waiver of Jury Trial. Each party hereto irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Commitment
Letter or the Transactions contemplated hereby or the actions of the parties
hereto in the negotiation, performance or enforcement hereof.

Please indicate your acceptance of the provisions hereof by signing the enclosed
copy of this Commitment Letter and the Fee Letters and returning them to Richard
D. Banziger, Managing Director, Salomon Smith Barney Inc., 390 Greenwich Street,
New York, New York 10013 (telecopier: (212) 723-8544) at or before 5:00 p.m.
(New York City time) on May 15, 2001, at which time the commitment of the Agents
set forth above (if such acceptance, deposits and payments have not occurred
prior thereto) will expire.


                                       8
<PAGE>

If you elect to deliver this Commitment Letter by telecopier, please arrange for
the executed original to follow by next-day courier.

                                                   Very truly yours,

                                                   CITICORP NORTH AMERICA, INC.,

                                                   By___________________________
                                                   Name:
                                                   Title:  Vice President

                                                   SALOMON SMITH BARNEY INC.,

                                                   By___________________________
                                                   Name:
                                                   Title:   Managing Director

                                                   THE CHASE MANHATTAN BANK,

                                                   By___________________________
                                                   Name:
                                                   Title:

                                                   J.P. MORGAN SECURITIES INC.,

                                                   By___________________________
                                                   Name:
                                                   Title:

                                                   CREDIT SUISSE FIRST BOSTON,

                                                   By___________________________
                                                   Name:
                                                   Title:

                                                   FLEET RETAIL FINANCE INC.,

                                                   By___________________________
                                                   Name:
                                                   Title:

                                                   FLEET SECURITIES, INC.,

                                                   By___________________________
                                                   Name:
                                                   Title:


                                       9
<PAGE>

ACCEPTED AND AGREED on May 15, 2001:

RITE AID CORPORATION,

By_______________________
Name:
Title:


                                       10
<PAGE>

CONFIDENTIAL                                                           EXHIBIT A
May 15, 2001


                              Rite Aid Corporation
                  $1,900,000,000 Senior Secured Credit Facility
                             Transaction Description

All capitalized terms used herein but not defined herein shall have the meanings
provided in the Commitment Letter relating to this Transaction Description. The
following transactions are referred to herein as the "Transactions".

         1. Rite Aid will obtain a new senior secured credit facility in an
aggregate principal amount of $1,900,000,000 (the "Senior Facility"), which
shall be unconditionally guaranteed by its subsidiaries and secured by a first
priority security interest in the Collateral (as described in Exhibit B to the
Commitment Letter).

         2. Rite Aid will seek to raise not less than $1,050,000,000 of gross
proceeds from a combination of financings (the "Additional Financings") as
described below, in each case in form and substance, including structure and
terms, satisfactory to the Agents:

                   (a) from equity financings (other than debt for equity
         swaps), gross proceeds of at least $400,000,000 in cash (the
         "Additional Equity Financing"); and

                   (b) the balance from a combination of debt for equity swaps
         or public or private debt securities and/or real estate financings (the
         "Additional Debt Financing"); provided that at least $300,000,000 of
         such balance consists of debt for equity swaps (including those
         effected since March 3, 2001, other than those effected through the
         public exchange offer by Rite Aid in respect of its $156,000,000 5.25%
         Convertible Subordinated Notes due 2002 and $110,000,000 6.00% Dealer
         Remarketable Securities due 2003) or other equity financings.

         3. Costs and expenses (including, without limitation, all fees and
amounts payable under the Fee Letters) incurred for services actually provided
to Rite Aid in connection with the foregoing transactions will be paid in an
amount up to approximately $94,000,000 (the "Transaction Costs").

         4. The estimated sources and uses of the funds necessary to consummate
the Transactions are set forth in Annex I hereto (the "Sources and Uses of
Funds").

<PAGE>

                                                                         ANNEX I
                                                      to Transaction Description


                              Rite Aid Corporation
                  $1,900,000,000 Senior Secured Credit Facility
                            Sources and Uses of Funds


<TABLE>
<CAPTION>
                        Sources                                                         Uses*
- --------------------------------------------------------     -----------------------------------------------------------
<S>                                                          <C>
Senior Facility --                                           Refinancing Existing Senior
drawn**                                  $1,400,000,000      Facility -- drawn**                          $  600,000,000

                                                             Refinancing Second Priority
Additional Financings                    $1,050,000,000      Indebtedness
                                                              RCF Facility     $730,000,000
                                                              PCS Facility      154,000,000
                                                              Exchange Debt     170,000,000
                                                              10.5% Notes       468,000,000
                                                              Synthetic Leases  213,000,000
                                                              Prudential Notes   21,000,000
                                                                               ------------


                                                                                                          $1,756,000,000
                                                             Transaction Costs and Premiums               $   94,000,000
                                         --------------                                                   --------------
TOTAL SOURCES                            $2,450,000,000      TOTAL USES                                   $2,450,000,000
                                         ==============                                                   ==============

</TABLE>

- -----------
*  Reflects amounts outstanding as of March 31, 2001.
** Excludes outstanding drawings under the Revolving Facility.

<PAGE>

CONFIDENTIAL                                                           EXHIBIT B
May 15, 2001


                              Rite Aid Corporation
                  $1,900,000,000 Senior Secured Credit Facility
                    Summary of Principal Terms and Conditions

All capitalized terms used herein but not defined herein shall have the meanings
provided in the Commitment Letter and the Transaction Description relating to
this Summary of Principal Terms and Conditions.

Borrower:                     Rite Aid Corporation, a Delaware corporation.

Transactions:                 As described in the Transaction Description.

Administrative Agent:         Citicorp USA, Inc., or an affiliate thereof
                              designated by SSBI (in its individual capacity
                              "CUSA" and in its capacity as Administrative
                              Agent, the "Administrative Agent").

Collateral Agent:             CUSA (in its capacity as Collateral Agent, the
                              "Collateral Agent").

Joint Lead Arrangers and
Joint Book Managers:          Salomon Smith Barney Inc. ("SSBI") and J.P. Morgan
                              Securities Inc. ("JPMorgan" and, together with
                              SSBI, the "Joint Lead Arrangers").

Syndication Agents:           JPMorgan, Credit Suisse First Boston and Fleet
                              Retail Finance Inc. (collectively, the
                              "Syndication Agents" and, together with the
                              Administrative Agent and the Collateral Agent, the
                              "Agents").

Other Agents:                 Other Agent titles to be determined.

Senior Lenders:               A syndicate of financial institutions arranged by
                              SSBI (the "Senior Lenders").

Senior Facility:              (A) An Amortizing Senior Secured Tranche A Term
                              Loan Facility (the "Tranche A Term Facility") in
                              an aggregate principal amount of $1,400,000,000
                              less the aggregate principal amount outstanding on
                              the Senior Facility closing date of the Borrower's
                              10.5% Senior Secured Notes due 2002 (the "10.5%
                              Notes"), after giving effect to the Borrower's
                              tender therefor, such aggregate principal amount
                              of the Tranche A Term Facility to be allocated, as
                              determined by the Joint Lead

<PAGE>

                              Arrangers in their discretion, entirely to or
                              between one or more term loan facilities.

                              (B) An Amortizing Senior Secured Delayed Draw
                              Tranche B Term Loan Facility in an aggregate
                              principal amount equal to the aggregate principal
                              amount outstanding on the Senior Facility closing
                              date of the 10.5% Notes, after giving effect to
                              the Borrower's tender therefor (the "Tranche B
                              Term Facility" and, together with the Tranche A
                              Term Facility, the "Term Facilities"); provided,
                              however, that to the extent the Borrower
                              consummates debt for equity swaps in respect of,
                              or otherwise reduces the outstanding principal
                              amount of, the 10.5% Notes after the closing of
                              the Senior Facility, such financings will reduce
                              the commitments under the Tranche B Term Facility
                              on a dollar-for-dollar basis.

                              (C) A Senior Secured Revolving Credit Facility in
                              an aggregate principal amount of $500,000,000 (the
                              "Revolving Facility").

                              (D) Up to $125,000,000 of the Revolving Facility
                              will be available as a letter of credit
                              subfacility.

                              (E) Up to $100,000,000 of the Revolving Facility
                              will be available as an uncommitted swing line
                              facility. Swing line loans must be repaid not
                              later than seven days after being drawn and may
                              not be refinanced with swing line loans.

Purpose and Availability:     The Tranche A Term Facility will be fully drawn on
                              the date on which the conditions to the initial
                              borrowing specified below are satisfied (the
                              "Initial Funding Date"). The Tranche B Term
                              Facility will be available at any time on or
                              before the final maturity of the 10.5% Notes to
                              purchase the 10.5% Notes at a purchase price no
                              greater than par. The Revolving Facility will be
                              available on and after the Initial Funding Date
                              and at any time before the final maturity of the
                              Revolving Facility, in minimum principal amounts
                              to be agreed by the Agents and the Borrower.
                              Amounts borrowed under the Term Facilities that
                              are repaid or prepaid may not be reborrowed.
                              Amounts repaid under the Revolving Facility may be
                              reborrowed.


                                        2

<PAGE>

                              Amounts borrowed under the Senior Facility will be
                              utilized by the Borrower solely (1) to refinance
                              the existing senior facility and the Second
                              Priority Indebtedness identified in the Sources
                              and Uses of Funds, (2) to pay up to approximately
                              $94,000,000 of transaction costs and premiums for
                              the Transactions, (3) to refinance $24,000,000 of
                              existing standby letters of credit issued by
                              Mellon Bank and Citibank, and (4) to finance
                              working capital requirements and capital
                              expenditures and for other permitted general
                              corporate purposes. Letters of credit may be
                              issued in the ordinary course of the Borrower's
                              business for permitted general corporate purposes.
                              Certain interest rate hedging arrangements with
                              Fleet and Citibank for the benefit of the Borrower
                              and its subsidiaries will remain outstanding, and
                              will be secured by a shared first-priority lien on
                              the Collateral. Treatment of existing trade
                              letters of credit issued for the benefit of the
                              Borrower and its subsidiaries will be as agreed in
                              the Operative Documents.

Final Maturity:               The Term Facilities and the Revolving Facility
                              will mature (and all lending commitments under the
                              Revolving Facility will terminate) on the fourth
                              anniversary of the date on which definitive
                              documentation for the Senior Facility is executed
                              and delivered; provided, however, that to the
                              extent more than $20,000,000 of the Borrower's
                              $200,000,000 7.625% Debentures due April 15, 2005
                              remain outstanding on December 31, 2004, the Term
                              Facilities and the Revolving Facility will mature
                              (and all lending commitments under the Revolving
                              Facility will terminate) on March 15, 2005.

Amortization:                 [Term Facilities amortization schedules to be
                              determined by the Agents and the Borrower.]

Borrowing Base:               All loans and other extensions of credit under the
                              Senior Facility will be subject to a borrowing
                              base (the "Borrowing Base") calculated as
                              percentages to be agreed by the Agents and the
                              Borrower of Eligible Receivables and Eligible
                              Inventory pledged as Collateral. The components,
                              standards of calculation and initial advance rates
                              of the Borrowing Base will be determined at the
                              reasonable judgment and consistent with the
                              customary practices of the Agents. Availability


                                        3

<PAGE>

                              under the Borrowing Base will be reduced by (i) a
                              reserve in an amount equal to the Borrower's then-
                              current exposure upon early termination under its
                              existing and future interest rate hedging
                              agreements that have a shared security interest in
                              the collateral securing the Senior Facility and
                              (ii) a reserve in an amount equal to the aggregate
                              principal amount then outstanding of the
                              Borrower's 10.5% Notes. The Collateral Agent may
                              use its reasonable judgment to increase the
                              initial advance rates by 5%. Any increase greater
                              than that amount will be subject to a 662/3% vote
                              of the Senior Lenders and any increase in advance
                              rates above 80% of the orderly liquidation value
                              of the Eligible Inventory or 85% of the Eligible
                              Receivables will be subject to a 100% vote of the
                              Senior Lenders. The Borrowing Base will be
                              computed weekly with respect to accounts
                              receivable and store location inventory, monthly
                              with respect to distribution center inventory and
                              at other times requested by the Collateral Agent.
                              A Borrowing Base Certificate presenting the
                              Borrower's computation will be delivered to the
                              Collateral Agent not later than four business days
                              after the end of each week or the date of any such
                              request by the Collateral Agent and not later than
                              14 days after the end of each month, as
                              applicable.

Guarantee:                    All obligations of the Borrower under the Senior
                              Facility and under any interest protection or
                              other hedging arrangements entered into with a
                              Senior Lender (or any affiliate thereof) will be
                              unconditionally guaranteed (the "Guarantees") by
                              each existing and subsequently acquired or
                              organized domestic and, to the extent no adverse
                              tax consequences would result, foreign direct or
                              indirect subsidiary of the Borrower (collectively,
                              the "Subsidiary Guarantors") owning any assets
                              consisting of inventory, accounts receivable,
                              script lists, intellectual property, certain owned
                              real estate (including owned fixtures, furnishings
                              and equipment) and other assets to be agreed by
                              the Agents and the Borrower ("Specified Assets").

Collateral:                   The Senior Facility, the Guarantees, certain
                              existing and future interest protection and other
                              hedging arrangements entered into with a Senior
                              Lender (or any affiliate thereof) will be secured
                              by a first priority pledge of, or mortgages on,
                              all Specified Assets of each Subsidiary Guarantor
                              (whether existing or subsequently acquired or


                                        4

<PAGE>


                              organized) and all proceeds of the foregoing
                              (collectively, the "Collateral"). Any 10.5% Notes
                              that remain outstanding on the Senior Facility
                              closing date, after giving effect to the
                              Borrower's tender therefor (the "Remaining 10.5%
                              Notes"), may be secured on a pari passu basis by a
                              silent first priority lien on the Collateral,
                              shared with the Senior Facility. Any indebtedness
                              incurred as Additional Debt Financings may be
                              secured on a pari passu basis by a silent second
                              priority lien on the Collateral (such secured
                              Additional Debt Financings, the "Second Priority
                              Indebtedness"). Such liens will not entitle the
                              Remaining 10.5% Notes or the Second Priority
                              Indebtedness to take any action whatsoever with
                              respect to the Collateral, and the Senior Lenders
                              will at all times control all remedies or other
                              actions relating to the Collateral. The holders of
                              the obligations under the Senior Facility and the
                              Remaining 10.5% Notes will have the right to
                              receive all proceeds of any realization on the
                              Collateral pursuant to the exercise of remedies on
                              a pari passu basis until all obligations under the
                              Senior Facility and the Remaining 10.5% Notes have
                              been paid in full. The Remaining 10.5% Notes and
                              the Second Priority Indebtedness will have secured
                              claims in bankruptcy proceedings, but the
                              intercreditor provisions will provide that the
                              holders of the Remaining 10.5% Notes and the
                              Second Priority Indebtedness may not vote such
                              claims or exercise rights with respect to such
                              claims in a manner adverse to the Senior Facility.

Cash Dominion:                The Borrower will continue its current cash
                              management system. Upon the occurrence of trigger
                              events to be agreed by the Agents and the
                              Borrower, the Collateral Agent, upon its
                              determination or upon request by the Majority
                              Banks, may deliver cash sweep notices, requiring
                              funds in the blocked accounts to be swept to a
                              single concentration account. After delivery of
                              cash sweep notices, unless required to do
                              otherwise pursuant to intercreditor arrangements,
                              the Collateral Agent will use each day's proceeds
                              to reduce outstanding obligations under the
                              Revolving Facility and thereafter to deposit into
                              a cash sweep cash collateral account for the
                              benefit of the Senior Facility secured parties, as
                              collateral for the payment and performance of the
                              Senior Facility obligations. As long as no default
                              or event of default shall have occurred and be
                              continuing, the Borrower will have access to the
                              Revolving Facility during a cash sweep period. The


                                        5

<PAGE>

                              Collateral Agent may send a cash sweep notice on
                              each occasion of the occurrence of a trigger
                              event.

                              During a cash sweep period, upon the occurrence of
                              certain events to be agreed by the Agents and the
                              Borrower, the Collateral Agent shall automatically
                              rescind any Cash Sweep Notice.

Interest Rates and Fees:      As set forth in Annex I hereto and in the Senior
                              Facility Fee Letter.

Optional Prepayments and
Reductions in Commitments:    Optional prepayments of borrowings under the
                              Senior Facility, and optional reductions of the
                              unutilized portion of the Senior Facility
                              commitments, will be permitted at any time, in
                              minimum principal amounts to be agreed by the
                              Agents and the Borrower, without premium or
                              penalty, subject to reimbursement of the Senior
                              Lenders' redeployment costs in the case of a
                              prepayment of LIBOR borrowings other than on the
                              last day of the relevant interest period.

Mandatory Prepayments:        The Senior Facility will be subject to mandatory
                              prepayment as follows:

                              (a) with the net cash proceeds of sales of
                                  Specified Assets and sales of capital stock of
                                  any subsidiary of the Borrower owning any
                                  Specified Assets (other than sales in the
                                  ordinary course of business and other limited
                                  exceptions to be agreed by the Agents and the
                                  Borrower), to be applied pro rata to the
                                  Revolving Facility, the Tranche A Term
                                  Facility and the Tranche B Term Facility.

                              (b) with the net cash proceeds of certain
                                  permitted capital markets transactions, to be
                                  applied:

                                  (i)   first, to the extent that the Borrower
                                        is not in compliance with the Borrowing
                                        Base requirements, pro rata to the
                                        Revolving Facility, the Tranche A Term
                                        Facility and the Tranche B Term Facility
                                        until such noncompliance is remedied,
                                        and



                                        6

<PAGE>



                                  (ii)  second, in an amount up to $300,000,000,
                                        to the payment or defeasance of the
                                        Borrower's $156,000,000 5.25%
                                        Convertible Subordinated Notes due 2002,
                                        and $110,000,000 6.00% Dealer
                                        Remarketable Securities due 2003 (or the
                                        deposit in a cash collateral account
                                        securing the Senior Facility of an
                                        amount required to repay such securities
                                        when callable at par), with the balance,
                                        if any, of such $300,000,000 to be
                                        available to the Borrower for general
                                        corporate purposes, and

                                  (iii) third, with respect to 75% of the
                                        balance of such net cash proceeds, pro
                                        rata to the Tranche A Term Facility and
                                        the Tranche B Term Facility and, with
                                        respect to 25% of the balance of such
                                        net cash proceeds, to general corporate
                                        purposes of the Borrower.

                              Such permitted capital markets transactions may
                              consist of equity or of certain capital markets
                              debt.

                              In the case of prepayments in respect of sales of
                              Specified Assets and sales of capital stock of any
                              subsidiary of the Borrower owning any Specified
                              Assets, allocations within the Senior Facility
                              will be made pro rata based on the outstanding
                              amounts of the Tranche A Term Facility and the
                              Tranche B Term Facility and the outstanding amount
                              plus unused commitments of the Revolving Facility.
                              Funds allocated to the Revolving Facility from
                              prepayments in respect of sales of Specified
                              Assets and sales of capital stock of any
                              subsidiary of the Borrower owning any Specified
                              Assets will be applied to permanently reduce the
                              Revolving Facility commitment (with corresponding
                              prepayments of obligations under the Revolving
                              Facility). In the case of prepayments in respect
                              of permitted capital markets transactions,
                              allocations within the Senior Facility in respect
                              of prepayments required to be applied pro rata to
                              the Revolving Facility, the Tranche A Term
                              Facility and the Tranche B Term Facility will be
                              made pro rata based on the outstanding amounts of
                              the Revolving Facility, the Tranche A Term
                              Facility and the Tranche B Term Facility. Funds
                              allocated to the Revolving Facility, the Tranche A
                              Term Facility or the Tranche B Term Facility from
                              prepayments in respect of permitted capital
                              markets transactions will be applied to prepay


                                       7
<PAGE>

                              outstanding principal amounts, and, in the case of
                              the Term Facilities, will be allocated to
                              scheduled amortization payments in reverse
                              chronological order.

                              Borrowings under the Senior Facility (including
                              the face amount of outstanding letters of credit)
                              must be prepaid (or cash collateralized) on any
                              date when the aggregate principal amount thereof
                              exceeds the Borrowing Base by an amount sufficient
                              to eliminate such excess.

Letters of Credit:            Letters of credit under the Revolving Facility
                              will be issued by one or more Senior Lenders (or
                              an affiliate thereof) to be agreed (collectively,
                              the "Issuing Lender"). Each letter of credit shall
                              expire not later than the earlier of (a) 12 months
                              after its date of issuance and (b) the fifth
                              business day before the final maturity of the
                              Revolving Facility.

                              Drawings under any letter of credit shall be
                              reimbursed by the Borrower (or converted to loans
                              under the Revolving Facility) on the same business
                              day. To the extent that the Borrower does not
                              reimburse the Issuing Lender on the same business
                              day, the Senior Lenders under the Revolving
                              Facility shall be irrevocably obligated to
                              reimburse the Issuing Lender pro rata based upon
                              their respective Revolving Facility commitments,
                              with the amount of such reimbursement payment
                              being deemed to be a drawing under the Revolving
                              Facility.

                              The issuance of all letters of credit shall be
                              subject to the customary procedures of the Issuing
                              Lender.

Representations
and Warranties:               Usual for facilities and transactions of this type
                              and others appropriate to this transaction to be
                              reasonably specified by the Agents (including
                              customary exceptions and materiality thresholds),
                              including, without limitation:

                              1.  Corporate status and authority.

                              2.  Execution, delivery, and performance of loan
                                  documents and transactions contemplated
                                  thereby do not violate law or other
                                  agreements.


                                       8
<PAGE>

                              3.  No government or regulatory approvals
                                  required, other than approvals in effect.

                              4.  No litigation which would (i) have a material
                                  adverse effect on the business, financial
                                  position, results of operations or prospects
                                  of the Borrower and its subsidiaries, taken as
                                  a whole, (ii) affect the legality, validity
                                  and enforceability of the loan documents
                                  (including without limitation, the validity,
                                  enforceability or priority of security
                                  interests to be granted) or (iii) impair the
                                  Borrower's or its subsidiaries' ability to
                                  perform its or their obligations under the
                                  loan documents.

                              5.  Environmental matters.

                              6.  There not having occurred any material adverse
                                  change in the business, assets, operations,
                                  properties, condition (financial or
                                  otherwise), contingent liabilities, prospects
                                  or material agreements of Rite Aid and its
                                  subsidiaries, taken as a whole, since March 3,
                                  2001.

                              7.  Financial condition; accuracy of financial
                                  statements.

                              8.  Material compliance with laws and regulations
                                  (including ERISA, margin regulations and all
                                  applicable environmental laws and regulations)
                                  and material agreements.

                              9.  Legality, validity, binding effect and
                                  enforceability of the loan documents.

                              10. Inapplicability of the Investment Company Act
                                  and Public Utility Holding Company Act.

                              11. Solvency.

                              12. Payment of taxes.

                              13. Validity, priority and perfection of security
                                  interests in the Collateral, and location of
                                  accounts receivable, inventory, receivables,
                                  real estate and intellectual property in
                                  Subsidiary Guarantors.


                                       9
<PAGE>

                              14. No conflicts with laws, material contracts,
                                  etc.

                              15. Properties.

                              16. Insurance.

                              17. Labor matters.

                              18. Accuracy of information.

                              19. Subsidiaries.

Conditions Precedent
to Initial Borrowing:         Usual for facilities and transactions of this
                              type, including those specified in the Summary of
                              Additional Conditions Precedent attached as
                              Exhibit C to the Commitment Letter, and others
                              appropriate to this transaction to be reasonably
                              specified by the Agents.

Affirmative Covenants:        Usual for facilities and transactions of this type
                              and others appropriate to this transaction to be
                              reasonably specified by the Agents (to be
                              applicable to the Borrower and the Borrower's
                              subsidiaries), including, without limitation, and
                              subject, in each case, to customary exceptions and
                              materiality standards to be agreed by the Agents
                              and the Borrower:

                              1.  Preservation of corporate existence and
                                  maintenance of material rights.

                              2.  Material compliance with laws (including ERISA
                                  and applicable environmental laws).

                              3.  Payment of taxes.

                              4.  Payment or performance of obligations.

                              5.  Delivery of audited and unaudited financial
                                  statements.

                              6.  Other reporting requirements, including with
                                  respect to the Borrowing Base and information
                                  with respect to the Collateral and perfection
                                  of security interests, and notices of default,
                                  litigation and other adverse matters.


                                       10
<PAGE>

                              7.  Visitation rights, including Collateral and
                                  Borrowing Base reviews.

                              8.  Maintenance of books and records.

                              9.  Maintenance of properties.

                              10. Maintenance of insurance.

                              11. Use of proceeds.

Negative Covenants:           Usual for facilities and transactions of this type
                              and others appropriate to this transaction to be
                              reasonably specified by the Agents (to be
                              applicable to the Borrower and the Borrower's
                              subsidiaries), including, without limitation,
                              subject in each case to customary exceptions and
                              materiality standards to be agreed by the Agents
                              and the Borrower:

                              1.  Limitations on liens. Security interests with
                                  respect to existing trade letters of credit
                                  that continue after the closing date will be
                                  permitted.

                              2.  Limitations on incurrence of debt (including
                                  obligations in respect of foreign currency
                                  exchange and other hedging arrangements) and
                                  contingent obligations. Treatment of existing
                                  trade letter of credit arrangements will be as
                                  agreed in the Operative Documents. The Senior
                                  Facility will permit the issuance of certain
                                  capital markets debt as described below, the
                                  proceeds of which will not be required to be
                                  applied as a "Mandatory Prepayment": (a) up to
                                  $200,000,000 aggregate principal amount of
                                  secured debt, subordinated only to the Senior
                                  Facility and any Remaining 10.5% Notes, with
                                  terms and conditions satisfactory to Senior
                                  Lenders holding more than 66 2/3% of the
                                  aggregate amount of the loans and commitments
                                  under the Senior Facility and (b) an aggregate
                                  principal amount of debt with the same terms
                                  as the Additional Debt Financing described in
                                  item 1(a) of Exhibit C in an amount not in
                                  excess of (x) $300,000,000 plus (y) an amount,
                                  not in excess of $140,000,000, by which the
                                  equity financing component (including debt for
                                  equity swaps) of the Additional Financings
                                  effected on or prior to the closing of the


                                       11
<PAGE>

                                  Senior Facility exceeds $700,000,000, provided
                                  that not less than $260,000,000 of the
                                  proceeds of such debt are used to refinance
                                  outstanding debt of the Borrower.

                              3.  Limitations on dividends, redemptions and
                                  repurchases with respect to capital stock and
                                  on loans and investments.

                              4.  Limitations on prepayments, redemptions and
                                  repurchases of certain debt.

                              5.  Limitations on loans and investments.

                              6.  Limitations on capital expenditures.

                              7.  Limitations on mergers, consolidations,
                                  acquisitions, asset dispositions and
                                  sale/leaseback transactions.

                              8.  Limitations on transactions with affiliates.

                              9.  Limitations on changes in business conducted
                                  by the Borrower and its subsidiaries.

                              10. Limitations on amendment of certain debt and
                                  other material agreements.

                              11. Limitations on the issuance and sale of
                                  capital stock of subsidiaries.

                              12. Limitations on restrictions on distributions
                                  from subsidiaries.

                              13. Limitation on negative pledges granted to
                                  other creditors.

Selected Financial
Covenants:                    Usual for facilities and transactions of this
                              type, including, without limitation, minimum
                              EBITDA, a minimum interest coverage ratio and a
                              minimum fixed charge coverage ratio.

Events of Default:            Usual for facilities and transactions of this type
                              and others appropriate to this transaction to be
                              reasonably specified by the Agents, including,
                              without limitation:


                                       12
<PAGE>

                              1.  Failure to pay principal when due and interest
                                  or any other amount within five days of the
                                  due date thereof.

                              2.  Representations or warranties materially
                                  incorrect when given.

                              3.  Failure to comply with covenants (with notice
                                  and cure periods as applicable).

                              4.  Cross-default to payment defaults on principal
                                  aggregating $25,000,000, or default or event
                                  of default if the effect is to accelerate or
                                  (with lapse of time, notice or both) permit
                                  acceleration.

                              5.  Unsatisfied judgment or order in excess of
                                  $25,000,000 individually or of $25,000,000 in
                                  the aggregate.

                              6.  Bankruptcy or insolvency.

                              7.  ERISA events.

                              8.  Change of control or ownership.

                              9.  Actual invalidity, or invalidity asserted by
                                  Rite Aid or any of its subsidiaries, of any
                                  loan document.

                              10. Invalidity, non-perfection or loss of priority
                                  of any material lien (with cure periods as
                                  applicable).

Voting:                       Amendments and waivers of the loan documents will
                              require the approval of Senior Lenders holding
                              more than 50% of the aggregate amount of the loans
                              and commitments under the Senior Facility, except
                              that (a) the consent of each affected Senior
                              Lender shall be required with respect to matters
                              usual for facilities and transactions of this
                              type, including those matters set forth in the
                              existing senior facility (with such changes
                              appropriate to this transaction as may be
                              reasonably satisfactory to the Agents) and
                              including, (i) waiver of any condition precedent
                              to the initial borrowing, (ii) increases in
                              commitments of the Senior Lenders, (iii)
                              reductions of principal, interest or fees, (iv)
                              extensions of any date fixed for payment of
                              principal or interest or of final maturity, (v)
                              releases of all or substantially all of the


                                       13
<PAGE>

                              Collateral (other than in connection with any sale
                              or financing of Collateral permitted by the loan
                              documents) and (b) the consent of Senior Lenders
                              holding more than 50% of the Revolving Facility
                              and more than 50% of each adversely affected
                              tranche of the Term Facilities shall be required
                              with respect to any amendment that changes the
                              allocation between the Revolving Facility, the
                              Tranche A Term Facility and the Tranche B Term
                              Facility (or any combination thereof) of any
                              mandatory prepayments under the Senior Facility.

Assignment and Participation: The Senior Lenders will have the right to assign
                              loans and commitments to (i) their affiliates,
                              (ii) other Senior Lenders or (iii) any Federal
                              Reserve Bank, in each case without restriction, or
                              to other financial institutions, with the consent,
                              not to be unreasonably withheld, of the Agents and
                              the Borrower (but the Borrower's consent shall not
                              be required if an Event of Default shall have
                              occurred and be continuing). Minimum aggregate
                              assignment level (except other Senior Lenders) of,
                              in the case of the Revolving Facility, $5,000,000
                              and, in the case of the Term Facilities,
                              $1,000,000 and increments of $1,000,000 in excess
                              thereof. The parties to the assignment (other than
                              the Borrower) shall pay to the Administrative
                              Agent an administrative fee of $1,000.

                              Each Senior Lender will have the right to sell
                              participations in its rights and obligations under
                              the loan documents, subject to customary
                              restrictions on the participants' voting rights.

Yield Protection, Taxes
and Other Deductions:         (1) The loan documents will contain yield
                                  protection provisions, customary for
                                  facilities of this nature, protecting the
                                  Senior Lenders in the event of unavailability
                                  of funding, funding losses, reserve and
                                  capital adequacy requirements.

                              (2) All payments to be free and clear of any
                                  present or future taxes, withholdings or other
                                  deductions whatsoever (other than income taxes
                                  in the jurisdiction of the Senior Lender's
                                  applicable lending office). The Senior Lenders
                                  will use reasonable efforts to minimize to the
                                  extent possible any applicable taxes and the
                                  Borrower will indemnify the Senior Lenders and


                                       14
<PAGE>

                                  the Agents for such taxes paid by the Senior
                                  Lenders or the Agents.

Expenses:                     The Borrower will reimburse all reasonable out-of-
                              pocket expenses (including, without limitation,
                              expenses incurred in connection with due
                              diligence, Collateral and Borrowing Base
                              appraisals and fees and expenses of counsel) (a)
                              of Citi/SSB and SSBI incurred by them in
                              connection with the preparation, syndication and
                              execution of the Senior Facility and the loan
                              documents and (b) of Citi/SSB, SSBI and the Senior
                              Lenders incurred by them in connection with the
                              waiver, modification and enforcement of the Senior
                              Facility and the loan documents. Such amounts
                              shall be reimbursed by the Borrower upon
                              presentation of a statement of account, whether or
                              not the Initial Funding Date occurs or the loan
                              documents are executed and delivered.

Governing Law and Forum:      New York.

Counsel to Citi/SSB and SSBI: Cravath, Swaine & Moore.


                                       15
<PAGE>

                                                                         ANNEX I
                                                                    to Exhibit B


                              Rite Aid Corporation
                  $1,900,000,000 Senior Secured Credit Facility
                             Interest Rates and Fees


Interest Rates:               The interest rates under the Revolving Facility
                              and the Term Facility are LIBOR plus a spread of
                              3.50% or Base Rate plus a spread of 2.50%.

                              The Borrower may choose LIBOR or Base Rate pricing
                              and may elect interest periods of 7 days or 1, 1
                              1/2, 2, 3 or 6 months for LIBOR borrowings, except
                              that all swing line loans will have Base Rate
                              pricing.

                              Calculation of interest shall be on the basis of
                              actual days elapsed in a year of 360 days (or 365
                              or 366 days, as the case may be, in the case of
                              Base Rate loans).

                              Interest will be payable in arrears (a) for loans
                              accruing interest at a rate based on LIBOR, at the
                              end of each interest period (but not less
                              frequently than every 3 months) and on the
                              maturity date, (b) for loans accruing interest
                              based on the Base Rate, quarterly in arrears and
                              on the maturity date.

                              "Base Rate" means the highest of (a) Citibank,
                              N.A.'s base rate, (b) the Federal Funds Effective
                              Rate plus 1/2 of 1% and (c) the Base CD Rate plus
                              1/2 of 1%.

                              LIBOR will at all times include statutory
                              reserves.

Default Rate:                 The applicable interest rate plus 2% per annum.

Commitment Fees:              0.5% per annum on the undrawn portion of the
                              commitments in respect of the Revolving Facility,
                              payable quarterly in arrears. 0.75% per annum on
                              the undrawn portion of the commitments in respect
                              of the Tranche B Term Facility, payable quarterly
                              in arrears.

Letter of Credit Fee:         A per annum fee equal to the spread over LIBOR
                              under the Revolving Facility will accrue on the
                              aggregate face amount of outstanding letters of
                              credit under the Revolving Facility, payable
                              quarterly in arrears and on the termination of the
                              Revolving Facility, in each case for the actual
                              number of days elapsed over a 360-day year. Such

<PAGE>

                              fees shall be distributed to the Senior Lenders
                              participating in the Revolving Facility pro rata
                              in accordance with the amount of each such Senior
                              Lender's Revolving Facility commitment. In
                              addition, the Borrower shall pay to the Issuing
                              Lender, for its own account, (a) a fronting fee of
                              1/4 of 1% per annum on the aggregate face amount
                              of outstanding letters of credit, payable
                              quarterly in arrears and on the termination of the
                              Revolving Facility, in each case for the actual
                              number of days elapsed over a 360-day year, and
                              (b) customary issuance and administration fees.


                                       2
<PAGE>

CONFIDENTIAL                                                           EXHIBIT C
May 15, 2001









                              Rite Aid Corporation
                  $1,900,000,000 Senior Secured Credit Facility
                   Summary of Additional Conditions Precedent

All capitalized terms used herein but not defined herein shall have the meanings
provided in the Transaction Description and the Summary of Principal Terms and
Conditions relating to this Summary of Additional Conditions Precedent.

The initial borrowing under the Senior Facility shall be subject to the
following additional conditions precedent:

1.  Consummation of Additional Financings. The Additional Financings shall have
been consummated, and in connection therewith:

         (a) Any indebtedness incurred as Additional Debt Financing shall:

             (i)   Have a maturity date after January 1, 2006.

             (ii)  If any security is granted, be limited to a silent second
                   priority security interest in the Collateral on terms
                   acceptable to the Agents. If any real estate financings are
                   consummated, collateral therefor shall be limited to the real
                   estate financed.

             (iii) Have no rights to additional collateral.

The terms and conditions of the Additional Financings, and all documentation and
agreements relating thereto, shall be reasonably satisfactory to the Agents and
the Senior Lenders.

2.  Senior Facility Documentation. The documentation for the Senior Facility
shall have been executed and delivered and shall be reasonably satisfactory to
each of the Agents and the Senior Lenders. The holders of the Remaining 10.5%
Notes and the Second Priority Indebtedness or their representatives shall have
entered into, or otherwise become subject to, intercreditor arrangements
reasonably satisfactory to the Agents and the Senior Lenders providing for, in
the case of the Remaining 10.5% Notes, the silent first priority lien shared
with the Senior Facility on the Collateral and, in the case of the Second
Priority Indebtedness, the silent second priority lien on the Collateral, in
each case described under the heading "Collateral" in the Summary of Principal
Terms and Conditions.

3.  Collateral and Guarantees. All Specified Assets of the Borrower's
subsidiaries (other than foreign subsidiaries to the extent adverse tax
consequences would result and de minimis Specified Assets owned by the Borrower)
shall be owned by Subsidiary Guarantors and the Senior Lenders shall have a
first-priority perfected security interest in the Collateral. Notwithstanding
anything to the contrary, none of the assets of the Borrower shall be pledged as
Collateral. The Agents shall be reasonably satisfied that all material Specified
Assets acquired as of and after the Funding Date will be owned by Subsidiary

<PAGE>

Guarantors and subject to a first priority perfected security interest securing
the Senior Facility obligations and, on a silent pari passu basis, the Remaining
10.5% Notes.

4.  Business Plan. There not having been any material changes to the five-year
business plan of Rite Aid which has been previously delivered to the Agents.

5.  Borrowing Base; Valuation and Appraisal; Field Examination. The Borrowing
Base shall be sufficient to support the initial borrowings under the Senior
Facility. The Administrative Agent shall have received such valuations and
appraisals of the Borrowing Base by independent appraisal firms reasonably
satisfactory to the Administrative Agent as the Administrative Agent shall
reasonably request. The Administrative Agent shall have completed completion of
a field examination of the Collateral, the results of which shall be
satisfactory to the Senior Lenders.

6.  Environmental and Employee Health and Safety. The Agents and the Senior
Lenders shall be reasonably satisfied as to the amount and nature of any
environmental liabilities and exposures relating to the properties to be
mortgaged, and any employee health and safety liabilities and exposures to which
the Borrower and its subsidiaries may be subject and with the plans of the
Borrower with respect thereto. The Agents shall have received such information
as they may reasonably request from an environmental consulting firm
satisfactory to the Agents.

7.  Litigation. There shall be no litigation which would (i) have a material
adverse effect on the business, financial position, results of operations or
prospects of the Borrower and its subsidiaries, taken as a whole, (ii) affect
the legality, validity and enforceability of the loan documents (including
without limitation, the validity, enforceability or priority of security
interests to be granted) or (iii) impair the Borrower's or its subsidiaries'
ability to perform its or their obligations under the loan documents.

8.  Working Capital. The Agents shall be reasonably satisfied with the
sufficiency of amounts available under the Senior Facility, and immediately
following the consummation of the Transactions, actual borrowing availability
under the Revolving Facility shall be at least $200,000,000.

9.  No Conflicts. The consummation of the Transactions, including the Senior
Facility and the other transactions contemplated hereby, shall not (a) violate
any applicable law, statute, rule or regulation or (b) conflict with, or result
in a default or event of default or an acceleration of any rights or benefits
under, any material agreement of the Borrower or any of its subsidiaries, and
the Agents and the Senior Lenders shall have received one or more legal opinions
to such effect, satisfactory to the Agents, from counsel to the Borrower
satisfactory to the Agents.

10. Consents. All requisite material governmental authorities and third parties
shall have approved or consented to the transactions contemplated hereby to the
extent required, all applicable appeal periods shall have expired and there
shall be no governmental or judicial action, actual or threatened, that could
reasonably be expected to restrain, prevent or impose burdensome conditions on
the transactions contemplated hereby.


                                       2
<PAGE>

11. Material Adverse Change. Absence of any material adverse change in the
business, assets, operations, properties, condition (financial or otherwise),
contingent liabilities, prospects or material agreements of Rite Aid and its
subsidiaries, taken as a whole, since March 3, 2001.

12. Contractual Restrictions. The Senior Lenders' satisfaction that the Borrower
and its subsidiaries are not subject to material contractual or other
restrictions that would be violated by the contemplated transactions, including
the granting of security interests and guarantees by subsidiaries.

13. Title Searches. The Collateral Agent shall have received mortgage and lien
searches with respect to the real estate Collateral reasonably satisfactory to
the Agents; provided that, in the case of real estate Collateral with respect to
which mortgage and lien searches were performed in connection with the existing
senior facility, such searches shall be limited to updates of the searches
previously performed.

14. 10.5% Notes. The 10.5% Notes shall have been redeemed or defeased or a
tender offer for any and all 10.5% Notes shall have been consummated on an any
or all basis by the Borrower, on terms reasonably satisfactory to the Agents.

15. Miscellaneous Closing Conditions. Other customary closing conditions,
including delivery of satisfactory legal opinions of the Borrower's and the
Agents' counsel, other financial information to be agreed by the Agents and the
Borrower; accuracy of representations and warranties; absence of defaults,
prepayment events or creation of liens under debt instruments or other
agreements as a result of the transactions contemplated hereby; evidence of
authority; compliance with applicable laws and regulations (including but not
limited to ERISA, margin regulations and environmental laws); payment of fees
and expenses; and obtaining of satisfactory insurance.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.45
<SEQUENCE>10
<FILENAME>b311659_ex10-45.txt
<DESCRIPTION>EQUITY FOR BANK DEBT EXCHANGE AGREEMENT
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.45

                     EQUITY FOR BANK DEBT EXCHANGE AGREEMENT

         This Equity for Bank Debt Exchange Agreement (the "Exchange
Agreement"), dated as of April 12, 2001 (the "Effective Date"), is entered into
by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and
Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P., Fir Tree
Value Partners LDC and Fir Tree Recovery Master Fund, L.P. (collectively, "Fir
Tree").

         WHEREAS, the Company desires to reduce its indebtedness; and

         WHEREAS, Fir Tree holds, or has entered into agreements to acquire,
$53,535,249 aggregate principal amount of indebtedness under the Company's RCF
Credit Facility due August 15, 2002 (the "RCF Facility"); and

         WHEREAS, Fir Tree desires to exchange $53,535,249 aggregate principal
amount of the RCF Facility (the "Bank Debt") for shares of common stock, $1.00
par value per share (the "Common Stock") of the Company (the "Exchange"); and

         WHEREAS, Fir Tree and the Company have agreed that it is in their
mutual interest to exchange the Bank Debt for shares of Common Stock;

         NOW THEREFORE, in consideration of the premises and the agreements and
representations contained herein, the parties hereto do hereby agree as follows:

                  1. Definitions.  As used herein, the following terms have the
following meanings:

                  "Average Price" means the sum of the volume weighted average
price (as calculated for the period beginning at 9:30 a.m. New York Time ("NYT")
and concluding at 4:00 p.m. NYT) per share of Common Stock on the NYSE for each
day of the Pricing Period as reported by Bloomberg Financial LP (using the AQR
function) divided by 30.

                  "Bank Debt Exchange Price" means 100% of the principal amount
of the Bank Debt.

                  "Interest Rate" means the interest rate payable to holders of
Euro-Dollar Loans pursuant to the RCF Facility provided that if the RCF
Facility has been redeemed, the last interest rate payable prior to the date of
redemption of the RCF Facility.



<PAGE>



                  "NYSE" means the New York Stock Exchange.

                  "Pricing Period" means the 30 consecutive trading days on the
NYSE, beginning April 9, 2001.

                  "Stock Exchange Price" means 96% of the Average Price during
the Pricing Period.

                  2. Exchange. Within three business days following the last day
of the Pricing Period, Fir Tree will deliver the Bank Debt (except and only to
such extent that Fir Tree is unable to close any acquisition of any Bank Debt as
a result of circumstances beyond its reasonable control) to such person or
entity as the Company and Fir Tree mutually agree (the "Escrow Agent") and the
Company will deliver to the Escrow Agent a certificate representing such number
of shares, rounded to the nearest whole number (the "Shares"), of Common Stock
and a certificate representing an equal number of shares of Class C Preferred
Stock of the Company (the "Preferred Shares") having the designations rights and
preferences set forth in the certificate of designation attached as Exhibit A
hereto, equal to the Bank Debt divided by the Stock Exchange Price. Any interest
paid on the Bank Debt while held in escrow will be paid promptly to Fir Tree.
The Company will use its best efforts to file a registration statement to cover
resales of the Shares pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). The Exchange Date shall be deemed to be the earlier of (x)
the date upon which the Shares are registered (the "Registration Date") for
resale under the Securities Act (the "Registration Exchange Date"), and, (y)
the date upon which the aggregate principal amount of the RCF Facility is repaid
in full (the "Refinancing Exchange Date"). During the Pricing Period, the
Company, Fir Tree and the Escrow Agent will enter into an escrow agreement on
terms as the parties mutually agree.

                  3. Exchange Date on or Before August 20, 2001. If the Exchange
Date occurs on or before August 20, 2001 and the Exchange Date is the
Registration Exchange Date, the Escrow Agent will deliver (a) the certificate(s)
representing the Shares to Fir Tree in such names and denominations as Fir Tree
provides in writing to the Company, and (b) the Bank Debt and a certificate
representing the Preferred Shares to the Company. If the Exchange Date occurs on
or before August 20, 2001 and the Exchange Date is the Refinancing Exchange
Date, the Escrow Agent will deliver (a) the certificate(s) representing the
Preferred Shares to Fir Tree in such names and denominations as Fir Tree
provides in writing to the Company, and (b) the Bank Debt and a certificate
representing the Shares to the


                                        2

<PAGE>



Company. On the Exchange Date, whether such Exchange Date is the Registration
Exchange Date or the Refinancing Exchange Date, the Company shall pay Fir Tree
the accrued and unpaid interest on the Bank Debt pursuant to the RCF Facility.

                  4. Exchange Date Between August 21, 2001 and November 21,
2001. If both the Exchange Date and the Registration Date occur between August
21, 2001 and November 21, 2001, in addition to the obligations set forth in
Section 3 above, the Company shall pay Fir Tree, as liquidated damages
("Liquidated Damages") for the Company's failure to cause the registration
statement covering the Shares to be declared effective by August 21, 2001, an
amount equal to 12% per annum of the Bank Debt minus the Interest Rate (the
"Liquidated Damages Rate") for each day in the period from August 21, 2001 until
the Exchange Date, provided that both the Exchange Date and the Registration
Date occur on or before November 21, 2001. Liquidated Damages shall be paid by
the Company to Fir Tree on the same dates and in the same manner as if such
payment was a payment of interest pursuant to Section 2.04 of the RCF Facility.

                  5. Exchange Date After November 21, 2001. If both the Exchange
Date and the Registration Date do not occur by November 21, 2001, then the
Liquidated Damages Rate shall increase to 18% per annum minus the Interest Rate
for each day in the period from November 22, 2001 until both the Exchange Date
and the Registration Date have occurred. Liquidated Damages shall be paid by the
Company to Fir Tree on the same dates and in the same manner as if such payment
was a payment of interest pursuant to Section 2.04 of the RCF Facility

                  6. Event of Default on RCF Facility. If prior to the Exchange
Date, an Event of Default has occurred under the RCF Facility, as defined in the
RCF Facility, then Fir Tree shall have the option not to consummate the
Exchange, and to instruct the Escrow Agent to release the Bank Debt to Fir Tree
including interest thereon, and the certificates evidencing the Shares and the
Preferred Shares shall be delivered to the Company for cancellation and this
Exchange Agreement shall be deemed null and void and neither Fir Tree nor the
Company shall have any liability to the other arising out of this Exchange
Agreement. Fir Tree must make such election within five business days notice of
such Event of Default.

                  7. Representations and Warranties. The Company represents and
warrants to Fir Tree that: (x) the issuance and delivery of the Shares or the
Preferred Shares, as the case may be, to Fir Tree will not violate: (a) the
Company's Articles of Incorporation or Bylaws, (b) any material agreement to
which the Company is a party, including any indenture; or (c) any applicable
federal or state statute,


                                        3

<PAGE>



rule or regulation that would prevent the Company from carrying out its
obligations hereunder; (y) no representation or warranty contained herein or
information appearing in any writing in connection with the transactions
contemplated hereby furnished to Fir Tree or in any document filed since October
11, 2000 with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading, (z) the Shares or the Preferred Shares, as the case
may be, when released from escrow and issued in accordance with this Exchange
Agreement, will be validly issued, fully paid and non-assessable, and (aa) this
Exchange Agreement has been validly authorized, executed and delivered by the
Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, subject to standard bankruptcy and
equitable remedies exceptions.

                  8. Investment Representations. Fir Tree understands that the
Shares and the Preferred Shares have not been registered under the Securities
Act and that the certificates for the Shares and the Preferred Shares will bear
a legend to that effect. Fir Tree also understands that the Shares and the
Preferred Shares, as the case may be, are being offered and sold pursuant to an
exemption from registration contained in the Securities Act, based in part upon
their representations contained in this Exchange Agreement. Fir Tree hereby
represents and warrants as follows:

                  (a) Acquisition for Own Account. Fir Tree is acquiring the
Shares or the Preferred Shares, as the case may be, for its own account for
investment and not with a view toward distribution.

                  (b) General Solicitation. Neither Fir Tree nor anyone acting
on its behalf has made or will make offers or sales of the Shares or the
Preferred Shares in the United States by means of any form of general
solicitation or general advertising (each within the meaning of Regulation D
under the Securities Act) in the United States in violation of applicable
securities laws.

                  (c) Ability to Protect Own Interests. Fir Tree represents that
by reason of its business or financial experience, or the business and financial
experience of its management, it has the capacity to protect its own interests
in connection with the transaction contemplated in this Exchange Agreement. Fir
Tree is not a corporation formed for the specific purpose of consummating this
transaction.



                                        4

<PAGE>



                  (d) Accredited Investor. Fir Tree represents that it is an
"accredited investor" as that term is defined in Regulation D promulgated under
the Securities Act.

                  (e) Access to Information. Fir Tree has been given access to
all publicly available Company documents, records, and other information, has
received physical delivery of all those which it has requested, and has had
adequate opportunity to ask questions of, and receive answers from, the
Company's officers, employees, agents, accountants, and representatives
concerning the Company's business, operations, financial condition, assets,
liabilities, and all other matters relevant to its investment in the Shares or
the Preferred Shares, as the case may be.

                  (f) Compliance with Laws. Fir Tree and its transferees will
comply with all material filing and other reporting obligations under all
applicable law which shall be applicable to it with respect to the Shares and
the Preferred Shares, as the case may be.

                  (g) Enforceability. This Exchange Agreement has been duly
authorized, and executed and delivered by Fir Tree and (assuming the due
authorization, execution and delivery thereof by the Company) constitutes a
valid and binding obligation of Fir Tree, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity).

                  9. Furnishing Information by Fir Tree. The Company may require
Fir Tree to furnish to the Company such information, including but not limited
to the names and denominations to be included in the registration statement,
regarding Fir Tree and Fir Tree's intended method of distribution of the Shares
as the Company may from time to time reasonably request in writing, Fir Tree
agrees to notify the Company as promptly as practicable of any inaccuracy or
change in information previously furnished by Fir Tree to the Company or of the
occurrence of any event in either case as a result of which any prospectus
relating to such registration contains or would contain an untrue statement of
a material fact regarding Fir Tree or Fir Tree's intended method of distribution
of Shares or omits to state any material fact regarding Fir Tree or Fir Tree's
intended method of distribution of Shares required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly to furnish


                                        5

<PAGE>



information so required so that such prospectus shall not contain, with respect
to Fir Tree or the distribution of such Shares, an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.

                  10. Indemnity.

                  (a) The Company will indemnify Fir Tree and its officers,
directors, partners, agents, employees and representatives against all expenses,
claims, losses and liabilities arising out of or based upon any breach of any
representation, warranty or covenant contained herein, or arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document incident to the registration of the Shares, qualification or
compliance, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statement therein
not misleading, and will reimburse Fir Tree for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in strict
conformity with written information furnished to the Company by Fir Tree and
provided specifically for use therein.

                  (b) Fir Tree will indemnify the Company and its officers,
directors, partners, agents, employees and representatives against all
expenses, claims, losses and liabilities arising out of or based upon any breach
of any representation, warranty or covenant contained herein, or arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document incident to the registration of the Shares, qualification or
compliance, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statement therein
not misleading, and will reimburse the Company for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in strict
conformity with written information furnished to Fir Tree by the Company and
provided specifically for use therein.


                                        6

<PAGE>




                  (c) Each party entitled to indemnification under this Section
10 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claims as to which indemnity may be sought and
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party, whose approval shall not
unreasonably be withheld or delayed, and the Indemnified Party may participate
in such defense with counsel reasonably acceptable to and paid for by the
Indemnifying Party but otherwise at the Indemnified Party's expense, and
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 10 to the extent such failure is not materially prejudicial.
No Indemnifying Party in the defense of any such claim or litigation shall
except with the consent of each Indemnified Party, consent to entry of any
judgement or enter into any settlement which does not include an unconditional
release of such Indemnified Party from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.

                  (d) If the indemnification provided for in this Section 10 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party of the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statements of a material fact or the omission to state
a material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Securities


                                        7

<PAGE>



Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.

                  11. Governing Law. This Exchange Agreement shall be governed
by the laws of the State of New York without giving effect to the conflict of
law rules contained therein.

                  12. Amendments and Waivers. Any term of this Exchange
Agreement may be amended or modified and the observance of any term of this
Exchange Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the prior written consent
of the Company and Fir Tree.

                  13. Further Assurances. The Company and Fir Tree agree to
enter into a registration rights agreement during the Pricing Period, on
customary terms, which terms will include but not be limited to customary
black-outs, carve outs and indemnity.

                  14. Miscellaneous. This Exchange Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns and affiliates of the parties hereto, whether so expressed or not.
Except as aforesaid, this Exchange Agreement shall not inure to the benefit of
any third party. This Exchange Agreement embodies the entire agreement and
understanding between Fir Tree and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof. The
headings in this Exchange Agreement are for purposes of reference only and shall
not limit or otherwise affect the meaning hereof. This Exchange Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.




                                        8

<PAGE>


                  15. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
or similar writing) and shall be given to such party at its address, facsimile
number or telex number set forth on the signature pages hereof. Each such
notice, request or other communication shall be effective (i) if given by telex,
when transmitted to the telex number referred to in this Section 15 and the
appropriate answer back is received, (ii) if given by facsimile, when
transmitted to the facsimile number referred to on the signature page and
confirmation of receipt is received, (iii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address referred to in this Section.





                                        9

<PAGE>


         IN WITNESS WHEREOF, the parties have caused this Exchange Agreement to
be duly executed as of the Effective Date.


                                    FIR TREE VALUE FUND, L.P.
                                    FIR TREE INSTITUTIONAL VALUE FUND, L.P.
                                    FIR TREE VALUE PARTNERS LDC
                                    FIR TREE RECOVERY MASTER FUND, L.P.


                                    By:
                                       -----------------------------------------

                                    Name:
                                         ---------------------------------------

                                    Title:
                                          --------------------------------------

                                    Address:
                                            ------------------------------------


                                    Facsimile No.:
                                                   -----------------------------



RITE AID CORPORATION


By:
   -----------------------------------------------------------

Name:
     ---------------------------------------------------------

Title:
      --------------------------------------------------------

Address:
        ------------------------------------------------------


Facsimile No.:
               -----------------------------------------------

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>11
<FILENAME>b311659_ex10-46.txt
<DESCRIPTION>CORRESPONDENCE
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.46

                              RITE AID CORPORATION
                                 30 Hunter Lane
                          Camp Hill, Pennsylvania 17011


                                                     April 30, 2001



Ladies and Gentlemen:

         Reference is made to that certain Equity for Bank Debt Exchange
Agreement, dated as of April 12, 2001, by and between Rite Aid Corporation (the
"Company") and Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund,
L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.
(collectively, "Fir Tree"). All capitalized terms used but not defined herein
shall have the meanings set forth in the Exchange Agreement. In connection with
the exchange of up to $135 million aggregate principal amount of indebtedness
under the Company's RCF Credit Facility for shares of Common Stock, we hereby
agree as follows:

         (1)      The definition of "Bank Debt" is hereby amended and will
                  hereinafter be defined as $132,658,503.67 of the RCF Facility.
                  As of the date hereof, Fir Tree has acquired $45,035,248.82
                  (the "Acquired Bank Debt") of the Bank Debt and has executed
                  definitive and binding agreements to acquire the remaining
                  $87,623,254.85 of the Bank Debt (the "Remaining Bank Debt").

         (2)      The definition of "Pricing Period" is hereby amended and will
                  hereinafter be defined as the nineteen (19) consecutive
                  trading days on the NYSE, beginning on April 9, 2001 and
                  ending on May 4, 2001.

         (3)      The definition of "Average Price" is hereby amended and will
                  hereinafter be defined as the sum of the volume weighted
                  average price (as calculated for the period beginning at 9:30
                  a.m. New York Time ("NYT") and concluding at 4:00 p.m. NYT)
                  per share of Common Stock on the NYSE for each day of the
                  Pricing Period as reported by Bloomberg Financial LP (using
                  the AQR function) divided by 30.

         (4)      Computershare Trust Company, Inc. will serve as the Escrow
                  Agent.

         (5)      Section 2 of the Exchange Agreement is hereby deleted in its
                  entirety and is amended and replaced with the following:


                                        1

<PAGE>


                  "Within three business days following the last day of the
                  Pricing Period, Fir Tree will deliver an assignment, in the
                  form attached as Exhibit A hereto, with respect to (the
                  "Assignment") the Acquired Bank Debt to such person or entity
                  as the Company and Fir Tree mutually agree (the "Escrow
                  Agent") and the Company will deliver to the Escrow Agent (a)
                  an instruction letter to the Company's transfer agent,
                  Computershare Investor Services (the "Transfer Agent"),
                  authorizing and directing the Transfer Agent to issue a
                  certificate or certificates representing, or to issue and
                  electronically deliver, such number of shares, rounded to the
                  nearest whole number (the "Shares" which term includes any
                  Shares that may become issuable upon Fir Tree's acquisition
                  and exchange of any and all Remaining Bank Debt) of Common
                  Stock equal to the Acquired Bank Debt divided by the Stock
                  Exchange Price (the "Common Stock Instruction Letter"), and
                  (b) an instruction letter to the Transfer Agent authorizing
                  and directing the Transfer Agent to issue certificate or
                  certificates representing such number of shares of Class C
                  Preferred Stock of the Company that are convertible into the
                  Shares (the "Preferred Shares" which term includes any
                  Preferred Shares that may become issuable upon Fir Tree's
                  acquisition and exchange of any and all Remaining Bank Debt)
                  having the designations rights and preferences set forth in
                  the certificate of designation attached as Exhibit B hereto
                  (the "Series C Preferred Stock Instruction Letter"). Any
                  accrued and unpaid interest on the Acquired Bank Debt while
                  held in escrow will be paid promptly to Fir Tree. The Company
                  will use commercially reasonable efforts to file a
                  registration statement to cover resales of the Shares pursuant
                  to the Securities Act of 1933, as amended (the "Securities
                  Act") within forty-five (45) days after the Company files its
                  annual report on Form 10-K for the fiscal year ended March 3,
                  2001. The Exchange Date shall be deemed to be the earlier of
                  (x) the date upon which the Shares are registered (the
                  "Registration Date") for resale under the Securities Act (the
                  "Registration Exchange Date"), and, (y) the date upon which
                  the aggregate principal amount of the RCF Facility is repaid
                  in full (the "Refinancing Exchange Date"). During the Pricing
                  Period, the Company, Fir Tree and the Escrow Agent will enter
                  into an escrow agreement on terms as the parties mutually
                  agree (the "Escrow Agreement").

                  Upon Fir Tree's acquisition of any Remaining Bank Debt, within
                  three business days of such acquisition, Fir Tree and the
                  Company will each take all such actions as described in the


                                        2

<PAGE>



                  immediately preceding paragraph as if such acquired Remaining
                  Bank Debt was Acquired Bank Debt as of the date of this
                  Agreement.

         (6)      Rite Aid will not be obligated to file the Certificate of
                  Designation with the Secretary of State of Delaware unless
                  and until such time as the Series C Preferred Stock
                  Instruction Letter is released from escrow and delivered to
                  the Transfer Agent in accordance with the terms herein and in
                  the Escrow Agreement.

         (7)      Section 3 of the Exchange Agreement is hereby deleted in its
                  entirety and is amended and replaced with the following:

                  "3. Exchange Date on or Before August 20, 2001. If the
                  Exchange Date occurs on or before August 20, 2001 and the
                  Exchange Date is the Registration Exchange Date, the Escrow
                  Agent will deliver (a) the Common Stock Instruction Letter to
                  the Transfer Agent and the Transfer Agent will promptly
                  deliver the certificate(s) representing, or electronically
                  deliver, the Shares to Fir Tree in such names and
                  denominations as Fir Tree provides in writing to the Company,
                  and (b) the Assignment and the Series C Preferred Stock
                  Instruction Letter to the Company. If the Exchange Date occurs
                  on or before August 20, 2001 and the Exchange Date is the
                  Refinancing Exchange Date, the Escrow Agent will deliver (a)
                  the Preferred Stock Instruction Letter to the Transfer Agent
                  and the Transfer Agent will promptly deliver the
                  certificate(s) representing the Preferred Shares to Fir Tree
                  in such names and denominations as Fir Tree provides in
                  writing to the Company, and (b) the Assignment and the Common
                  Stock Instruction Letter to the Company. On the Exchange Date,
                  whether such Exchange Date is the Registration Exchange Date
                  or the Refinancing Exchange Date, the Company shall pay Fir
                  Tree the accrued and unpaid interest on the Bank Debt up to
                  the date the Common Stock Instruction Letter and the
                  Preferred Stock Instruction Letter are released from escrow,
                  pursuant to the RCF Facility."

         (8)      Fir Tree agrees to use commercially reasonable efforts to
                  acquire the Remaining Bank Debt as soon as possible and
                  promptly inform Rite Aid of Fir Tree's acquisition of any and
                  all Remaining Bank Debt.

                          [the signature page follows]


                                        3

<PAGE>


         If you are in agreement with the foregoing, please execute and return a
copy of this Letter Agreement which will constitute our agreement to the subject
matter hereof.

                                             Very truly yours,

                                             RITE AID CORPORATION


                                             By:
                                                --------------------------------
                                                Name:
                                                Title:

Agreed to and accepted as of the date first above written.

FIR TREE VALUE FUND, L.P.
FIR TREE INSTITUTIONAL VALUE FUND, L.P.
FIR TREE VALUE PARTNERS LDC
FIR TREE RECOVERY MASTER FUND, L.P.


By:
    ------------------------------
    Name:
    Title:



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.48
<SEQUENCE>12
<FILENAME>b311659_ex10-48.txt
<DESCRIPTION>MATERIAL CONTRACTS
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.48

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

         THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
26th day of January, 2000 (the "Effective Date") by and between Rite Aid
Corporation, a Delaware corporation (the "Company"), and Christopher Hall (the
"Executive").

         WHEREAS, Executive desires to provide the Company with his services and
that Company desires to employ Executive in the capacity of Senior Vice
President and Chief Accounting Officer on the terms and subject to the
conditions set forth herein.

         NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

1.       Term of Employment.
         ------------------

         The term of Executive's employment with the Company hereunder (the
"Term") shall commence on the Effective Date and, unless earlier terminated
pursuant to Section 5 below, shall continue for a period ending on the date that
is three (3) years following the Effective Date; provided, however, that on each
anniversary of the Effective Date occurring prior to the termination of
Executive's employment hereunder (each such date a "Renewal Date"), an
additional year shall be added to the Term, unless notice of non-renewal has
been delivered by one party to the other party at least 180 days prior to such
Renewal Date. For purposes of this Agreement, the phrases "year during the Term"
or "during any year of the Term" or similar language shall refer to each
12-month period commencing on the Effective Date or applicable anniversaries
thereof.

2.       Position And Duties.
         -------------------

         2.1 Position. During the Term, Executive shall be employed as Senior
Vice President and Chief Accounting Officer of the Company. Following
termination of Executive's employment for any reason, Executive shall
immediately resign from all offices and positions he holds with the Company or
any subsidiary.

         2.2 Duties. Subject to the supervision and control of the Chief
Financial Officer of the Company, to whom he shall report, Executive shall do
and perform all services and acts necessary or advisable to fulfill the duties
and responsibilities of his position as Senior Vice President and Chief
Accounting Officer and shall render such services on the terms set forth herein.
In addition, Executive shall have such other executive and managerial powers and
duties with respect to the Company and its subsidiaries, affiliates and
strategic partners as may be assigned to him by the Chief Financial Officer.
Except for sick leave, vacations (as provided in Section 4.3 below), and excused
leaves of absence, Executive shall, throughout the Term, devote substantially
all his working time, attention, knowledge and skills faithfully and to the best
of his ability, to the duties and responsibilities of his position in
furtherance of the business affairs and activities of the Company and its



<PAGE>


subsidiaries, affiliates and strategic partners. Executive shall at all times be
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as the Board of Directors of the Company (the "Board") or the
Chief Executive Officer of the Company may from time to time establish for
senior executive officers of the Company.

3.       Compensation.
         ------------

         3.1 Base Salary. During the Term, as compensation for his services
hereunder, Executive shall receive a salary at the annualized rate of Three
Hundred Fifty Thousand Dollars ($350,000) per year ("Base Salary"), which shall
be paid in accordance with the Company's normal payroll practices and
procedures, less such deductions or offsets required by applicable law or
otherwise authorized by Executive. During the Term the Base Salary shall be
reviewed periodically by the Compensation Committee of the Board for possible
increase. Any increase in the Base Salary shall not limit or reduce any other
obligation of the Company under this Agreement. The Base Salary shall not be
reduced after any such increase, and the term "Base Salary" shall thereafter
refer to the Base Salary as from time to time so increased.

         3.2 Guaranteed Bonus. Executive shall be entitled to receive a
guaranteed bonus (the "Guaranteed Bonus") in the amount of $116,000 payable on
April 1, 2000, provided Executive is employed with the Company hereunder on that
date.

         3.3 Annual Performance Bonus. Commencing with the Company's fiscal year
beginning on or about February 27, 2000, the Executive shall participate during
the Term in the Company's annual bonus plan as adopted and approved by the Board
or the Compensation Committee from time to time. The Executive's annual target
bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal
50% of the Base Salary in effect for the Executive at the beginning of each such
fiscal year.

         3.4 Stock Awards.

         (a) The Compensation Committee of the Board has approved the grant to
Executive of an option (the "Option") to purchase 350,000 shares of the
Company's common stock, par value $1.00 per share ("Company Stock"). The Option
shall (i) be a non-qualified stock option, (ii) have an exercise price equal to
the closing price of the Company Stock as reported on the New York Stock
Exchange on the Effective Date, (iii) have a term of ten (10) years following
the Effective Date, (iv) vest and become exercisable as to one-third of the
shares of Company Stock subject to the Option on each of the first three
anniversaries of the Effective Date, (v) be subject to the acceleration,
exercise and termination provisions set forth in Section 3.4(o) and Article 5
hereof and (vi) otherwise be evidenced by and subject to the terms of the
Company's form of stock option agreement for officers.

         (b) The Compensation Committee of the Board has approved the grant to
Executive of 50,000 shares of restricted Company Stock (the "Restricted Stock").
Subject to (i) the acceleration and forfeiture provisions set forth in Section
3.4(c) and Article 5 hereof and (ii) the terms of the Company's form of
restricted stock agreement for officers, the restrictions applicable to the
Restricted Stock shall lapse to one-third of such shares on each of the first
three anniversaries of the Effective Date.


                                        2

<PAGE>

         (c) Upon the occurrence of a Change in Control of the Company prior to
the termination of Executive's employment with the Company, the Option shall
immediately vest and become exercisable in full, and all remaining restrictions
on the Restricted Stock shall immediately lapse. For purposes of this Agreement
"Change in Control" shall have the meaning set forth in the attached Appendix A.

         (d) It is understood and acknowledged by Executive that the securities
underlying the Option will not be subject to an effective registration statement
under the federal securities laws until some time after the Effective Date. The
Company agrees that if, as of the date of termination of Executive's employment
under the circumstances described in Sections 5.3 and 5.5, the securities
underlying the then vested and exercisable portion of the Option (or any other
option to purchase Company Stock then held by Executive) are not subject to an
effective registration statement, the 90-day periods in Sections 5.3 and 5.5, as
applicable, will be deemed to run from the first date such securities become
subject to an effective registration statement. The Company further agrees that
if, as of the date of Executive's voluntary termination of employment other than
for Good Reason, the securities underlying the then vested and exercisable
portion of the Option (or any other option to purchase Company Stock then held
by Executive) are not subject to an effective registration statement, Executive
will be permitted to exercise the Option, to the extent vested and exercisable
as of the date of such termination of employment, during the 30-day period
following the first date such securities become subject to an effective
registration statement.

4.       Additional Benefits.
         -------------------

         4.1 Employee Benefits. During the Term, Executive shall be entitled to
participate in the employee benefit plans in which executive officers of the
Company are generally eligible to participate, subject to any eligibility
requirements and the other generally applicable terms of such plans.

         4.2 Expenses. During the Term, the Company shall reimburse Executive
for any expenses reasonably incurred by him in furtherance of his duties
hereunder, including, without limitation, travel, meals and accommodations, upon
submission of vouchers or receipts and in compliance with such rules and
policies relating thereto as the Company may from time to time adopt or as may
be required in order to permit such payments to be taken as proper deductions by
the Company or any subsidiary under the Internal Revenue Code of 1986, as
amended, and the rules and regulations adopted pursuant thereto now or hereafter
in effect.

         4.3 Vacation. Executive shall be entitled to four weeks paid vacation
during each year of the Term.

         4.4 Automobile Allowance. During the Term, the Company shall provide
Executive with an automobile allowance of $750 per month.



                                        3
<PAGE>

         4.5 Annual Financial Planning Allowance. During each year of the Term,
the Company shall provide Executive with a financial planning allowance in the
amount of $5,000.

         4.6 Relocation Expenses.

             (a) The Company shall reimburse Executive for his reasonable
expenses incurred in moving his household goods and cars from the Los Angeles,
California area to the Harrisburg, Pennsylvania area, in accordance with the
Company's moving expense policies applicable to executive officers generally.

             (b) The Company shall reimburse Executive for any loss incurred
upon sale of his principal Los Angeles residence (measured as the excess, if
any, of (i) the sum of (A) the original purchase price of the residence plus (B)
the documented actual cost of any improvement thereto since the date of
purchase, the approximate aggregate amount of which has previously been
disclosed to the Company, plus (C) a standard real estate commission over (ii)
the sale price), such amount to be "grossed up" to offset in full any net
increase in Executive's federal, state and local income, employment and other
taxes resulting therefrom (and from such gross-up); provided, that the aggregate
amount payable pursuant to this Section 4.6(b), including any such gross-up,
shall not exceed $100,000. Executive agrees that he shall use his best efforts
to sell such residence at its fair market value.

             (c) The Company shall reimburse Executive for his reasonable living
expenses for a temporary residence in the Harrisburg area until the date of
relocation.

             (d) The Company shall reimburse Executive for the reasonable costs
of round trip air travel between Harrisburg and Los Angeles for each weekend
during the period from the Effective Date through the earlier of his relocation
date or August 31, 2000. The Company shall also reimburse Executive for a
reasonable number of round-trip visits between Los Angeles and the Harrisburg
area by his immediate family members prior to the relocation date, including
reasonable costs for meals, lodging and transportation during such trips.

             (e) The Company shall pay Executive an additional "gross-up" amount
to offset in full any net increase in Executive's federal, state and local
income, employment and other taxes resulting from any of the amounts and/or
benefits payable pursuant to Section 4.6(a), (c) and (d) being taxable to
Executive.

         4.7 Indemnification. The Company shall (a) indemnify and hold Executive
harmless, to the full extent permitted under applicable law, for, from and
against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) related to or
arising out of the Executive's employment with and service as an officer of the
Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred
by Executive in connection with or relating to the defense of any such loss,
claim, cost, expense, damage, liability or action. Following any termination of
the Executive's employment or service with the Company, the Company shall cause



                                        4

<PAGE>

any director and officer liability insurance policies applicable to the
Executive prior to such termination to remain in effect for six (6) years
following the date of termination of employment.

5.       Termination.
         -----------

         5.1 Termination of Executive's Employment by the Company for Cause. The
Company may terminate Executive's employment hereunder for Cause (as defined
below). Such termination shall be effected by written notice thereof delivered
by the Company to Executive, indicating in reasonable detail the facts and
circumstances alleged to provide a basis for such termination, and shall be
effective as of the date of such notice in accordance with Section 12 hereof.
"Cause" shall mean (i) Executive's gross negligence or willful misconduct in the
performance of the duties or responsibilities of his position with the Company
or any subsidiary, or failure to timely carry out any lawful directive of the
Board, the Chief Executive Officer or Chief Financial Officer; (ii) Executive's
misappropriation of any funds or property of the Company or any subsidiary;
(iii) the commission by Executive of an act of fraud or dishonesty toward the
Company or any subsidiary; or (iv) the use or imparting by Executive of any
confidential or proprietary information of the Company or any subsidiary in
violation of any confidentiality or proprietary agreement to which Executive is
a party.

         5.2 Compensation upon Termination by the Company for Cause or by
Executive without Good Reason. In the event of Executive's termination of
employment (i) by the Company for Cause or (ii) by Executive voluntarily without
Good Reason:

             (a) Executive shall be entitled to receive (i) all amounts accrued
but unpaid Base Salary through the effective date of such termination, (ii)
reimbursement for reasonable and necessary expenses incurred by Executive
through the date of notice of such termination, to the extent otherwise provided
under Section 4.2 above and (iii) all other vested payments and benefits to
which Executive may otherwise be entitled pursuant to the terms of the
applicable benefit plan or arrangement through the effective date of such
termination ((i), (ii) and (iii), the "Accrued Benefits"). All other rights of
Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder or otherwise in connection with Executive's employment with
the Company shall terminate effective as of the date of such termination of
employment.

             (b) Except as provided in Section 3.4(d), any portion of the Option
or any other then outstanding stock option that has not been exercised prior to
the date of termination shall immediately terminate as of such date, and any
portion of the Restricted Stock or any other restricted stock or other equity
incentive awards as to which the restrictions have not lapsed or as to which any
other conditions shall not have been satisfied prior to the date of termination
shall be forfeited as of such date.

Any termination of Executive's employment by Executive voluntarily without Cause
shall be effective upon 30 days' notice to the Company.



                                        5

<PAGE>

         5.3 Compensation upon Termination of Executive's Employment by the
Company Other Than for Cause or by Executive for Good Reason. Executive's
employment hereunder may be terminated by the Company other than for Cause or by
Executive for Good Reason. In the event that Executive's employment hereunder is
terminated by the Company other than for Cause or by Executive for Good Reason:

             (a) Executive shall be entitled to receive (i) the Accrued
Benefits, (ii) any previously unpaid Guaranteed Bonus, (iii) a pro rata annual
bonus determined by multiplying Executive's then Annual Target Bonus by a
fraction, (x) the numerator of which is the number of days between the beginning
of the then current fiscal year of the Company and the date of termination of
employment and (y) the denominator of which is 365, (iv) an amount equal to two
times the sum of Executive's Base Salary plus Annual Target Bonus as of the date
of termination of employment, such amount payable in equal installments pursuant
to the Company's standard payroll procedures for executive officers over a
period of two years following the date of termination of employment, and (v)
continued health insurance coverage for Executive and his immediate family for a
period of two years following the date of termination of employment.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.4(d),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any portion of Executive's stock options that have not vested as of
the date of termination shall terminate as of such date; and all shares of
Restricted Stock as to which the restrictions shall not have lapsed as of the
date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.

Any termination of employment pursuant to this Section 5.3 shall be effective
upon thirty (30) days notice thereof.

         5.4 Definition of Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any one of the following:

             (a) any material adverse alteration in Executive's titles,
positions, status, duties, authorities, reporting relationships or
responsibilities with the Company or its subsidiaries from those specified in
this Agreement, as the same may be augmented from time to time;


                                        6

<PAGE>

             (b) the assignment to Executive of any duties or responsibilities
materially inconsistent with Executive's status as Senior Vice President and
Chief Accounting Officer of the Company (it being understood that, if the
Company is no longer a public company, the failure of Executive to hold such
positions and the attendant duties and responsibilities with any ultimate
corporate or other parent of the Company or any successor shall be deemed to
constitute such Good Reason); or

             (c) any other material breach of this Agreement by the Company,
including, without limitation, any decrease in Executive's Base Salary or Annual
Target Bonus opportunity as set forth in Sections 3.1 and 3.3;

provided, however, that in each such case the Company shall have the right,
within ten (10) days after receipt of notice from Executive of the Company's
violation of any of the foregoing, to cure the event or circumstances giving
rise to such Good Reason, in the event of which cure such event or circumstances
shall be deemed not to constitute Good Reason hereunder.

         5.5 Compensation upon Termination of Executive's Employment by Reason
of Executive's Death or Total Disability. In the event that Executive's
employment with the Company is terminated by reason of Executive's death or
Total Disability (as defined below):

             (a) Executive or Executive's estate, as the case may be, shall be
entitled to receive (i) the Accrued Benefits, (ii) any previously unpaid
Guaranteed Annual Bonus, (iii) any other benefits payable under the then current
disability and/or death benefit plans, as applicable, in which Executive is a
participant and (iv) continued health insurance coverage for Executive and/or
his immediate family, as applicable, for a period of two years following the
date of termination of employment.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.4(d),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any portion of Executive's stock options that have not vested as of
the date of termination shall terminate as of such date; and all shares of
Restricted Stock as to which the restrictions shall not have lapsed as of the
date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.



                                        7

<PAGE>

"Total Disability" shall mean any physical or mental disability that prevents
Executive from performing one or more of the essential functions of his position
for a period of not less than 90 days in any 12-month period and/or which is
expected to be of permanent duration.

         5.6 Survival. In the event of any termination of Executive's employment
for any reason, Executive and the Company nevertheless shall continue to be
bound by the terms and conditions set forth in Sections 6 through 10 below,
which shall survive the expiration of the Term.

         5.7 Excise Tax Gross-Up.

             (a) In the event that any payment or benefit received or to be
received by the Executive pursuant to the terms of this Agreement or of any
other plan, arrangement or agreement of the Company (or any affiliate)
(collectively, the "Payments") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), as determined as provided below, the Company shall pay to the
Executive, at the time specified in Section 5.7(b) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of the Excise Tax on Payments and any federal, state and local
income and employment or other tax and the Excise Tax upon the Gross-Up Payment,
and any interest, penalties or additions to tax payable by the Executive with
respect thereto, shall be equal to the total Payments. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amounts of such Excise Tax, (1) the total amount of the Payments shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to
the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to Executive and selected by the accounting firm which was,
immediately prior to the event giving rise to the Payment, the Company's
independent auditor (the "Auditor"), a Payment (in whole or in part) does not
constitute a "parachute payment" within the meaning of section 280G(b)(2) of the
Code, or such "excess parachute payments" (in whole or in part) are not subject
to the Excise Tax, (2) the amount of the Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Payments or (B) the amount of "excess parachute payments" within the
meaning of section 280G(b)(1) of the code (after applying cause (1) hereof), and
(3) the value of any noncash benefits or any deferred payment or benefit shall
be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rates of federal income taxation applicable to individuals
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of the Executive's
residence in the calendar year in which the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rates.



                                        8

<PAGE>

             (b) The Gross-Up Payments provided for in Section 5.7(a) hereof
shall be made upon the earlier of (i) ten days following the date of termination
of Executive's employment or (ii) the imposition upon the Executive or payment
by the Executive of any Excise Tax.

             (c) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that the Excise Tax is less than
the amount taken into account under Section 5.7(a) hereof, the Executive shall
repay to the Company within thirty (30) days of the Executive's receipt of
notice of such final determination the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Gross-Up Payment being repaid by the Executive if and to
the extent that such repayment results in a reduction in Excise Tax and a
dollar-for-dollar reduction in the Executive's taxable income and wages for the
purposes of federal, state and local income taxes) plus any interest received by
the Executive on the amount of such repayment. If it is established pursuant to
a final determination of a court or an Internal Revenue Service proceeding that
the Excise Tax exceeds the amount taken into account hereunder (including
without limitation by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of
such excess within thirty (30) days of the Company's receipt of notice of such
final determination or proceedings. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Payments.

             (d) In the event of any change in, or further interpretation of,
sections 280G or 4999 of the Code and the regulations promulgated thereunder,
the Executive shall be entitled, by written notice to the Company, to request an
opinion of Tax Counsel regarding the application of such change to any of the
foregoing, and the Company shall use its best efforts to cause such opinion to
be rendered as promptly as practicable. All fees and expenses of the Auditor and
Tax Counsel incurred in connection with this Agreement shall be borne by the
Company.

         5.8 No Other Severance or Termination Benefits. Except as expressly set
forth herein, Executive shall not be entitled to damages or to any severance or
other benefits upon termination of employment with the Company under any
circumstances and for any or no reason.

6.       Protection of Confidential Information.
         --------------------------------------

         Executive acknowledges that during the course of his employment with
the Company, its subsidiaries, affiliates and strategic partners, he will be
exposed to documents and other information regarding the confidential affairs of
the Company, its subsidiaries, affiliates and strategic partners, 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



                                        9
<PAGE>

customer lists, operational methods, acquisition plans, prospects, plans for
future development and other business affairs and information about the Company
and its subsidiaries, affiliates and strategic partners not readily available to
the public (the "Confidential Information"). Executive further acknowledges that
the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. In recognition of the
foregoing, the Executive covenants and agrees as follows:

         6.1 No Disclosure or Use of Confidential Information. At no time shall
Executive ever divulge, disclose, or otherwise use any Confidential Information,
unless and until such information is readily available in the public domain by
reason other than Executive's disclosure or use thereof in violation of the
first clause of this Section 6.1

         6.2 Return of Company Property, Records and Files. Upon the termination
of Executive's employment at any time and for any reason, or at any other time
the Board may so direct, Executive shall promptly deliver to the Company's
offices in Harrisburg, Pennsylvania all of the property and equipment of the
Company, its subsidiaries, affiliates and strategic partners (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, strategic partners, successors or assigns, and/or
their respective past and present officers, directors, employees or consultants
(collectively, the "Company Property, Records and Files"); it being expressly
understood that, upon termination of Executive's employment at any time and for
any reason, Executive shall not be authorized to retain any of the Company
Property, Records and Files.

7.       Noncompetition and Other Matters.
         --------------------------------

         7.1 Noncompetition. During the Term and, as applicable, for the
two-year period immediately following the date of termination of Executive's
employment either (x) by the Company for Cause or (y) by Executive other than
for Good Reason, Executive shall not, directly or indirectly, in any city, town,
county, parish or other municipality in any state of the United States (the
names of each such city, town, parish, or other municipality, including, without
limitation, the name of each county in the Commonwealth of Pennsylvania being
expressly incorporated by reference herein), or any other place in the world,
where the Company, or its subsidiaries, affiliates, strategic partners,
successors, or assigns, engages in the ownership, management and operations of
retail drugstores (i) engage in a Competing Business for Executive's own
account; (ii) enter the employ of, or render any consulting services to, any
Competing Business; or (iii) become interested in any Competing Business in any
capacity, including, without limitation, as an individual, partner, shareholder,
officer, director, principal, agent, trustee or consultant; provided, however,
Executive may own, directly or indirectly, solely as a passive investment,
securities of any entity traded on any national securities exchange if Executive
is not a controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own 1% or more of any class of
securities of such entity. For purposes of this Section 7.1, the phrase
"Competing Business" shall mean any entity a majority of whose business involves
the ownership and operation of retail drug stores.



                                       10

<PAGE>

         7.2 Noninterference. During the Term and for the two-year period
immediately following the date of termination of Executive's employment at any
time and for any reason (the "Restricted 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, strategic partners, successors or assigns to terminate
his, her or its employment or other relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, 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, strategic
partners, successors or assigns for any other reason.

         7.3 Nonsolicitation. During the Restricted Period, Executive shall not,
directly or indirectly, solicit, induce, or attempt to solicit or induce any
customers, clients, vendors, suppliers or consultants then under contract to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns, to terminate his, her or its relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, or otherwise encourage
such customers, clients, vendors, suppliers or consultants then under contract
to terminate his, her or its relationship with the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns for any reason.

8.       Rights and Remedies upon Breach.
         -------------------------------

         If Executive breaches, or threatens to commit a breach of, any of the
provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company
and its subsidiaries, affiliates, strategic partners, 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, strategic partners, successors or assigns at law
or in equity.

         8.1 Specific Performance. 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, strategic partners, successors or
assigns and that money damages would not provide an adequate remedy to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns.

         8.2 Accounting. The right and remedy to require Executive to account
for and pay over to the Company or its subsidiaries, affiliates, strategic





                                       11
<PAGE>

partners, 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.

         8.3 Severability of Covenants. 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.

         8.4 Modification by the Court. 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 (it being the intent of the parties that any such
reductions be limited to the minimum extent necessary to render such provision
enforceable), and, in its reduced form, such provision shall then be
enforceable.

         8.5 Enforceability in Jurisdiction. Executive intends to and hereby
confers jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographic scope of such covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of
Executive that such determination not bar or in any way affect the right of the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns to the relief provided herein in the courts of any other jurisdiction
within the geographic scope of such covenants, as to breaches of such covenants
in such other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.

9.       No Violation of Third-Party Rights.
         ----------------------------------

         Executive represents, warrants and covenants that he:

         (i) will not, in the course of employment, infringe upon or violate any
proprietary rights of any third party (including, without limitation, any third
party confidential relationships, patents, copyrights, mask works, trade
secrets, or other proprietary rights);

         (ii) is not a party to any conflicting agreements with third parties
which will prevent him from fulfilling the terms of employment and the
obligations of this Agreement;

         (iii) does not have in his possession any confidential or proprietary
information or documents belonging to others and will not disclose to the
Company, use, or induce the Company to use, any confidential or proprietary
information or documents of others; and


                                       12


<PAGE>

         (iv) agrees to respect any and all valid obligations which he may now
have to prior employers or to others relating to confidential information,
inventories, discoveries or other intellectual property which are the property
of those prior employers or others, as the case may be.

         Executive has supplied to the Company a copy of each written agreement
to which Executive is subject which includes any obligations of confidentiality,
assignment of intellectual property or noncompetition.

         Executive agrees to indemnify and save harmless the Company from any
loss, claim, damage, cost or expense of any kind (including, without limitation,
reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Executive of the foregoing representations, warranties, and covenants.

10.      Arbitration.
         -----------

         Except as necessary for the Company and its subsidiaries, affiliates,
strategic partners, successors or assigns or Executive to specifically enforce
or enjoin a breach of this Agreement (to the extent such remedies are otherwise
available), the parties agree that any and all disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to Executive's employment with the
Company or any subsidiary, affiliate or strategic partner, the termination of
that employment or any other dispute by and between the parties or their
subsidiaries, affiliates, strategic partners, successors or assigns, shall be
submitted to binding arbitration in Harrisburg, Pennsylvania according to the
National Employment Dispute Resolution Rules and procedures of the American
Arbitration Association. The parties agree that the parties shall each bear his
or its own attorneys' fees and costs in connection with any such arbitration.
This arbitration obligation extends to any and all claims that may arise by and
between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, and expressly extends to, without limitation, claims or
cause of action for wrongful termination, impairment of ability to compete in
the open labor market, breach of an express or implied contract, breach of the
covenant of good faith and fair dealing, beach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the Pennsylvania
constitution, the United States Constitution, and applicable state and federal
fair employment laws, federal and state equal employment opportunity laws, and
federal and state labor statutes and regulations, including, but not limited to,
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and any other state or federal law.

11.      Assignment.
         ----------

         Neither this Agreement, nor any of Executive's rights or obligations
hereunder, may be assigned or otherwise subject to hypothecation by Executive.



                                       13

<PAGE>

The Company may assign its rights and obligations hereunder, in whole or in
part, (i) to any of the Company's subsidiaries, affiliates, or parent
corporations; or (ii) to any other successor or assign in connection with the
sale of all or substantially all of the Company's assets or stock or in
connection with any merger, acquisition and/or reorganization involving the
Company.

12.      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, Pennsylvania  17011
                           Attention: General Counsel
                           Fax: (717) 760-7867

With a copy to:            Kaye, Scholer, Fierman, Hays & Handler, LLP
                           1999 Avenue of the Stars, Suite 1600
                           Los Angeles, California  90067
                           Attention: Andrew Ash, Esq.
                           Fax: (310) 788-1200

If to Executive:           Christopher Hall
                           ________________
                           ________________
                           Fax: ___________

Any party may change such party's address for notices by notice duly given
pursuant hereto.

13.      General.
         -------

         13.1 No Offset or Mitigation. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under, this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others whether in respect of claims made under this Agreement or
otherwise. In no event shall the Executive 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 the Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced, regardless
of whether the Executive obtains other employment.



                                       14

<PAGE>

         13.2 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to conflicts of laws principles thereof which might refer
such interpretations to the laws of a different state or jurisdiction.

         13.3 Entire Agreement. This Agreement sets forth the entire
understanding of the parties relating to Executive's employment with the Company
and cancels and supersedes all agreements, arrangements and understandings
relating thereto made prior to the date hereof, written or oral, between the
Executive and the Company and/or any subsidiary or affiliate.

         13.4 Amendments; Waivers. 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 waiving compliance. The failure of any party at any
time or times to require performance of any provisions 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.

         13.5 No Conflict with Other Agreements. Executive represents and
warrants that neither his execution of this Agreement nor the full and complete
performance of his obligations hereunder will violate or conflict in any respect
with any written or oral agreement or understanding with any person or entity.

         13.6 Successors and Assigns. This Agreement shall inure to the benefit
of and shall be binding upon the Company (and its successors and assigns) and
Executive and his heirs, executors and personal representatives.

         13.7 Withholding. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.

         13.8 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.

         13.9 No Assignment. The rights and benefits of the Executive under this
Agreement may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign,


                                       15

<PAGE>

sell, transfer, pledge, encumber or charge the same shall be void. Payments
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.

         13.10 Survival. This Agreement shall survive the termination of
Executive's employment and the expiration of the Term to the extent necessary to
give effect to its provisions.

         13.11 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

         13.12 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.














                                       16

<PAGE>



         IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first written above.

                                           RITE AID CORPORATION


                                           /s/ David R. Jessick
                                           -------------------------------------
                                           By: David R. Jessick
                                           Its:  Senior Executive Vice President


                                           EXECUTIVE


                                           /s/ Christopher Hall
                                           -------------------------------------



                                       17

<PAGE>



                                   APPENDIX A

         A "Change in Control of the Company" shall be deemed to have occurred
if, as the result of a single transaction or a series of transactions, the event
set forth in any one of the following paragraphs shall have occurred:

               (1) any Person is or becomes the Beneficial Owner, directly or
         indirectly, of securities of the Company representing 25% or more of
         the combined voting power of the Company's then outstanding voting
         securities; or

               (2) Incumbent Directors cease at any time and for any reason to
         constitute a majority of the number of directors then serving on the
         Board. "Incumbent Directors" shall mean directors who either (A) are
         directors of the Company as of the Effective Date or (B) are elected,
         or nominated for election, to the Board with the affirmative votes of
         at least a majority of the Incumbent Directors at the time of such
         election or nomination (but shall not include an individual whose
         election or nomination is in connection with an actual or threatened
         election contest, including but not limited to a consent solicitation,
         relating to the election of directors to the Board); or

               (3) there is consummated a merger or consolidation of the Company
         or any direct or indirect subsidiary of the Company with any other
         corporation, other than (i) a merger or consolidation which would
         result in the voting securities of the Company outstanding immediately
         prior to such merger or consolidation continuing to represent (either
         by remaining outstanding or by being converted into voting securities
         of the surviving entity or any parent thereof) at least 60% of the
         combined voting power of the securities of the Company or such
         surviving entity or any parent thereof outstanding immediately after
         such merger or consolidation, or (ii) a merger or consolidation
         effected to implement a recapitalization of the Company (or similar
         transaction) in which no Person is or becomes the Beneficial Owner,
         directly or indirectly, of securities of the Company representing 25%
         or more of the combined voting power of the Company's then outstanding
         voting securities; or

               (4) the stockholders of the Company approve a plan of complete
         liquidation or dissolution of the Company or an agreement for the sale
         or disposition by the Company of all or substantially all of the
         Company's assets, other than a sale or disposition by the Company of
         all or substantially all of the Company's assets to an entity, at least
         60% of the combined voting power of the voting securities of which are
         owned by stockholders of the Company in substantially the same
         proportions as their ownership of the Company immediately prior to such
         sale.

         "Affiliate" shall have the meaning set forth in Rule 12b-2 under
Section 12 of the Exchange Act.



                                       18
<PAGE>

         "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act, except that a Person shall not be deemed to be the Beneficial
Owner of any securities which are properly filed on a Form 13G.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

         "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.













                                       19




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.49
<SEQUENCE>13
<FILENAME>b311659_ex10-49.txt
<DESCRIPTION>MATERIAL CONTRACTS
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.49

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
28th day of February, 2001 (the "Effective Date") by and between Rite Aid
Corporation, a Delaware corporation (the "Company"), and Robert B. Sari (the
"Executive").

         WHEREAS, Executive desires to provide the Company with his services and
the Company desires to employ Executive in the capacity of Senior Vice
President, Deputy General Counsel, Secretary on the terms and subject to the
conditions set forth herein.

         NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

1.       Term of Employment.

         The term of Executive's employment with the Company hereunder (the
"Term") pursuant to this Agreement shall commence on the Effective Date and,
unless earlier terminated pursuant to Section 5 below, shall continue for a
period ending on the date that is two (2) years following the Effective Date;
provided, however, that on each anniversary of the Effective Date occurring
prior to the termination of Executive's employment hereunder (each such date a
"Renewal Date"), an additional year shall be added to the Term, unless notice of
non-renewal has been delivered by one party to the other party at least 180 days
prior to such Renewal Date. For purposes of this Agreement, except as otherwise
provided herein, the phrases "year during the Term" or "during any year of the
Term" or similar language shall refer to each 12-month period commencing on the
Effective Date or applicable anniversaries thereof.

2.       Position And Duties

         2.1 Position. During the Term, Executive shall be employed as Senior
Vice President, Deputy General Counsel, Secretary. Following termination of
Executive's employment for any reason, Executive shall immediately resign from
all offices and positions he holds with the Company or any subsidiary.

         2.2 Duties. Subject to the supervision and control of the General
Counsel of the Company (or any designee), to whom he shall report, Executive
shall do and perform all services and acts necessary or advisable to fulfill the
duties and responsibilities of his position as Senior Vice President, Deputy
General Counsel, Secretary and shall render such services on the terms set forth
herein. In addition, Executive shall have such other executive and managerial
powers and duties with respect to the Company and its subsidiaries, affiliates
and strategic partners as may be assigned to him by the General Counsel of the
Company or any designee. Except for sick leave, vacations (as provided in
Section 4.3 below), and excused leaves of absence, Executive shall, throughout
the Term, devote substantially all his working time, attention, knowledge and
skills faithfully and to the best of his ability, to the duties and
responsibilities of his position in furtherance of the business affairs and
activities of the Company and its subsidiaries, affiliates and strategic
partners. Executive shall at all times be subject to, observe and carry out such
rules, regulations, policies, directions, and restrictions as the Company may
from time to time establish for senior executive officers of the Company.

<PAGE>


3.       Compensation

         3.1 Base Salary. During the Term, as compensation for his services
hereunder, Executive shall receive a salary at the annualized rate of Two
Hundred Twenty Five Thousand Dollars ($225,000) per year ("Base Salary"), which
shall be paid in accordance with the Company's normal payroll practices and
procedures, less such deductions or offsets required by applicable law or
otherwise authorized by Executive.

         3.2 Annual Performance Bonus. The Executive shall participate each
fiscal year during the Term in the Company's annual bonus plan as adopted and
approved by the Board or the Compensation Committee from time to time. The
Executive's annual target bonus opportunity pursuant to such plan (the "Annual
Target Bonus") shall equal 25% of the Base Salary for the Executive at the
beginning of such fiscal year.

         3.3 Stock Awards.

             (a) Executive currently holds options (the "Options") to purchase a
number of shares of the Company's common stock, par value $1.00 per share
("Company Stock"), and may subsequently receive more options to purchase
additional shares of the Company's Common Stock, par value $1.00. These Options
are non-qualified stock options with varying exercise prices and are subject to
the acceleration, exercise and termination provisions set forth in Section
3.3(b) and Article 5 hereof and otherwise will be evidenced by and subject to
the terms of the Company's form of stock option agreement for officers.

             (b) Upon the occurrence of a Change in Control of the Company prior
to the termination of Executive's employment with the Company, the Options then
held by Executive shall immediately vest and become exercisable in full and all
remaining restrictions on any restricted stock granted to executive shall
immediately lapse. For purposes of this Agreement "Change in Control" shall have
the meaning set forth in the attached Appendix A.

             (c) It is understood and acknowledged by Executive that the
securities underlying the Options will not be subject to an effective
registration statement under the federal securities laws until some time after
the Effective Date. The Company agrees that if, as of the date of termination of
Executive's employment under the circumstances described in Sections 5.3 and
5.5, the securities underlying the then vested and exercisable portion of the
Options are not subject to an effective registration statement, the 90-day
periods in Section 5.3 and 5.5, as applicable, will be deemed to run from the
first date such securities become subject to an effective registration
statement. The Company further agrees that if, as of the date of Executive's
voluntary termination of employment other than for Good Reason, the securities
underlying the then vested and exercisable portion of the Options are not
subject to an effective registration statement, Executive will be permitted to
exercise the Options to the extent vested and exercisable as of the date of such
termination of employment, during the 30-day period following the first date
such securities become subject to an effective registration statement.

                                       2

<PAGE>


4.       Additional Benefits.

         4.1 Employee Benefits. During the Term, Executive shall be entitled to
participate in the employee benefit plans in which management employees of the
Company are generally eligible to participate, subject to any eligibility
requirements and the other generally applicable terms of such plans.

         4.2 Expenses. During the Term, the Company shall reimburse Executive
for any expenses reasonably incurred by him in furtherance of his duties
hereunder, including without limitation travel, meals and accommodations, upon
submission of vouchers or receipts and in compliance with such rules and
policies relating thereto as the Company may from time to time adopt or as may
be required in order to permit such payments to be taken as proper deductions by
the Company or any subsidiary under the Internal Revenue Code of 1986, as
amended, and the rules and regulations adopted pursuant thereto now or hereafter
in effect.

         4.3 Vacation. Executive shall be entitled to four weeks paid vacation
during each year of the Term.

         4.4 Automobile Allowance. During the Term, the Company shall provide
Executive with an automobile allowance of $750.00 per month.

         4.5 Annual Financial Planning Allowance. During each year of the Term,
the Company shall provide Executive with an executive planning allowance in the
amount of $3,000.

         4.6 Indemnification. The Company shall (a) indemnify and hold Executive
harmless, to the full extent permitted under applicable law, for, from and
against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) relating to or
arising out of the Executive's employment with and service as an Officer of the
Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred
by Executive in connection with or relating to the defense of any such loss,
claim, cost, expense, damage, liability or action. Following any termination of
the Executive's employment or service with the Company, the Company shall cause
any Director and Officer liability insurance policies applicable to the
Executive prior to such termination to remain in effect for six (6) years
following the date of termination of employment.

                                       3
<PAGE>

5.       Termination.

         5.1 Termination of Executive's Employment by the Company for Cause. The
Company may terminate Executive's employment hereunder for Cause (as defined
below). Such termination shall be effected by written notice thereof delivered
by the Company to Executive, indicating in reasonable detail the facts and
circumstances alleged to provide a basis for such termination, and shall be
effective as of the date of such notice in accordance with Section 12 hereof.
"Cause" shall mean (i) Executive's gross negligence or willful misconduct in the
performance of the duties or responsibilities of his position with the Company
or any subsidiary, or failure to timely carry out any lawful directive of the
General Counsel or any designee; (ii) Executive's misappropriation of any funds
or property of the Company or any subsidiary; (iii) the commission by Executive
of an act of fraud or dishonesty toward the Company or any subsidiary; or (iv)
the use or imparting by Executive of any confidential or proprietary information
of the Company, or any subsidiary in violation of any confidentiality or
proprietary agreement to which Executive is a party.

         5.2 Compensation upon Termination by the Company for Cause or by
Executive without Good Reason. In the event of Executive's termination of
employment (i) by the Company for Cause or (ii) by Executive voluntarily without
Good Reason:

             (a) Executive shall be entitled to receive (i) all amounts of
accrued but unpaid Base Salary through the effective date of such termination,
(ii) reimbursement for reasonable and necessary expenses incurred by Executive
through the date of notice of such termination, to the extent otherwise provided
under Section 4.2 above and (iii) all other vested payments and benefits to
which Executive may otherwise be entitled pursuant to the terms of the
applicable benefit plan or arrangement through the effective date of such
termination ((i), (ii) and (iii), the ("Accrued Benefits"). All other rights of
Executive (and, except as provided in Section 5.6 below, all obligations of the
Company) hereunder or otherwise in connection with Executive's employment with
the Company shall terminate effective as of the date of such termination of
employment.

             (b) Except as provided in Section 3.3(c), any portion of the
Options that has not been exercised prior to the date of termination shall
immediately terminate as of such date, and any portion of any Restricted Stock
or any other equity incentive awards as to which the restrictions have not
lapsed or as to which any other conditions shall not have been satisfied prior
to the date of termination shall be forfeited as of such date.

Any termination of Executive's employment by Executive voluntarily without Good
Reason shall be effective upon 30 days' notice to the Company.


                                       4

<PAGE>

         5.3 Compensation upon Termination of Executive's Employment by the
Company Other Than for Cause or by Executive for Good Reason. Executive's
employment hereunder may be terminated by the Company other than for Cause or by
Executive for Good Reason. In the event that Executive's employment hereunder is
terminated by the Company other than for Cause or by Executive for Good Reason:

             (a) Executive shall be entitled to receive (i) the Accrued
Benefits, (ii) an amount equal to two times the sum of Executive's then Base
Salary plus Annual Target Bonus as of the date of termination of employment,
such amount payable in equal installments pursuant to the Company's standard
payroll procedures for management employees over a period of two years following
the date of termination of employment, and (iii) continued health insurance
coverage for Executive and his immediate family for a period of two years
following the date of termination of employment. In addition, if such
termination occurs following the start of the Company's fiscal year beginning on
or about March 2001, Executive shall also be entitled to receive a pro rata
annual bonus determined by multiplying Executive's then Annual Target Bonus by a
fraction, (x) the numerator of which is the number of days between the beginning
of the then current fiscal year of the Company and the date of termination of
employment and (y) the denominator of which is 365.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.3(c),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any remaining portion of Executive's stock options that have not
vested as of the date of termination shall terminate as of such date; and all
shares of Restricted Stock as to which the restrictions shall not have lapsed as
of the date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.

Any termination of employment pursuant to this Section 5.3 shall be effective
upon thirty (30) days notice thereof.

         5.4 Definition of Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any one of the following:

             (a) Any material adverse alteration in Executive's titles,
positions, status, duties, authorities, reporting relationship or
responsibilities with the Company or its subsidiaries from those specified in
this Agreement, as the same may be augmented from time to time;

             (b) The assignment to Executive of any duties or responsibilities
materially inconsistent with Executive's status as Senior Vice President, Deputy
General Counsel, Secretary of the Company; or

                                       5

<PAGE>

             (c) Any other material breach of this Agreement by the Company,
including without limitation any decrease in Executive's then Base Salary or
Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2;

provided, however, that in each such case the Company shall have the right,
within ten (10) days after receipt of notice from Executive of the Company's
violation of any of the foregoing, to cure the event or circumstances given rise
to such Good Reason, in the event of which cure such event or circumstances
shall be deemed not to constitute Good Reason hereunder.

         5.5 Compensation upon Termination of Executive's Employment by Reason
of Executive's Death or Total Disability. In the event that Executive's
employment with the Company is terminated by reason of Executive's death or
Total Disability (as defined below):

             (a) Executive or Executive's estate, as the case may be, shall be
entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable
under the then current disability and/or death benefit plans, as applicable, in
which Executive is a participant and (iii) continued health insurance coverage
for Executive and/or his immediate family, as applicable, for a period of two
years following the date of termination of employment.

             (b) All stock option awards held by Executive shall vest and become
immediately exercisable and the restrictions with respect to any awards of
Restricted Stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable (or such restrictions would have
lapsed) had Executive remained in the employ of the Company for a period of two
years following the date of termination. Except as provided in Section 3.3(c),
such portion of Executive's stock options (together with any portion of
Executive's stock options that have vested and become exercisable prior to the
date of termination) shall remain exercisable for a period of 90 days following
the date of termination of employment (or, if earlier, until the expiration of
the respective terms of the options), whereupon all such options shall
terminate. Any remaining portion of Executive's stock options that have not
vested as of the date of termination shall terminate as of such date; and all
shares of Restricted Stock as to which the restrictions shall not have lapsed as
of the date of termination shall be forfeited as of such date.

             (c) All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive's employment with the Company shall terminate
effective as of the date of such termination of employment.

"Total Disability" shall mean any physical or mental disability that prevents
Executive from performing one or more of the essential functions of his position
for a period of not less than 90 days in any 12-month period and/or which is
expected to be of permanent duration.

                                       6

<PAGE>

         5.6 Survival. In the event of any termination of Executive's employment
for any reason, Executive and the Company nevertheless shall continue to be
bound by the terms and conditions set forth in Section 6 through 10 below, which
survive the expiration of the Term.

         5.7 Excise Tax Gross-Up.

             (a) In the event that any payment or benefit received or to be
received by the Executive pursuant to the Terms of this Agreement or any other
plan, arrangement or agreement of the Company (or any affiliate) (collectively,
the "Payments") would be equal to the Excise Tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as
determined as provided below, the Company shall pay to the Executive, at the
time specified in Section 5.7(b) below an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction of
the Excise Tax on payments and any federal, state and local income and
employment or other tax and the Excise Tax upon the Gross-Up Payment, and any
interest, penalties or additions to tax payable by the company Executive with
respect thereto, shall be equal to the Total payments. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amounts of such Excise Tax, (1) the total amount of the Payments shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excise parachute payments" within the meaning of section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to
the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to Executive and selected by the accounting firm which was,
immediately prior to the event giving rise to the Payment, the Company's
independent auditor (the "Auditor"), a Payment (in whole or in part) does not
constitute a "parachute payment" within the meaning of section 280G(b)(2) of the
Code, or such "excess parachute payments" (in whole or in part) are not subject
to the Excise Tax, (2) the amount of the Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Payments or (B) the amount of "excess parachute payments" within the
meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof),
and (3) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rates of federal income taxation applicable to individuals
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of the Executive's
residence in the calendar year in which the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rates.

             (b) The Gross-Up Payment provided for in Section 5.7(a) hereof
shall be made upon the earlier of (i) ten days following the date of termination
of Executive's employment or (ii) the imposition upon the Executive or payment
by the Executive of any Excise Tax.

                                       7

<PAGE>


             (c) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that the Excise Tax is less than
the amount taken into account under Section 5.7(a) hereof, the Executive shall
repay to the Company within thirty (30) days of the Executive's receipt of
notice of such final determination the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Gross-Up Payment being repaid by the Executive if and to
the extent that such repayment results in a reduction in Excise Tax and a
dollar-for-dollar reduction in the Executive's taxable income and wages for the
purposes of federal, state and local income taxes) plus any interest received by
the Executive on the amount of such repayment. If it is established pursuant to
a final determination of a court or an Internal Revenue Service proceeding that
the Excise Tax exceeds the amount taken into account hereunder (including
without limitation by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of
such excess within thirty (30) days of the Company's receipt of notice of such
final determination or proceeding. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Payments.

             (d) In the event of any change in, or further interpretation of,
sections 280G or 4999 of the Code and the regulations promulgated thereunder,
the Executive shall be entitled, by written notice to the Company, to request an
opinion of Tax Counsel regarding the application of such change to any of the
foregoing, and the Company shall use its best efforts to cause such opinion to
be rendered as promptly as practicable. All fees and expenses of the Auditor and
Tax Counsel incurred in connection with this Agreement shall be borne by the
Company.

         5.8 No Other Severance or Termination Benefits. Except as expressly set
forth herein, Executive shall not be entitled to damages or to any severance or
other benefits upon termination of employment with the Company under any
circumstances and for any or no reason.

6.       Protection of Confidential Information.

         Executive acknowledges that during the course of his employment with
the Company, its subsidiaries, affiliates and strategic partners, he will be
exposed to documents and other information regarding the confidential affairs of
the Company, its subsidiaries, affiliates and strategic partners, 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, affiliates and strategic partners not readily available to
the public (the "Confidential Information"). Executive further acknowledges that
the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. In recognition of the
foregoing, the Executive covenants and agrees as follows:

                                       8

<PAGE>

         6.1 No Disclosure or Use of Confidential Information. At no time shall
Executive ever divulge, disclose, or otherwise use any Confidential Information,
unless and until such information is readily available in the public domain by
reason other than Executive's disclosure or use thereof in violation of the
first clause of this Section 6.1.

         6.2 Return of Company Property, Records and Files. Upon the termination
of Executive's employment at any time and for any reason, or at any other time
the Board may so direct, Executive shall promptly deliver to the Company's
offices in Harrisburg, Pennsylvania all of the property and equipment of the
Company, its subsidiaries, affiliates and strategic partners (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, strategic partners, successors or assigns, and/or
their respective past and present officers, directors, employees or consultants
(collectively, the "Company Property, Record and Files"); it being expressly
understood that, upon termination of Executive's employment at any time and for
any reason, Executive shall not be authorized to retain any of the Company
Property, Records and Files.

7.       Noncompetition and Other Matters.

         7.1 Noncompetition. During the Term and, as applicable, for the
two-year period immediately following the date of termination of Executive's
employment either (x) by the Company or Cause or (y) by Executive other than for
Good Reason, Executive shall not, directly or indirectly, in any city, town,
county, parish or other municipality in any state of the United States (the
names of each such city, town, parish, or other municipality, including, without
limitation, the name of each county in the Commonwealth of Pennsylvania being
expressly incorporated by reference herein), or any other place in the world,
where the Company, or its subsidiaries, affiliates, strategic partners,
successors, or assigns, engages in the ownership, management and operation of
retail drugstores (i) engage in a Competing Business for Executive's own
account; (ii) enter the employ of, or render any resulting services to, any
Competing Business; or (iii) become interested in any Competing Business in any
capacity, including, without limitation, as an individual, partner, shareholder,
officer, director, principal, agent, trustee or consultant; provider, however
Executive may (i) own, directly or indirectly, solely as a passive investment,
securities of any entity traded on any national securities exchange if Executive
is not a controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own 1% or more of any class of
securities of such entity. For purposes of this Section 7.1, the phrase
"Competing Business" shall mean any entity a majority of whose business involves
the ownership and operation of retail drug stores.


                                       9

<PAGE>

         7.2 Noninterference During the Term and for the two-year period
immediately following the date of termination of Executive's employment at any
Time and for any reason (the "Restricted 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, strategic partners, successors or assigns to terminate
his, her or its employment or other relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, 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, strategic
partners, successors or assigns for any other reason.

         7.3 Nonsolicitation. During the Restricted Period, Executive shall not,
directly or indirectly, solicit, induce, or attempt to solicit or induce any
customers, clients, vendors, suppliers or consultants then under contract to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns, to terminate his, her or its relationship with the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, for the
purpose of associating with any competitor of the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, or otherwise encourage
such customers, clients, vendors, suppliers or consultants then under contract
to terminate his, her or its relationship with the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns for any reason.

8.       Rights and Remedies Upon Breach.

         If Executive breaches or threatens to commit a breach of, any of the
provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company
and its subsidiaries, affiliates, strategic partners, 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, strategic partners, successors or assigns at law
or in equity.

         8.1 Specific Performance. 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, strategic partners, successors or
assigns and that money damages would not provide an adequate remedy to the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns.

         8.2 Accounting. The right and remedy to require Executive to account
for any pay over to the Company or its subsidiaries, affiliates, strategic
partners, 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.

                                       10

<PAGE>


         8.3 Severability of Covenants. 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.

         8.4 Modification by the Court. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or scope of such provision, such court shall have the power (and is
hereby instructed by the parties) to reduce the duration or scope of such
provision, as the case may be (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.

         8.5 Enforceability in Jurisdictions. Executive intends to and hereby
confers jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographic scope of such covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of
Executive that such determination not bar or in any way affect the right of the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns to the relief provided herein in the courts of any other jurisdiction
within the geographic scope of such covenants, as to breaches of such covenants
in such other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.

9.       No Violation of Third-Party Rights. Executive represents, warrants and
         covenants that be:

     (i) Will not, in the course of employment, infringe upon or violate any
proprietary rights of any third party (including, without limitation, any third
party confidential relationships, patents, copyrights, mask works, trade
secrets, or other proprietary rights);

     (ii) Is not a party to any conflicting agreements with third parties, which
will prevent him from fulfilling the terms of employment and the obligations of
this Agreement;

     (iii) Does not have in his possession any confidential or proprietary
information or documents belonging to others and will not disclose to the
Company, use, or induce the Company to use, any confidential or proprietary
information or documents of others; and

     (iv) Agrees to respect any and all valid obligations which he may now have
to prior employers or to others relating to confidential information,
inventions, discoveries or other intellectual property which are the property of
those prior employers or others, as the case may be.


                                       11

<PAGE>

         Executive has supplied to the Company a copy of each written agreement
to which Executive is subject, which includes any obligation of confidentiality,
assignment of intellectual property or non-competition.

         Executive agrees to indemnify and save harmless the Company from any
loss, claim, damage, cost or expense of any kind (including without limitation,
reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Executive of the foregoing representations, warranties, and covenants.

10.      Arbitration.

         Except as necessary for the Company and its subsidiaries, affiliates,
strategic partners, successors or assigns or Executive to specifically enforce
or enjoin a breach of this Agreement (to the extent such remedies are otherwise
available), the parties agree that any and all disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to Executive's employment with the
Company or any subsidiary, affiliate or strategic partner, the termination of
that employment or any other dispute by and between the parties of their
subsidiaries, affiliates; strategic partners, successors or assigns, shall be
submitted to binding arbitration in Harrisburg, Pennsylvania according to the
National Employment Dispute Resolution Rules and procedures of the American
Arbitration Association. The parties agree that the parties shall each bear his
or its own attorneys' fees and costs in connection with any such arbitration.
This arbitration obligation extends to any and all claims that may arise by and
between the parties or their subsidiaries, affiliates, strategic partners,
successors or assigns, and expressly extends to, without limitation, claims or
causes of action for wrongful termination, impairment of ability to compete in
the open labor market, breach of an express or implied contract, breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the Pennsylvania
Constitution, the United States Constitution, and applicable state and federal
fair employment laws, federal and state equal employment opportunity laws, and
federal and state labor statutes and regulations, including, but not limited to,
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1976, as
amended, and any other state or federal law.

11.      Assignment.

         Neither this Agreement, nor any of Executive's rights or obligations
hereunder, may be assigned or otherwise subject to hypothecation by Executive.
The Company may assign its rights and obligations hereunder, in whole or in
part, (i) to any of the Company's subsidiaries, affiliates, or parent
corporations; or (ii) to any other successor or assign in connection with the
sale of all or substantially all of the Company's assets or stock or in
connection with any merger, acquisition and/or reorganization involving the
Company.


                                       12

<PAGE>

12.      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, Pennsylvania 17011
                           Attention:  General Counsel
                           Fax:  (717) 760-7867

with a copy to:            Kaye, Scholer, Fierman, Hays & Handler, LLP
                           1999 Avenue of the Stars, Suite 1600
                           Los Angeles, California 90067
                           Attention:  Andrew Ash, Esq.
                           Fax:  (310) 788-1200

If to Executive:           Robert B. Sari
                           19 Charisma
                           Camp Hill, PA 17011

Any party may change such party's address for notices by notice duly given
pursuant hereto.

13.      General.

         13.1 No Offset or Mitigation. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under; this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others whether in respect of claims made under this Agreement or
otherwise. In no event shall the Executive 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 the Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced, regardless
of whether the Executive obtains other employment.

         13.2 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to conflicts of laws principles thereof which might refer
such interpretations to the laws of a different state or jurisdiction.

         13.3 Entire Agreement. This Agreement sets forth the entire
understanding of the parties relating to Executive's employment with the Company
and cancels and supersedes all agreements, arrangements and understandings
relating thereto made prior to the date hereof, written or oral, between the
Executive and the Company and/or any subsidiary or affiliate.

                                       13

<PAGE>

         13.4 Amendment: Waivers. 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 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 at any such breach, or
a waiver of the breach of any other term or covenant contained in this
Agreement.

         13.5 Conflict with Other Agreements. Executive represents and warrants
that neither his execution of this Agreement nor the full and complete
performance of his obligations hereunder will violate or conflict in any respect
with any written or oral agreement or understanding with any person or entity.

         13.6 Successors and assigns. This Agreement shall inure to the benefit
of and shall be binding upon the Company (and its successors and assigns) and
Executive and his heirs, executors and personal representatives.

         13.7 Withholding. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.

         13.8 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.

         13.9 No Assignment. The rights and benefits of the Executive under this
Agreement may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be void. Payments
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.

         13.10 Survival. This Agreement shall survive the termination of
Executive's employment and the expiration of the Term to the extent necessary to
give effect to its provisions.

                                       14

<PAGE>


         13.11 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

         13.12 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.

         IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first written above.

                                      RITE AID CORPORATION

                                      /s/ David R. Jessick
                                      ----------------------------------------

                                      By:  David R. Jessick

                                      Its: Senior Executive Vice President

                                      EXECUTIVE

                                      /s/ Robert B. Sari
                                      ----------------------------------------



                                       15


<PAGE>



                                   APPENDIX A


         A "Change in Control of the Company" shall be deemed to have occurred
if, as the result of a single transaction or a series of transactions, the event
set forth in any one of the following paragraphs shall have occurred:

                  (1) any Person is or becomes the Beneficial Owner, directly or
         indirectly, of securities of the Company representing 25% or more of
         the combined voting power of the Company's then outstanding voting
         securities; or

                  (2) Incumbent Directors cease at any time and for any reason
         to constitute a majority of the number of directors then serving on the
         Board. "Incumbent Directors" shall mean directors who either (A) are
         directors of the Company as of the Effective Date or (B) are elected,
         or nominated for election, to the Board with the affirmative votes of
         at least a majority of the Incumbent Directors at the time of such
         election or nomination (but shall not include an individual whose
         election or nomination is in connection with an actual or threatened
         election contest, including but not limit to a consent solicitation,
         relating to the election of directors to the Board); or

                  (3) There is consummated a merger or consolidation of the
         Company or any direct or indirect subsidiary of the Company with any
         other corporation, other than (i) a merger or consolidation which would
         result in the voting securities of the Company outstanding immediately
         prior to such merger or consolidation continuing to represent (either
         by remaining outstanding or by being converted into voting securities
         of the surviving entity or any parent thereof) at least 60% of the
         combined voting power of the securities of the Company or such
         surviving entity or any parent thereof outstanding immediately after
         such merger or consolidation, or (ii) a merger or consolidation
         effected to implement a recapitalization of the Company (or similar
         transaction) in which no Person is or becomes the Beneficial Owner,
         directly or indirectly, of securities of the Company representing 25%
         or more of the combined voting power of the Company's then outstanding
         voting securities; or

                  (4) The stockholders of the Company approve a plan of complete
         liquidation or dissolution of the Company or an agreement for the sale
         or disposition by the Company of all or substantially all of the
         Company's assets, other than a sale or disposition by the Company of
         all or substantially all of the Company's assets to an entity, at least
         60% of the combined voting power of the voting securities of which are
         owned by stockholders of the Company in substantially the same
         proportions as their ownership of the Company immediately prior to such
         sale.

         "Affiliate" shall have the meaning set forth in Rule 12b-2 under
Section 12 of the Exchange Act.

                                       16

<PAGE>


         "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act, except that a Person shall not be deemed to be the Beneficial
Owner of any securities which are properly filed on a Form 13G.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

         "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.


                                       17


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>14
<FILENAME>b311659_ex12.txt
<DESCRIPTION>STATEMENT RE: COMPUTATION OF RATIOS
<TEXT>

<PAGE>
                                                                     EXHIBIT 12

                     RITE AID CORPORATION AND SUBSIDIARIES

     STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
      Years Ended March 3, 2001, February 26, 2000, and February 27, 1999
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                                                 2001          2000          1999
                                                                                             -----------    -----------   ---------
<S>                                                                                          <C>            <C>           <C>
Fixed Charges:
Interest Expense.........................................................................    $   649,926    $   542,028   $ 274,826
Interest Portion of Net Rental Expense (1)...............................................        159,066        146,852     139,104
                                                                                             -----------    -----------   ---------
Fixed Charges Before Capitalized Interest and Preferred Stock Dividend Requirements......        808,992        688,880     413,930
Preferred Stock Dividend Requirement (2).................................................         42,445         15,554         965
Capitalized Interest.....................................................................          1,836          5,292       7,069
                                                                                             -----------    -----------   ---------
Total Fixed Charges......................................................................    $   853,273    $   709,726   $ 421,964
                                                                                             -----------    -----------   ---------
Earnings:
Loss From Continuing Operations Before Income Taxes and Cumulative Effect of Accounting
  Change.................................................................................    $(1,282,807)   $(1,123,296)  $(665,040)
Share of Loss From Equity Method Investees...............................................         36,675         15,181         448
Fixed Charges Before Capitalized Interest................................................        851,437        704,434     414,895
                                                                                             -----------    -----------   ---------
Total Adjusted Earnings..................................................................       (394,695)      (403,681)   (249,697)
                                                                                             -----------    -----------   ---------
Earnings to Fixed Charges, Deficiency....................................................    $(1,247,968)   $(1,113,407)  $(671,661)
                                                                                             ===========    ===========   =========
</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.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>15
<FILENAME>b311659_ex21.txt
<DESCRIPTION>LEGAL ENTITY DISCLOSURE
<TEXT>

<PAGE>
                                                                     EXHIBIT 21

Rite Aid Corporation & Subsidiaries

<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------
                                        Company                                               DBA             State Inc
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>          <C>
Rite Aid Corporation                                                                        Rite Aid     Delaware
112 Burleigh Avenue Norfolk, LLC                                                                         Virginia
1515 West State Street Boise, Idaho, LLC                                                                 Delaware
1525 Cortyou Road - Brooklyn, LLC                                                                        New York
1640 Associates, LLC                                                                                     Michigan
1740 Associates, LLC                                                                                     Michigan
3518 Carter Hill Road - Montgomery                                                                       Alabama
4042 Warrensville Center Road - Warrensville Ohio, Inc.                                                  Ohio
5277 Associates, Inc.                                                                                    Washington
537 Elm Street Corporation                                                                               Rhode Island
5600 Superior Properties, Inc.                                                                           Ohio
657-659 Broadway St. Corp.                                                                               New Jersey
764 South Broadway-Geneva, Ohio, LLC                                                                     Ohio
912 Elmwood Avenue, Buffalo, LLC                                                                         New York
Ann & Government Streets Mobile Alabama, LLC                                                             Delaware
Apex Drug Stores, Inc.                                                                      Rite Aid     Michigan
Baltimore/Annapolis Boulevard & Governor Richie Highway-Glen Burnie, Maryland, LLC                       Delaware
Broadview & Wallings-Broadview Heights Ohio, Inc.                                                        Ohio
Central Avenue & Main Street Petal, MS, LLC                                                              Delaware
Dominion Action Four Corporation                                                                         Delaware
Dominion Action One Corporation                                                                          Delaware
Dominion Action Three Corporation                                                                        Delaware
Dominion Action Two Corporation                                                                          Delaware
Dominion Drug Stores Corporation                                                                         Nevada
Drug Fair of PA, Inc.                                                                       Rite Aid     Pennsylvania
Drug Fair, Inc.                                                                             Rite Aid     Maryland
Eagle Managed Care Corp.                                                                                 Delaware
Eighth & Water Streets-Urichsville, Ohio, LLC                                                            Delaware
England Street - Asheland Corp.                                                                          Virginia
Euclid & Wilders Roads - Bay City, LLC                                                                   Michigan
Fairground, LLC                                                                                          Virginia
Fiona One Corp.                                                                                          Delaware
Fiona Three Corp.                                                                                        Delaware
Fiona Two Corp.                                                                                          Delaware
GDF, Inc.                                                                                                Maryland
Gettysburg & Hoover - Dayton, Ohio, LLC                                                                  Ohio
Grand River & Fenkel, LLC                                                                                Delaware
Gratiot & Center-Saginaw Township, Michigan, LLC                                                         Delaware
Harco, Inc.                                                                                 Rite Aid     Alabama
Jaime Nathan Travis Corporation                                                                          Pennsylvania
K & B Alabama Corporation                                                                   Rite Aid     Alabama
K & B Florida Corporation                                                                   Rite Aid     Florida
K & B Louisiana Corporation                                                                 Rite Aid     Louisiana
K & B Mississippi Corporation                                                               Rite Aid     Mississippi
K & B Services, Inc.                                                                                     Louisiana
K & B Tennessee Corporation                                                                 Rite Aid     Tennessee
K & B Texas Corporation                                                                     Rite Aid     Texas
K & B Trainees, Inc.                                                                                     Louisiana
K & B, Incorporated                                                                                      Delaware
Katz & Bestoff, Incorporated                                                                             Louisiana
Keystone Centers, Inc.                                                                      Rite Aid     Pennsylvania
Lakehurst & Broadway Corporation                                                                         New Jersey
Lane Drug Company, Inc.                                                                     Rite Aid     Ohio
Laverdiere's Enterprises, Inc.                                                              Rite Aid     Maine

</TABLE>

<PAGE>

Rite Aid Corporation & Subsidiaries

<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------
                                        Company                                               DBA             State Inc
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>          <C>
Leader Drugs, Inc.                                                                          Rite Aid     Maryland
Louisville Avenue & North 18th Street-Monroe, Louisiana, LLC                                             Delaware
Main & McPhearson - Clyde, LLC                                                                           Ohio
Mayfield & Chillicothe Roads - Chesterknol, LLC                                                          Ohio
Munson & Andrews, LLC                                                                                    Delaware
Name Rite, LLC                                                                                           Delaware
Northline & Dix - Toledo - Southgate, LLC                                                                Michigan
Ocean Acquisition Corporation                                                                            Delaware
P. L. D. Enterprises, Inc.                                                                               Nevada
Patton Drive & Navy Boulevard Property Corporation                                                       Florida
Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC                                                 Delaware
PDS-1 Michigan, Inc.                                                                        Rite Aid     Michigan
Perry Distributors, Inc.                                                                                 Michigan
Perry Drug Stores, Inc.                                                                     Rite Aid     Michigan
Pharmacy Card, Inc.                                                                                      Ohio
PL Xpress, Inc.                                                                                          Oregon
Portfolio Medical Services, Inc.                                                                         Delaware
Rack Rite Distributors, Inc.                                                                             Pennsylvania
Ram-Utica, Inc.                                                                                          Michigan
RDS Detroit, Inc.                                                                           Rite Aid     Michigan
Reads, Inc.                                                                                              Maryland
Richmond Road & Monticello Boulevard - Richmond Heights, Ohio, LLC                                       Delaware
Rite Aid Drug Palace, Inc.                                                                  Rite Aid     Delaware
Rite Aid Funding, LLC                                                                                    California
Rite Aid Hdqtrs. Corp.                                                                                   Delaware
Rite Aid Lease Management Company                                                                        California
Rite Aid of Alabama, Inc.                                                                   Rite Aid     Alabama
Rite Aid of Connecticut, Inc.                                                               Rite Aid     Connecticut
Rite Aid of Delaware, Inc.                                                                  Rite Aid     Delaware
Rite Aid of Florida, Inc.                                                                   Rite Aid     Florida
Rite Aid of Georgia, Inc.                                                                   Rite Aid     Georgia
Rite Aid of Illinois, Inc.                                                                  Rite Aid     Illinois
Rite Aid of Indiana, Inc.                                                                   Rite Aid     Indiana
Rite Aid of Kentucky, Inc.                                                                  Rite Aid     Kentucky
Rite Aid of Maine, Inc.                                                                     Rite Aid     Maine
Rite Aid of Maryland, Inc.                                                                  Rite Aid     Maryland
Rite Aid of Massachusetts, Inc.                                                             Rite Aid     Massachusetts
Rite Aid of Michigan, Inc.                                                                  Rite Aid     Michigan
Rite Aid of New Hampshire, Inc.                                                             Rite Aid     New Hampshire
Rite Aid of New Jersey, Inc.                                                                Rite Aid     New Jersey
Rite Aid of New York, Inc.                                                                  Rite Aid     New York
Rite Aid of North Carolina, Inc.                                                            Rite Aid     North Carolina
Rite Aid of Ohio, Inc.                                                                      Rite Aid     Ohio
Rite Aid of Pennsylvania, Inc.                                                              Rite Aid     Pennsylvania
Rite Aid of South Carolina, Inc.                                                            Rite Aid     South Carolina
Rite Aid of Tennessee, Inc.                                                                 Rite Aid     Tennessee
Rite Aid of Vermont, Inc.                                                                   Rite Aid     Vermont
Rite Aid of Virginia, Inc.                                                                  Rite Aid     Virginia
Rite Aid of Washington, D.C., Inc.                                                          Rite Aid     Washington, D.C.
Rite Aid of West Virginia, Inc.                                                             Rite Aid     West Virginia
Rite Aid Realty Corp.                                                                                    Delaware
Rite Aid Risk Management Corp.                                                                           Delaware
Rite Aid Rome Distribution Center, Inc.                                                                  New York
Rite Aid Transport, Inc.                                                                                 Delaware

</TABLE>

<PAGE>

Rite Aid Corporation & Subsidiaries

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                                        Company                                               DBA             State Inc
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<S>                                                                                         <C>          <C>

Rite Aid Venturer #1, Inc.                                                                               Delaware
Rite Fund, Inc.                                                                                          Delaware
Rite Inventory Management Corporation                                                                    Pennsylvania
Rite Investments Corporation                                                                             Delaware
Route 1 & Hood Road Fredericksburg, LLC                                                                  Virginia
Route 202 at Route 124 Jaffrey-New Hampshire, LLC                                                        Delaware
Rx Choice, Inc.                                                                                          Delaware
Rx USA, Inc.                                                                                             Delaware
Script South, Inc.                                                                                       Alabama
Seven Mile & Evergreen - Detroit, LLC                                                                    Michigan
Silver Springs Road-Baltimore, Maryland/One, LLC                                                         Delaware
Silver Springs Road-Baltimore, Maryland/Two, LLC                                                         Delaware
Sophie One Corp.                                                                                         Delaware
Sophie Three Corp.                                                                                       Delaware
Sophie Two Corp.                                                                                         Delaware
State & Fortification Streets - Jackson, Mississippi, LLC                                                Delaware
State Street & Hill Road-Gerard, Ohio, LLC                                                               Delaware
Super Beverage of Texas No. 2, Inc.                                                                      Texas
Super Beverage of Texas No. 3, Inc.                                                                      Texas
Super Beverage of Texas No. 4, Inc.                                                                      Texas
Super Beverage of Texas No. 5, Inc.                                                                      Texas
Super Beverage of Texas No. 6, Inc.                                                                      Texas
Super Distributors, Inc.                                                                                 Louisiana
Super Ice Cream Suppliers, Inc.                                                                          Louisiana
Super Laboratories, Inc.                                                                                 Louisiana
Super Pharmacy Network, Inc.                                                                             Florida
Super Tobacco Distributors, Inc.                                                                         Mississippi
The Muir Company                                                                            Rite Aid     Ohio
Thrifty Corporation                                                                                      California
Thrifty Payless, Inc.                                                                       Rite Aid     California
Thrifty Wilshire, Inc.                                                                                   California
TP Retail Corporation                                                                                    Pennsylvania
Tyler and Sanders Roads, Birmingham-Alabama, LLC                                                         Delaware
Virginia Corporation                                                                                     Delaware
WRAC, Inc.                                                                                               Pennsylvania

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