12MAY200608593905

� Letter to Stockholders

� Notice of 2008 Annual Meeting of Stockholders

� Proxy Statement

� 2008 Annual Report on Form 10-K

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The following information includes forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These forward-looking statements are often identified byterms and phrases such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘continue,’’ ‘‘should,’’‘‘could,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘project,’’ ‘‘predict,’’ ‘‘will’’ and similar expressions and include references toassumptions 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 suchforward-looking statements include, but are not limited to:

• our high level of indebtedness;

• our ability to make interest and principal payments on our debt and satisfy the other covenantscontained in our senior secured credit facility and other debt agreements;

• our ability to improve the operating performance of our existing stores in accordance with ourlong term strategy;

• our ability to realize the benefits of the Brooks Eckerd acquisition;

• our ability to hire and retain pharmacists and other store personnel;

• our ability to open or relocate stores according to our real estate development program;

• the efforts of private and public third-party payors to reduce prescription drug reimbursementand encourage mail order;

• competitive pricing pressures and continued consolidation of the drugstore industry;

• changes in state or federal legislation or regulations;

• the outcome of lawsuits and governmental investigations;

• general economic conditions and inflation, interest rate movements and access to capital; and

• other risks and uncertainties described elsewhere in this filing and from time to time in ourother filings with the Securities and Exchange Commission (‘‘the SEC’’).

We undertake no obligation to update or revise the forward-looking statements included herein,whether as a result of new information, future events or otherwise, after the date of this filing. Ouractual results, performance or achievements could differ materially from the results expressed in, orimplied by, these forward-looking statements. Factors that could cause or contribute to such differencesare discussed in the sections entitled ‘‘Risk Factors’’ and ‘‘Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Overview and Factors Affecting Our Future Prospects’’included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008.

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To our Fellow Stockholders, Customers, Associates and Suppliers:

When we began fiscal 2008 back in March 2007, we had high expectations for our company. Wewere close to completing the acquisition of the Brooks Eckerd drugstore chain and transforming ourcompany overnight into a chain of more than 5,000 stores with the scale to better compete in thegrowing drugstore sector. Our strategy was to add stores in our strongest existing markets to increasemarket share while at the same time save costs by leveraging our existing talent, technology and bestpractices. We were getting ready to start closing the gap with our major competitors.

We believe that strategy is as sound today as it was then. However, the economy and the consumerchanged. And while our entire team remained focused on our two overriding goals—to successfullybegin to integrate our acquired stores and at the same time, improve our core business—suddenly therewere obstacles in the road. In the second half of the fiscal year, recession fears continued to grow,prescription sales in general slowed and customers became a lot more careful with the fewer dollarsthey had to spend.

What happened to Rite Aid happened to most retailers. But, unlike other retailers, we had justincreased our size by more than 50% and embarked on a 16-month integration of more than 1,800stores that called for integrating six new distribution centers, converting all store systems, adding 8,000items of new merchandise and a minor remodel program to make the stores all look and feel like RiteAid. And with the credit crunch following the burst of the housing bubble, more highly leveragedcompanies like ours became unpopular with investors despite the fact that we already had the financingwe needed for our integration plan.

This is not meant to make excuses for our performance. We share our stockholders’disappointment that our results for fiscal 2008 did not meet original expectations even though we hadalways predicted a net loss because of expenses related to the Brooks Eckerd acquisition.

As we look back, we were overly optimistic about the performance of the acquired stores, wheremerchandise in the front of the store was out of stock and sales already had declined during the ninemonths it took to close the acquisition. We wrongly thought that even with the upheaval of changingout nearly all merchandise in the front of the store and completing a significant number of systemsconversions and minor remodels, we could keep disruption to customers and frustration for associatesto a minimum. And we had to make some tactical decisions that hurt sales chainwide, like moving toone advertising circular before all of our acquired stores had the full complement of Rite Aidmerchandise, which limited our promotions for nearly two quarters.

But at the same time, we made significant progress in setting the stage for Rite Aid’s futurelong-term growth which shouldn’t be overlooked.

• With the acquisition of Brooks Eckerd, we became the largest drugstore chain on the East coastand significantly strengthened our ability to compete as the third largest national chain. We nowhave a strong market position in 76% of our major markets; and while obtaining regulatoryapproval took longer than expected, in the end we were required to divest only a very fewstores.

• By the end of the fiscal year, we had integrated all six distribution centers, significantly expandedfront of store offerings at every location by replacing all merchandise with Rite Aid assortmentsand replaced systems, including the pharmacy dispensing system, in nearly two-thirds of theacquired stores. We learned a lot along the way, modifying our conversion process to make itless disruptive to both our customers and our associates.

• We delivered $200 million of cost-savings synergies, more than we had originally forecasted.

• In our core stores, we increased pharmacy sales, grew prescription volume and improved marginrates every quarter. Customer satisfaction ratings improved significantly year over year, especiallyin the pharmacy. While same store sales in the acquired stores remain negative, sales andmargin trends started moving in the right direction at the end of the fiscal year.

• Our new store development program continued with the opening of 120 new and relocatedstores with our easy-to-shop Customer World design. We also increased the depth of our seniormanagement team with the hire of experienced and talented operations executives fromwell-respected retailers Target and the H.E. Butt Grocery Company.

As we move into fiscal 2009, we expect another challenging year with a weak economy, a cautiousconsumer and prescription sales and volume expected to grow at only 2 to 3 percent for the industryoverall. Despite these headwinds, we remain confident that our strategy, the initiatives we’ve developedto build on the strength of the Rite Aid brand and the hard work of nearly 113,000 dedicatedassociates will lead to long-term profitable growth. We believe that by focusing on the following threecritical priorities this year, we will continue to strengthen our competitive position.

Successfully completing the integration.

Our integration is proceeding smoothly into the new fiscal year with completion of all systemsconversions set for the end of May, 2008 and all store minor remodels finished by October, 2008. Salesand margin trends in the acquired stores continue to improve, and customer complaints during thetransition have continued to drop substantially. With most of the systems conversions complete, wehave combined core Rite Aid and former Brooks Eckerd stores under one field management structureand strengthened our entire field divisional, regional and district leadership teams to make it easier forour new associates to complete the transition to Rite Aid. Although it’s going to take more time thanwe initially anticipated to get our acquired stores performing at the level we expect, we now have thescale and density in key markets to more effectively compete and improve our performance.

Increasing productivity in all of our stores.

Improving customer satisfaction with our ‘‘With Us It’s Personal’’ brand of service and ourstrategic vision to become the customer’s first choice for health and wellness products, services andinformation will guide our initiatives to increase profitable sales. We’ll continue to build on our healthcondition marketing programs like diabetes, heart health and allergies and expand Living More, themost comprehensive senior loyalty program in the drugstore sector, to drive both prescription growthand front of store sales. Our plan is to add more health and wellness programs that respond to theunique needs of individual customer segments, capitalizing on the success we’ve had building loyaltywith more than 3.4 million Living More members.

In the pharmacy, we will increase efforts to keep our patients compliant with their doctor’sinstructions—and hopefully healthier—by sending reminder refills by phone and letter. We will alsocontinue to save money for patients and payors, while at the same time improving our margins, byincreasing our generic dispense rate, which is currently at an all-time industry high of more than 67%.Our goal is to raise that rate to 70%. We plan to grow prescriptions by aggressively seeking pharmacyacquisitions in our key markets that include buying stores as well as buying patient prescription filesfrom pharmacies that are closing.

In the front of the store, we’ll focus on value and distinguishing ourselves from the competition.That includes more effective promotions and additional Rite Aid brand offerings, including theexclusive skin care and bath and body lines we recently introduced, which save money for ourcustomers and provide greater profit for us. We’re upgrading our photo centers this summer with newstate-of-the-art digital technology as part of a new partnership with Fujifilm. And we will continue toadd GNC vitamin departments, which keep us ahead of our competition in this core health andwellness category and draw customers to Rite Aid because of GNC brand recognition.

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Effectively controlling expenses.

While we are diligently working to improve the top line, we are also focused on increasing thebottom line by continuing to manage our expenses. Through our spend management program, we arefocusing our resources on areas that increase efficiency and reduce cost without harming the shoppingexperience in our stores. This priority to operate more efficiently is even more critical today with thechallenging economic environment and in a time when everyone is looking to reduce health care costs.

Along with these priorities, we will continue our new store development program with 85 newstores planned for fiscal 2009, with most being relocations because they deliver a faster return oninvestment than brand new stores. We are committed to a level of capital expenditures that allows us tomaintain a responsible balance between operating cash flows and our level of debt.

Very important to us is keeping our associates happy and satisfied with their jobs because they arethe ones who really deliver for Rite Aid and are on the front line with our customers every day. Weare creating a work environment that allows them to be successful in their careers and make Rite Aidan employer of choice.

We will also continue to deliver on our core value of ‘‘being caring neighbors, involved in ourcommunities in meaningful ways’’ by raising millions of dollars for Children’s Miracle Network hospitalsevery year selling balloons and holding special events at our stores. And we’ll continue to donate tolocal charities focused on health and wellness in the markets we serve through the Rite AidFoundation, which last year donated $1.7 million from funds it raised.

Before closing, it’s important to thank all of our associates for all we have achieved in thistransitional year, especially those involved with integration activities who really made the conversionprocess work. We are grateful for the continued loyalty of our customers and welcome former BrooksEckerd shoppers who have adopted Rite Aid as their neighborhood drugstore; we pledge not todisappoint you. We appreciate our suppliers for their enthusiastic support of the acquisition and ourBoard members for their confidence that we can accomplish what we’ve set out to achieve. And wethank our investors for their faith in our strategy and their patience in giving us the time we need tosuccessfully complete such a major integration.

As I write this letter, the length and strength of the economic downturn is unclear. But ourdetermination to succeed is not. We know we have a lot of work to do to justify investors’ confidenceand support. We will continue to direct all of our efforts towards building a strong future for ourcompany. We remain committed to making Rite Aid not just a bigger company, but ultimately a muchbetter one.

Respectfully,

Mary SammonsRite Aid Chairman, President and CEO

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12MAY200608593905RITE AID CORPORATION

P.O. BOX 3165HARRISBURG, PENNSYLVANIA 17105

Notice of Annual Meeting of StockholdersTo Be Held on June 25, 2008

To Our Stockholders:

What: Our 2008 Annual Meeting of Stockholders

When: June 25, 2008 at 2:00 p.m., local time

Where: Hilton HarrisburgOne North Second StreetHarrisburg, Pennsylvania 17101

Why: At this Annual Meeting, we plan to:

1. Elect five directors to hold office until the 2011 Annual Meeting of Stockholders anduntil their respective successors are duly elected and qualified;

2. Ratify the appointment of Deloitte & Touche LLP as our independent registered publicaccounting firm; and

3. Transact such other business as may properly come before the Annual Meeting or anyadjournment or postponement of the Annual Meeting.

The close of business on May 1, 2008 has been fixed as the record date for determining those RiteAid stockholders entitled to vote at the Annual Meeting. Accordingly, only stockholders of record atthe close of business on that date will receive this notice of, and be eligible to vote at, the AnnualMeeting and any adjournment or postponement of the Annual Meeting. The above items of businessfor the Annual Meeting are more fully described in the proxy statement accompanying this notice.

Your vote is important. Please read the proxy statement and the instructions on the enclosedproxy card and then, whether or not you plan to attend the Annual Meeting in person, and no matterhow many shares you own, please submit your proxy promptly by telephone or via the Internet inaccordance with the instructions on the enclosed proxy card, or by completing, dating and returningyour proxy card in the envelope provided. This will not prevent you from voting in person at theAnnual Meeting. It will, however, help to assure a quorum and to avoid added proxy solicitation costs.

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You may revoke your proxy at any time before the vote is taken by delivering to the Secretary ofRite Aid a written revocation or a proxy with a later date (including a proxy by telephone or via theInternet) or by voting your shares in person at the Annual Meeting, in which case your prior proxywould be disregarded.

By order of the Board of Directors

Robert B. SariSecretary

Camp Hill, PennsylvaniaMay 21, 2008

TABLE OF CONTENTS

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General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Questions and Answers About the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Proposal No. 1—Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Proposal No. 2—Ratification of the Appointment of Independent Registered Public

Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Grants of Plan-Based Awards Table For Fiscal 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Executive Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Outstanding Equity Awards at Fiscal 2008 Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Options Exercises and Stock Vested for Fiscal 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Nonqualified Deferred Compensation for Fiscal 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Potential Payments Upon Termination or Change In Control . . . . . . . . . . . . . . . . . . . . . . . . . 36

Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . 44Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Stockholder Proposals for the 2009 Annual Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . 50Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Important Notice Regarding Delivery of Stockholder Documents . . . . . . . . . . . . . . . . . . . . . . . . 51Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

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12MAY200608593905

RITE AID CORPORATIONP.O. BOX 3165

HARRISBURG, PENNSYLVANIA 17105

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERSTo Be Held on June 25, 2008

GENERAL INFORMATION

This proxy statement is being furnished to you by the Board of Directors (the ‘‘Board’’) of RiteAid Corporation (the ‘‘Company’’or ‘‘Rite Aid’’) to solicit your proxy to vote your shares at our 2008Annual Meeting of Stockholders. The Annual Meeting will be held on June 25, 2008 at 2:00 p.m., localtime, at the Hilton Harrisburg, One North Second Street, Harrisburg, Pennsylvania 17101. This proxystatement, the foregoing notice and the accompanying proxy card are first being mailed on or aboutMay 21, 2008 to all holders of our common stock, par value $1.00 per share, and 7% Series GCumulative Convertible Pay-in-Kind Preferred Stock and 6% Series H Cumulative ConvertiblePay-in-Kind Preferred Stock, entitled to vote at the Annual Meeting.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Who is entitled to vote at the Annual Meeting?

Holders of Rite Aid common stock and shares of 7% Series G Cumulative ConvertiblePay-in-Kind Preferred Stock and 6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock,which are collectively referred to in this proxy statement as the ‘‘LGP preferred stock,’’ as of the closeof business on the record date, May 1, 2008, will receive notice of, and be eligible to vote at, theAnnual Meeting and any adjournment or postponement of the Annual Meeting. At the close ofbusiness on the record date, Rite Aid had outstanding and entitled to vote 830,490,174 shares ofcommon stock and 2,789,195.7676 shares of LGP preferred stock (which, on an as-if-converted basis,are entitled to an aggregate of 50,712,650 votes). No other shares of Rite Aid capital stock are entitledto notice of and to vote at the Annual Meeting.

What matters will be voted on at the Annual Meeting?

There are two proposals that are scheduled to be considered and voted on at the Annual Meeting:

• Proposal No. 1: Elect five directors to hold office until the 2011 Annual Meeting ofStockholders; and

• Proposal No. 2: Ratify the appointment of Deloitte & Touche LLP as our independentregistered public accounting firm.

Stockholders will also be asked to consider and vote at the Annual Meeting on any other matterthat may properly come before the Annual Meeting or any adjournment or postponement of theAnnual Meeting. At this time, the Board of Directors is unaware of any matters, other than those setforth above, that may properly come before the Annual Meeting.

What are the Board’s voting recommendations?

The Board recommends that you vote ‘‘FOR’’ the nominees of the Board in the election ofdirectors.

The Board recommends that you for ‘‘FOR’’ the ratification of Deloitte & Touche LLP as theCompany’s independent registered public accounting firm.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

If your shares are registered directly in your name with our transfer agent, American StockTransfer & Trust Company, you are considered the ‘‘stockholder of record’’ with respect to thoseshares.

If your shares are held in a stock brokerage account or by a bank or other nominee, those sharesare held in ‘‘street name’’ and you are considered the ‘‘beneficial owner’’ of the shares. As thebeneficial owner of those shares, you have the right to direct your broker, trustee or nominee how tovote your shares, and you will receive separate instructions from your broker, bank or other holder ofrecord describing how to vote your shares.

How can I vote my shares before the Annual Meeting?

If you hold your shares in your own name, you may submit a proxy by telephone, via the Internetor by mail.

• Submitting a Proxy by Telephone: You can submit a proxy for your shares by telephone until11:59 p.m. Eastern Daylight Time on June 24, 2008 by calling the toll-free telephone number onthe enclosed proxy card, 1-888-444-0050. Telephone proxy submission is available 24 hours a day.Easy-to-follow voice prompts allow you to submit a proxy for your shares and confirm that yourinstructions have been properly recorded. Our telephone proxy submission procedures aredesigned to authenticate stockholders by using individual control numbers.

• Submitting a Proxy via the Internet: You can submit a proxy via the Internet until 11:59 p.m.Eastern Daylight Time on June 24, 2008 by accessing the web site listed on your proxy card,www.voteproxy.com, and following the instructions you will find on the web site. Internet proxysubmission is available 24 hours a day. As with telephone proxy submission, you will be given theopportunity to confirm that your instructions have been properly recorded.

• Submitting a Proxy by Mail: If you choose to submit a proxy by mail, simply mark the enclosedproxy card, date and sign it, and return it in the postage paid envelope provided.

By casting your vote in any of the three ways listed above, you are authorizing the individualslisted on the proxy to vote your shares in accordance with your instructions. You may also attend theAnnual Meeting and vote in person.

If your shares are held in the name of a bank, broker or other nominee, you will receiveinstructions from the holder of record that you must follow for your shares to be voted. The availabilityof telephonic or Internet voting will depend on the bank’s or broker’s voting process. Please check withyour bank or broker and follow the voting procedures your bank or broker provides to vote yourshares. Also, please note that if the holder of record of your shares is a broker, bank or other nomineeand you wish to vote in person at the Annual Meeting, you must request a legal proxy from your bank,broker or other nominee that holds your shares and present that proxy and proof of identification atthe Annual Meeting.

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If I am the beneficial owner of shares held in ‘‘street name’’ by my broker, will my broker automatically votemy shares for me?

New York Stock Exchange (‘‘NYSE’’) rules applicable to broker-dealers grant your brokerdiscretionary authority to vote your shares without receiving your instructions on certain matters, whichinclude the election of directors and the ratification of the appointment of our independent registeredpublic accounting firm. However, your broker does not have discretionary authority to vote your sharesfor certain other types of matters.

How will my shares be voted if I give my proxy but do not specify how my shares should be voted?

If you provide specific voting instructions, your shares will be voted at the Annual Meeting inaccordance with your instructions. If you hold shares in your name and sign and return a proxy cardwithout giving specific voting instructions, your shares will be voted ‘‘FOR’’ the nominees of the Boardin the election of directors and ‘‘FOR’’ the ratification of the appointment of Deloitte & Touche LLPas the Company’s independent registered public accounting firm for 2009.

How do I vote my shares held in one of the Rite Aid 401(k) plans? What happens if I do not vote my 401(k)plan shares?

If you are a participant in one of Rite Aid’s 401(k) plans, the voter instruction card sent to youwill serve as a voting instruction card to the trustee of the 401(k) plans for all shares of our commonstock you own through the applicable 401(k) plan. You are entitled to instruct the plan trustee on howto vote your shares in the 401(k) plan by telephone, via the Internet or by mail as described above,except that, if you vote by mail, the card that you use will be a voting instruction card rather than aproxy card. The trustee will vote your shares held in the plans in accordance with your instructions.Your instructions will be kept confidential by the trustee and will not be disclosed to Rite Aid. Anyshares held by a 401(k) plan participant for which timely instructions are not received by the trusteewill be voted by the trustee in its sole discretion.

Could other matters be decided at the Annual Meeting?

At this time, we are unaware of any matters, other than as set forth above, that may properlycome before the Annual Meeting. If any other matters properly come before the Annual Meeting, thepersons named in the enclosed proxy, or their duly constituted substitutes acting at the Annual Meetingor any adjournment or postponement of the Annual Meeting, will be deemed authorized to vote orotherwise act on such matters in accordance with their judgment.

Can I vote in person at the Annual Meeting?

Yes. If you hold shares in your own name as a stockholder of record, you may come to the AnnualMeeting and cast your vote at the meeting by properly completing and submitting a ballot. If you arethe beneficial owner of shares held in the name of your broker, bank or other nominee, you must firstobtain a legal proxy from your broker, bank or other nominee giving you the right to vote those sharesand submit that proxy along with a properly completed ballot at the meeting. You can obtain directionsto the annual meeting by contacting the Hilton Harrisburg at (717) 233-6000.

How can I change my vote?

You may revoke your proxy at any time before it is exercised by:

• Delivering to the Secretary a written notice of revocation, dated later than the proxy, before thevote is taken at the Annual Meeting;

• Delivering to the Secretary an executed proxy bearing a later date, before the vote is taken atthe Annual Meeting;

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• Submitting a proxy on a later date by telephone or via the Internet (only your last telephone orInternet proxy will be counted), before 11:59 p.m. Eastern Daylight Time on June 24, 2008; or

• Attending the Annual Meeting and voting in person (your attendance at the Annual Meeting, inand of itself, will not revoke the proxy).

Any written notice of revocation, or later dated proxy, should be delivered to:

Rite Aid Corporation30 Hunter Lane

Camp Hill, Pennsylvania 17011Attention: Robert B. Sari, Secretary

Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to theSecretary at the Annual Meeting before we begin voting.

If your shares of Rite Aid common stock are held by a bank, broker or other nominee, you mustfollow the instructions provided by the bank, broker or other nominee if you wish to change your vote.

What is an ‘‘abstention’’ and how would it affect the vote?

An ‘‘abstention’’ occurs when a stockholder sends in a proxy with explicit instructions to decline tovote regarding a particular matter. Abstentions are counted as present for purposes of determining aquorum. However, an abstention with respect to a matter submitted to a vote of stockholders will notbe counted as having been voted for or against the matter. Consequently, an abstention with respect toany of the matters scheduled for a vote at the annual meeting will have no effect on the outcome ofthe vote.

What is a broker ‘‘non-vote’’ and how would it affect the vote?

A broker non-vote occurs when a broker or other nominee who holds shares for another persondoes not vote on a particular proposal because that holder does not have discretionary voting power forthe proposal and has not received voting instructions from the beneficial owner of the shares so thebroker is unable to vote those uninstructed shares. Brokers will have discretionary voting power to voteshares for which no voting instructions have been provided by the beneficial owner with respect to theelection of directors and the ratification of the appointment of the independent registered publicaccounting firm. Brokers will not have such discretionary voting power to vote shares with respect tothe stockholder proposal. Shares that are the subject of a broker non-vote are included for quorumpurposes, but a broker non-vote with respect to a proposal will not be counted as a vote ‘‘cast’’ for oragainst the proposal. Consequently, a broker non-vote with respect to the stockholder proposal willhave no effect on the outcome of the vote.

What are the quorum and voting requirements for the proposals?

In deciding the proposals that are scheduled for a vote at the Annual Meeting, each holder ofcommon stock as of the record date is entitled to one vote per share of common stock and each holderof LGP preferred stock as of the record date is entitled to approximately 18.18 votes per share of LGPpreferred stock (one vote per share of common stock issuable upon conversion of the LGP preferredstock). As of the record date, the LGP preferred stock was convertible into an aggregate of 50,712,650shares of common stock. The holders of the common stock and LGP preferred stock vote together as asingle class, except for those matters on which the holders of LGP preferred stock are entitled to voteas a separate class.

In order to take action on the proposals, a quorum, consisting of the holders of 440,601,413 shares(a majority of the aggregate number of shares of Rite Aid common stock and LGP preferred stock (onan as-if-converted basis) issued and outstanding and entitled to vote as of the record date for theAnnual Meeting), must be present in person or by proxy. This is referred to as a ‘‘quorum.’’ Proxies

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marked ‘‘Abstain’’ and broker ‘‘non-votes,’’ if any, will be treated as shares that are present forpurposes of determining the presence of a quorum.

Proposal No. 1—Election of Directors

The affirmative vote of a majority of the total number of votes cast (with Rite Aid common stockand LGP preferred stock voting together as a single class) is required for the election of each directornominee named in Proposal No. 1. This means that the votes cast ‘‘for’’ that nominee must exceed thevotes cast ‘‘against’’ that nominee. Any shares not voted (whether by abstention or otherwise) will notbe counted as votes cast and will have no effect on the outcome of the vote. For more information onthe operation of our majority voting standard, see the section entitled ‘‘Corporate Governance—Majority Voting Standard and Policy.’’

Proposal No. 2—Ratification of Auditors

The affirmative vote of a majority of the total number of votes cast (with Rite Aid common stockand LGP preferred stock voting together as a single class) is required for the ratification of theappointment of our independent registered public accounting firm in Proposal No. 2. Any shares notvoted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect onthe outcome of the vote.

What happens if a quorum is not present at the Annual Meeting?

If the shares present in person or represented by proxy at the Annual Meeting are not sufficient toconstitute a quorum, the stockholders by a vote of the holders of a majority of votes present in personor represented by proxy (which may be voted by the proxyholders), may, without further notice to anystockholder (unless a new record date is set), adjourn the meeting to a different time and place topermit further solicitations of proxies sufficient to constitute a quorum.

Who will count the votes?

Officers of Rite Aid will serve as proxy tabulator and count the votes. The results will be certifiedby the inspectors of election.

Who will conduct the proxy solicitation and how much will it cost?

We are soliciting proxies from stockholders on behalf of our Board and will pay for all costsincurred by it in connection with the solicitation. In addition to solicitation by mail, the directors,officers and employees of Rite Aid and its subsidiaries may solicit proxies from stockholders of RiteAid in person or by telephone, facsimile or email without additional compensation other thanreimbursement for their actual expenses.

We have retained The Altman Group, a proxy solicitation firm, to assist us in the solicitation ofproxies for the Annual Meeting. Rite Aid will pay The Altman Group a fee of approximately $6,000and reimburse the firm for reasonable out-of-pocket expenses.

Arrangements also will be made with brokerage firms and other custodians, nominees andfiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record bysuch persons, and we will reimburse such custodians, nominees and fiduciaries for their reasonableout-of-pocket expenses in connection with the forwarding of solicitation materials to the beneficialowners of our stock.

If you have any questions about voting your shares or attending the Annual Meeting, please callour Investor Relations Department at (717) 730-7766.

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PROPOSAL NO. 1

ELECTION OF DIRECTORS

General

Our by-laws provide that the Board of Directors may be composed of up to 15 members, with thenumber to be fixed from time to time by the Board. The Board of Directors has fixed the number ofdirectors at 14. Our Board of Directors is divided into three classes, with each class to be as nearlyequal in number as possible. The Board of Directors currently consists of five directors whose termsexpire this year, five directors whose terms expire in 2009 and four directors whose terms expire in2010. Generally, the term of one class of directors expires at each annual meeting of stockholders andeach class serves a three-year term.

Director Nominees

The Board of Directors, based on the recommendation of the Nominating and GovernanceCommittee, has nominated Francois J. Coutu, Michael A. Friedman, MD, Robert G. Miller, Michael N.Regan and Dennis Wood to be elected directors at the Annual Meeting. Messrs. Coutu and Wood weredesignated by The Jean Coutu Group (PJC) Inc., or Jean Coutu Group, to the Nominating andGovernance Committee as director nominees pursuant to the terms of the stockholder agreement withJean Coutu Group, which was effective on June 4, 2007, the date of our acquisition of the Brooks andEckerd drugstore chains (the ‘‘Brooks Eckerd Transaction’’). Each of the nominees for director to beelected at the Annual Meeting currently serves as a Rite Aid director.

Each director elected at the Annual Meeting will hold office until the 2011 Annual Meeting ofStockholders and until their successors are duly elected and qualified. The other directors will remainin office for the remainder of their respective terms, as indicated below.

If any nominee at the time of election is unable or unwilling to serve or is otherwise unavailablefor election, and as a consequence thereof other nominees are designated, then the persons named inthe proxy or their substitutes will have the discretion and authority to vote or to refrain from voting forother nominees in accordance with their judgment.

RECOMMENDATION

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THATYOU VOTE ‘‘FOR’’ THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE

BOARD OF DIRECTORS

The following table sets forth certain information with respect to our directors and directornominees as of the record date:

Year First Term asBecame Director Will

Name Age Position with Rite Aid Director Expire(1)

Mary F. Sammons . . . . . . . . . . . 61 Chairman, President and 1999 2010Chief Executive Officer

Michel Coutu. . . . . . . . . . . . . . 54 Non-Executive Co-Chairman 2007 2009Joseph B. Anderson, Jr. . . . . . . 65 Director 2005 2009Andre Belzile . . . . . . . . . . . . . . 46 Director 2007 2010Francois J. Coutu . . . . . . . . . . . 53 Director 2007 2008Michael A. Friedman, MD . . . . 64 Director 2004 2008George G. Golleher . . . . . . . . . 60 Director 2002 2010Robert A. Mariano(2) . . . . . . . . 58 Director 2005 2009Robert G. Miller . . . . . . . . . . . 64 Director 1999 2008

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Year First Term asBecame Director Will

Name Age Position with Rite Aid Director Expire(1)

Michael N. Regan . . . . . . . . . . . 60 Director 2007 2008Philip G. Satre . . . . . . . . . . . . . 59 Director 2005 2010Jonathan Sokoloff . . . . . . . . . . . 50 Director 1999 2009Marcy Syms . . . . . . . . . . . . . . . 57 Director 2005 2009Dennis Wood . . . . . . . . . . . . . . 69 Director 2007 2008

(1) Directors’ terms of office are scheduled to expire at the annual meeting of stockholders to be heldin the year indicated.

(2) Mr. Mariano resigned from the Board effective May 12, 2008. James L. Donald was appointed tothe Board on May 13, 2008, with a term expiring at the 2009 Annual Meeting of Stockholders, tofill the vacancy created by Mr. Mariano’s resignation.

Following are the biographies for our director nominees and our directors who will continue toserve after the 2008 Annual Meeting:

Mary F. Sammons. Ms. Sammons has been Chairman of the Board of the Company sinceJune 2007 and has been President and a member of Rite Aid’s Board of Directors since December 5,1999 and Chief Executive Officer since June 2003. She was the Chief Operating Officer fromDecember 1999 until June 2003. From April 1999 to December 1999, Ms. Sammons served as Presidentand Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of The Kroger Company. FromJanuary 1998 to April 1999, Ms. Sammons served as President and Chief Executive Officer of FredMeyer Stores, Inc., a subsidiary of Fred Meyer, Inc. From 1985 through 1997, Ms. Sammons heldseveral senior level positions with Fred Meyer Stores, Inc., the last being that of Executive VicePresident. Ms. Sammons is also a member of the Board of the National Association of Chain DrugStores, a trade association, and is a director of First Horizon National Corporation and of The RiteAid Foundation.

Michel Coutu. Mr. Michel Coutu is Non-Executive Co-Chairman of the Board. He served asPresident of the U.S. operations of Jean Coutu Group and Chief Executive Officer of Jean Coutu USAuntil June 2007. He has also served as a member of the Board of Directors of Jean Coutu Group sinceDecember 1985. Mr. Coutu holds a degree in finance and a license in law from the University ofSherbrooke and a Masters in Business Administration from the Simon School of Business at theUniversity of Rochester.

Joseph B. Anderson, Jr. Mr. Anderson has been the Chairman of the Board and Chief ExecutiveOfficer of TAG Holdings, LLC, a manufacturing, service and technology business since January 2002.Mr. Anderson was Chairman of the Board and Chief Executive Officer of Chivas Industries, LLC from1994 to 2002. Mr. Anderson also serves as a director of Quaker Chemical Corporation,ArvinMeritor, Inc., Sierra Pacific Resources and Valassis Communications, Inc.

Andre Belzile. Mr. Belzile has been the Senior Vice President, Finance and Corporate Affairs ofJean Coutu Group since May 2004. Prior to serving in this position, from 1992 until May 2004 heserved as Vice President and Chief Financial Officer of Cascades Inc., a producer and marketer ofpackaging products. Mr. Belzile is a chartered accountant who earned a bachelor’s degree atLes Hautes Etudes Commerciales (HEC MONTREAL).

Francois J. Coutu. Mr. Francois J. Coutu has served as President and Chief Executive Officer ofJean Coutu Group since October 2007. Previously, Mr. Coutu held the positions of President ofCanadian Operations and Vice Chairman of the Board from 2005 to 2007, President and ChiefExecutive Officer from 2002 to 2005 and President and Chief Operating Officer of Jean Coutu Groupfrom 1992 to 2002. Mr. Coutu has been a member of the Board of Directors of Jean Coutu Group

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since 1985. He is a pharmacist by profession, holds a Bachelor’s Degree in Administration from McGillUniversity and a Bachelor’s Degree in Pharmacy from Samford University. He is a current director andformer chair of the Canadian Association of Chain Drug Stores, a trade association, and previouslyserved as a member of the Board of Directors of the National Bank of Canada, where he was amember of the Human Resources and Credit Committees.

James L. Donald. Mr. Donald is currently a self-employed private investor. Mr. Donald wasPresident and Chief Executive Officer and a director of Starbucks Corporation from April 2005 toJanuary 2008. From October 2004 to April 2005, Mr. Donald served as Starbuck’s CEO designate.From October 2002 to October 2004, Mr. Donald served as President of Starbucks, North America.From October 1996 to October 2002, Mr. Donald served as Chairman, President and Chief ExecutiveOfficer of Pathmark Stores, Inc. and prior to that time he held a variety of senior managementpositions with Albertson’s, Inc., Safeway, Inc. and Wal-Mart Stores, Inc. Mr. Donald was appointed tothe Board in May 2008 on the recommendation of the Nominating and Governance Committee.Mr. Donald was recommended for consideration by the Nominating and Governance Committee byMary Sammons, our Chairman, President and Chief Executive Officer.

Michael A. Friedman, MD. Dr. Friedman has been President and Chief Executive Officer of Cityof Hope, a National Cancer Institute-designated Comprehensive Cancer Center since May 2003. FromOctober 2001 to April 2003, Dr. Friedman served as Chief Medical Officer for BiomedicalPreparedness for the Pharmaceutical Research and Manufacturers of America, a pharmaceutical tradeassociation. Additionally, he held the position of Senior Vice President of Research and Development,Medical and Public Policy for Pharmacia. He also has held executive positions in government andpublic health organizations. In addition to serving as Acting Commissioner of the U.S. Food and DrugAdministration from 1997 to 1998, he was Associate Director of the Cancer Therapy EvaluationProgram at the National Cancer Institute, National Institutes of Health from 1988 to 1995. He joinedthe National Cancer Institute in 1983 as Chief of the Clinical Investigations Branch of the Division ofCancer Treatment. Before that he spent nearly a decade at the University of California atSan Francisco Medical Center in various positions, from Assistant Professor of Medicine in 1975 toInterim Director of the Cancer Research Institute from 1981 to 1983. Author of more than 150scientific papers and books, Dr. Friedman has received commendations, including the SurgeonGeneral’s Medallion in 1999.

George G. Golleher. In June 2007, Mr. Golleher was appointed as Chairman and Chief ExecutiveOfficer of Smart and Final. From June 1999 to June 2007, Mr. Golleher worked as a self-employedbusiness consultant and a private equity investor following his retirement after 28 years of experience inthe Southern California food industry. Mr. Golleher was the Chief Executive Officer of SimonWorldwide Inc., a promotional marketing firm, from May 2003 to April 2006. From March 1998 toMay 1999, Mr. Golleher served as President, Chief Operating Officer and director of Fred Meyer, Inc.Prior to joining Fred Meyer, Inc., Mr. Golleher served for 15 years with Ralphs Grocery Company andits predecessors and was Chief Executive Officer when Ralphs Grocery Company merged with FredMeyer, Inc. in March 1998. Mr. Golleher serves as a director of Linens ‘N Things, Inc. and ClairesStores, Inc. He also served as a director of Simon Worldwide, Inc. from November 1999 to April 2006and of General Nutrition Centers, Inc. from December 2003 to March 2007.

Robert G. Miller. Mr. Miller has been Chief Executive Officer of Albertsons LLC since June 2006.Mr. Miller has been a member of Rite Aid’s Board of Directors since December 1999, serving as ourChairman of the Board from December 1999 until June 2007. From December 1999 until June 2003,Mr. Miller was also Rite Aid’s Chief Executive Officer. Previously, Mr. Miller served as Vice Chairmanand Chief Operating Officer of The Kroger Company, a retail food company. Mr. Miller joined theKroger Company in March 1999, when Kroger acquired Fred Meyer, Inc., a food, drug and generalmerchandise chain. From 1991 until the March 1999 acquisition, he served as Chief Executive Officerof Fred Meyer, Inc. Mr. Miller also is a director of Nordstrom, Inc.

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Michael N. Regan. Mr. Regan is currently a self-employed private equity investor. Mr. Reganserved as Chief Financial Officer of The St. Joe Company, a major real estate development companybased in Florida, from November 2006 to May 2007. From 1997 to November 2006, he served as SeniorVice President, Finance and held various other positions with The St. Joe Company and was a memberof the senior management team. Prior to joining St. Joe’s, he served as Vice President and Controllerof Harrah’s Entertainment from 1991 to 1997. From 1980 until 1991 he held a series of progressivelymore responsible positions for Harrah’s Entertainment, Inc. and its prior parent companies, HolidayCorporation and The Promus Companies.

Philip G. Satre. Mr. Satre is currently a self-employed private investor. Mr. Satre served as ChiefExecutive Officer of Harrah’s Entertainment, Inc. from 1993 to January 2003. Mr. Satre was a directorof Harrah’s from 1988 through 2004, serving as Chairman of the Board of Harrah’s since 1997. Hepresently serves on the Boards of Directors of the National Center for Responsible Gaming, TheNational World War II Museum, the Nevada Cancer Institute, Sierra Pacific Resources andNordstrom, Inc., and is a trustee of Stanford University.

Jonathan D. Sokoloff. Mr. Sokoloff has been a Managing Partner of Leonard Green &Partners, L.P. since 1994. Leonard Green & Partners, L.P. is an affiliate of Green Equity InvestorsIII, L.P. and is a private equity firm based in Los Angeles, California. Since 1990, Mr. Sokoloff has alsobeen a partner in a merchant banking firm affiliated with Leonard Green & Partners, L.P. Mr. Sokoloffpreviously was elected as a director pursuant to director nomination rights granted to Green EquityInvestors III, L.P. under an October 27, 1999 agreement between Rite Aid and Green Equity Investorswith respect to the purchase of 3,000,000 shares of Rite Aid preferred stock.

Marcy Syms. Ms. Syms has been Chief Executive Officer and a director of Syms Corp, a chain ofretail clothing stores, since 1983. She currently serves on the Boards of Directors of New York Chapterof the American Heart Association and the New Jersey Economic Growth Council. Ms. Syms also is afounding member of the Board of Directors of the Syms School of Business at Yeshiva University.

Dennis Wood, O.C. Mr. Wood is Chairman, President and Chief Executive Officer of DennisWood Holdings Inc., a privately owned portfolio company, a position he has held since 1973. SinceApril 2005, he has served as Interim President and Chief Executive Officer of Groupe Bocenor Inc., awindow and door manufacturer, and also serves as a director and as Chair of its Executive Committee.Between 1992 and 2001, Mr. Wood served as Chairman, President and Chief Executive Officer ofC-MAC Industries Inc., a designer and manufacturer of integrated electronic manufacturing solutions.Mr. Wood has been a member of the Board of Jean Coutu Group since March 2004. In April 2007, hewas appointed Chairman of the Board of Azimut Exploration Inc. and serves as a member of theBoard of Directors Transat A.T. Inc. Futhermore, Mr. Wood serves on the Boards of: National BankTrust and Blue Mountain Wallcoverings Inc., a privately held company. He has been awarded Canada’stop honor, the Order of Canada and has an honorary degree from the University of Sherbrooke.

Corporate Governance

We recognize that good corporate governance is an important means of protecting the interests ofour stockholders, associates, customers, suppliers and the community. The Board of Directors hasclosely monitored and implemented relevant legislative and regulatory corporate governance reforms,including provisions of the Sarbanes-Oxley Act of 2002, the rules of the SEC interpreting andimplementing Sarbanes-Oxley, and the corporate governance listing standards of the NYSE.

Website Access to Corporate Governance Materials. Our corporate governance information andmaterials, including our Certificate of Incorporation, By-Laws, Corporate Governance Guidelines,current charters for each of the Audit Committee, Compensation Committee and Nominating andGovernance Committee, Code of Ethics for the Chief Executive Officer and Senior Financial Officers,Code of Ethics and Business Conduct, and our Related Person Transactions Approval Policy, are

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posted on our website at www.riteaid.com under the headings ‘‘Our Company—Corporate Governance’’and are available in print upon request to Rite Aid Corporation, 30 Hunter Lane, Camp Hill,Pennsylvania 17011, Attention: Secretary. The Board regularly reviews corporate governancedevelopments and will modify these materials and practices from time to time as warranted.

Codes of Ethics. The Board has adopted a Code of Ethics that is applicable to our ChiefExecutive Officer and senior financial officers. The Board has also adopted a Code of Ethics andBusiness Conduct that applies to all of our officers, directors and associates. Any amendment to eithercode or any waiver of either code for executive officers or directors will be disclosed promptly on ourwebsite at www.riteaid.com under the headings ‘‘Our Company—Corporate Governance—Code ofEthics.’’

Director Independence. For a director to be considered independent under the New York StockExchange corporate governance listing standards, the Board of Directors must affirmatively determinethat the director does not have any direct or indirect material relationship with the Company, includingany of the relationships specifically proscribed by the NYSE independence standards. The Boardconsiders all relevant facts and circumstances in making its independence determinations. Onlyindependent directors may serve on our Audit Committee, Compensation Committee and Nominatingand Governance Committee.

As a result of this review, the Board affirmatively determined that the following directors,including each director serving on the Audit Committee, the Compensation Committee and theNominating and Governance Committee, satisfy the independence requirements of the NYSE listingstandards: Joseph B. Anderson, Jr., Andre Belzile, Francois J. Coutu, James L. Donald, Michael A.Friedman, MD, George G. Golleher, Robert A. Mariano (who served as a director until May 2008),Michael N. Regan, Philip G. Satre, Marcy Syms and Dennis Wood. The Board also determined that themembers of the Audit Committee satisfy the additional independence requirements of Rule 10A-3under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) and the NYSErequirements for audit committee members. In determining each individual’s status as an independentdirector, the Board considered the following transactions, relationships and arrangements:

• Joseph B. Anderson serves as a director of Valassis Communications, Inc., which does businesswith Rite Aid. Because Mr. Anderson serves only as an outside director of, and is not an officerof or otherwise employed by, Valassis Communications, Inc., the Board determined that therelationship between Rite Aid and Valassis Communications, Inc. does not constitute a materialrelationship between Mr. Anderson and Rite Aid.

• Until March 2007, George G. Golleher served as director of General Nutrition Centers, whichdoes business with Rite Aid. Because Mr. Golleher served only as an outside director of, and isnot an officer of or otherwise employed by, General Nutrition Centers, the Board determinedthat the relationship between Rite Aid and General Nutrition Centers does not constitute amaterial relationship between Mr. Golleher and Rite Aid.

• George G. Golleher serves as the Chairman and Chief Executive Officer of Smart & Final,which entity purchases ice cream from one of the Company’s subsidiaries. Because the purchasesof ice cream are in an amount which is less than 2% of Smart & Final’s consolidated grossrevenues, the Board determined that the relationship between Rite Aid and Smart & Final doesnot constitute a material relationship between Mr. Golleher and Rite Aid.

There is no family relationship between any of the nominees, continuing directors and executiveofficers of Rite Aid, except that directors Francois Coutu and Michel Coutu are brothers.

Majority Voting Standard and Policy. Under the Company’s majority voting standard, a nomineefor director in uncontested elections of directors (as is the case for this annual meeting) will be electedto the Board if the votes cast ‘‘for’’ such nominee’s election exceed the votes cast ‘‘against’’ suchnominee’s election. Directors will continue to be elected by a plurality of votes cast at any meeting ofstockholders for which (i) the Secretary of the Company receives a notice that a stockholder hasnominated a person for election to the Board in compliance with the advance notice requirements forstockholder nominees for director set forth in the By-Laws and (ii) such nomination has not beenwithdrawn by such stockholder on or prior to the 14th day preceding the date the Company first mailsits notice of meeting for such meeting to the stockholders.

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Under the Company’s Corporate Governance Guidelines (the ‘‘Guidelines’’), a director who failsto receive the required number of votes for re-election in accordance with the By-Laws will, within fivedays following certification of the stockholder vote, tender his or her written resignation to theChairman of the Board for consideration by the Board, subject to the procedures set forth in theGuidelines.

Committees of the Board of Directors

The Board of Directors has four standing committees: the Audit Committee, the CompensationCommittee, the Nominating and Governance Committee and the Executive Committee. Current copiesof the charters for each of these committees are available on our website at www.riteaid.com under theheadings ‘‘Our Company—Corporate Governance—Committee Charters.’’

Audit Committee. The Audit Committee, which held four meetings during fiscal year 2008 andfour special meetings, currently consists of Philip G. Satre (Chairman), Andre Belzile, Michael N.Regan and Marcy Syms. Robert A. Mariano served on the Audit Committee during fiscal year 2008,until he resigned from the Board in May 2008. The Board has determined that each of theseindividuals is an independent director under the NYSE listing standards and satisfies the additionalindependence requirements of Rule 10A-3 under the Exchange Act and the additional requirements ofthe NYSE listing standards for audit committee members. See the section entitled ‘‘CorporateGovernance—Director Independence’’ above. The Board has determined that Philip G. Satre qualifiesas an ‘‘audit committee financial expert’’ as that term is defined under applicable SEC rules.

The functions of the Audit Committee include the following:

• Appointing, compensating and overseeing our independent registered public accounting firm(‘‘independent auditors’’);

• Overseeing management’s fulfillment of its responsibilities for financial reporting and internalcontrol over financial reporting; and

• Overseeing the activities of the Company’s internal audit function.

The independent auditors and internal auditors meet with the Audit Committee with and withoutthe presence of management representatives. For additional information, see the section entitled ‘‘AuditCommittee Report,’’ as well as the Audit Committee’s charter, which is posted on our website atwww.riteaid.com under the headings ‘‘Our Company—Corporate Governance.’’

Compensation Committee. The Compensation Committee, which met five times in which one ofthose times was a special meeting during fiscal year 2008, currently consists of George G. Golleher(Chairman), Michael A. Friedman, MD and Dennis Wood. The Board has determined that each ofthese individuals is an independent director under the NYSE listing standards. See the section entitled‘‘Corporate Governance—Director Independence’’ above.

The functions of the Compensation Committee include the following:

• Administering Rite Aid’s stock option and other equity incentive plans;

• Determining and approving the compensation levels for the Chief Executive Officer; and

• Reviewing and recommending to the Board of Directors other senior officers’ compensationlevels.

The Compensation Committee reviews the performance of the Company’s executive personnel anddevelops and makes recommendations to the Board of Directors with respect to executivecompensation policies. The Compensation Committee is empowered by the Board of Directors toaward to executive officers appropriate bonuses, stock options, stock appreciation rights (‘‘SARs’’) and

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stock-based awards. The details of the processes and procedures for the consideration anddetermination of executive and director compensation are described in the section entitled‘‘Compensation Discussion and Analysis.’’

The Compensation Committee also has access to independent compensation data and from time totime engages outside compensation consultants. In fiscal year 2008, the Compensation Committeeconsidered the report of outside compensation consultants with respect to executive compensation,director compensation and equity compensation strategy.

The objectives of the Compensation Committee are to support the achievement of desiredcompany performance, to provide compensation and benefits that will attract and retain superior talentand reward performance and to fix a portion of compensation to the outcome of the Company’sperformance.

Nominating and Governance Committee. The Nominating and Governance Committee, which heldthree meetings during fiscal year 2008, currently consists of Joseph B. Anderson, Jr. (Chairman),Francois J. Coutu and Michael A. Friedman, MD. Robert A. Mariano served on the Nominating andGovernance Committee during fiscal year 2008, until he resigned from the Board in May 2008. TheBoard has determined that each of these individuals is an independent director under the NYSE listingstandards. See the section entitled ‘‘Corporate Governance—Director Independence’’ above.

The functions of the Nominating and Governance Committee include the following:

• Identifying and recommending to the Board individuals qualified to serve as Rite Aid directors;

• Recommending to the Board individual directors to serve on committees of the Board;

• Advising the Board with respect to matters of Board composition and procedures;

• Developing and recommending to the Board a set of corporate governance principles applicableto Rite Aid and overseeing corporate governance matters generally;

• Overseeing the annual evaluation of the Board and management; and

• Reviewing, evaluating and recommending for approval by the Board related person transactionsof the Company.

Executive Committee. The members of the Executive Committee currently are Michel Coutu,Robert G. Miller, Mary F. Sammons and Philip G. Satre. The Executive Committee did not meetduring fiscal year 2008. The Executive Committee, except as limited by Delaware law, is empowered toexercise all of the powers of the Board of Directors.

Nomination of Directors

The Nominating and Governance Committee will consider director candidates recommended bystockholders. In considering such recommendations, the Nominating and Governance Committee willtake into consideration the needs of the Board and the qualifications of the candidate. The Nominatingand Governance Committee may also take into consideration the number of shares held by therecommending stockholder and the length of time that such shares have been held. To have a candidateconsidered by the Nominating and Governance Committee, a stockholder must submit therecommendation in writing and must include the following information:

• The name of the stockholder and evidence of the person’s ownership of Rite Aid stock,including the number of shares owned and the length of time of ownership; and

• The name of the candidate, the candidate’s resume or a listing of his or her qualifications to bea Rite Aid director and the person’s consent to be named as a director if selected by theNominating and Governance Committee and nominated by the Board.

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The stockholder recommendation and information described above must be sent to Rite AidCorporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Secretary. The Nominatingand Governance Committee will accept recommendations of director candidates throughout the year;however, in order for a recommended director candidate to be considered for nomination to stand forelection at an upcoming annual meeting of stockholders, the recommendation must be received by theSecretary not less than 120 days prior to the anniversary date of Rite Aid’s most recent annual meetingof stockholders.

The Nominating and Governance Committee believes that the minimum qualifications for servingas a Rite Aid director are that a candidate demonstrate, by significant accomplishment in his or herfield, an ability to make a meaningful contribution to the Board’s oversight of Rite Aid’s business andaffairs and have an impeccable record and reputation for honest and ethical conduct in his or herprofessional and personal activities. In addition, the Nominating and Governance Committee examinesa candidate’s specific experiences and skills, time availability in light of other commitments, potentialconflicts of interest and independence from management and the Company. The Nominating andGovernance Committee also seeks to have the Board represent a diversity of backgrounds andexperience.

The Nominating and Governance Committee identifies potential candidates by asking currentdirectors and executive officers to notify the committee if they become aware of persons, meeting thecriteria described above, who have had a change in circumstances that might make them available toserve on the Board—for example, retirement as a CEO or CFO of a public company or exitinggovernment or military service. The Nominating and Governance Committee also, from time to time,may engage firms that specialize in identifying director candidates. As described above, the committeewill also consider candidates recommended by stockholders.

Once a person has been identified by the Nominating and Governance Committee as a potentialcandidate, the committee may collect and review publicly available information regarding the person toassess whether the person should be considered further. If the Nominating and Governance Committeedetermines that the candidate warrants further consideration, the Chairman or another member of thecommittee contacts the person. Generally, if the person expresses a willingness to be considered and toserve on the Board, the Nominating and Governance Committee requests information from thecandidate, reviews the person’s accomplishments and qualifications, including in light of any othercandidates that the committee might be considering, and conducts one or more interviews withthe candidate. In certain instances, committee members may contact one or more references providedby the candidate or may contact other members of the business community or other persons that mayhave greater first-hand knowledge of the candidate’s accomplishments. The committee’s evaluationprocess does not vary based on whether or not a candidate is recommended by a stockholder, although,as stated above, the Board may take into consideration the number of shares held by therecommending stockholder and the length of time that such shares have been held.

Executive Sessions of Non-Management Directors

In order to promote discussion among the non-management directors, regularly scheduledexecutive sessions (i.e., meetings of non-management directors without management present) are heldto review such topics as the non-management directors determine. The non-management directors metin executive session six times during fiscal year 2008 and were presided over by the Non-ExecutiveCo-Chairman of the Board of Directors.

Communications with the Board of Directors

The Board has established a process to receive communications from stockholders and otherinterested parties. Stockholders and other interested parties may contact any member (or all members)

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of the Board, any Board committee or any chair of any such committee by mail or electronically. Tocommunicate with the Board of Directors, the non-management directors, any individual directors orcommittee of directors, correspondence should be addressed to the Board of Directors or any suchindividual directors or committee of directors by either name or title. All such correspondence shouldbe sent to Rite Aid Corporation, c/o Secretary, P.O. Box 3165, Harrisburg, Pennsylvania 17105. Tocommunicate with any of the directors electronically, stockholders should go to our website atwww.riteaid.com. Under the headings ‘‘Our Company—Corporate Governance—Contact Our Board’’you will find an on-line form that may be used for writing an electronic message to the Board, thenon-management directors, any individual directors, or any committee of directors. Please follow theinstructions on the web site in order to send your message.

All communications received as set forth above will be opened by the Secretary for the purpose ofdetermining whether the contents represent a message to the directors, and depending on the facts andcircumstances outlined in the communication, will be distributed to the Board, the non-managementdirectors, an individual director, or committee of directors, as appropriate. The Secretary will makesufficient copies of the contents to send to each director who is a member of the Board or of thecommittee to which the envelope or e-mail is addressed.

Directors’ Attendance at Board, Committee and Annual Meetings

The Board of Directors held six regular meetings, one special meeting and on two occasions actedby unanimous written consent during fiscal year 2008. Each incumbent director with the exception ofRobert A. Mariano attended at least 75% of the aggregate of the meetings of the Board of Directorsand meetings held by all committees on which such director served, during the period for which suchdirector served.

It is our policy that directors are invited and encouraged to attend the annual meeting ofstockholders. Ten of our twelve directors attended the 2007 Annual Meeting of Stockholders.

Directors’ Compensation

Except for Robert G. Miller, whose compensation arrangements are discussed in the section belowentitled ‘‘Agreement with Mr. Miller,’’ and except as noted below under the director compensationplan, each non-employee director other than Mr. Sokoloff (who is affiliated with Leonard Green &Partners L.P., an entity that provides services to Rite Aid, as discussed under ‘‘Certain Relationshipsand Related Transactions’’) receives an annual payment of $70,000 effective October 1, 2007 ($50,000prior to that date) in cash, payable quarterly in arrears, except that the annual payment to eachnon-employee director who is a member of the Audit Committee is $80,000 effective October 1, 2007($60,000 prior to that date) and the annual payment to Michel Coutu in his capacity as Non-ExecutiveCo-Chairman is $500,000. In addition, the chair of the Audit Committee receives an additional annualpayment of $10,000 effective October 1, 2007 (a decrease from the $15,000 in effect prior to that date).Each non-employee director who chairs a committee of the Board other than the Audit Committeereceives an additional annual payment of $7,500. Directors who are officers and full-time Rite Aidemployees and Messrs. Sokoloff and Danhakl (who resigned on June 4, 2007) receive no separatecompensation for service as directors or committee members. Directors are reimbursed for travel andlodging expenses associated with attending Board of Directors meetings.

Each person who was first elected or appointed as a director after January 1, 2002 and who iseligible to receive compensation for serving as a director shall, on the date first elected or appointed,receive non-qualified stock options to purchase 100,000 shares of common stock. In addition,non-employee directors other than Messrs. Sokoloff and Danhakl are entitled to annually receivenon-qualified stock options to purchase 50,000 shares of common stock, or beginning with fiscal year2009, 20,000 shares of restricted stock. All of the options received by the directors vest ratably and the

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restrictions applicable to the restricted stock shall lapse over a three-year period beginning on the firstanniversary of the date they were granted. None of such options vests after the non-employee directorceases to be a director, except in the case of a director whose service terminates after he or shereaches age 72, in which case such options will vest immediately upon termination. All of the optionsvest immediately upon a change in control. In accordance with the foregoing, the following number ofoptions to purchase shares of common stock were issued under Rite Aid’s 2006 Omnibus Equity Planto the following directors: on June 27, 2007, Ms. Syms and Messrs. Anderson, Friedman, Golleher,Mariano, Miller and Satre each received options to purchase 50,000 shares, with an exercise price of$6.15 per share; on June 4, 2007, the date of the closing of the Brooks Eckerd Transaction, AndreBelzile, Francois J. Coutu, Michel Coutu and Dennis Wood were appointed and on June 27, 2007,Michael N. Regan was appointed to the Board of Directors and each of them received non-qualifiedstock options to purchase 100,000 shares with an exercise price equal to the market price of theCompany’s common stock as of the close of business on the date of grant.

In fiscal year 2008, Rite Aid’s non-employee directors also received $1,000 (which was increased to$2,000 effective October 1, 2007) for each Board of Directors meeting attended, $1,000 for eachcommittee meeting attended or $1,500 (which was increased to $2,500 effective October 1, 2007) foreach meeting attended at which such non-employee director served as the chairman of a committee,except that Messrs. Sokoloff and Danhakl received no such compensation.

DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2008

The following Director Compensation Table sets forth fees, awards and other compensation paid toor earned by our directors (other than Named Executive Officers) who served during the fiscal yearended March 1, 2008:

Fees Earned Option All Otheror Paid in Awards Compensation

Name Cash($) ($)(4) ($) Total

Joseph B. Anderson, Jr. . . . . . . . . . . . . . . . . 74,000 225,250 — 299,250Andre Belzile . . . . . . . . . . . . . . . . . . . . . . . . 76,500 81,250 — 157,750Francois J. Coutu . . . . . . . . . . . . . . . . . . . . . 42,750 81,250 — 124,000Michel Coutu . . . . . . . . . . . . . . . . . . . . . . . . 293,500 81,250 — 374,750John G. Danhakl(1) . . . . . . . . . . . . . . . . . . . — — — —Michael A. Friedman, MD . . . . . . . . . . . . . . 70,000 210,668 — 280,668Alfred M. Gleason(1) . . . . . . . . . . . . . . . . . . 36,143 — — 36,143George G. Golleher . . . . . . . . . . . . . . . . . . . 77,565 175,334 7,543(3) 260,442Robert A. Mariano . . . . . . . . . . . . . . . . . . . . 69,000 225,250 — 294,250Robert G. Miller . . . . . . . . . . . . . . . . . . . . . 350,000(2) 187,667 986,569(3) 1,524,236Michael N. Regan . . . . . . . . . . . . . . . . . . . . 42,043 81,250 — 123,293Philip G. Satre . . . . . . . . . . . . . . . . . . . . . . . 98,056 238,334 — 336,390Stuart M. Sloan(1) . . . . . . . . . . . . . . . . . . . . 29,588 134,709 — 164,297Jonathan Sokoloff . . . . . . . . . . . . . . . . . . . . — — — —Marcy Syms . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 225,250 — 305,250Dennis Wood . . . . . . . . . . . . . . . . . . . . . . . . 43,750 81,250 — 125,000

(1) Messrs. Danhakl and Gleason resigned from the Board on June 4, 2007 upon completion of theBrooks Eckerd Transaction, and Mr. Sloan resigned from the Board effective June 27, 2007, thedate of the 2007 Annual Meeting.

(2) Represents annual base pay for Mr. Miller, as discussed in the section entitled ‘‘Agreement withMr. Miller.’’

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(3) All Other Compensation for Mr. Golleher consists of $7,543 for personal use of aircraft. All OtherCompensation for Mr. Miller consists of $240,000 contributed by the Company to a supplementalexecutive retirement plan, $30,594 of earnings in excess of 120% of the ‘‘applicable federal rate’’or AFR under said plan, $3,769 in company matching contributions made to the Company’s 401(k)plan, $10,000 for financial planning services, $227,206 for personal use of aircraft and a specialaward of $475,000 upon the closing of the Brooks Eckerd Transaction.

(4) Represents the total expense recorded in fiscal 2008 in accordance with SFAS No. 123R foroutstanding stock option awards. The assumptions used in determining the fair value of theoutstanding options is set forth in Note 15 to our financial statements contained in our AnnualReport on Form 10-K for the year ended March 1, 2008. We recognize expense ratably over thethree-year vesting period.

The number of unexercised options outstanding as of March 1, 2008 for each director is detailed inthe table below. Note that the grant date fair value is included for those options granted to ourdirectors in fiscal 2008. Note also that upon the closing of the Brooks Eckerd Transaction onJune 4, 2007 all then-unexercised options became exercisable.

Number ofSecurities Number of

Underlying SecuritiesUnexercised Underlying

Options Unexercised Grant DateExercise (#) Options (#) Fair Value

Name Grant Date Price($) Exercisable Unexercisable ($)

Joseph B. Anderson, Jr. . . . . . . . . . . 9/21/2005 3.65 100,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

Andre Belzile . . . . . . . . . . . . . . . . . . 6/4/2007 6.55 — 100,000 3.25Francois J. Coutu . . . . . . . . . . . . . . . 6/4/2007 6.55 — 100,000 3.25Michel Coutu . . . . . . . . . . . . . . . . . . 6/4/2007 6.55 — 100,000 3.25Michael A. Friedman, MD . . . . . . . . . 10/7/2004 3.53 100,000 — —

6/23/2005 4.11 50,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

George C. Golleher . . . . . . . . . . . . . . 1/30/2002 2.26 100,000 — —12/11/2002 2.10 50,000 — —

4/7/2004 5.40 50,000 — —6/23/2005 4.11 50,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

Robert A. Mariano . . . . . . . . . . . . . . 9/21/2005 3.65 100,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

Robert G. Miller . . . . . . . . . . . . . . . . 11/20/2000 2.75 4,200,000 — —2/13/2001 4.05 4,500,000 — —6/24/2004 5.38 50,000 — —6/23/2005 4.11 50,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

Michael Regan . . . . . . . . . . . . . . . . . 6/27/2007 6.15 — 100,000 3.25

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Number ofSecurities Number of

Underlying SecuritiesUnexercised Underlying

Options Unexercised Grant DateExercise (#) Options (#) Fair Value

Name Grant Date Price($) Exercisable Unexercisable ($)

Philip G. Satre . . . . . . . . . . . . . . . . . 4/6/2005 3.77 100,000 — —6/23/2005 4.11 50,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

Marcy Syms . . . . . . . . . . . . . . . . . . . . 9/21/2005 3.65 100,000 — —6/21/2006 4.55 50,000 — —6/27/2007 6.15 — 50,000 3.25

Dennis Wood . . . . . . . . . . . . . . . . . . 6/4/2007 6.55 — 100,000 3.25

Agreement with Mr. Miller

Mr. Miller’s April 9, 2003 employment agreement was amended on April 28, 2005, pursuant towhich, effective as of June 23, 2005, Mr. Miller continued serving solely as Chairman of the Board. OnNovember 28, 2006, Rite Aid amended the April 9, 2003 agreement with Mr. Miller pursuant to whichMr. Miller stepped down as Chairman upon the closing of the Brooks Eckerd Transaction andcontinues to serve solely as a director through the date of the 2008 annual meeting, and the partiesagreed that the Brooks Eckerd Transaction would not trigger change in control benefits. An additionalamendment to Mr. Miller’s employment agreement, pursuant to which Mr. Miller will continue to serveas a director until the Company’s 2011 Annual Meeting of Stockholders, will become effective as of,and subject to, his re-election to the Board of Directors at the 2008 annual meeting. Additional termsof this agreement are as follows:

Salary and incentive bonus. Through the date of the 2008 Annual Meeting of Shareholders,Mr. Miller receives annual base pay of $350,000 and is entitled to continued benefits, in their entirety,including participation in Rite Aid’s fringe benefit and perquisite programs and savings plans, andcontinued deferred compensation as provided under the December 5, 1999 employment agreement.However, he is not entitled to participate in any incentive compensation or bonus plans. Beginning onthe date of the 2008 annual meeting and ending on the later of (i) June 30, 2009 and (ii) the one yearanniversary of the 2008 annual meeting (the ‘‘Term’’), Mr. Miller will receive a monthly base salary of$5,000 (pro-rated for any partial month) and will continue to be eligible to participate in certain of theCompany’s fringe benefit and perquisite programs in which he was entitled to participate prior to the2008 annual meeting, and will continue to remain entitled to defer compensation as provided under theDecember 5, 1999 employment agreement. The Term may be extended at the mutual agreement of theparties. If the Term is not extended, Mr. Miller shall be entitled to receive solely the fees which arepaid to our non-employee directors through the end of his service as a director.

Restricted stock and options. During his service as a director, Mr. Miller is eligible to receiveoption and restricted stock awards in accordance with Rite Aid’s policy for members of the Board ofDirectors as in effect from time to time. Mr. Miller’s existing stock options and shares of restrictedstock continue to vest and be fully exercisable for the remainder of their stated terms.

Termination of employment and change in control arrangements. The termination provisions of theApril 9, 2003 employment agreement became effective immediately and remain in effect until theagreement expires. Pursuant to the April 28, 2005 amendment to the April 9, 2003 agreement, ifMr. Miller was not re-elected as Chairman, he could be terminated and receive one year’s base salary(as compared to three years provided under the previous agreements for a termination without cause).Under the November 28, 2006 agreement, Mr. Miller has waived any right he would have pursuant to

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his employment agreement upon his ceasing to serve as Chairman or a change in control triggered bythe Brooks Eckerd Transaction.

Agreement with Michel Coutu

Effective as of June 27, 2007, Michel Coutu was appointed as a director of Rite Aid andnon-executive co-chairman of the Board of Directors for a term of two years following the completionof the Brooks Eckerd Transaction. In this capacity, Mr. Coutu is entitled to receive an annual retainerof $500,000, payable quarterly in arrears. In addition, Mr. Coutu is also entitled to receive certainbenefits and annual equity awards to the same extent as our other directors, as described under thecaption ‘‘Directors’ Compensation,’’ above.

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PROPOSAL NO. 2

RATIFICATION OF THE APPOINTMENT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

The accounting firm of Deloitte & Touche LLP (‘‘Deloitte & Touche’’) has been selected as theindependent registered public accounting firm for the Company for the fiscal year ending February 28,2009. Although the selection of accounting firms does not require ratification, the Board of Directorshas directed that the appointment of Deloitte & Touche be submitted to the stockholders forratification due to the significance of their appointment by the Company. If the stockholders do notratify the appointment of Deloitte & Touche, the Board of Directors will consider the appointment ofanother independent registered public accounting firm. A representative of Deloitte & Touche will bepresent at the Annual Meeting and will have the opportunity to make a statement and will be availableto respond to appropriate questions.

RECOMMENDATION

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ‘‘FOR’’THE RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY’S

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2009

EXECUTIVE OFFICERS

Officers are appointed annually by the Board of Directors and serve at the discretion of the Boardof Directors. Set forth below is information regarding the current executive officers of Rite Aid.

Name Age Position with Rite Aid

Mary F. Sammons(1) . . . . . . 61 Chairman, President and Chief Executive OfficerRobert J. Easley . . . . . . . . . 49 Chief Operating OfficerPierre Legault . . . . . . . . . . 47 Senior Executive Vice President,

Chief Administrative OfficerBrian R. Fiala . . . . . . . . . . 47 Executive Vice President, Store OperationsJerry Mark deBruin . . . . . . 49 Executive Vice President, PharmacyRobert B. Sari . . . . . . . . . . 52 Executive Vice President, General Counsel and SecretaryKevin Twomey . . . . . . . . . . 57 Executive Vice President, Chief Financial OfficerDouglas E. Donley . . . . . . . 45 Senior Vice President, Chief Accounting Officer

(1) Ms. Sammons’ biographical information is provided above in the section identifying the Board ofDirectors.

Robert J. Easley. Mr. Easley was appointed Chief Operating Officer in August 2007. Prior to that,he served as Senior Vice President, Chief Marketing Officer and Head of Pharmacy for H-E-ButtGrocery Company. Mr. Easley joined H-E-Butt Grocery Company in 1991 in an executive developmentprogram working his way up through various store operations and corporate management roles toChief Marketing Officer and Head of Pharmacy.

Pierre Legault. Mr. Legault was appointed Senior Executive Vice President, Chief AdministrativeOffice in June 2007. He was the Executive Vice President of Jean Coutu Group from January 2006 toMarch 2007. Prior to serving as Executive Vice President of Jean Coutu Group, Mr. Legault heldseveral senior positions with Sanofi-Aventis and predecessor companies over a period of 16 years, lastserving in the position of President of the Global Dermatology division in Sanofi-Aventis Group untilDecember 2005. Some of the positions held by Mr. Legault were Senior Vice President and ChiefFinancial Officer for the North American Business of Aventis from 2000 to 2003, Global Senior Vice

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President Finance and Treasury of Hoechst Marion Roussel, Inc. from 1998 to 2000, Vice President andChief Financial Officer/Chief Information Officer, North America Finance, Information Services andAdministration of Marion Merrell Dow, Inc. from 1997 to 1998 and Vice President and Chief FinancialOfficer (Finance, Information Systems and Administration) of Marion Merrell Dow PharmaceuticalCanada from 1990 to 1996. Mr. Legault has served as a Board member and Chairman of the AuditCommittee for Cyclacel Pharmaceuticals, Inc. since 2006.

Brian R. Fiala. Mr. Fiala was appointed Executive Vice President of Store Operations inJune 2007. Prior to joining the Company, Mr. Fiala spent 24 years with Target Corporation, where mostrecently he served as Senior Vice President on the East Coast. Mr. Fiala joined Target in 1983 as amanagement trainee, was promoted into various positions including Store Team Leader, RegionalMerchandise Manager, District Team Leader, and Regional Director. In 1998, Mr. Fiala was namedRegional Vice President for the Northeast and in 2001 was promoted to Senior Vice President ofTarget.

Jerry Mark deBruin. Mr. deBruin was appointed Executive Vice President, Pharmacy inOctober 2005. He had been Senior Vice President, Pharmacy Services from February 2003 to October2005. Prior to that, he served as Vice President, Managed Health Care and Pharmacy atAlbertsons, Inc. from December 1999 to January 2003, when Albertsons, Inc. merged with AmericanStores Company. From 1994 to 1999, Mr. deBruin held several senior positions at American StoresCompany including General Manager and Vice President of RxAmerica, a pharmacy benefitsmanagement company owned by American Stores Company and Long’s Drug Stores Corporation.

Robert B. Sari. Mr. Sari was appointed Executive Vice President, General Counsel and Secretaryin October 2005. He had been Senior Vice President, General Counsel and Secretary from June 2002to October 2005. Mr. Sari served as Senior Vice President, Deputy General Counsel and Secretaryfrom October 2000 until May 2002. From May 2000 to October 2000, he served as Vice President, Lawand Secretary. Mr. Sari served as Associate Counsel from May 1997 to May 2000. Prior to May 1997,Mr. Sari was Vice President, Legal Affairs for Thrifty PayLess, Inc.

Kevin Twomey. Mr. Twomey was appointed Executive Vice President, Chief Financial Officer inOctober 2005. He had been Senior Vice President and Chief Accounting Officer from December 2000to October 2005.

Douglas E. Donley. Mr. Donley was appointed Senior Vice President, Chief Accounting Officer inOctober 2005. He had been Group Vice President, Corporate Controller from 1999 to October 2005.Mr. Donley served as a financial analyst for Rite Aid from 1996 to 1999. He was an internal auditorfor Harsco Corporation from 1994 to 1996. Prior to joining Harsco, he was an auditor for KPMG PeatMarwick. In March 2007, pursuant to a plea agreement, Mr. Donley pled guilty to state misdemeanoroffenses related to driving under the influence. Mr. Donley was fined $2,033, served 72 hoursincarceration, was given six months of supervised parole, had his drivers license suspended for24 months and was required to attend alcohol and driving safety classes. The Company believes thatthese matters do not adversely affect his fitness to serve as an officer.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

Rite Aid Corporation is the third largest retail drugstore chain in the United States based onrevenues and number of stores, operating more than 5,000 stores in 31 states and the District ofColumbia. A primary component of the Company’s human resource strategy is to attract, motivate andretain highly talented individuals at all levels of the organization who are committed to the Company’s

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core values of excellence, integrity and respect for people and have the ability to execute theCompany’s strategic and operational priorities.

Objectives of Executive Compensation

All executive compensation and benefits programs are within the purview of the CompensationCommittee, which bases these programs on the same objectives that guide the Company in establishingall of its compensation programs, outlined below. The Compensation Committee also administers theCompany’s equity incentive compensation plans. In establishing or approving the compensation of ourChief Executive Officer and the other executive officers named in the Summary Compensation Table(the ‘‘Named Executive Officers’’) in any given year, the Compensation Committee is generally guidedby the following objectives:

Compensation should be based on the level of job responsibility, individual performance, andcompany performance, and should foster the long-term focus required for success in the retaildrugstore industry. As associates progress to higher levels in the organization, an increasingproportion of their pay should be linked to company performance and shareholder returns and tolonger-term performance because they are in a position to have greater influence on longer-termresults.

Compensation should reflect the value of the job in the marketplace. To attract and retain ahighly skilled, diverse work force, we must remain competitive with the pay of other employerswho compete with us for talent.

Compensation should reward performance. Our programs should deliver compensation inrelationship to company performance. Where company performance falls short of expectations, theprograms should deliver lower-tier compensation. In addition, the objectives ofpay-for-performance and retention must be balanced. Even in periods of temporary downturns incompany performance, the programs should continue to ensure that successful, high-achievingemployees will remain motivated and committed to the Company to support the stability andfuture needs of the Company.

To be effective, performance-based compensation programs should enable associates to easilyunderstand how their efforts can affect their pay, both directly through individual performanceaccomplishments and indirectly through contributing to the Company’s achievement of its strategicand operational goals.

Compensation and benefit programs should be set across consistent measures and goals at alllevels of the organization. While the programs and individual pay levels will always reflectdifferences in job responsibilities, geographies, and marketplace considerations, the overallstructure of compensation and benefit programs should be broadly similar across the organization.

Compensation and benefit programs should attract associates who are interested in a career atRite Aid.

The Committee’s Processes

The Compensation Committee has established a number of processes to assist it in ensuring thatthe Company’s executive compensation program is achieving its objectives. Among those are:

Assessment of Company performance. The Compensation Committee uses companyperformance measures in two ways. First, in establishing total compensation ranges, theCompensation Committee considers various measures of Company and industry performance,including, but not limited to, comparable store sales growth, Adjusted EBITDA, earnings growth,return on sales, return on average invested capital and assets and total shareholder return. In

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determining relative performance to the Company’s peer group, the Compensation Committeedoes not apply a formula or assign these performance measures relative weights. Instead, it makesa subjective determination after considering such measures collectively. Second, as described inmore detail below, the Compensation Committee has established specific Company targetincentive/award levels and performance measures that determine the size of payouts under theCompany’s two formula-based incentive programs—the cash incentive bonus program and theequity program.

Assessment of individual performance. Individual performance has a strong impact on thecompensation of all employees, including the CEO and the other executive officers. With respectto the CEO, the independent directors meet with the CEO in executive session annually at thebeginning of the year to agree upon the CEO’s performance objectives (both individual andCompany objectives) for the year. At the end of the year, the independent directors meet inexecutive session to conduct a performance review of the CEO based on his or her achievement ofthe agreed-upon objectives, contribution to the Company’s performance, and other leadershipaccomplishments. This evaluation is shared with the CEO and is provided to the CompensationCommittee for its consideration in setting the CEO’s compensation.

For the other Named Executive Officers, the Compensation Committee receives aperformance assessment and compensation recommendation from the CEO and also exercises itsjudgment based on the Board of Director’s interactions with the executive officer. As with theCEO, the performance evaluation of these executives is based on achievement of pre-agreedobjectives by the executive and his or her organization, his or her contribution to the Company’sperformance, and other leadership accomplishments.

Benchmarking. The Compensation Committee benchmarks the Company’s programs with apeer group of retail organizations via external survey and compensation recommendations fromMercer Human Resources Consulting, a qualified, independent compensation consultant thatreports its findings directly to the Compensation Committee. For the Company’s 2008 fiscal year,this peer group consisted of the following companies: BJ’s Wholesale; Costco; CVS/Caremark;Family Dollar Stores; Great Atlantic & Pacific Tea Co.; Home Depot; Longs Drug Store; Lowe’sCompanies; Safeway, Inc.; Target Corp. and Walgreen Co. The Compensation Committeecompares the peer group companies’ executive compensation programs as a whole, and alsocompares the pay of individual executives if the jobs are sufficiently similar to make thecomparison meaningful. The Compensation Committee uses the peer group data primarily toensure that the executive compensation program as a whole is competitive, meaning generallywithin the broad middle range of comparative pay of the peer group companies when theCompany achieves the targeted performance levels.

Total compensation review. The Compensation Committee reviews each executive’s base pay,bonus, equity incentives and retirement benefits annually with the guidance of the CompensationCommittee’s independent consultant. Following the fiscal year 2008 review, the CompensationCommittee determined that these elements of compensation were reasonable in the aggregate.

Components of Executive Compensation for Fiscal Year 2008

For fiscal year 2008, the compensation of executives consisted of four primary components—basesalary, a cash incentive bonus award under the Company’s annual incentive bonus plan, equity grants ofstock options, restricted stock and performance units and a benefits package. In addition, for fiscal year2008, the Company granted special cash and restricted stock awards to certain Named ExecutiveOfficers in connection with the closing of the Brooks Eckerd Transaction. The CompensationCommittee believes that this program balances both the mix of cash and equity compensation, the mixof currently-paid and longer-term compensation, and the security of base benefits in a way that furthers

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the compensation objectives discussed above. Following is a discussion of the CompensationCommittee’s considerations in establishing each of the components for the executive officers.

Base Salary

Base salary is one element of an executive’s annual cash compensation during employment. Thevalue of base salary reflects the employee’s long-term performance, skill set and the market value ofthat skill set. In setting base salaries for fiscal year 2008, the Compensation Committee considered thefollowing factors:

The median of comparable companies. The Compensation Committee generally attempts toprovide base compensation approximating the median of the selected group of peer companieslisted above.

Internal relativity, meaning the relative pay differences for different job levels.

Individual performance. Except for increases associated with promotions or increasedresponsibility, increases in base salary for executives from year to year are generally limited tominimal adjustments to reflect individual performance.

Peer group data specific to the executive’s position, where applicable. As noted above, we usedthe peer group data to test for reasonableness and competitiveness of base salaries, but we alsoexercised subjective judgment in view of our compensation objectives.

Consideration of the mix of overall compensation. Consistent with our compensationobjectives, as executives progress to higher levels in the organization, a greater proportion ofoverall compensation is directly linked to company performance and shareholder returns. Thus, forexample, Ms. Sammons’ overall compensation is more heavily weighted toward incentivecompensation and equity compensation than that of the other executive officers.

In establishing Ms. Sammons’ base salary for fiscal year 2008, the Compensation Committeeapplied the principles described above under ‘‘The Committee’s Processes.’’ In an executive sessionincluding all independent directors, the Compensation Committee assessed Ms. Sammons’ fiscalyear 2007 performance. They considered the Company’s and Ms. Sammons’ accomplishment ofobjectives that had been established at the beginning of the year and its own subjective assessmentof her performance. They noted that under Ms. Sammons’ leadership, in fiscal year 2007 theCompany continued to develop and execute its strategic plan and improve its competitivepositioning. The Company achieved its overall financial goals for fiscal year 2007, consisting ofincreasing revenues, same store sales and Adjusted EBITDA compared to the previous year. Inaddition, the Company entered into definitive agreements to acquire approximately 1,850 Brooksand Eckerd stores and six distribution centers and its new store development program continued toincrease its presence in key strategic markets. In recognition of her continued strong leadership infiscal year 2007, the Compensation Committee set Ms. Sammons’ base salary for fiscal year 2008 at$1,000,000, the same level that it was for fiscal years 2004 through 2007.

The Compensation Committee reviewed similar considerations for each of the other NamedExecutive Officers. The Compensation Committee had increased Mr. Twomey’s annual salary byfour percent in fiscal year 2008 based upon his performance as Chief Financial Officer. TheCompensation Committee increased Mr. deBruin’s annual salary by four percent in fiscal year 2008based upon his performance as Executive Vice President, Pharmacy. The CompensationCommittee increased Mr. Sari’s annual salary by four percent in fiscal year 2008 based upon hisperformance as Executive Vice President, General Counsel and Secretary. The CompensationCommittee approved Mr. Legault’s annual salary upon his appointment as Senior Executive VicePresident, Chief Administrative Officer in June 2007. With regard to Mr. Mastrian (who stepped

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down as Chief Operating Officer and became Special Advisor on Corporate Strategy in August2007), the Compensation Committee considered his performance as Chief Operating Officer andincreased his annual salary by five percent in fiscal year 2008. The Compensation Committeeincreased the annual salary for Mr. Panzer by three percent in fiscal year 2008 in consideration ofhis performance as Chief Marketing Officer. Mr. Panzer resigned in January 2008.

Cash Incentive Bonuses

The Company has established an annual incentive bonus plan in order to incentivize associates tomeet the Company’s Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization andcertain other adjustments) and customer satisfaction targets for fiscal year 2008. Named ExecutiveOfficers, other executive officers and key managers of the Company participate in this cash bonus plan.The bonuses paid for fiscal year 2008 appear in the Summary Compensation Table under the‘‘Non-Equity Incentive Plan Compensation’’ column. Under the program, bonus target amounts,expressed as a percentage of base salary, are established for participants at the beginning of each fiscalyear. Bonus payouts for the year are then determined by the Company’s financial and customersatisfaction results for the year relative to predetermined performance measures. The CompensationCommittee considered the following when establishing the awards for fiscal year 2008:

Bonus targets. Bonus targets as a percentage of base salary for each individual were based onjob responsibilities, internal relativity, and peer group data. Our objective was to set bonus targetssuch that total annual cash compensation was within the broad middle range of peer groupcompanies and a substantial portion of that compensation was linked to company performance.Consistent with our executive compensation policy, individuals with greater job responsibilities hada greater proportion of their total cash compensation tied to company performance through thebonus plan. Thus, the Compensation Committee established the following bonus targets for fiscalyear 2008 (expressed as a percentage of base salary): Ms. Sammons, 200 percent; Messrs. Mastrianand Legault, 110 percent; Mr. Panzer, 100 percent; Messrs. deBruin, Sari and Twomey, 60 percent.

Company performance measures. For all participants in the annual incentive bonus plan,including the Named Executive Officers, the Compensation Committee established fiscal year 2008Company performance measures between the minimum ($966 million) and the maximum($1,122 million) Adjusted EBITDA targets and the minimum (71%) and maximum (80%) ofoverall customer satisfaction survey targets. The measures were determined in April 2007, near thebeginning of the fiscal year. In June 2007, the Compensation Committee approved an amendmentto the incentive bonus plan for fiscal year 2008 to provide for an additional payment equal to 50%of each participant’s target bonus if the Company achieved at least 100% of the Adjusted EBITDAtarget for the 2008 fiscal year and if, inclusive of such results, the Company achieved cost savingsequal to at least $155 million in connection with the Brooks Eckerd Transaction. TheCompensation Committee believes that this mix of performance measures encourages associates tofocus appropriately on improving both operating results and customer service. The measures arealso effective motivators because they are easy to track and clearly understood by associates.Under the plan formula, payouts can range from zero to 200 percent of bonus targets dependingon Company performance. In establishing the performance target for Adjusted EBITDA andcustomer satisfaction, the Compensation Committee considered the expected fiscal year 2008performance of these measures. Although no earnings bonuses were paid in fiscal year 2008, abonus for improvement in customer satisfaction (calculated based upon achievement of 80.5% ofthe customer satisfaction survey targets, which equates to a bonus payout equal to 16.1% of thefiscal year 2008 bonus target), was paid to field management and corporate personnel, includingthe Named Executive Officers.

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Equity Incentive Program

In fiscal year 2008, we employed three forms of equity incentives granted under the Company’sStock Option and Stock Award Plans: stock options, performance awards and restricted stock. For theexecutive officers, stock option grants comprised 50 percent, performance awards comprised 25 percentand restricted stock comprised 25 percent of the total long-term equity incentive level established bythe Compensation Committee. These incentives foster the long-term perspective necessary forcontinued success in our business. They also ensure that our leaders are properly focused onshareholder value. Stock options and restricted stock have traditionally been granted broadly anddeeply within the organization, with approximately 17,000 management, field and store associates nowparticipating in our equity incentive program. In determining the value of grants for executives, theCompensation Committee’s overall objective was to set combined grant values of stock options,restricted stock and performance awards that were competitive within the broad middle range of peercompany long-term incentive grant amounts. The Compensation Committee approves grant values priorto the pre-established grant date. The Compensation Committee’s process for setting grant dates isdiscussed below. Then, on the grant date those values are converted to the equivalent number of sharesbased on the closing price of the Company’s common stock on the date of grant for restricted sharesand performance units, and using the Black-Scholes valuation method for stock options.

Grant timing and price. The Compensation Committee’s procedure for timing of equity grants(performance awards, restricted stock and stock options) provides assurance that grant timing is notbeing manipulated to result in a price that is favorable to associates. The annual equity grant date infiscal year 2008 for all eligible employees, including the Named Executive Officers (more than 17,000associates), was in late June. This date is established by the Compensation Committee well in advanceof the date of grant—typically at the Compensation Committee’s September or December meeting. Thelate-June grant date timing is driven by several considerations:

• It follows the Company’s assessment of prior year goals and objectives, establishment of thecurrent fiscal year’s goals and objectives and assessment of management’s performance, allowingsupervisors to deliver the equity awards close in time to performance appraisals.

• It follows the filing of the financial statements for the prior fiscal year, so that the stock price atthat time can reasonably be expected to fairly represent the market’s collective view of ourthen-current results and prospects.

For fiscal year 2008, the Compensation Committee increased the total grant values as compared tothe prior fiscal year to align with the long-term incentive target levels for each eligible position. Inmaking this determination, the Compensation Committee reviewed available peer group data and foundthat the design of the long-term equity incentive program is reasonably aligned with those of thegeneral retail industry market practice. Grant values for individual executive officers were determinedby individual performance and internal relativity. Consistent with the Company’s compensationphilosophy, executive officers at higher levels received a greater proportion of total pay in the form ofequity incentives.

Equity Incentives—Stock Options

Stock options align associate incentives with the interests of shareholders because options havevalue only if the stock price increases over time. The Company’s ten-year options, granted at themarket price on the date of grant, help focus employees on long-term growth. In addition, options areintended to help retain key associates because they vest over a four-year period, which also helps keepemployees focused on long-term performance. The Company does not reprice options; likewise, if thestock price declines after the grant date, we do not replace options.

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The Compensation Committee considered the following in establishing the fiscal year 2008 optiongrants to executive officers:

Grant size. As noted above under ‘‘Equity Incentive Program,’’ stock option grants comprised50 percent of the total equity grant values (measured in accordance with SFAS No. 123R)established by the Compensation Committee. The total equity grant values were increased fromfiscal year 2007 to target levels.

Equity Incentives—Performance Awards

Performance awards provide the Named Executive Officers and other executives with units,payable in cash or shares of Rite Aid stock if the designated Company performance goals are achieved,aligning interests of executives with those of shareholders and providing an ownership stake in theCompany. The awards, normally granted annually, are structured as a targeted number of units basedon the Company’s achievement of specific Adjusted EBITDA levels over a three year period. TheCompany granted performance awards for fiscal year 2008 to the Named Executive Officers withpossible payouts ranging from zero to 200 percent of the target amount, depending on AdjustedEBITDA as compared to target for fiscal years 2008, 2009 and 2010. No dividends are paid on theawards during the performance period. The awards are paid in cash or in stock, at the Company’selection, at the end of the three year performance period.

The Compensation Committee approved the terms of the fiscal year 2008 performance awards inJune 2007, and took into consideration the following:

Target grant size. As noted above under ‘‘Equity Incentive Program,’’ performance awardswere 25 percent of the total equity grant values (measured in accordance with SFAS No. 123R)established by the Compensation Committee. The Compensation Committee decided to increasegrant values in fiscal year 2008 to target levels as compared to the prior fiscal year.

Company performance measure. As in previous years, the Compensation Committeeestablished the performance measure as Adjusted EBITDA for each fiscal year over a three-yearperiod. The Compensation Committee believes Adjusted EBITDA is an effective motivatorbecause it is closely linked to shareholder value and has the greater ability to be impacted by theexecutives. In setting the target Adjusted EBITDA for fiscal year 2008, the CompensationCommittee considered the expected earnings performance of the Company. Pursuant to theperformance plan adopted on June 23, 2005 and based on the Company’s attainment of 94.8% ofthe combined Adjusted EBITDA target for the 2006, 2007 and 2008 fiscal years, cash performanceawards were made in the 2008 fiscal year to senior management, including the Named ExecutiveOfficers.

Longer-term focus and retention considerations. To enhance the performance awards’incentives for longer-term focus and retention, the awards to Named Executive Officers for fiscalyear 2008 are payable in cash or restricted stock that is subject to forfeiture if the executive leavesthe Company prior to February 2010 or such later date that Adjusted EBITDA performance forthe period is determined, except by reason of death, disability, retirement, or by consent of theCompensation Committee.

Equity Incentives—Restricted Stock

Restricted stock grants are intended to help retain key associates because they generally vest overa three-year period, which also helps keep employees focused on long-term performance. Combinedgrants (restricted stock, performance awards and stock options) provide a better balance for executiveofficers between risk and potential reward as compared to a grant consisting solely of stock options.

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The Compensation Committee considered the following in establishing the fiscal year 2008restricted stock grants to executive officers:

Grant size. As noted above under ‘‘Equity Incentive Program,’’ restricted stock grants were25 percent of the total equity grant values (measured in accordance with SFAS No. 123R)established by the Compensation Committee. The total equity grant values were increased fromfiscal year 2007 to target levels.

Cash and Retention Awards Related to the Brooks Eckerd Transaction

The Compensation Committee granted cash awards to certain corporate personnel, including theNamed Executive Officers in connection with the June 4, 2007 closing of the Brooks EckerdTransaction. The Compensation Committee also granted due diligence retention awards to thoseNamed Executive Officers, 50% of which were payable in cash on the grant date and the other 50% ofwhich were payable in restricted stock, which vests in full on the one year anniversary of the date ofgrant. In granting the awards, the Compensation Committee’s overall objective was to provide cashawards that were currently paid to reward for the tremendous efforts of certain corporate personnel,including Named Executive Officers during the due diligence phase and other activities leading up tothe closing of the Brooks Eckerd Transaction, an important objective of the Company during the fiscalyear, and to provide longer-term equity compensation designed to retain corporate personnel, includingthe Named Executive Officers, to ensure the successful integration and conversion of the BrooksEckerd stores. Ms. Sammons waived the change in control benefits that she was entitled to as a resultof the completion of the Brooks Eckerd transaction as discussed in the section below entitled ‘‘PotenialPayments Upon Termination or Change in Control.’’

Post-Retirement Benefits

Supplemental Executive Retirement Plans. The Company has established retirement plans for itsexecutive officers, including the Named Executive Officers, to provide a predetermined benefit uponretirement. Our CEO and Chairman Ms. Sammons and Mr. Miller, receive benefits under a definedcontribution supplemental retirement plan (the ‘‘SERP’’). Each month, $20,000 is invested for each ofMs. Sammons and Mr. Miller, respectively. Under the SERP, the participants are able to direct theinvestment of the amounts by selecting one or more investment vehicles from a group of deemedinvestments offered pursuant to the plan. These deemed investments are made each month during theterm of the participants’ service with Rite Aid. Each of Ms. Sammons and Mr. Miller is fully vested atall times in their accounts under the SERP.

Messrs. Twomey, deBruin, Sari, Legault, Mastrian and Panzer receive benefits under a definedcontribution supplemental executive retirement plan (‘‘Supplemental Plan’’), which is different from theplan maintained for Ms. Sammons and Mr. Miller noted above. Under the Supplemental Plan, RiteAid credits a specific sum to an individual account established for Messrs. Twomey, deBruin, Sari,Legault, Mastrian and Panzer, and other participating executive officers, on a monthly basis. Theamount credited is equal to 2% of the executive officer’s annual base compensation, up to a maximumof $15,000 per month. The participants are able to select among a choice of earnings indexes, and theiraccounts are credited with earnings which mirror the investment results of such indexes. Annually RiteAid makes investments for all participants in the Supplemental Plan. Participants vest in their accountsat the rate of 20% per year for each full year of participation in the Supplemental Plan at a five-yearrolling rate, provided that the entire account balance for each participant shall vest upon a ‘‘change incontrol’’ of the Company, as defined in the Supplemental Plan, only if such participant is involuntarilyterminated without cause within twelve months of the change in control. Participants will receive theirvested account balance upon the earlier to occur of: (i) their retirement at age 60 or greater, with atleast five years of participation in the Plan; (ii) termination of employment with the Company

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(including due to death or disability); and (iii) a hardship withdrawal pursuant to the terms of theSupplemental Plan.

Other Post-Employment and Change in Control Benefits

On December 5, 1999, Rite Aid entered into an employment agreement with Ms. Sammons, whichwas subsequently amended on May 7, 2001, September 30, 2003 and October 11, 2006. On February 3,2003, Rite Aid entered into an employment agreement with Mr. deBruin; on September 1, 2003, RiteAid entered into an employment agreement with Mr. Twomey; on February 28, 2001, Rite Aid enteredinto an employment agreement with Mr. Sari; on February 2, 2007, Rite Aid entered into anemployment agreement, effective as of June 4, 2007, with Mr. Legault; on November 18, 2000, RiteAid entered into an employment agreement with Mr. Mastrian, which was subsequently amended onOctober 20, 2005 and December 13, 2007; and on June 27, 2001, Rite Aid entered into an employmentagreement with Mr. Panzer. The terms of the employment agreements are described in more detailunder the caption ‘‘Executive Employment Agreements.’’ Under Ms. Sammons’s employmentagreement, any termination of employment by Ms. Sammons within the six month period commencingon the date of a change in control of Rite Aid will be treated as a termination of employment by theExecutive for ‘‘good reason,’’ as defined in the agreement. Additional information regarding theseverance and change in control benefits provided under the employment agreements is describedunder the caption ‘‘Potential Payments Upon Termination or Change in Control.’’

Deductibility Cap on Executive Compensation

The Compensation Committee is aware that Section 162(m) of the Internal Revenue Code of1986, as amended, treats certain elements of executive compensation in excess of $1,000,000 a year asan expense not deductible by the Company for federal income tax purposes. Payments in excess of the$1,000,000 limit will be deductible if they meet the definition of ‘‘performance-based compensation’’ asdefined in Section 162(m). However, certain payments made to the Named Executive Officers will notqualify as performance-based compensation under Section 162(m). The Compensation Committeereserves the right to pay compensation that may be non-deductible to the Company if it determinesthat it would be in the best interests of the Company.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors has reviewed and discussed the foregoingCompensation Discussion and Analysis with management and, based on that review and discussion, theCompensation Committee recommended to the Board of Directors that the Compensation Discussionand Analysis be included in this proxy statement.

George G. Golleher, ChairmanMichael A. Friedman, MDDennis Wood

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SUMMARY COMPENSATION TABLE

The following summary compensation table sets forth the cash and non-cash compensation for thefiscal years ended March 1, 2008 and March 3, 2007, respectively, paid to or earned by (i) our ChiefExecutive Officer, (ii) our Chief Financial Officer and (iii) the other three most highly compensatedexecutive officers of the Company (collectively, the ‘‘Named Executive Officers’’), as well as twoadditional individuals for whom disclosure would have been required under the SEC’s rules but for thefact that the individual was not serving as an executive officer of the Company at the end of our lastcompleted fiscal year. As used herein, the term ‘‘Named Executive Officers’’ means all personsidentified in the Summary Compensation Table.

Change InNon-Equity Nonqualified

Incentive DeferredStock Option Plan Compensation All Other

Name and Fiscal Salary Bonus Awards Awards Compensation Earnings Compensation TotalPrincipal Position Year ($) ($)(1) ($)(2) ($)(3) ($)(4) ($)(5) ($)(6) ($)

Mary F. Sammons . . 2008 1,000,000 1,500,000 1,169,975 674,521 322,000 16,355 565,125(7) 5,247,976(President & CEO) 2007 1,000,000 — 666,569 602,593 1,543,631 6,719 451,454(8) 4,270,966

Kevin Twomey . . . . 2008 454,936 436,578 184,872 128,365 43,978 44,868 152,676(9) 1,446,273(Exec VP & CFO) 2007 437,505 — 109,769 97,288 270,290 — 147,328(10) 1,062,180

Jerry Mark deBruin . 2008 401,403 120,510 1,031,343 121,556 38,804 — 115,959(11) 1,829,575(Exec VP, 2007 386,034 — 261,683 120,661 238,491 46,417 128,372(12) 1,181,658Pharmacy)

Robert B. Sari . . . . 2008 415,694 424,800 167,177 121,121 40,186 — 182,280(13) 1,351,258(Exec VP, GC) —

Pierre Legault . . . . . 2008 504,807 7,500 209,964 300,220 99,619 — 135,357(14) 1,257,467(Exec VP, ChiefAdmin. Officer)

James P. Mastrian . . 2008 813,005 747,563 903,218 2,311,409 144,115 — 344,450(16) 5,263,760(Former Chief 2007 775,000 — 1,158,367(15) 294,038 877,297 122,565 345,959(17) 3,573,226Operating Officer)

Mark C. Panzer . . . . 2008 569,402 315,180 (102,289)(18) 333,132 552,644 — 199,987(19) 1,868,056(Former Sr Exec 2007 611,769 — 369,529 291,345 629,802 69,973 209,138(20) 2,181,556VP, Chief Mark.Officer)

(1) Amounts consist of a special award paid in connection with the Brooks Eckerd Transaction and, for Mr. Legault, a signingbonus paid in connection with his commencement of employment with us in the 2008 fiscal year.

(2) Represents the total expense recorded in the indicated fiscal year in accordance with SFAS No. 123R for outstanding stockawards, including restricted stock awards and performance share awards. For information regarding the assumptions used indetermining the fair value of an award, please refer to Note 15 of the Company’s Annual Report on Form 10-K as filed withthe SEC on April 29, 2008 or April 30, 2007, as applicable.

(3) Represents the total expense recorded in the indicated fiscal year in accordance with SFAS No. 123R for outstanding stockoption awards. For information regarding the assumptions used in determining the fair value of an award, please refer toNote 15 of the Company’s Annual Report on Form 10-K as filed with the SEC on April 29, 2008 or April 30, 2007, asapplicable.

(4) Consists of an annual cash incentive bonus for performance in the applicable fiscal year.

(5) Represents above-market earnings (over 120% of the ‘‘applicable federal rate’’ or ‘‘AFR’’) under the Company’s definedcontribution supplemental executive retirement plans.

(6) With respect to personal use of aircraft as described in these footnotes to the Summary Compensation Table, the Companydetermines the incremental cost of an officer’s aircraft usage by calculating the variable flight-hour cost associated with theparticular aircraft. Variable cost in general includes fuel, landing fees, maintenance costs per flight, per hour and catering.

(7) All Other Compensation for Ms. Sammons for fiscal 2008 includes $9,086 for Company match for 401(k) plan, $240,000 forCompany contributions to a supplemental executive retirement plan, $87,656 of earnings equal to 120% of the AFR of saidplan, $207,733 for personal use of aircraft, $12,000 for car allowance and $8,650 for personal financial services.

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(8) All Other Compensation for Ms. Sammons for fiscal 2007 includes $240,000 for Company contributions to a supplementalexecutive retirement plan, $104,911 of earnings equal to 120% of AFR under said plan, $89,343 for personal use of aircraft,$12,000 car allowance, and $5,200 for personal financial planning services.

(9) All Other Compensation for Mr. Twomey for fiscal 2008 includes $108,562 for Company contributions to a supplementalexecutive retirement plan, $22,172 of earnings equal to 120% of AFR under such plan, $9,781 for Company matchingcontributions to our 401(k) plan, $12,000 for car allowance, and $161 in other employer paid benefits.

(10) All Other Compensation for Mr. Twomey for fiscal 2007 includes $104,550 for Company contributions to a supplementalexecutive retirement plan, $21,900 of earnings equal to or less than 120% of AFR under said plan, $8,878 for Companymatching contributions to our 401(k) plan, and a $12,000 car allowance.

(11) All Other Compensation for Mr. deBruin for fiscal 2008 includes $95,790 for Company contributions to a supplementalexecutive retirement plan, $8,027 for Company matching contributions to our 401(k) plan, a $12,000 car allowance and $142 inother employer paid benefits.

(12) All Other Compensation for Mr. deBruin for fiscal 2007 includes $92,250 for Company contributions to a supplementalexecutive retirement plan, $15,253 of earnings equal to 120% of AFR under said plan, $8,869 for Company matchingcontributions to our 401(k) plan, and a $12,000 car allowance.

(13) All Other Compensation for Mr. Sari for fiscal 2008 includes $99,200 for Company contributions to a supplemental executiveretirement plan, $9,714 for Company matching contributions to our 401(k) plan, $60,734 for personal use of aircraft, a $12,000car allowance, $485 for personal financial planning services and $147 in other employer paid benefits.

(14) All Other Compensation for Mr. Legault for fiscal 2008 includes $120,000 for Company contributions to a supplementalexecutive retirement plan, $4,963 for Company matching contributions to our 401(k) plan, a $7,711 car allowance and $2,683 inother employer paid benefits.

(15) Includes restricted stock awarded to Mr. Mastrian in connection with his promotion to Chief Operating Officer.

(16) All Other Compensation for Mr. Mastrian for fiscal 2008 includes $180,000 for Company contributions to a supplementalexecutive retirement plan, $5,088 for Company matching contributions to our 401(k) plan, $142,097 for personal use of aircraft,$12,000 car allowance, $5,000 for personal financial planning, and $265 for other employer paid benefits.

(17) All Other Compensation for Mr. Mastrian for fiscal 2007 includes $180,000 for Company contributions to a supplementalexecutive retirement plan, $46,352 of earnings equal to 120% of AFR under said plan, $8,800 for Company matchingcontributions to our 401(k) plan, $93,807 for personal use of aircraft, $12,000 car allowance, and $5,000 for personal financialplanning services.

(18) Represents reversal of expense recognized under SFAS No. 123R due to forfeiture of stock awards held by Mr. Panzer upontermination of employment in the fiscal year.

(19) All Other Compensation for Mr. Panzer for fiscal 2008 includes $137,945 for Company contributions to a supplementalexecutive retirement plan, $3,434 for Company matching contributions to our 401(k) plan, $22,714 for personal use of aircraft,$11,000 for car allowance, $24,245 for severance and $649 in other employer paid benefits. Mr. Panzer is receiving severanceunder his employment agreement with the Company based on a termination other than for cause pursuant to the terminationprovisions described under the caption ‘‘Potential Payments Upon Termination or Change in Control,’’ below.

(20) All Other Compensation for Mr. Panzer for fiscal 2007 includes $146,400 for Company contributions to a supplementalexecutive retirement plan, $39,715 of earnings equal to 120% of AFR under said plan, $8,873 for Company matchingcontributions to our 401(k) plan, $2,150 for personal use of aircraft and a $12,000 car allowance.

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GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL 2008

The following table summarizes grants of plan-based awards made to Named Executive Officersduring our fiscal year ended March 1, 2008. Awards under Non-Equity Incentive Plans relate to cashincentive bonuses as discussed in the Compensation Discussion and Analysis under the caption ‘‘CashIncentive Bonuses.’’ Awards under Equity Incentive Plans relate to performance awards that may beearned based on Company performance as further described in Note 2 below. All Other Stock Awardsand All Other Option Awards relate to restricted share grants and stock option grants, respectively.

GrantExercise Date FairEstimated Future Estimated Future or Base Value ofPayouts Under Non-Equity Payouts Under Equity All Other All Other Price of Stock andIncentive Plan Awards(1) Incentive Plan Awards(2) Stock Option Option Option

Grant Threshold Target Max Threshold Target Max Awards Awards Awards AwardsName Date 50% ($) 100% ($) 200% ($) (#) (#) (#) (#)(3) (#)(4) ($) ($)(5)

Mary F. Sammons . . . 6/7/2007 — — — — — — 153,139 — — 999,9986/26/2007 1,000,000 2,000,000 3,000,000 30,890 61,779 123,558 61,779 247,117 6.07 1,178,129

Kevin Twomey . . . . . 6/7/2007 — — — — — — 20,915 — — 136,5756/26/2007 136,578 273,156 409,734 7,969 15,938 31,876 15,938 63,751 6.07 303,934

Jerry Mark deBruin . . 6/7/2007 — — — — — — 18,455 — — 120,5116/26/2007 120,510 241,020 361,530 7,032 14,063 28,126 14,063 56,251 6.07 268,178

Robert B. Sari . . . . . 6/7/2007 — — — — — — 19,112 — — 124,8016/26/2007 124,800 249,600 374,400 7,282 14,563 29,126 14,563 58,254 6.07 277,723

Pierre Legault . . . . . 6/7/2007 — — — — — — 100,000 400,000 6.53 653,0006/26/2007 309,375 618,750 928,125 11,584 23,167 46,334 23,167 92,669 6.07 441,798

James P. Mastrian . . . 6/7/2007 — — — — — — 68,539 — — 447,5606/26/2007 447,563 895,125 1,342,688 16,758 33,515 67,030 33,515 134,061 6.07 639,134

Mark C. Panzer(6) . . 6/7/2007 — — — — — — 48,266 — — 315,1776/26/2007 276,322 552,644 828,966 12,981 25,962 51,924 25,962 103,848 6.07 495,095

(1) Actual awards for fiscal 2008, based on the achievement of 16.1 percent of target were as follows: Ms. Sammons—$322,000,Mr. Mastrian—$144,115, Mr. Twomey—$43,978, Mr. deBruin $38,804, Mr. Sari $40,186 and Mr. Legault—$99,619. Pursuantto Mr. Panzer’s January 2008 severance agreement with the Company, the actual award for fiscal 2008 for Mr. Panzer was$552,644, which is 100% of the achievement of target. See the ‘‘Cash Incentive Bonuses’’ section of the CompensationDiscussion and Analysis, above, for more information regarding the Company’s annual cash incentive plan.

(2) On June 26, 2007, the Named Executive Officers received grants of performance awards in the form of performance-basedstock units that will be earned based upon the achievement of a percentage of a three-year cumulative EBITDA goal.Vesting for the performance units will occur, provided performance targets are met, on February 27, 2010 (the end of theCompany’s fiscal year 2010) or such later date as the EBITDA performance for fiscal years 2008-2010 is determined. Theaward payout will be the equivalent to the cash value of one share of stock for each unit earned.

(3) On June 7, 2007, the Named Executive Officers received a grant of restricted stock, as described in the CompensationDiscussion and Analysis, under the caption ‘‘Cash and Retention Awards Related to the Brooks Eckerd Transaction.’’ Theseawards will vest in full on June 7, 2008. In addition, on June 26, 2007, the Named Executive Officers received an award ofrestricted stock, as described in the Compensation Discussion and Analysis, under the caption ‘‘Equity Incentives—Restricted Stock.’’ One-third of these restricted shares will vest on each of the first three anniversaries of the grant date.

(4) On June 26, 2007, the Named Executive Officers received a grant of stock options, as described in the CompensationDiscussion and Analysis, under the caption ‘‘Equity Incentives—Stock Options.’’ These stock options will vest in equalinstallments on each of the first four anniversaries of the grant date. In addition, on June 7, 2007, Mr. Legault received anaward of stock options in connection with his commencement of employment with us in the 2008 fiscal year. This awardwill vest in equal installments on each of the first four anniversaries of the grant date.

(5) Represents the grant date fair value, measured in accordance with SFAS No. 123R of stock and option awards made infiscal year 2008. Except as noted above, grant date fair values are calculated pursuant to assumptions described in Note 15of the Company’s 2008 Annual Report on Form 10-K filed with the SEC on April 29, 2008. The per share price of ourcommon stock was $6.53 on June 7, 2007 and $6.07 on June 26, 2007, the grant dates of the stock awards and the stockoption awards.

(6) The equity incentive plan awards, other stock awards and other option awards listed for Mr. Panzer were forfeited byMr. Panzer upon his termination of employment.

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EXECUTIVE EMPLOYMENT AGREEMENTS

Rite Aid has entered into employment agreements with each of the Named Executive Officers, thematerial terms of which are described below.

• Ms. Sammons was appointed President and Chief Operating Officer of Rite Aid and wasappointed to Rite Aid’s Board of Directors, and is now Chairman, President and ChiefExecutive Officer;

• Mr. Twomey was appointed Senior Vice President, Chief Accounting Officer and is nowExecutive Vice President, Chief Financial Officer;

• Mr. Sari was appointed Senior Vice President, Deputy General Counsel, Secretary and is nowExecutive Vice President, General Counsel and Secretary;

• Mr. deBruin was appointed Senior Vice President, Pharmacy Services, and is now Executive VicePresident, Pharmacy;

• Mr. Legault was appointed and is Senior Executive Vice President, Chief Administrative Officer;

• Mr. Mastrian was appointed Senior Executive Vice President, Marketing and Logistics, and thenserved as our Chief Operating Officer until he stepped down in August 2007 to become SpecialAdviser on Corporate Strategy; and

• Mr. Panzer was appointed Executive Vice President of Store Operations and then served as ourSenior Executive Vice President, Chief Marketing Officer until he ceased to be employed by usin January 2008.

Term. The term of each executive’s employment agreement commenced on the effective date ofhis or her employment agreement, as set forth in the ‘‘Other Post-Employment and Change in ControlBenefits’’ section of the Compensation Discussion and Analysis, above. Unless terminated earlier, eachemployment agreement, other than in the case of Mr. Mastrian, will terminate on its third anniversaryand in the case of Messrs. Twomey, Legault and Sari’s employment agreements, the agreements willterminate on the second anniversary (such respective period, the ‘‘Initial Term’’). Each agreement willautomatically renew for an additional one year term (the ‘‘Renewal Term’’), unless either the executiveor Rite Aid provides the other with notice of non-renewal at least 180 days prior to the expiration ofthe Initial Term or a Renewal Term, as applicable. Mr. Mastrian’s employment agreement willterminate on February 28, 2009.

Salary and Incentive Bonus. The respective agreements provide each executive with a base salaryand incentive compensation (which may be reviewed periodically for increase by the CompensationCommittee) that includes, with respect to fiscal year 2008:

• Ms. Sammons is entitled to receive an annual base salary of not less than $750,000 (and receivedan annualized base salary of $1,000,000 in fiscal year 2008). If Rite Aid’s performance meetscertain targets in the future, Ms. Sammons may receive an annual bonus that, if awarded, willequal or exceed 200% of her annual base salary then in effect.

• Mr. Twomey is entitled to receive an annual base salary of not less than $317,000 (and receivedan annualized base salary of $455,260 in fiscal year 2008). If Rite Aid’s performance meetscertain targets in the future, Mr. Twomey may receive an annual bonus that, if awarded, willequal or exceed 60% of his annual base salary then in effect.

• Mr. deBruin is entitled to receive an annual base salary of not less than $250,000 (and receivedan annualized base salary of $401,700 in fiscal year 2008). If Rite Aid’s performance meetscertain targets in the future, Mr. deBruin may receive an annual bonus that, if awarded, willequal or exceed 60% of his annual base salary then in effect.

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• Mr. Sari is entitled to an annual base salary of not less than $225,000 (and received anannualized base salary of $416,000 in fiscal year 2008). If Rite Aid’s performance meets certaintargets in the future, Mr. Sari may receive an annual bonus that, if awarded, will equal or exceed60% of his annual base salary then in effect.

• Mr. Legault is entitled to an annual base salary of not less than $750,000 (and received anannualized base salary of $750,000 in fiscal year 2008). If Rite Aid’s performance meets certaintargets in the future, Mr. Legault may receive an annual bonus that, if awarded, will equal orexceed 110% of his annual base salary then in effect.

• Mr. Mastrian was entitled to receive an annual base salary of not less than $575,000 (andreceived an annualized base salary of $813,750 in fiscal year 2008). If Rite Aid’s performancemeets certain targets in the future, Mr. Mastrian may receive an annual bonus that, if awarded,will equal or exceed 110% of his annual base salary then in effect.

• Mr. Panzer was entitled to receive an annual base salary of not less than $375,000 (and receivedan annualized base salary of $630,360 in fiscal year 2008) before his resignation in January 2008.Pursuant to the terms of his employment agreement, Mr. Panzer received an annual incentivebonus in respect of fiscal year 2008 based on actual performance, pro rated for the portion ofthe year worked prior to his termination in January 2008.

Other Benefits. Pursuant to their employment agreements, each of the Named Executive Officersis also entitled to participate in Rite Aid’s welfare benefits, fringe benefit and perquisite programs andsavings plans.

Restrictive Covenants. The employment agreement of each Named Executive Officer prohibits theofficer from competing with Rite Aid during his or her employment period and for a period of twoyears, or with respect to Ms. Sammons, one year, thereafter.

Termination and Change in Control Benefits. The provisions of the employment agreementsrelating to termination of employment are described under the caption ‘‘Potential Payments UponTermination or Change in Control’’ below.

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OUTSTANDING EQUITY AWARDS AT FISCAL 2008 YEAR-END

The following table summarizes the number of securities underlying outstanding equity awards forthe Named Executive Officers as of March 1, 2008:

Option Awards Stock Awards

Number of Number of Market Equity IncentiveNumber of Securities Shares or Value of Equity Incentive Plan Awards:Securities Underlying Units of Shares or Plan Awards: Market or Payout

Underlying Unexercised Stock that Units of # of Unearned Value of SharesUnexercised Options (#) Option Option Have Not Stock That Shares or Units or Units of StockOptions (#) Unexercisable Exercise Expiration Vested Have Not That Have Not That Have Not

Name Exercisable (1)(2) price ($) Date (#)(1)(2) Vested ($)(3) Vested (#)(1) Vested ($)(3)

Mary F. Sammons . . . . . . 1,800,000 — 2.75 12/5/2009 8,759 23,387 73,303 195,7191,050,000 — 2.75 6/29/2010 133,000 355,110 61,779 164,9503,500,000 — 4.05 2/13/2011 16,289 43,492 — —

497,216 — 2.26 1/30/2012 153,139(4) 408,881 — —500,000 — 2.10 12/11/2012 61,779 164,950 — —219,156 73,052 5.38 6/24/2014 — — — —133,501 133,500 4.11 6/23/2015 — — — —69,986 209,957 4.42 6/20/2016 — — — —

— 247,117 6.07 6/26/2017 — — — —Kevin Twomey . . . . . . . . 200,000 — 3.44 1/10/2011 1,178 3,145 17,827 47,598

200,000 — 4.05 2/13/2011 21,197 56,596 15,938 42,55470,000 — 2.26 1/30/2012 3,961 10,576 — —75,000 — 2.10 12/11/2012 20,915(4) 55,843 — —28,294 9,431 5.40 4/7/2014 15,938 42,554 — —17,966 17,965 4.11 6/23/2015 — — — —17,021 51,060 4.42 6/20/2016 — — — —

— 63,751 6.07 6/26/2017 — — — —Jerry Mark deBruin . . . . . 28,575 9,524 5.40 4/7/2014 18,455(4) 49,275 15,730 41,999

20,360 20,358 4.11 6/23/2015 14,063 37,548 14,063 37,54815,018 45,053 4.42 6/20/2016 — — — —

— 56,251 6.07 6/26/2017 — — — —Robert B. Sari . . . . . . . . 5,000 — 32.00 3/2/2008 19,112(4) 51,029 16,290 43,494

10,500 — 5.38 11/10/2009 14,563 38,883 14,563 38,883139,500 — 4.05 2/13/2011 — — — —28,035 9,345 5.40 4/7/2014 — — — —17,966 17,965 4.11 6/23/2015 — — — —15,553 46,657 4.42 6/20/2016 — — — —

— 58,254 6.07 6/26/2017 — — — —Pierre Legault . . . . . . . . — 400,000 6.53 6/7/2017 100,000(4) 267,000 23,167 61,856

— 92,669 6.07 6/26/2017 23,167 61,856 — —James P. Mastrian . . . . . . 150,000 — 38.19 7/6/2008 68,539(4) 182,999 37,873 101,121

150,000 — 24.25 6/4/2009 33,515 89,485 33,515 89,485266,454 — 5.38 11/10/2009 — — — —33,546 — 2.75 1/17/2010 — — — —

300,000 — 2.75 6/29/2010 — — — —1,000,000 — 4.05 2/13/2011 — — — —

168,750 — 2.26 1/30/2012 — — — —300,000 — 2.10 12/11/2012 — — — —126,623 — 5.38 6/24/2014 — — — —119,261 — 4.11 6/23/2015 — — — —144,637 — 4.42 6/20/2016 — — — —

— 134,061 6.07 6/26/2017 — — — —Mark C. Panzer . . . . . . . . 500,000 — 8.56 4/19/2008 — — — —

100,000 — 2.26 4/19/2008 — — — —300,000 — 2.55 4/19/2008 — — — —247,500 — 2.10 4/19/2008 — — — —112,013 — 5.38 4/19/2008 — — — —106,800 — 4.11 4/19/2008 — — — —85,663 — 4.42 4/19/2008 — — — —51,924 — 6.07 4/19/2008 — — — —

(1) Refer to ‘‘Potential Payments Upon Termination or Change in Control,’’ below for circumstances under which the terms of the vesting ofequity awards would be accelerated.

(2) Except as described below, these stock options will generally vest in equal installments on each of the first four anniversaries of the grantdate, based on continued employment. On June 7, 2007, Mr. Legault received an award of stock options in connection with hiscommencement of employment with us in the 2008 fiscal year. This award will generally vest in equal installments on each of the first fouranniversaries of the grant date, based on continued employment. With respect to the restricted stock awards listed, except as noted infootnote (4) below, one-third of the restricted shares will vest on each of the first three anniversaries of the grant date, based on continuedemployment.

(3) Determined with reference to $2.67, the closing price of a share of Rite Aid common stock on the last trading day before March 1, 2008.(4) Represents an award of restricted stock made to the Named Executive Officer on June 7, 2007, as described in the Compensation Discussion

and Analysis, under the caption ‘‘Cash and Retention Awards Related to the Brooks Eckerd Transaction.’’ These awards will vest in full onJune 7, 2008.

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OPTIONS EXERCISES AND STOCK VESTED TABLE FOR FISCAL 2008

The following table summarizes for each Named Executive Officer the stock option exercises andshares vested during fiscal year 2008:

Option Awards Stock Awards

Number of Shares Number of Shares ValueAcquired on Value Realized Acquired on Realized on

Name Exercise (#) on Exercise ($) Vesting (#) Vesting ($)

Mary F. Sammons . . . . . . . . . . 200,000 252,000(1) 92,698 558,708Kevin Twomey . . . . . . . . . . . . — — 14,973 90,162Jerry Mark deBruin . . . . . . . . 43,750 160,763 245,529 1,602,396Robert B. Sari . . . . . . . . . . . . 233,125 886,123 37,045 236,839Pierre Legault . . . . . . . . . . . . — — — —James P. Mastrian . . . . . . . . . . — — 399,288 2,615,336Mark C. Panzer . . . . . . . . . . . 52,500 219,375 35,327 212,963

(1) Ms. Sammons acquired 200,000 shares of Common Stock upon exercise and payment of $2.75 pershare. The $252,000 shown is the difference between the market price on the date of exercise andthe above referenced option exercise price.

NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2008

The following table provides information concerning the non-qualified defined contribution anddeferred compensation of each of the Named Executive Officers in the 2008 fiscal year:

Executive Registrant Aggregate Aggregate AggregateContributions in Contributions in Earnings in Withdrawals/ Balance at Last

Name Last FY ($) Last FY ($) Last FY ($) Distributions ($) FYE ($)(3)

Mary F. Sammons(1) . . . . . 0 240,000 104,010 0 2,421,153Kevin Twomey(2) . . . . . . . . 0 108,562 67,040 0 701,008Jerry Mark deBruin(2) . . . . 0 95,790 (46,259) 0 454,327Robert Sari(2) . . . . . . . . . . 0 99,200 (2,571) 0 642,311Pierre Legault(2) . . . . . . . . 0 120,000 (11,398) 0 108,602James P. Mastrian(2) . . . . . 0 180,000 (117,790) 0 1,173,490Mark C. Panzer(2) . . . . . . . 0 137,945 (149,423) 205,797 692,024

(1) Amounts shown relate to a supplemental executive retirement plan for Ms. Sammons. Please referto the Compensation Discussion and Analysis under the caption ‘‘Post-Retirement Benefits’’ for adescription of the material terms of this plan.

(2) Amounts shown relate to a supplemental executive retirement plan covering the Named ExecutiveOfficers other than Ms. Sammons. Please refer to the Compensation Discussion and Analysisunder the caption ‘‘Post-Retirement Benefits’’ for a description of the material terms of this plan.

(3) Includes contributions to the supplemental executive retirement plans that were previouslydisclosed in prior Summary Compensation Tables for Ms. Sammons of $1,425,000, Mr. Mastrian of$743,200, Mr. Panzer of $636,400, Mr. Twomey of $492,090, Mr. deBruin of $294,650, Mr. Sari of$453,420 and Mr. Legault of $0.

35

Rite Aid established a defined contribution supplemental executive retirement plan for the benefitof Mr. Miller and Ms. Sammons, which is described in Compensation Discussion and Analysis above.Messrs. Mastrian, Panzer, deBruin, Twomey, Sari and Legault receive benefits under a different definedcontribution supplemental executive retirement plan, which is also described in the CompensationDiscussion and Analysis above.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

As discussed above under the caption ‘‘Executive Employment Agreements,’’ the Company hasentered into employment agreements with each of the Named Executive Officers. Upon written notice,the employment agreement of each of the Named Executive Officers is terminable by either Rite Aidor the individual officer seeking termination.

If Ms. Sammons is terminated by Rite Aid without ‘‘cause’’ or if she terminates her employmentfor ‘‘good reason’’ (as such terms are defined in Ms. Sammons’ employment agreement), then:

• Ms. Sammons will be paid an amount equal to three times the sum of the annual base salaryand target bonus; a pro-rated bonus for the fiscal year of termination (determined withreference to the maximum amount payable for such year); and any accrued but unpaid salaryand bonus;

• Ms. Sammons will be paid the deferred compensation amounts that would otherwise have beencredited to her pursuant to the supplemental executive retirement plan (discussed in theCompensation Discussion and Analysis) had she continued employment with Rite Aid throughthe end of the then-remaining employment period and she will continue to receive medicalbenefits (or be reimbursed for the cost of such benefits) for life; and

• All outstanding stock options will immediately vest and be exercisable for the remainder of theirstated terms, the restrictions on outstanding restricted common stock will immediately lapse andany performance or other conditions applicable to any other equity incentive awards will beconsidered to have been satisfied.

If Ms. Sammoms’ employment is terminated as a result of her death or ‘‘disability’’ (as such termis defined in her employment agreement), she (or her estate as the case may be) will be entitled to anamount equal to her pro-rated bonus for the fiscal year of termination (determined with reference tothe maximum amount payable for such year), and continued medical benefits (or reimbursement forthe cost of such benefits) for her life or the life of her spouse, payment of any accrued but unpaidsalary and bonus and full vesting of all outstanding stock options and restricted stock.

Upon termination of employment for any reason other than ‘‘cause’’ (as defined in heremployment agreement), Ms. Sammons is entitled to receive an annual payment following terminationand continuing for life (and the life of her spouse) equal to the cost of purchasing medical coveragecomparable to the coverage provided to the Company’s senior executives immediately prior to suchtermination, excepting payments for periods that the Company provides such coverage described above.

Pursuant to their employment agreements with the Company, if any of Messrs. Twomey, deBruin,Sari, Legault, Mastrian or Panzer, is terminated by Rite Aid without ‘‘cause’’ or if such officer’semployment is terminated by the officer for ‘‘good reason’’ (as such terms are defined in the applicableemployment agreement), then the officer will be entitled to receive:

• an amount equal to two times the sum of the annual base salary and target bonus in severance,a pro-rata bonus for the fiscal year of termination for all officers other than Mr. Legault andany accrued but unpaid salary and benefits. The severance amount is payable in installmentsover the two year period following the termination; and

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• all outstanding stock options will immediately vest and be exercisable, generally, for a period of90 days (for the remainder of their stated terms for Mr. Mastrian) following the termination ofemployment and the restrictions on the restricted common stock will immediately lapse to theextent the options would have vested and restrictions would have lapsed had he remainedemployed by Rite Aid for two years following the termination.

If Rite Aid terminates any of the Named Executive Officers for ‘‘cause,’’ or if any of the NamedExecutive Officers terminates his or her employment without ‘‘good reason’’ (with the exception ofMs. Sammons, whose termination provision is described above):

• Rite Aid shall pay the officer all accrued but unpaid salary and benefits;

• any portion of any then-outstanding stock option grant that was not exercised prior to the dateof termination shall immediately terminate; and

• any portion of any restricted stock award, or other equity incentive award, as to which therestrictions have not lapsed or as to which any other conditions were not satisfied prior to thedate of termination shall be forfeited.

If the employment of any of the Named Executive Officers is terminated as a result of death ordisability (other than Ms. Sammons, whose benefits upon such a termination are described above), theofficer will be entitled to receive all accrued but unpaid salary and benefits payable under death ordisability benefit plans in which the officer participates, continued health insurance for two years (forlife for Mr. Mastrian and his spouse) and vesting of an amount of stock options and restricted stock aswould have vested had the officer remained employed for two years following the date of termination,except that Mr. Mastrian’s stock options remain exercisable for the remainder of their stated term.

Upon Mr. Panzer’s ceasing to be employed by the Company in January 2008, he became entitledto receive a total of $2,521,440 in severance under his employment agreement with us, based on thetriggering event of a termination by the Company without cause. As of March 1, 2008, the end of ourlast completed fiscal year, Mr. Panzer had received $24,245 of this amount, as shown in the ‘‘All OtherCompensation’’ column of the Summary Compensation Table. The remainder of this severance amountwill be paid to Mr. Panzer in substantially equal bi-weekly installments, subject to his compliance withrestrictive covenants. Because Mr. Panzer was not employed by us as of the end of fiscal year 2008, notable quantifying the potential payments that would have been made based on a termination ofemployment on the last day of fiscal year 2008 is provided.

Upon the termination of employment of any of the Named Executive Officers, the officer wouldgenerally become entitled to receive a distribution of his or her vested account balance under thenonqualified deferred compensation plans maintained by the Company. Pursuant to applicable taxregulations, any such distributions will generally be delayed for a period of six months following theNamed Executive Officer’s separation from service. The account balance of each Named ExecutiveOfficer is shown in the Nonqualified Deferred Compensation for Fiscal 2008 table, above.

Change in Control Arrangements. Under Ms. Sammons’ December 5, 1999 employmentagreement, any termination of employment by the executive within the six month period commencingon the date of a ‘‘change in control’’ of Rite Aid will be treated as a termination of employment by theexecutive for ‘‘good reason.’’ On October 11, 2006, Ms. Sammons’ Employment Agreement wasamended to provide that the Brooks Eckerd Transaction would not trigger the change in controlbenefits as quantified in the table below.

Under Mr. deBruin’s employment agreement, upon a ‘‘change in control,’’ all of his stock optionsawarded pursuant to the employment agreement will immediately vest and be exercisable and anyrestrictions on restricted stock will immediately lapse. Under Mr. Legault’s employment agreement,upon a ‘‘change in control,’’ all of his stock options awarded pursuant to the employment agreement

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will immediately vest and be exercisable and any restrictions on restricted stock awarded pursuant tothe employment agreement will immediately lapse. Under Mr. Panzer’s employment agreement, upon a‘‘change in control,’’ all of his stock options awarded pursuant to his employment agreement willimmediately vest and be exercisable. Under Mr. Sari’s employment agreement, upon a ‘‘change incontrol,’’ all of his stock options held as of the date of his employment agreement will immediately vestand be exercisable and any restrictions on restricted stock will immediately lapse. Under Mr. Twomey’semployment agreement, upon a ‘‘change in control,’’ any restrictions on restricted stock grantedpursuant to his employment agreement will immediately lapse.

Each employment agreement provides that the Named Executive Officer will receive an additionalpayment to reimburse the officer for any excise taxes imposed pursuant to Section 4999 of the InternalRevenue Code, together with reimbursement for any additional taxes incurred by reason of suchpayments.

The unvested account balance of the supplemental executive retirement plan in whichMessrs. Mastrian, Panzer, Twomey, deBruin, Sari and Legault participate will vest upon a ‘‘change incontrol’’ of the Company as defined in the supplemental executive retirement plan, only if such NamedExecutive Officer is involuntarily terminated without cause within twelve months of the change incontrol. For more information regarding the supplemental executive retirement plan, refer to theCompensation Discussion and Analysis under the caption ‘‘Post-Retirement Benefits.’’

Mr. Mastrian has no change in control benefits under his employment agreement, as amended.

Quantification

The termination and change in control payments that would have been made to the NamedExecutive Officers had their employment been terminated as of March 1, 2008 under the circumstancesdescribed in the tables below are quantified in the tables below.

VoluntaryTermination

Termination ofby the Employment

Company by theWithout Executive

Cause or by Within Sixthe Executive Months After

Change in for Good Change inMary F. Sammons Death($) Disability($) Control($) Reason($) Control($)

3 � Base Salary . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 3,000,000 3,000,0003 � Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 6,000,000 6,000,000Pro-Rated Bonus for Fiscal Year of Termination 322,000 322,000 N/A 322,000 322,000Continued Health Benefits(a) . . . . . . . . . . . . . . 183,000 183,000 N/A 183,000 183,000SERP Contribution Continuation for 3 Years . . 720,000 720,000 N/A 720,000 720,000Vesting of Options and Restricted Stock(1) . . . . 818,264 818,264 818,264 818,264 818,264280G Gross-up . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0 3,924,000(b) 3,924,000

(a) Refer to the ‘‘Potential Payments Upon Termination or Change in Control’’ section above for adescription of the benefits provided to Ms. Sammons following certain terminations ofemployment.

(b) This payment is shown under the assumption that the termination occurred on or after a change incontrol.

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VoluntaryTermination

Termination ofby the Employment

Company by theWithout Executive

Cause or by Within Sixthe Executive Months After

Change in for Good Change inKevin Twomey Death($) Disability($) Control($) Reason($) Control($)

2 � Base Salary . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 910,520 N/A2 � Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 546,312 N/APro-Rated Bonus for Fiscal Year of Termination . 43,978 43,978 N/A 43,978 N/AContinued Health Benefits . . . . . . . . . . . . . . . . . 23,086 23,086 N/A 23,086 N/ASERP Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . 74,893 74,893 74,893 N/A N/AVesting of Options and Restricted Stock(1) . . . . . 140,415 140,415 0 140,415 N/A280G Gross-up . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0 0 N/A

VoluntaryTermination

Termination ofby the Employment

Company by theWithout Executive

Cause or by Within Sixthe Executive Months After

Change in for Good Change inJerry Mark deBruin Death($) Disability($) Control($) Reason($) Control($)

2 � Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 803,400 N/A2 � Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 482,040 N/APro-Rated Bonus for Fiscal Year of Termination . . 38,804 38,804 N/A 38,804 N/AContinued Health Benefits . . . . . . . . . . . . . . . . . 29,042 29,042 N/A 29,042 N/ASERP Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . 59,286 59,286 59,286 N/A N/AVesting of Options and Restricted Stock(1) . . . . . 86,823 86,823 86,823 86,823 N/A280G Gross-up . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0 0 N/A

VoluntaryTermination

Termination ofby the Employment

Company by theWithout Executive

Cause or by Within Sixthe Executive Months After

Change in for Good Change inRobert Sari Death($) Disability($) Control($) Reason($) Control($)

2 � Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 832,000 N/A2 � Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 499,200 N/APro-Rated Bonus for Fiscal Year of Termination . . 40,186 40,186 N/A 40,186 N/AContinued Health Benefits . . . . . . . . . . . . . . . . . 23,574 23,574 N/A 23,574 N/ASERP Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . 64,299 64,299 64,299 N/A N/AVesting of Options and Restricted Stock(1) . . . . . 89,912 89,912 89,912 89,912 N/A280G Gross-up . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0 0 N/A

39

VoluntaryTermination

Termination ofby the Employment

Company by theWithout Executive

Cause or by Within Sixthe Executive Months After

Change in for Good Change inPierre Legault Death($) Disability($) Control($) Reason($) Control($)

2 � Base Salary . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 1,500,000 N/A2 � Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 1,650,000 N/APro-Rated Bonus for Fiscal Year of

Termination . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A N/AContinued Health Benefits . . . . . . . . . . . . . . . 21,058 21,058 N/A 21,058 N/ASERP Vesting . . . . . . . . . . . . . . . . . . . . . . . . . 107,544 107,544 107,544 N/A N/AVesting of Options and Restricted Stock(1) . . . 328,856 328,856 328,856 328,856 N/A280G Gross-up . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0 0 N/A

VoluntaryTermination

Termination ofby the Employment

Company by theWithout Executive

Cause or by Within Sixthe Executive Months After

Change in for Good Change inJames P. Mastrian Death($) Disability($) Control($) Reason($) Control($)

2 � Base Salary . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 1,627,500 N/A2 � Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A 1,790,250 N/APro-Rated Bonus for Fiscal Year of Termination . 144,115 144,115 N/A 144,115 N/ALife Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,000 156,000 N/A 156,000 N/ASERP Vesting (N/A—Mastrian fully vested) . . . . N/A N/A N/A N/A N/AVesting of Options and Restricted Stock(1) . . . . . 272,484 272,484 N/A 272,484 N/A280G Gross-up . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0 0 N/A

(1) As described above in the ‘‘Potential Payments Upon Termination or Change in Control’’ narrative,upon a change in control (as defined in the employment agreements), the Named ExecutiveOfficers would become fully vested in certain outstanding stock option and restricted stock grantsthat were not yet vested on the date of the change in control. The value of stock options shown isbased on the excess of $2.67, the closing price of a share of Rite Aid common stock on the lasttrading day before March 1, 2008, over the exercise price of such options, multiplied by thenumber of unvested stock options held by the officer. The value of restricted stock shown isdetermined by multiplying the number of shares of restricted stock that would vest as of March 1,2008 and $2.67, the closing price of a share of Rite Aid common stock on the last trading daybefore March 1, 2008.

40

AUDIT COMMITTEE REPORT

The Board of Directors has adopted a written charter of the Audit Committee which furtherdescribes the role of the Audit Committee. The Audit Committee, among other things, appoints andengages our independent registered public accounting firm and oversees our financial reporting andinternal control over financial reporting processes on behalf of the Board. Management has the primaryresponsibility for our financial statements, our accounting principles and our internal control overfinancial reporting. Our independent registered public accounting firm is responsible for auditing ourfinancial statements and expressing an opinion as to their conformity with accounting principlesgenerally accepted in the United States. Our independent registered public accounting firm also isresponsible for expressing an opinion on the effectiveness of our internal control over financialreporting.

In fulfilling its oversight responsibilities, the Audit Committee met eight times during fiscalyear 2008.

During those meetings the Audit Committee:

• Met with our internal auditors and independent registered public accounting firm, with andwithout management present, to discuss the overall scope and plans for their respective audits,the results of their examinations, their evaluations of our internal control over financialreporting and the overall quality of our financial reporting.

• Reviewed and discussed with management and our independent registered public accountingfirm, for their respective purposes, the audited financial statements included in our AnnualReport on Form 10-K for fiscal 2008. The discussions included the quality, not just theacceptability, of the accounting principles, the reasonableness of significant judgments and theclarity of disclosures in the financial statements and the Annual Report on Form 10-K forfiscal 2008.

• Reviewed and updated the Audit Committee charter.

• Reviewed and discussed with our independent registered public accounting firm those mattersrequired to be communicated by the standards of the Public Company Accounting OversightBoard (‘‘PCAOB’’), as well as critical accounting policies and practices, alternative accountingtreatments, and other material written communications between management and ourindependent registered public accounting firm, as required by Rule 2-07 of Regulation S-Xunder the Securities Exchange Act of 1934, as amended.

• Discussed with our independent registered public accounting firm the matters required to bediscussed by PCAOB AU 380 (‘‘Communication with Audit Committees’’) and Statement onAuditing Standards No. 114 (‘‘Communication with Audit Committees’’).

• Discussed with our independent registered public accounting firm matters relating to theirindependence and received the written disclosures and the letter from our independentregistered public accounting firm required by Independence Standards Board Standard No. 1(‘‘Independence Discussions with Audit Committees’’) as adopted by the Public CompanyAccounting Oversight Board in Rule 3600T. The Audit Committee has considered whether thelevel of non-audit related services provided by our independent registered public accounting firmis consistent with maintaining their independence.

• Pre-approved audit, other audit-related and tax services performed by our independentregistered public accounting firm.

In addition to pre-approving the audit, other audit-related and tax services performed by ourindependent registered public accounting firm, the Audit Committee requests fee estimates associated

41

with each proposed service. Providing a fee estimate for a service incorporates appropriate oversightand control of the independent registered public accounting firm relationship. On a quarterly basis, theAudit Committee reviews the status of services and fees incurred year-to-date against pre-approvedservices and fee estimates.

As outlined in the table below, we incurred the following fees, including expenses billed to theCompany for the fiscal years ended March 1, 2008 and March 3, 2007 by our independent registeredpublic accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, andtheir respective affiliates.

Year Ended

March 1, March 3,Description of Fees 2008 2007

(Amounts in millions)

Audit Fees, including audit of annual financial statements and reviews ofinterim financial statements, registration statement filings and comfortletters related to various refinancing activities . . . . . . . . . . . . . . . . . . . $3.9 $2.6

Audit-Related Fees:Acquisition due diligence fees and audits of employee benefit plans’

financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.8Tax Fees, tax compliance advice and planning . . . . . . . . . . . . . . . . . . . . 0.3 0.1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.4 $3.5

In reliance on the meetings and discussions referred to above, the Audit Committee recommendedto the Board of Directors (and the Board has approved) that the audited financial statements beincluded in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008 for filing withthe SEC.

Philip G. Satre, ChairmanAndre BelzileRobert A. MarianoMichael N. ReganMarcy Syms

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of March 1, 2008, with respect to the compensationplans under which our common stock may be issued:

Number ofSecuritiesRemaining

Available forNumber of Weighted- Further

Securities to be Average IssuanceIssued Upon Exercise Under EquityExercise of Price of Compensation

Outstanding Outstanding Plans (ExcludingOptions, Options, SecuritiesWarrants Warrants Reflected in

Plan Category and Rights and Rights Column (a))

(a) (b) (c)

Equity compensation plans approved bystockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 37,928,914 $5.31 38,425,065

Equity compensation plans not approved bystockholders* . . . . . . . . . . . . . . . . . . . . . . . . . 27,310,418 $4.21 1,859,561Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,239,332 40,284,626

* These plans include the Company’s 1999 Stock Option Plan, under which 10,000,000 shares ofcommon stock are authorized for the granting of stock options at the discretion of theCompensation Committee, and the 2001 Stock Option Plan, under which 20,000,000 shares ofcommon stock are authorized for the granting of stock options, also at the discretion of theCompensation Committee. Both plans provide for the Compensation Committee to determine bothwhen and in what manner options may be exercised; however, option terms may not extend formore than 10 years from the applicable date of grant. The plans provide that stock options mayonly be granted with exercise prices that are not less than the fair market value of a share ofcommon stock on the date of grant. In addition to the options issued under the aforementionedplans, approximately 6,163,000 options are outstanding pursuant to option grants made inaccordance with the provisions of individual agreements with certain of our executives. Theseoptions are included in the number of securities to be issued upon exercise of outstanding options,warrants and rights in column (a) above.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires Rite Aid’s executive officers, directors and personswho own more than 10% of Rite Aid common stock to file reports of ownership and changes inownership with the SEC and the NYSE. Such persons are required by SEC regulations to furnish RiteAid with copies of all Section 16(a) forms they file. Based solely on a review of the copies of suchforms furnished to Rite Aid, we have determined that during fiscal year 2008, except for one Form 4 ofMr. Fiala relating to a grant of stock options at the beginning of his employment, no persons subject toSection 16(a) reporting submitted late filings under Section 16(a) of the Exchange Act.

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SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of May 1, 2008, certain information concerning the beneficialshareholdings of (a) each director, (b) each Jean Coutu Group director designee, (c) each of our‘‘named executive officers’’ (as such term is defined in Item 402(a)(3) of Regulation S-K under theExchange Act), (d) each holder of more than five percent of the common stock and (e) all directors,executive officers and Jean Coutu Group director designees as a group (based on 830,490,174 shares ofcommon stock outstanding as of May 1, 2008, plus the number of shares of common stock into whichthe outstanding shares of LGP preferred stock are convertible). Each of the persons named below hassole voting power and sole investment power with respect to the shares set forth opposite his or hername, except as otherwise noted.

Number of CommonBeneficial Owners Shares Beneficially Owned(1) Percentage of Class

Named Executive Officers and Directors:Joseph B. Anderson, Jr. . . . . . . . . . . . . . . . . . . . . . . . . 166,667(2) *Andre Belzile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,334(3) *Francois J. Coutu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,334(4) *Michel Coutu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,334(5) *Jerry Mark deBruin . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,959(6) *Douglas Donley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341,853(7) *Robert Easley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,445(8) *Brian Fiala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,106(9) *Michael A. Friedman, MD . . . . . . . . . . . . . . . . . . . . . . 216,667(10) *George G. Golleher . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,667(11) *Pierre Legault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,335(12) *Robert A. Mariano . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,667(13) *James P. Mastrian . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,233,193(14) *Robert G. Miller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,906,245(15) 1.06%Mark C. Panzer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,020(16) *Michael Regan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,334(17) *Mary F. Sammons . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,439,214(18) 1.13%Robert B. Sari . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,087(19) *Philip G. Satre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,167(20) *Jonathan D. Sokoloff . . . . . . . . . . . . . . . . . . . . . . . . . . 52,243,180(21) 5.92%Marcy Syms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,667(22) *Kevin Twomey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778,924(23) *Dennis Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,334(24) *

All Executive Officers and Directors 77,619,066 8.80%23 persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Number of CommonBeneficial Owners Shares Beneficially Owned(1) Percentage of Class

5% Stockholders:Green Equity Investors III, L.P. . . . . . . . . . . . . . . . . . . . 51,537,744(25) 5.84%(26)

11111 Santa Monica Blvd.Suite 2000Los Angeles, CA 90025

FMR Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,084,376(27) 10.30%82 Devonshire StBoston, MA 02109

Thornburg Investment Management Inc. . . . . . . . . . . . . . 81,244,389(28) 10.22%119 E. Marcy StreetSanta Fe, NM 87501

The Jean Coutu Group (PJC), Inc. . . . . . . . . . . . . . . . . . 251,975,262(29) 30.34%530 Beriault StreetLongueuil, Quebec J4G 1S8

* Percentage less than 1% of class.

(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under Exchange Act,thereby including options exercisable within 60 days of May 1, 2008.

(2) This amount includes 166,667 shares which may be acquired within 60 days by exercising stockoptions.

(3) This amount includes 33,334 shares which may be acquired within 60 days by exercising stockoptions.

(4) This amount includes 33,334 shares which may be acquired within 60 days by exercising stockoptions.

(5) This amount includes 33,334 shares which may be acquired within 60 days by exercising stockoptions.

(6) This amount includes 112,737 shares which may be acquired within 60 days by exercising stockoptions.

(7) This amount includes 295,603 shares which may be acquired within 60 days by exercising stockoptions.

(8) This amount represents 115,445 shares owned by Mr. Easley.

(9) This amount includes 61,553 shares which may be acquired within 60 days by exercising stockoptions.

(10) This amount includes 216,667 shares which may be acquired within 60 days by exercising stockoptions.

(11) This amount includes 316,667 shares which may be acquired within 60 days by exercising stockoptions.

(12) This amount includes 123,168 shares which may be acquired within 60 days by exercising stockoptions.

(13) The amount includes 166,667 shares which may be acquired within 60 days by exercising stockoptions.

(14) This amount includes 2,792,787 shares which may be acquired within 60 days by exercising stockoptions.

(15) This amount includes 8,866,667 shares which may be acquired within 60 days by exercising stockoptions.

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(16) This amount represents 129,020 owned by Mr. Panzer who resigned effective January 19, 2008.

(17) This amount includes 33,334 shares which may be acquired within 60 days by exercising stockoptions.

(18) This amount includes 52,779 shares owned by Ms. Sammon’s spouse and 8,041,427 shares whichmay be acquired within 60 days by exercising stock options.

(19) This amount includes 259,999 shares which may be acquired within 60 days by exercising stockoptions.

(20) This amount represents 12,500 shares owned jointly by Mr. Satre and his spouse and 216,667shares which may be acquired within 60 days by exercising stock options.

(21) This amount includes 705,436 shares owned jointly by Mr. Sokoloff and his spouse and 51,537,744shares beneficially owned by Green Equity Investors III, L.P., which is affiliated with LeonardGreen & Partners, L.P., of which Mr. Sokoloff is an executive officer and equity owner.

(22) This amount includes 166,667 shares which may be acquired within 60 days by exercising stockoptions.

(23) This amount includes 659,653 shares which may be acquired within 60 days by exercising stockoptions.

(24) This amount includes 33,334 shares which may be acquired within 60 days by exercising stockoptions.

(25) Green Equity Investors III, L.P. beneficially owns 51,537,744 shares of common stock.

(26) Based upon the number of shares outstanding (830,490,174) as of May 1, 2008.

(27) Based solely on a Schedule 13G/A filed with the SEC on February 14, 2008, which indicates thatas of December 31, 2007, these shares are beneficially owned by FMR Corp. (‘‘FMR’’) and variousFMR subsidiaries and related persons and entities, including Fidelity Management & ResearchCompany, which is a wholly-owned subsidiary of FMR and an investment adviser, Edward C.Johnson III, Chairman of FMR, and other entities. The Schedule 13G/A reports sole power tovote or direct the voting of 21,536,200 shares and sole power to dispose or direct the disposition of82,084,376 shares.

(28) Based solely on a Schedule 13G/A filed with the SEC on April 14, 2008, which indicates that as ofMarch 31, 2008, these shares are beneficially owned by Thornburg Investment Management, Inc.The Schedule 13G/A reports sole power to vote or direct the voting of 81,244,389 shares and solepower to dispose or direct the disposition of 81,244,389 shares.

(29) Based upon shares acquired on June 4, 2007 in connection with the closing of the stock purchaseagreement and shares acquired on October 5, 2007 pursuant to Section 1.4 of the stockholderagreement.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Review and Approval of Related Person Transactions

We have adopted a written policy concerning the review, approval or ratification of transactionswith related persons. The Nominating and Governance Committee is responsible for review, approvalor ratification of ‘‘related person transactions’’ between the Company or its subsidiaries and relatedpersons. Under SEC rules, a related person is, or anytime since the beginning of the last fiscal yearwas, a director, officer, nominee for director, an immediate family member (as defined underapplicable SEC rules) of such persons, or a 5% stockholder of the Company. A related persontransaction is any transaction or series of transactions in which the Company or a subsidiary is aparticipant, the amount involved exceeds $120,000, and a related person has a direct or indirectmaterial interest.

Directors, executive officers and nominees must complete an annual questionnaire and disclose allpotential related person transactions involving themselves and their immediate family members that areknown to them. Throughout the year, directors and executive officers must notify the CorporateSecretary and Chief Accounting Officer of any potential Related Person Transactions as soon as theybecome aware of any such transaction. The Corporate Secretary and Chief Accounting Officer informthe Nominating and Governance Committee of any related person transaction of which they are aware.The Corporate Secretary and Chief Accounting Officer are responsible for conducting a preliminaryanalysis and review of potential related person transactions and presentation to the Nominating andGovernance Committee for review including provision of additional information to enable properconsideration by the Committee. As necessary, the Nominating and Governance Committee shallreview approved Related Person Transactions on a periodic basis throughout the duration of thetransaction to ensure that the transactions remains in the best interests of the Company. TheNominating and Governance Committee may, in its discretion, engage outside counsel to review certainrelated person transactions. In addition, the Nominating and Governance Committee may request thatthe full Board of Directors consider the approval or ratification of related person transactions if itdeems advisable. A copy of our full policy concerning transactions with related persons is available onthe Corporate Governance section of our website at www.riteaid.com.

Relationship with Leonard Green & Partners L.P.

Rite Aid has entered into a one-year agreement with Leonard Green & Partners L.P., or LeonardGreen, effective January 1, 2006, whereby Rite Aid has agreed to pay Leonard Green a fee of $300,000per year (reduced to $150,000 per year on June 4, 2007 when Mr. Danhakl ceased to be a director onthe Company’s Board of Directors) for its consulting services. The consulting agreement was extendedeffective January 1, 2007 on a month-to-month basis, which also provides for the reimbursement ofout-of-pocket expenses incurred by Leonard Green. This agreement is an extension of Rite Aid’sexisting consulting agreement with Leonard Green. Pursuant to the consulting agreement, Rite Aidmay engage Leonard Green to provide financial advisory and investment banking services in connectionwith major financial transactions that it undertakes in the future. During fiscal year 2008, Rite Aid paidLeonard Green a consulting fee of $162,000. This transaction was reviewed and ratified by our Boardin April 2007 under our related person transactions approval policy described above. Jonathan D.Sokoloff, a director of Rite Aid, is an equity owner of Leonard Green.

Agreements with Jean Coutu Group

In connection with Rite Aid’s acquisition of the Brooks and Eckerd drugstore chains from JeanCoutu Group, Rite Aid and Jean Coutu Group became a party to a series of agreements which aredescribed below.

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Stock Purchase Agreement

Rite Aid entered into a stock purchase agreement with Jean Coutu Group to acquire all of thecapital stock of The Jean Coutu Group (PJC) USA, Inc., or Jean Coutu USA, which was a wholly-owned subsidiary of Jean Coutu Group and the holding company for the Brooks and Eckerd drugstorechains. Pursuant to the stock purchase agreement, certain of the provisions extend beyond the closingof the Brooks Eckerd Transaction.

Working Capital Adjustment. The stock purchase agreement contains a closing working capitaladjustment mechanism designed to ensure that Jean Coutu USA had a specified level of workingcapital upon completion of the transaction. Under the working capital adjustment, in November 2007Jean Coutu Group made a final repayment to Rite Aid of some of the cash consideration since theclosing working capital of Jean Coutu USA was below a specified level.

Non-Competition Covenant. Jean Coutu Group has agreed that for five years after the closing ofthe Brooks Eckerd Transaction it will not (other than as a stockholder of Rite Aid and through itsdesignees on Rite Aid’s Board of Directors) engage in the retail pharmacy business in the UnitedStates or the pharmacy benefits management business in the United States. In a related agreement,Michel Coutu, our Non-Executive Co-Chairman, has agreed that for three years after the closing of theBrooks Eckerd Transaction, he will not (other than as a stockholder of Rite Aid and in his capacity asa Rite Aid director), engage in the retail pharmacy business in the United States or the pharmacybenefits management business in the United States.

Indemnification. The stock purchase agreement provides for indemnification for losses arisingfrom breaches of representations and warranties, breaches of covenants and certain actions relating tothe conduct of the business of Jean Coutu Group (other than Jean Coutu USA). Each party’sindemnification obligation for breaches of representations and warranties is subject to a $35 milliondeductible and each party’s indemnification obligation for breaches of representations and warrantiesand for breaches of covenants is subject to an aggregate cap of $450 million. The deductible and capdo not apply to losses arising from or relating to the conduct of the business of Jean Coutu Group. Noclaim for a breach of a representation and warranty may be brought by either party or included in theaggregate losses for purposes of satisfying the deductible unless it exceeds a minimum threshold of$10,000.

Jean Coutu Group also has agreed to indemnify Rite Aid for losses arising from pre-closing taxesof Jean Coutu USA, any breaches of tax representations and warranties or breaches of tax covenantsand for half of any transfer taxes resulting from the transaction. The deductible and cap do not applyto losses arising from tax matters.

Stockholder Agreement

Concurrently with entering into the stock purchase agreement, Rite Aid, Jean Coutu Group andcertain Coutu family members entered into a stockholder agreement. The stockholder agreementcontains provisions relating to board and board committee composition, corporate governance, stockownership, stock purchase rights, transfer restrictions, voting arrangements and other matters.

Board and Board Committee Representation. The stockholder agreement provides that Jean CoutuGroup initially will have the right to designate four members of Rite Aid’s Board of Directors.Thereafter, Jean Coutu Group will have the right to designate a certain number of director nomineesfor election to our Board, taking into account Jean Coutu Group designees then serving in a class or

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classes of directors whose terms are not yet expiring, subject to Jean Coutu Group’s maintenance ofspecified percentage thresholds of Rite Aid total voting power.

Percentage of Total Voting Power Number of Directors/Director Nominees

25% and above 417.9% - 24.9% 310.7% - 17.8% 2

5% - 10.6% 1

For so long as Jean Coutu Group is entitled to designate at least two directors and subject toNYSE independence requirements for directors, Jean Coutu Group will have the right to designate oneof its designees to each of the Audit, Compensation and Nominating and Governance Committees ofthe Rite Aid Board. In the event that only one of Jean Coutu Group’s designees qualifies as anindependent director of Rite Aid, that designee will be appointed to one of the three committees andother Jean Coutu Group designees will be provided ‘‘observer status’’ to attend committee meetings(subject to the committees meeting in executive session) of the other two committees.

Voting Arrangements. The stockholder agreement provides that for a period of five years after theclosing of the Brooks Eckerd Transaction, Jean Coutu Group agrees to vote its shares for each RiteAid director nominee recommended by the Board. Thereafter, Jean Coutu Group will vote its sharesfor each Rite Aid director nominee it designated and, in its discretion, either for each other Rite Aiddirector nominee recommended by the Board or for each other Rite Aid director nomineerecommended by the Board and for nominees recommended by other persons in the same proportionas votes cast by all other Rite Aid stockholders for those nominees.

Right to Purchase Securities. For so long as Jean Coutu Group owns at least 20% of the total RiteAid voting power, Jean Coutu Group will have the right to purchase securities in future issuances ofRite Aid voting securities (other than in certain types of issuances described below) to permit JeanCoutu Group to maintain the same percentage of total voting power it held prior to the issuance.These purchase rights will not apply to issuances of Rite Aid stock in connection with conversions ofconvertible preferred stock, equity compensation plan awards, acquisitions by Rite Aid, equity-for-debtexchanges and certain other types of issuances. Subject to certain conditions, under circumstances inwhich Jean Coutu Group is not permitted to purchase voting securities in a Rite Aid issuance of votingsecurities, Jean Coutu Group will be permitted to make open market purchases of Rite Aid commonstock in order to maintain the same percentage of total voting power it held prior to the issuance.

Standstill Restrictions. For so long as Jean Coutu Group (or any Coutu family stockholder orgroup of Coutu family stockholders) owns at least 5% of the total voting power of Rite Aid and fornine months thereafter, Jean Coutu Group or such Coutu family stockholders or group of Coutu familystockholders will be subject to restrictions on the acquisition of additional Rite Aid voting securities,other than with Rite Aid’s consent or through the stock purchase rights discussed above, as well asrestrictions on taking certain actions relating to Rite Aid.

Transfer Restrictions. For so long as Jean Coutu Group owns 5% or more of the voting power ofRite Aid’s securities and for nine months thereafter, Rite Aid voting securities owned by Jean CoutuGroup will be subject to restrictions on transfer included in the stockholder agreement, other thantransfers in accordance with Rule 144, in a registered public offering, in connection with a pro ratadividend, spinoff or distribution to Jean Coutu Group stockholders and certain other permittedtransfers.

In addition, subject to the foregoing, Jean Coutu Group may not transfer shares to someone who,as a result of the transfer, would own more than 5% of the outstanding shares of Rite Aid commonstock.

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Supermajority Board Approval. For so long as Jean Coutu Group owns at least 25% of the totalvoting power of Rite Aid, certain matters will require the approval of two-thirds of all of the Rite AidBoard of Directors, including increases in the number of authorized shares, significant issuances of RiteAid equity securities, mergers, reorganizations, consolidations or similar business combinations involvingRite Aid, significant asset sales and certain other actions specified in the stockholder agreement.

Registration Rights Agreement

Concurrently with entering into the stock purchase agreement, Rite Aid, Jean Coutu Group andcertain Coutu family members entered into a registration rights agreement. Pursuant to the registrationrights agreement, subject to certain conditions, Jean Coutu Group has the right, on six occasions, todemand that Rite Aid register shares of Rite Aid common stock held by Jean Coutu Group for resalein an underwritten public offering, provided that the anticipated aggregate offering price would exceed$100 million or the registration is for at least 25% of the Rite Aid common stock held by Jean CoutuGroup. Jean Coutu Group also may request that Rite Aid include those shares in certain registrationstatements that Rite Aid may file in the future in connection with underwritten offerings.

Transition Services Agreement

Effective as of June 4, 2007, Rite Aid and Jean Coutu Group entered into a transition servicesagreement consistent with certain principles set forth in the stock purchase agreement. Pursuant to thetransition services agreement, Jean Coutu Group provided for a period of up to nine months followingthe closing date, subject to up to three, three-month extensions, certain transition services, includinginformation technology, network and support services, to Jean Coutu USA to facilitate the transition ofthe businesses to Rite Aid. The Company has exercised two of the three-month extensions availableunder the transition services agreement.

The transactions with Jean Coutu Group were reviewed by our Board in connection with theclosing of the Brooks Eckerd Transaction and ratified under our related person transactions approvalpolicy described above.

STOCKHOLDER PROPOSALS FORTHE 2009 ANNUAL MEETING OF STOCKHOLDERS

Any stockholder desiring to present a proposal for inclusion in Rite Aid’s proxy statement for the2009 Annual Meeting of Stockholders must deliver the proposal to the Secretary not later thanJanuary 21, 2009. Only those proposals that comply with the requirements of Rule 14a-8 will beincluded in Rite Aid’s proxy statement for the 2009 Annual Meeting.

Stockholders may present proposals that are proper subjects for consideration at an annualmeeting, even if the proposal is not submitted by the deadline for inclusion in the proxy statement. Todo so, the stockholder must comply with the procedures specified in Rite Aid’s by-laws. The by-laws,which are available on Rite Aid’s website at www.riteaid.com under ‘‘Our Company—CorporateGovernance—By-Laws’’ and in print upon request from the Secretary, require all stockholders whointend to make proposals at an annual meeting of stockholders to submit their proposals to theSecretary not fewer than 90 and not more than 120 days before the anniversary date of the previousyear’s annual meeting of stockholders. The by-laws also provide that nominations for director may onlybe made by the Board of Directors (or an authorized Board committee) or by a stockholder of recordentitled to vote who sends notice to the Secretary not fewer than 90 nor more than 120 days before theanniversary date of the previous year’s annual meeting of stockholders. Any nomination by astockholder must comply with the procedures specified in Rite Aid’s by-laws. To be eligible forconsideration at the 2009 Annual Meeting, proposals which have not been submitted by the deadlinefor inclusion in the proxy statement and any nominations for director must be received by the Secretary

50

between February 26, 2009 and March 28, 2009. This advance notice period is intended to allow allstockholders an opportunity to consider all business and nominees expected to be considered at themeeting. All submissions to, or requests from, the Secretary should be made to:

Rite Aid Corporation30 Hunter Lane

Camp Hill, Pennsylvania 17011Attention: Robert B. Sari, Secretary

INCORPORATION BY REFERENCE

In accordance with SEC rules, notwithstanding anything to the contrary set forth in any of ourprevious or future filings under the Securities Act of 1933, as amended, or the Exchange Act, thatmight incorporate this proxy statement or future filings made by Rite Aid under those statutes, theinformation included under the caption ‘‘Compensation Committee Report’’ and those portions of theinformation included under the caption ‘‘Audit Committee Report’’ required by the SEC’s rules to beincluded therein, shall not be deemed to be ‘‘soliciting material’’ or ‘‘filed’’ with the SEC and shall notbe deemed incorporated by reference into any of those prior filings or into any future filings made byRite Aid under those statutes, except to the extent we specifically incorporate these items by reference.

OTHER MATTERS

The Board of Directors knows of no other matters that have been submitted for consideration atthis Annual Meeting. If any other matters come before stockholders at this Annual Meeting, thepersons named on the enclosed proxy intend to vote the shares they represent in accordance with theirbest judgment.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP served as Rite Aid’s independent registered public accounting firm forfiscal year 2008 and Rite Aid’s Audit Committee is in the process of negotiating with Deloitte &Touche LLP the terms of an arrangement to audit the consolidated financial statements of theCompany and its subsidiaries for fiscal year 2009. A representative of Deloitte & Touche LLP isexpected to be present at the Annual Meeting, and the representative will have the opportunity tomake a statement and will be available to respond to appropriate questions.

IMPORTANT NOTICE REGARDING DELIVERYOF STOCKHOLDER DOCUMENTS

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfyproxy material delivery requirements with respect to two or more stockholders sharing the sameaddress by delivering a single proxy statement addressed to those stockholders. This process, which isreferred to as ‘‘householding,’’ potentially provides extra convenience for stockholders and reducesprinting and postage costs for companies.

Rite Aid and some brokers utilize the householding process for proxy materials. In accordancewith a notice sent to certain stockholders who share a single address, only one copy of this proxystatement is being sent to that address, unless we received contrary instructions from any stockholder atthat address. Stockholders who participate in householding will continue to receive separate proxycards. Householding will continue until you are notified otherwise or until one or more stockholders atyour address revokes consent. If you revoke consent, you will be removed from the householdingprogram within 30 days of receipt of the revocation. If you hold your Rite Aid stock in ‘‘street name,’’additional information regarding householding of proxy materials should be forwarded to you by yourbroker.

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However, if you wish to receive a separate copy of this proxy statement, or would like to receiveseparate proxy statements and annual reports of Rite Aid in the future, or if you are receiving multiplecopies of annual reports and proxy statements at an address shared with another stockholder and wouldlike to participate in householding, please notify your broker if your shares are held in a brokerageaccount or us if you hold registered shares. You can notify us by sending a written request to Rite AidCorporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, Attention: Robert B. Sari, Secretary, orby calling the Secretary at (717) 761-2633.

ANNUAL REPORT

A copy of Rite Aid’s Annual Report on Form 10-K for fiscal year 2008 is being mailed togetherwith this proxy statement to all stockholders entitled to notice of and to vote at the Annual Meeting.

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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K� ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934For The Fiscal Year Ended March 1, 2008

OR

� TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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)

Delaware 23-1614034(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)

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

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

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

Title of each class Name of each exchange on which registered

Common Stock, $1.00 par value New York Stock Exchange

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

Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes � No �

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or section 15(d) of theExchange Act. Yes � No �

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes � No �

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes � No �

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of ‘‘Accelerated Filer’’ and ‘‘Large Accelerated Filer’’ in Rule 12b-2 of the Exchange Act.

Large Accelerated � Accelerated Filer � Non-Accelerated Filer � Smaller reporting company �(Do not check if a smaller

reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes � No �

The aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates ofthe registrant based on the closing price at which such stock was sold on the New York Stock Exchange on September 1,2007 was approximately $2,758,478. For purposes of this calculation, executive officers, directors and 5% shareholders aredeemed to be affiliates of the registrant.

As of April 18, 2008 the registrant had outstanding 830,600,823 shares of common stock, par value $1.00 per share.DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant’s annual meeting of stockholders to be held on June 25, 2008 areincorporated by reference into Part III.

TABLE OF CONTENTS

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Cautionary Statement Regarding Forward Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 3PART I

ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 22

PART IIITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . 45ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . 45ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

PART IIIITEM 10. Directors and Executive Officers and Corporate GovernanceITEM 11. Executive CompensationITEM 12. Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder MattersITEM 13. Certain Relationships and Related Transactions and Director IndependenceITEM 14. Principal Accountant Fees and Services

PART IVITEM 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . 49

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, as well as our other public filings or public statements, include forward-lookingstatements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by terms and phrases such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’‘‘estimate,’’ ‘‘expect,’’ ‘‘continue,’’ ‘‘should,’’ ‘‘could,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘project,’’ ‘‘predict,’’ ‘‘will’’ andsimilar 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 suchforward-looking statements include, but are not limited to:

• our high level of indebtedness;

• our ability to make interest and principal payments on our debt and satisfy the other covenantscontained in our senior secured credit facility and other debt agreements;

• our ability to improve the operating performance of our existing stores in accordance with ourlong term strategy;

• our ability to realize the benefits of the acquisition of Brooks Eckerd;

• our ability to hire and retain pharmacists and other store personnel;

• our ability to open or relocate stores according to our real estate development program;

• the efforts of private and public third party payors to reduce prescription drug reimbursementand encourage mail order;

• competitive pricing pressures and continued consolidation of the drugstore industry;

• changes in state or federal legislation or regulations;

• the outcome of lawsuits and governmental investigations;

• general economic conditions and inflation, interest rate movements and access to capital; and,

• other risks and uncertainties described from time to time in our filings with the Securities andExchange Commission (‘‘the SEC’’).

We undertake no obligation to update or revise the forward-looking statements included in thisreport, whether as a result of new information, future events or otherwise, after the date of this report.Our actual results, performance or achievements could differ materially from the results expressed in,or implied by, these forward-looking statements. Such factors are discussed in the sections entitled‘‘Risk Factors’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Overview and Factors Affecting Our Future Prospects’’ included in this annual report onForm 10-K.

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PART I

Item 1. Business

Overview

We are the third largest retail drugstore chain in the United States based on revenues and numberof stores. We operate our drugstores in 31 states across the country and in the District of Columbia. Asof March 1, 2008, we operated 5,059 stores.

In our stores, we sell prescription drugs and a wide assortment of other merchandise, which we call‘‘front-end’’ products. In fiscal 2008, prescription drug sales accounted for 66.7% of our total sales. Webelieve that our pharmacy operations will continue to represent a significant part of our business due tofavorable industry trends, including an aging population, increased life expectancy, the federally fundedprescription drug benefit program (‘‘Medicare Part D’’), the discovery of new and better drug therapiesand our ongoing program of purchasing prescription files from independent pharmacies. We offerapproximately 26,300 front-end products, which accounted for the remaining 33.3% of our total sales infiscal 2008. Front end products include over-the-counter medications, health and beauty aids, personalcare items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonalmerchandise and numerous other everyday and convenience products, as well as photo processing. Weattempt to distinguish our stores from other national chain drugstores, in part, through our privatebrands and our strategic alliance with GNC, a leading retailer of vitamin and mineral supplements. Weoffer approximately 3,000 products under the Rite Aid private brand, which contributed approximately12.9% of our front-end sales in the categories where private brand products were offered in fiscal 2008.

The overall average size of each store in our chain is approximately 12,400 square feet. Theaverage size of our stores is larger in the western United States. As of March 1, 2008, approximately56% of our stores are freestanding; approximately 47% of our stores include a drive-thru pharmacy;approximately 62% include one-hour photo shops; and approximately 29% include a GNC store-within-Rite Aid-store.

Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and ourtelephone number is (717) 761-2633. Our common stock is listed on the New York Stock Exchangeunder the trading symbol of ‘‘RAD’’. We were incorporated in 1968 and are a Delaware corporation.

Acquisition

On June 4, 2007, we acquired of all of the membership interests of JCG (PJC) USA, LLC (‘‘JeanCoutu USA’’), the holding company for the Brooks Eckerd drugstore chain (‘‘Brooks Eckerd’’), fromJean Coutu Group (PJC) Inc. (‘‘Jean Coutu Group’’), pursuant to the terms of the Stock PurchaseAgreement (the ‘‘Agreement’’) dated August 23, 2006. As consideration for the acquisition of JeanCoutu USA (the ‘‘Acquisition’’), we paid $2.3 billion and issued 250 million shares of Rite Aid commonstock. We financed the cash payment via the establishment of a new term loan facility, issuance ofsenior notes and borrowings under our existing revolving credit facility. Our operating results includethe results of the Brooks Eckerd stores from the date of acquisition.

As of March 1, 2008, the Jean Coutu Group owns 251.9 million shares of Rite Aid common stock,which represents approximately 28.6% of the total Rite Aid voting power. We expanded our Board ofDirectors to 14 members, with four of the seats being held by members designated by the Jean CoutuGroup. In connection with the Acquisition, we entered into a Stockholder Agreement (the‘‘Stockholder Agreement’’) with Jean Coutu Group and certain Coutu family members. TheStockholder Agreement contains provisions relating to Jean Coutu Group’s ownership interest in theCompany, board and board committee composition, corporate governance, stock ownership, stockpurchase rights, transfer restrictions, voting arrangements and other matters. We also entered into aRegistration Rights Agreement giving Jean Coutu Group certain rights with respect to the registrationunder the Securities Act of 1933, as amended, of the shares of Rite Aid common stock issued to Jean

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Coutu Group or acquired by Jean Coutu Group pursuant to certain stock purchase rights or openmarket rights under the Stockholder Agreement.

We believe the acquisition of Brooks Eckerd provides several strategic benefits, including thefollowing:

• a significant increase in the footprint and operating scale of our business, with increasedpresence in key strategic markets;

• the creation of the leading drugstore retailer in the Eastern United States, which we believe willallow us to achieve the scale necessary to remain competitive with our major competitors;

• long-term value creation through net reductions in costs and expenses, achievement ofmeaningful synergies, including additional operational efficiencies, greater economies of scaleand revenue enhancements resulting in higher operating cash flow and a decrease in ourleverage ratio;

• better positioning to capture additional growth in a sector where growth is projected; and,

• an opportunity to apply our scaleable infrastructure, including our programs, best practices andmanagement capabilities, across a larger store network, which we believe will improveprofitability through cost savings and sales growth.

Industry Trends

We believe pharmacy sales in the United States will grow between 2% and 3% in 2008 based upona study published by a pharmaceutical market intelligence firm. This anticipated growth is expected tobe driven by greater drug utilization, an aging population caused by the ‘‘baby boom’’ generationentering their sixties, the increasing life expectancy of the American population, the introduction ofnew drugs and the rate of inflation. The growth rate of pharmacy sales in the United States in recentyears has slowed, due to an increased percentage of generic drug sales, new over-the-counter drugs thatreplace prescription drugs, safety concerns for certain drugs and a flattening of growth in the MedicarePart D program.

Generic prescription drugs help lower overall costs for customers and third party payors. Webelieve the utilization of existing generic pharmaceuticals will continue to increase. Further, we believea significant number of new generics are expected to be introduced in the next few years. The grossprofit from a generic drug prescription in the retail drugstore industry is greater than the gross profitfrom a brand drug prescription.

The retail drugstore industry is highly competitive and has been experiencing consolidation. Webelieve that the continued consolidation of the drugstore industry, continued new store openings,increased mail order, increased competition from internet based providers, drug importation andaggressive generic pricing programs at competitors such as Wal-Mart and Kroger will further increasecompetitive pressures in the industry. In addition, sales of generic pharmaceuticals continue to grow asa percentage of total prescription drug sales, which has a dampening effect on sales growth.

The retail drugstore industry relies significantly on third party payors. Third party payors, includingthe Medicare Part D plans and the state sponsored Medicaid agencies, periodically evaluate and attimes change the eligibility requirements to reduce the number of participants or reduce certainreimbursement rates. These evaluations and resulting changes and reductions are expected to continue.When third-party payors, including the Medicare Part D program and state sponsored Medicaidagencies, reduce the number of participants or reduce their reimbursement rates, sales and margins inthe industry could be reduced, and profitability of the industry could be adversely affected. Thesepossible adverse effects can be partially or entirely offset by controlling expenses, dispensing morehigher margin generics or dispensing more prescriptions overall.

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Strategy

Our objectives and goals are to grow our sales, increase our market share and reach a leverageratio that existed prior to the Brooks Eckerd acquisition. Our strategies for achieving our goals andobjectives are to establish a marketing distinctiveness with our customers, improve the productivity ofour existing stores, develop new and relocated stores in our strongest existing markets, leverage our sizeand scale for lower costs and improve our efficiencies and cost control. We believe that improving thesales of existing stores and growing our existing markets is critical to improving our profitability andcash flow. We believe the acquisition of Brooks Eckerd broadens and accelerates the achievement ofour strategic goals and objectives.

The following paragraphs describe in more detail some of the components of our strategies whichwill result in achievement of our goals and objectives:

Complete the Integration of the Brooks Eckerd Stores. The Brooks Eckerd stores and distributioncenters are being integrated in phases. We have completed integrating the six distribution centers andare well on our way to completing systems conversions in all of the acquired stores by the end of May2008. We have also begun the minor remodel phase of the Brooks Eckerd stores, which we expect tocomplete by October 2008.

Develop Stores in Existing Markets Our new store, store relocation and store remodeling programis focused on our strongest existing markets. We expect to make significant investments for the nextseveral years in new stores, store relocations and store remodels because the best return on capital is toinvest in the store base. However, it is equally important that we complete the integration of theBrooks Eckerd stores, which includes the minor remodels described above, as well as maintain abalance between debt and operating cash flows that optimizes the cost of capital and provides reliableaccess to the capital and sale-leaseback markets. As a result, we will take these two factors into accountwhen determining the number of new and relocated stores that we open and the number of stores thatwill be remodeled. We expect that more than 50% of the new stores that we open each year will berelocations. An integral part of the store development program is our new store prototype. At March 1,2008, approximately 270 new or relocated stores have been constructed and opened utilizing thecustomer world prototype. We expect that almost all of the planned new and relocated stores will bethe customer world prototype store.

Grow our Pharmacy Sales and Attract More Customers. We believe that customer service andconvenience are key factors to growing pharmacy sales. To improve customer service, we are focused onour ‘‘With Us, It’s Personal’’ program that is aimed at delivering more personalized service along withtimely delivery to our customers. To help our pharmacists do this, we developed and implemented anautomated customer satisfaction feedback and measurement system. Using the system, we establishimproving customer satisfaction target goals each year and those goals are the basis for a significantportion of incentive compensation for management throughout the company. We also developed andimplemented a pharmacy management and dispensing system. This system, which we call ‘‘Nexgen,’’provides our pharmacists with better tools and information to meet our customers’ needs. In addition,Nexgen provides management with important information about the performance of each pharmacy incritical operating areas that drive customer service. We provide our customers with an easy andconvenient way to order refills over the telephone or the internet using our automatic refill program.To provide better value to our customers we recommend, when appropriate, the utilization of genericdrugs. Generic drugs, which cost our customers significantly less than a branded drug, are also moreprofitable for us. Our generic penetration continues to increase every year, and we are setting our goalseven higher in future years to take advantage of the number of new generics expected to come tomarket.

The Medicare Part D program provides prescription drug coverage to senior citizens, includingthose who previously were not covered by any drug benefit program. We communicate information on

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the Medicare Part D program to senior citizens. We also offer senior citizens newsletters andprescription discounts through our Living More senior loyalty program. We have also expanded ourhome health category to target senior citizens with products like wheelchairs, canes, electric scootersand products that enhance bath safety.

To help grow sales and script count, we acquire pharmacy files from other drug stores and haveinitiatives designed to attract and retain those customers. Other initiatives that we expect to grow ourpharmacy sales include the opening of in-store health clinics such as those in the Los Angeles,California, Sacramento, California and Boise, Idaho areas, the implementation of technology that willenable our pharmacists to better monitor patient prescription compliance and the continuing pilot of amedication therapy management program, a fee for service arrangement, in conjunction with physiciansand the University of Pittsburgh. We believe these initiatives have been effective at growing sales intheir target markets and have scalable, replicable potential for future expansion.

Grow Front-End Sales. We intend to grow front-end sales through continued emphasis on coredrugstore categories, a commitment to health and wellness products to enhance our pharmacy position,a focus on seasonal and cross-merchandising opportunities, a wider selection of products and servicesto our customers, an emphasis on our private brand offerings and effective promotions in our weeklyadvertising circulars. Our focus for expanding our products and services includes several fully integratedhealth condition marketing programs, e.g., diabetes, allergy, vitamins, heart health, skincare, weight andpain management, a continued strengthening of our collaborative relationship with our suppliers, anemphasis on our Rite Aid private brand products, which provide better value for our customers andhigher margins for us, ethnic products in selected markets, expansion of the number of GNC store-within-Rite Aid-store, and state-of-the-art digital technology in our one-hour photo developmentthrough our new partnership with FUJI Film USA, Inc.

Focus on Customers and Associates. Our ‘‘With Us, It’s Personal’’ commitment encouragesassociates to provide customers with a superior customer service experience. We obtain feedback onour customer service performance by utilizing an automated survey system that collects store specificinformation from customers shortly after the point of sale and from independent third party customersurveys. We also have programs in place that are designed to enhance customer satisfaction, anexample of which is the maintenance of a customer support center that centrally receives and processesall customer calls. We continue to improve store-level operating procedures and monitor adherence tothose standards and continue to develop and implement associate training programs such as our ‘‘Take10’’ program to improve customer satisfaction and educate our associates about the products we offer.We have also implemented a customer focused store visit guide that can be used by field managementto assess the quality of customer service provided by specific stores. We have implemented programsthat create compensatory and other incentives for associates to provide customers with excellentservice. We believe that these steps further enable and motivate our associates to deliver superiorcustomer service.

Leverage Size and Reduce Expenses. Our strategy is to leverage our size and either lower expenseor contain expense in order to increase the contribution from the pharmacy and front end sales growthstrategies described earlier with a focus on reduction of expense in non-retail categories. The generalcategories of anticipated cost and expense reduction opportunities are cost of product, corporateadministrative expenses, advertising expenses and other expense reduction opportunities. We budgetand monitor all areas of expense and have also targeted areas of spending for continuous improvement.Our targeted expense areas are subject to analysis of the processes involved, with an emphasis oncollaboration between areas in the company and vendors, utilization of competition between vendorsand consolidation of spending volumes to achieve economies of scale.

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Products and Services

Sales of prescription drugs represented approximately 66.7%, 63.7%, and 63.2% of our total salesin fiscal years 2008, 2007 and 2006, respectively. In fiscal years 2008, 2007 and 2006, prescription drugsales were $16.2 billion, $11.1 billion, and $10.9 billion, respectively. See ‘‘Item 7 Management’sDiscussion and Analysis of Financial Condition and Results of Operations’’ and our consolidatedfinancial statements.

We sell approximately 26,300 different types of non-prescription, or front-end products. The typesand number of front-end products in each store vary, and selections are based on customer needs andpreferences and available space. No single front-end product category contributed significantly to oursales during fiscal 2008, although certain front-end product classes contributed in excess of 10% to oursales. Our principal classes of products in fiscal 2008 were the following:

Percentage ofProduct Class Sales

Prescription drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.7%Over-the-counter medications and personal care . . . . . . . . . . . . . . . . . . 10.3%Health and beauty aids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6%General merchandise and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4%

We offer approximately 3,000 products under the Rite Aid private brand, which contributedapproximately 12.9% of our front-end sales in the categories where private brand products were offeredin fiscal 2008. We intend to continue to increase the number of private brand products.

We have a strategic alliance with GNC under which we have opened 1,486 GNC ‘‘stores-within-Rite Aid-stores’’ at March 1, 2008 and a contractual commitment to open an additional 866stores by December 2014. We have incorporated the GNC store-within-Rite Aid store into our new andrelocated stores and intend to incorporate the GNC store-within-Rite Aid-store concept into theBrooks Eckerd stores where appropriate.

Technology

All of our stores will be integrated, into a common information system, which enables ourcustomers to fill or refill prescriptions in any of our stores throughout the country, reduces chances ofadverse drug interactions, and enables our pharmacists to fill prescriptions more accurately andefficiently. This system can be expanded to accommodate new stores. Our customers may also orderprescription refills over the Internet through www.riteaid.com powered by drugstore.com, or over thephone through our telephonic automated refill systems. As of March 1, 2008 we had installed ScriptProautomated pharmacy dispensing units, which are linked to our pharmacists’ computers and fill and labelprescription drug orders, in 1,328 stores, and we are extending this technology to the Brooks andEckerd stores where appropriate. The efficiency of ScriptPro units allows our pharmacists to spend anincreased amount of time consulting with our customers. Additionally, each of our stores employspoint-of-sale technology that supports sales analysis and recognition of customer trends. This samepoint-of-sale technology facilitates the maintenance of perpetual inventory records which together arethe basis for our automated inventory replenishment process.

Suppliers

We purchase almost all of our generic (non-brand name) pharmaceuticals directly frommanufacturers. During fiscal 2008, we purchased brand pharmaceuticals and some genericpharmaceuticals, which amounted to approximately 93.7% of the dollar volume of our prescriptiondrugs, from a single wholesaler, McKesson Corp (‘‘McKesson’’), under a contract, which runs throughApril 2010. Under the contract, with limited exceptions, we are required to purchase all of our brandedpharmaceutical products from McKesson. If our relationship with McKesson was disrupted, we could

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temporarily have difficulty filling brand drug prescriptions until we executed a replacement wholesaleragreement or developed and implemented self-distribution processes, which could negatively affect ourbusiness.

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-pharmaceuticalmerchandise we carry and that the loss of any one supplier would not have a material effect on ourbusiness.

We sell private brand and co-branded products that generally are supplied by numerouscompetitive sources. The Rite Aid and GNC co-branded PharmAssure vitamin and mineral supplementproducts and the GNC branded vitamin and mineral supplement products that we sell in our stores aredeveloped by GNC, and along with our Rite Aid brand vitamin and mineral supplements, aremanufactured by GNC.

Customers and Third Party Payors

During fiscal 2008, our stores served an average of 2.5 million customers per day. The loss of anyone customer would not have a material adverse impact on our results of operations.

In fiscal 2008, 95.9% of our pharmacy sales were to customers covered by health plan contractswhich typically contract with third party payors (such as insurance companies, prescription benefitmanagement companies, governmental agencies, private employers, health maintenance organizationsor other managed care providers) that agree to pay for all or a portion of a customer’s eligibleprescription purchases and negotiate with us for reduced prescription rates. During fiscal 2008, the topfive third party payors accounted for approximately 36.3% of our total sales, the largest of whichrepresented 11.3% of our total sales. During fiscal 2008, Medicaid related sales were approximately6.3% of our total sales, of which the largest single Medicaid payor was less than 2% of our total sales.During fiscal 2008, approximately 10.2% of our total sales were to customers covered by MedicarePart D.

Competition

The retail drugstore industry is highly competitive. We compete with, among others, retaildrugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores,dollar stores and mail order pharmacies. We compete on the basis of store location and convenientaccess, customer service, product selection and price. We believe continued consolidation of thedrugstore industry, continued new store openings and increased mail order will further increasecompetitive pressures in the industry.

Marketing and Advertising

In fiscal 2008, marketing and advertising expense was $375.0 million, which was spent primarily onweekly circular advertising. We have implemented various programs that are designed to support ourhealth and wellness vision and improve our image with customers by delivering upon our ‘‘With Us, It’sPersonal’’ brand promise. These include health condition marketing platforms focused on specifichealth conditions, increased GNC presence through expanded locations and promotional activity,continuation of our Rite Aid Health and Beauty Expos, and marketing and merchandising strategiesthat capitalize on emerging beauty trends such as men’s grooming, spa products, proprietary cosmeticsand skincare. We continue to implement programs that are specifically directed to our pharmacybusiness. These include promotions that provide incentives for customers that transfer theirprescriptions to us, a card-based loyalty program for senior citizens called ‘‘Living More’’ that providesmeaningful discounts and targeted newsletters and offers, direct marketing programs, comprehensivehealth condition management programs, and other educational materials to help customers with theirhealthcare decisions. We are creating a more inviting store environment for our Hispanic customers

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through tailored product assortments and bi-lingual signing and advertising in stores with largeHispanic customer bases.

Associates

We believe that our relationships with our associates are good. As of March 1, 2008, we hadapproximately 112,800 associates; 12% were pharmacists, 46% were part-time and 23% were unionized.Associate satisfaction is critical to the success of our strategy. We have surveyed our associates toobtain feedback on various employment-related topics, including job satisfaction and theirunderstanding of our core values and mission.

There is a national shortage of pharmacists. We have implemented various associate incentiveplans in order to attract and retain qualified pharmacists, have added a survey to find out how newlyhired pharmacists are doing and have an advisory board made up entirely of associates that arepharmacists. We have also expanded our efforts in recruitment of pharmacists through an increase inthe number of recruiters, a successful pharmacist intern program, improved relations with pharmacyschools and an international recruiting program.

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 marketingour stores and private brand products. We hold licenses to sell beer, wine and liquor, cigarettes andlottery tickets. As part of our strategic alliance with GNC we have a license to operate GNC ‘‘stores-within-Rite Aid-stores’’. We also hold licenses to operate our pharmacies and our distribution facilities.Together, these licenses are material to our operations.

Seasonality

We experience moderate seasonal fluctuations in our results of operations concentrated in the firstand fourth fiscal quarters as the result of the concentration of the cough, cold and flu season and theholidays. We tailor certain front-end merchandise to capitalize on holidays and seasons. We increaseour inventory levels during our third fiscal quarter in anticipation of the seasonal fluctuations describedabove. Our results of operations in the fourth and first fiscal quarters may fluctuate based upon thetiming and severity of the cough, cold and flu season, both of which are unpredictable.

Regulation

Our business is subject to federal, state, and local government laws, regulations and administrativepractices. We must comply with numerous provisions regulating health and safety, equal employmentopportunity, minimum wage and licensing for the sale of drugs, alcoholic beverages, tobacco and otherproducts. In addition we must comply with regulations pertaining to product content, labeling, datingand pricing.

Pursuant to the Omnibus Budget Reconciliation Act of 1990 (‘‘OBRA’’) and comparable stateregulations, our pharmacists are required to offer counseling, without additional charge, to ourcustomers about medication, dosage, delivery systems, common side effects and other informationdeemed significant by the pharmacists and may have a duty to warn customers regarding any potentialadverse effects of a prescription drug if the warning could reduce or negate such effect.

The appropriate state boards of pharmacy must license our pharmacies and pharmacists. Ourpharmacies and distribution centers are also registered with the Federal Drug EnforcementAdministration and are subject to Federal Drug Enforcement Agency regulations relative to ourpharmacy operations, including regulations governing purchasing, storing and dispensing of controlled

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substances. Applicable licensing and registration requirements require our compliance with various statestatutes, rules and/or regulations. If we were to violate any applicable statute, rule or regulation, ourlicenses and registrations could be suspended or revoked and we could be subject to fines or penalties.

In recent years, an increasing number of legislative proposals have been enacted, introduced orproposed in Congress and in some state legislatures that affect or would affect major changes in thehealthcare system, either nationally or at the state level. The legislative initiatives include changes inreimbursement levels, changes in qualified participants, changes in drug safety regulations and e-prescribing. Although we believe we are well positioned to respond to these developments, we cannotpredict the long-term outcome or effect of legislation from these efforts.

Our pharmacy business is subject to patient privacy and other obligations, including corporate,pharmacy and associate responsibility imposed by the Health Insurance Portability and AccountabilityAct. As a covered entity, we are required to implement privacy standards, train our associates on thepermitted uses and disclosures of protected health information, provide a notice of privacy practice toour pharmacy customers and permit pharmacy customers to access and amend their records and receivean accounting of disclosures of protected health information. Failure to properly adhere to theserequirements could result in the imposition of civil as well as criminal penalties.

We are also subject to laws governing our relationship with our associates, including minimumwage requirements, overtime and working conditions. Increases in the federal minimum wage rate,associate benefit costs or other costs related to associates could adversely affect our results ofoperations.

In addition, in connection with the ownership and operations of our stores, distribution centers andother sites, we are subject to laws and regulations relating to the protection of the environment andhealth and safety matters, including those governing the management and disposal of hazardoussubstances and the cleanup of contaminated sites. Violations of or liabilities under these laws andregulations as a result of our current or former operations or historical activities at our sites, such asgasoline service stations and dry cleaners, could result in significant costs.

Corporate Governance and Internet Address

We recognize that good corporate governance is an important means of protecting the interests ofour stockholders, associates, customers, and the community. We have closely monitored andimplemented relevant legislative and regulatory corporate governance reforms, including provisions ofthe Sarbanes-Oxley Act of 2002 (‘‘Sarbanes-Oxley’’), the rules of the SEC interpreting andimplementing Sarbanes-Oxley, and the corporate governance listing standards of the New York StockExchange.

Our corporate governance information and materials, including our Certificate of Incorporation,Bylaws, Corporate Governance Guidelines, the charters of our Audit Committee, CompensationCommittee and Nominating and Governance Committee, our Code of Ethics for the Chief ExecutiveOfficer and Senior Financial Officers, our Code of Ethics and Business Conduct and our RelatedPerson Transaction Policy are posted on the corporate governance section of our website atwww.riteaid.com and are available in print upon request to Rite Aid Corporation, 30 Hunter Lane,Camp Hill, Pennsylvania 17011, Attention: Corporate Secretary. Our Board will regularly reviewcorporate governance developments and modify these materials and practices as warranted.

Our website also provides information on how to contact us and other items of interest toinvestors. We make available on our website, free of charge, our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, assoon as reasonably practicable after we file these reports with, or furnish to, the SEC.

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Item 1A. Risk Factors

Factors Affecting our Future Prospects

Set forth below is a description of certain risk factors which we believe may be relevant to anunderstanding of us and our business. Security holders are cautioned that these and other factors mayaffect future performance and cause actual results to differ from those which may be anticipated. See‘‘Cautionary Statement Regarding Forward-Looking Statements.’’

Risks Related to Our Financial Condition

We are highly leveraged. Our substantial indebtedness could limit cash flow available for ouroperations and could adversely affect our ability to service debt or obtain additional financing ifnecessary.

We had, as of March 1, 2008, $6.0 billion of outstanding indebtedness and stockholders’ equity of$1.7 billion. We also had additional borrowing capacity under our existing $1.75 billion senior securedrevolving credit facility of approximately $716.2 million at that time, net of outstanding letters of creditof $184.8 million. However, lien covenants in several of our secured note indentures limit the amountof additional secured debt that we could have incurred as of March 1, 2008 and thereby limited ouradditional borrowing capacity under our revolver to approximately $441.6 million.

Our debt obligations adversely affect our operations in a number of ways and while we believe wehave adequate sources of liquidity to meet our anticipated requirements for working capital, debtservice and capital expenditures through fiscal year 2009, there can be no assurance that our cash flowfrom operations will be sufficient to service our debt, which may require us to borrow additional fundsfor that purpose, restructure or otherwise refinance our debt or reduce planned capital expenditures.Our earnings were insufficient to cover fixed charges and preferred stock dividends for fiscal 2008,2007, 2006, and 2004 by $340.6 million, $50.8 million, $23.1 million, and $2.6 million, respectively. Ourratio of earnings to fixed charges for fiscal 2005 was 1.15.

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

• limit our ability to obtain additional financing;

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

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

• render us more vulnerable to general adverse economic, regulatory and industry conditions; and

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

Our 6.125% senior notes, of which $150 million aggregate principal amount was outstanding as ofMarch 1, 2008, mature in December 2008. Our ability to meet our cash requirements, including ourdebt service obligations, is dependent upon our ability to substantially improve our operatingperformance, which will be subject to general economic and competitive conditions and to financial,business and other factors, many of which are or may be beyond our control. In addition, some of ourdebt service obligations, including our exisiting credit facility, have interest payments that are subject tovariable interest rates and are therefore dependent upon future interest rate which are beyond ourcontrol. We can not provide assurance that our business will generate sufficient cash flows fromoperations to fund our cash requirements and debt service obligations. If our operating results, cashflow or capital resources prove inadequate, or if interest rates increase significantly, we could facesubstantial liquidity problems and might be required to dispose of material assets or operations to meetour debt and other obligations. If we are unable to service our debt, we could be forced to reduce ordelay planned capital expenditures, sell assets, restructure or refinance our debt or seek additional

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equity capital, and we may be unable to take any of these actions on satisfactory terms or in a timelymanner. Further, any of these actions may not be sufficient to allow us to service our debt obligationsor may have an adverse impact on our business. Our existing debt agreements limit our ability to takecertain of these actions. Our failure to generate sufficient operating cash flow to pay our debts or tosuccessfully undertake any of these actions could have a material adverse effect on us.

Borrowings under our senior secured credit facility and expenses related to the sale of our accountsreceivable under our receivables securitization agreements are based upon variable rates of interest,which could result in higher expense in the event of increases in interest rates.

Approximately $2.1 billion of our outstanding indebtedness as of March 1, 2008 bears interest at arate that varies depending upon the London Interbank Offered Rate (‘‘LIBOR’’). If we borrowadditional amounts under our senior credit facility, the interest rate on those borrowings will also varydepending upon LIBOR. Further, we pay ongoing program fees under our receivables securitizationagreements that are indexed to a commercial paper rate that approximates 1-month LIBOR. If LIBORrises, the interest rates on outstanding debt and related program fees under our receivablessecuritization program will increase. Therefore an increase in LIBOR would increase our interestpayment obligations under these loans, increase our receivables securitization program fee paymentsand have a negative effect on our cash flow and financial condition. We currently do not maintain anyhedging contracts that would limit our exposure to variable rates of interest.

The covenants in our current indebtedness may limit our operating and financial flexibility.

The covenants in the instruments that govern our current indebtedness limit our ability to:

• incur liens and debt;

• pay dividends;

• make redemptions and repurchases of capital stock;

• make loans and investments;

• prepay, redeem or repurchase debt;

• engage in acquisitions, consolidations, assets dispositions, sale-leaseback transactions and affiliatetransactions;

• change our business;

• amend some of our debt and other material agreements;

• issue and sell capital stock of subsidiaries;

• restrict distributions from subsidiaries; and

• grant negative pledges to other creditors.

In addition, if we have less than $100 million of revolver availability under our senior securedcredit facility, we will be subject to a fixed charge coverage ratio maintenance test. If we are unable tomeet the terms of the financial covenants or if we breach any of these covenants, a default could resultunder one or more of these agreements. A default, if not waived by our lenders, could result in theacceleration of our outstanding indebtedness and cause our debt to become immediately due andpayable. If acceleration occurs, we would not be able to repay our debt and it is unlikely that we wouldbe able to borrow sufficient additional funds to refinance such debt. Even if new financing is madeavailable to us, it may not be available on terms acceptable to us. If we obtain modifications of ouragreements, or are required to obtain waivers of defaults, we may incur significant fees and transactioncosts.

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Subject to certain limitations, Jean Coutu Group may sell Rite Aid common stock at any time, whichcould cause our stock price to decrease.

The shares of Rite Aid common stock that the Jean Coutu Group currently holds are restricted,but Jean Coutu Group may sell these shares under certain circumstances, including pursuant to aregistered underwritten public offering under the Securities Act or in accordance with Rule 144 underthe Securities Act. We have entered into a registration rights agreement with Jean Coutu Group, whichwill give Jean Coutu Group the right to require us to register all or a portion of its shares at any time(subject to certain exceptions). The sale of a substantial number of our shares by Jean Coutu Group orour other stockholders within a short period of time could cause our stock price to decrease, make itmore difficult for us to raise funds through future offerings of Rite Aid common stock or acquire otherbusinesses using Rite Aid common stock as consideration.

Risks Related to Our Operations

We need to continue to improve our operations in order to improve our financial condition, but ouroperations will not improve if we cannot continue to effectively implement our business strategy or ifour strategy is negatively affected by general economic conditions.

We have not yet achieved the sales productivity level of our major competitors. We believe thatimproving the sales of existing stores and the acquired Brooks Eckerd stores is important to improvingprofitability and operating cash flow. If we are not successful in implementing our strategy, or if ourstrategy is not effective, we may not be able to improve our operations. In addition, any adverse changein general economic conditions or major industries can adversely affect drug benefit plans and reduceour pharmacy sales. Adverse changes in general economic conditions, such as changes that haverecently occurred, affect consumer buying practices and consequently reduce our sales of front-endproducts, and cause a decrease in our profitability. Failure to continue to improve operations or adecline in major industries or general economic conditions would adversely affect our results ofoperations, financial condition and cash flows and our ability to make principal or interest payments onour debt.

Although we expect that the acquisition of Brooks Eckerd will result in benefits to us, we may notrealize those benefits because of integration difficulties.

Integrating the operations of Brooks Eckerd successfully or otherwise realizing any of theanticipated benefits of the acquisition, including anticipated cost savings and additional revenueopportunities, involve a number of potential challenges. The failure to meet these integrationchallenges could seriously harm our results of operations.

Realizing the benefits of the acquisition will depend in part on the integration of informationtechnology, operations and personnel. These integration activities are complex and time-consuming andwe may encounter unexpected difficulties or incur unexpected costs, including:

• diversion of management attention from ongoing business concerns to integration matters;

• difficulties in integrating the Brooks Eckerd store operations to serve the combined customerbase of Rite Aid and Brooks Eckerd;

• difficulties in combining corporate cultures, maintaining associate morale and retaining keyassociates; and

• challenges in demonstrating to our customers and to customers of Brooks Eckerd that theacquisition will not result in adverse changes in customer service standards or business focus.

During fiscal 2008, we incurred approximately $240 million of integration related capitalexpenditures and approximately $154 million of integration related, non-recurring expenses. We expect

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to spend approximately $430 million of integration-related capital expenditures and to incurapproximately $260 million of integration-related non-recurring expenses during the anticipatedintegration period. If the anticipated benefits are not realized, if anticipated sales levels are notachieved or if the integration-related expenses and capital requirements are greater than anticipated,the accretive effect of the acquisition could be decreased or delayed, which could cause a decline in theprice of our common stock, and our revenue assumptions could be inaccurate.

For so long as Jean Coutu Group (and, subject to certain conditions, certain members of the Coutufamily) maintain certain levels of Rite Aid stock ownership, Jean Coutu Group (and, subject to certainconditions, certain members of the Coutu family) could exercise significant influence over us.

At March 1, 2008 Jean Coutu Group owns approximately 28.6% of the voting power of Rite Aid.As a result, Jean Coutu Group (and, subject to certain conditions, certain members of the Coutufamily) generally has the ability to significantly influence the outcome of any matter submitted for thevote of our stockholders. The stockholder agreement provides that Jean Coutu Group (and, subject tocertain conditions, certain members of the Coutu family) designate four of the fourteen members ofour board of directors, subject to adjustment based on its ownership position in us. Accordingly, JeanCoutu Group generally is able to significantly influence the outcome of all matters that come beforeour board of directors. As a result of its significant interest in us, Jean Coutu Group may have thepower, subject to applicable law (including the fiduciary duties of the directors designated by JeanCoutu Group), to significantly influence actions that might be favorable to Jean Coutu Group, but notnecessarily favorable to our financial condition and results of operations. In addition, the ownershipposition and governance rights of Jean Coutu Group could discourage a third party from proposing achange of control or other strategic transaction concerning us.

Conflicts of interest may arise between us and Jean Coutu Group, which may be resolved in a mannerthat adversely affects our business, financial condition or results of operations.

Following the acquisition, Jean Coutu Group has continued its Canadian operations but no longerhas any operations in the United States; we currently have no operations in Canada. Despite the lackof geographic overlap after the acquisition, conflicts of interest may arise between us and Jean CoutuGroup in areas relating to past, ongoing and future relationships, including corporate opportunities,potential acquisitions or financing transactions, sales or other dispositions by Jean Coutu Group of itsinterests in us and the exercise by Jean Coutu Group of its influence over our management and affairs.

As a result of the acquisition, a number of the directors on our board of directors are persons whoare also officers or directors of Jean Coutu Group or its subsidiaries. Service as a director or officer ofboth Rite Aid and Jean Coutu Group or its other subsidiaries could create conflicts of interest if suchdirectors or officers are faced with decisions that could have materially different implications for RiteAid and for Jean Coutu Group. Apart from the conflicts of interest policy contained in our Code ofEthics and Business Conduct and applicable to our directors, we and Jean Coutu Group have notestablished any formal procedures for us and Jean Coutu Group to resolve potential or actual conflictsof interest between us. There can be no assurance that any of the foregoing conflicts will be resolved ina manner that does not adversely affect our business, financial condition or results of operations.

We are dependent on Jean Coutu Group for certain transitional services pursuant to a transitionservices agreement. The failure of Jean Coutu Group to perform its obligations under the transitionservices agreement could adversely affect our business, financial condition or results of operations.

Our ability to effectively monitor and control the operations of Brooks Eckerd depends to a largeextent on the proper functioning of our information technology and business support systems.Currently, we are dependent upon Jean Coutu Group to continue to provide certain informationtechnology, network and support services to the Brooks Eckerd stores for a period of time following

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the acquisition to facilitate the Brooks Eckerd transition. The terms of these arrangements aregoverned by a transition services agreement entered into at the time of the acquisition. If Jean CoutuGroup fails to perform its obligations under the transition services agreement, we may not be able toperform such services ourselves or obtain such services from third parties at all or on terms favorableto us. In addition, upon termination of the transition services agreement, if we are unable to developthe necessary systems, resources and controls necessary to allow us to provide the services formerlyprovided by Jean Coutu Group or to obtain such services from third parties, it could adversely affectour business, financial condition or results of operations.

Our new store and store relocation development program requires entering construction anddevelopment commitments and occasionally purchasing land that will not be utilized for several yearswhich may limit our financial flexibility.

We will enter into significant construction and development commitments as part of our new storeand store relocation development program. Also, we will occasionally make capital expenditures toacquire land that may not be used for several years. Even if there are significant negative economic orcompetitive developments in our industry, financial condition or the regions where we have made thesecommitments, we are obligated to fulfill these commitments. Further, if we subsequently dispose of theproperty that we acquire, we may receive less than our purchase price or the net book value of suchproperty, which may result in financial loss.

We are dependent on our management team, and the loss of their services could have a materialadverse 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 executivemanagement team. The loss of key personnel could have a material adverse effect on the results of ouroperations, financial condition or cash flows. Additionally, we cannot assure you that we will be able toattract or retain other skilled personnel in the future.

We are substantially dependent on a single wholesaler of branded pharmaceutical products to sellproducts to us on satisfactory terms. A disruption in this relationship may have a negative effect onour results of operations, financial condition and cash flow.

We purchase all of our brand prescription drugs from a single wholesaler, McKesson, pursuant to acontract that runs through April 2010. Pharmacy sales represented approximately 66.7% of our totalsales during fiscal 2008, and, therefore, our relationship with McKesson is important to us. Anysignificant disruptions in our relationship with McKesson would make it difficult for us to continue tooperate our business until we executed a replacement wholesaler agreement or developed andimplemented self-distribution processes. There can be no assurance that we would be able to find areplacement wholesaler on a timely basis or that such wholesaler would be able to fulfill our demandson similar terms, which would have a material adverse effect on our results of operations, financialcondition and cash flows.

Risks Related to Our Industry

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

We face intense competition with local, regional and national companies, including other drugstorechains, independently owned drugstores, supermarkets, mass merchandisers, discount stores, dollarstores and mail order pharmacies. Our industry also faces growing competition from companies whoimport drugs directly from other countries, such as Canada, as well as from large-scale retailers thatoffer generic drugs at a substantial discount. Some of our competitors have or may merge with or

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acquire pharmaceutical services companies, which may further increase competition. We may not beable to effectively compete against them because our existing or potential competitors may havefinancial and other resources that are superior to ours. In addition, we may be at a competitivedisadvantage because we are more highly leveraged than our competitors. The ability of our stores toachieve profitability depends on their ability to achieve a critical mass of customers. We believe that thecontinued consolidation of the drugstore industry will further increase competitive pressures in theindustry. As competition increases, a significant increase in general pricing pressures could occur, whichwould require us to increase our sales volume and to sell higher margin products and services in orderto remain competitive. We cannot assure you that we will be able to continue effectively to compete inour markets or increase our sales volume in response to further increased competition.

Drug benefit plan sponsors and third party payors could change their plan eligibility criteria andfurther encourage or require the use of mail-order prescriptions which could decrease our sales andreduce our margins and have a material adverse effect on our business.

An adverse trend for drugstore retailing has been initiatives to contain rising healthcare costsleading to the rapid growth in mail-order prescription processors. These prescription distributionmethods have grown in market share relative to drugstores as a result of the rapid rise in drug costsexperienced in recent years and are predicted to continue to rise. Mail-order prescription distributionmethods are perceived by employers and insurers as being less costly than traditional distributionmethods and are being encouraged, and, in some cases, required, by third party pharmacy benefitmanagers, employers and unions that administer benefits. As a result, some labor unions and employersare requiring, and others may encourage or require, that their members or employees obtainmedications from mail-order pharmacies which offer drug prescriptions at prices lower than we are ableto offer.

Another adverse trend for drugstore retailing has been for drug benefit plan sponsors and thirdparty payors to change their plan eligibility requirements resulting in fewer beneficiaries covered and areduction in the number of prescriptions allowed.

Mail-order prescription distribution and drug benefit plan eligibility changes have negativelyaffected sales for traditional chain drug retailers, including us, in the last few years and we expect suchnegative effect to continue in the future. There can be no assurance that our efforts to offset theeffects of mail order and eligibility changes will be successful.

The availability of pharmacy drugs is subject to governmental regulations.

The continued conversion of various prescription drugs to over-the-counter medications mayreduce our pharmacy sales and customers may seek to purchase such medications at non-pharmacystores. Also, if the rate at which new prescription drugs become available slows or if new prescriptiondrugs that are introduced into the market fail to achieve popularity, our pharmacy sales may beadversely affected. The withdrawal of certain drugs from the market or concerns about the safety oreffectiveness of certain drugs or negative publicity surrounding certain categories of drugs may alsohave a negative effect on our pharmacy sales or may cause shifts in our pharmacy or front-end productmix.

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

Sales of prescription drugs, as a percentage of sales, and the percentage of prescription salesreimbursed by third parties, have been increasing and we expect them to continue to increase. In fiscal2008, sales of prescription drugs represented 66.7% of our sales and 95.9% of all of the prescriptiondrugs that we sold were with third party payors. During fiscal 2008, the top five third-party payors

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accounted for approximately 36.3% of our total sales, the largest of which represented 11.3% of ourtotal sales. Third party payors could reduce the levels at which they will reimburse us for theprescription drugs that we provide to their members. Any significant loss of third-party payor businessor any significant reduction in reimbursement levels could have a material adverse effect on ourbusiness and results of operations.

In fiscal 2008, approximately 6.3% of our revenues were from state sponsored Medicaid agencies,the largest of which was less than 2% of our total sales. In fiscal 2008, approximately 10.2% of ourtotal sales were to customers covered by Medicare Part D, and we expect these sales to continue. Therehave been a number of recent proposals and enactments by the Federal government and various statesto reduce Medicaid reimbursement levels in response to budget problems, some of which propose toreduce reimbursement levels in the applicable states significantly, and we expect other similar proposalsin the future. If third party payors reduce their reimbursement levels or if Medicare Part D or stateMedicaid programs cover prescription drugs at lower reimbursement levels, our margins on these saleswould be reduced, and the profitability of our business and our results of operations, financialcondition or cash flows could be adversely affected.

We are subject to governmental regulations, procedures and requirements; our noncompliance or asignificant regulatory change could adversely affect our business, the results of our operations or ourfinancial condition.

Our business is subject to federal, state and local government laws, regulations and administrativepractices. We must comply with numerous provisions regulating health and safety, equal employmentopportunity, minimum wage and licensing for the sale of drugs, alcoholic beverages, tobacco and otherproducts. In addition, we must comply with regulations pertaining to product labeling, dating andpricing. Our pharmacy business is subject to local registrations in the states where our pharmacies arelocated, applicable Medicare and Medicaid regulations and prohibitions against paid referrals ofpatients. Failure to properly adhere to these and other applicable regulations could result in theimposition of civil and criminal penalties including suspension of payments from government programs;loss of required government certifications; loss of authorizations to participate in or exclusion fromgovernment reimbursement programs, such as the Medicare and Medicaid programs; loss of licenses;significant fines or monetary penalties for anti-kickback law violations, submission of false claims orother failures to meet reimbursement program requirements and could adversely affect the continuedoperation of our business.

Our pharmacy business is subject to the patient privacy and other obligations including corporate,pharmacy and associate responsibility, imposed by the Health Insurance Portability and AccountabilityAct. As a covered entity, we are required to implement privacy standards, train our associates on thepermitted use and disclosures of protected health information, provide a notice of privacy practice toour pharmacy customers and permit pharmacy health customers to access and amend their records andreceive an accounting of disclosures of protected health information. Failure to properly adhere tothese requirements could result in the imposition of civil as well as criminal penalties.

Federal and state reform programs, such as healthcare reform and enforcement initiatives offederal and state governments may also affect our pharmacy business. These initiatives include:

• proposals designed to significantly reduce spending on Medicare, Medicaid and othergovernment programs;

• changes in programs providing for reimbursement for the cost of prescription drugs by thirdparty plans;

• increased scrutiny of, and litigation relating to, prescription drug manufacturers’ pricing andmarketing practices; and

• regulatory changes relating to the approval process for prescription drugs.

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These initiatives could lead to the enactment of, or changes to, federal regulations and stateregulations that could adversely impact our prescription drug sales and, accordingly, our results ofoperations, financial condition or cash flows. It is uncertain at this time what additional healthcarereform initiatives, if any, will be implemented, or whether there will be other changes in theadministration of governmental healthcare programs or interpretations of governmental policies orother changes affecting the healthcare system. Future healthcare or budget legislation or other changes,including those referenced above, may materially adversely impact our pharmacy sales.

Certain risks are inherent in providing pharmacy services; our insurance may not be adequate to coverany claims against us.

Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals andother healthcare products, such as with respect to improper filling of prescriptions, labeling ofprescriptions, adequacy of warnings and unintentional distribution of counterfeit drugs. In addition,federal and state laws that require our pharmacists to offer counseling, without additional charge, totheir customers about medication, dosage, delivery systems, common side effects and other informationthe pharmacists deem significant can impact our business. Our pharmacists may also have a duty towarn customers regarding any potential negative effects of a prescription drug if the warning couldreduce or negate these effects. Although we maintain professional liability and errors and omissionsliability insurance, from time to time, claims result in the payment of significant amounts, someportions of which are not funded by insurance. We cannot assure you that the coverage limits underour insurance programs will be adequate to protect us against future claims, or that we will be able tomaintain this insurance on acceptable terms in the future. Our results of operations, financial conditionor cash flows may be adversely affected if in the future our insurance coverage proves to be inadequateor unavailable or there is an increase in liability for which we self-insure or we suffer reputational harmas a result of an error or omission.

We will not be able to compete effectively if we are unable to attract, hire and retain qualifiedpharmacists.

There is a nationwide shortage of qualified pharmacists. Accordingly, we may not be able toattract, hire and retain enough qualified pharmacists. This could adversely affect our operations.

We may be subject to significant liability should the consumption of any of our products cause injury,illness or death.

Products that we sell could become subject to contamination, product tampering, mislabeling orother damage requiring us to recall our private label products. In addition, errors in the dispensing andpackaging of pharmaceuticals could lead to serious injury or death. Product liability claims may beasserted against us with respect to any of the products or pharmaceuticals we sell and we may beobligated to recall our private brand products. A product liability judgment against us or a productrecall could have a material, adverse effect on our business, financial condition or results of operations.

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Item 1B. Unresolved SEC Staff Comments

None

Item 2. Properties

As of March 1, 2008, we operated 5,059 retail drugstores, which includes the acquired BrooksEckerd stores. The overall average selling square feet of each store in our chain is 9,900 square feet.The overall average total square feet of each store in our chain is 12,400. The stores in the eastern partof the U.S. average 8,700 selling square feet per store (10,800 average total square feet per store). Thestores in the western part of the U.S. average 15,400 selling square feet per store (19,900 average totalsquare feet per store).

Our customer world store prototype, which is being utilized in our new store and store relocationprogram, has an overall average selling square footage of 11,500 and an overall average total squarefeet of 14,500. The new world store prototype in the eastern parts of the U.S. will average 10,200selling square feet (13,000 average total square feet per store). The world store prototype in thewestern part of the U.S. will average 14,000 selling square feet (17,400 average total square feet perstore).

The table below identifies the number of stores by state as of March 1, 2008:State Store Count

Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,059

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Our stores have the following attributes at March 1, 2008:

Attribute Number Percentage

Freestanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,812 56%Drive through pharmacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,388 47%One-hour photo development department . . . . . . . . . . . . . . . . . 3,157 62%GNC stores-within a Rite Aid-store . . . . . . . . . . . . . . . . . . . . . . 1,486 29%

We lease 4,709 of our operating drugstore facilities under non-cancelable leases, many of whichhave original terms of 10 to 22 years. In addition to minimum rental payments, which are set atcompetitive market rates, certain leases require additional payments based on sales volume, as well asreimbursement for taxes, maintenance and insurance. Most of our leases contain renewal options, someof which involve rent increases.

We own our corporate headquarters, which is located in a 205,000 square foot building at30 Hunter Lane, Camp Hill, Pennsylvania 17011. We lease 125,000 square feet of space in variousbuildings near Harrisburg, Pennsylvania for use by additional administrative personnel.

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

ApproximateOwned or Square

Location Leased Footage

Rome, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 283,000Utica, New York(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 172,000Geddes, New York(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 300,000Poca, West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 255,000Dunbar, West Virginia(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 110,000Perryman, Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 885,000Perryman, Maryland(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 262,000Belcamp, Maryland(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 252,000Tuscaloosa, Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 230,000Cottondale, Alabama(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 155,000Pontiac, Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 325,000Woodland, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 513,000Woodland, California(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 200,000Wilsonville, Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 517,000Wilsonville, Oregon(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 96,000Lancaster, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 914,000Atlanta, Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 195,000Atlanta, Georgia(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 201,000Atlanta, Georgia(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 299,000Atlanta Georgia (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 125,000Charlotte, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 585,500Charlotte, North Carolina(1) . . . . . . . . . . . . . . . . . . . . . . . . Leased 291,000Dayville, Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 460,000Liverpool, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 738,000Philadelphia, Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 240,000Philadelphia, Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . Leased 415,000Bohemia, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owned 255,000

(1) Overflow storage locations.

21

The original terms of the leases for our distribution centers and overflow storage locations rangefrom 5 to 22 years. In addition to minimum rental payments, certain distribution centers require taxreimbursement, maintenance and insurance. Most leases contain renewal options, some of whichinvolve rent increases. Although from time to time, we may be near capacity at some of ourdistribution facilities, particularly at our older facilities, we believe that the capacity of our facilities isadequate.

We also own a 55,800 square foot ice cream manufacturing facility located in El Monte, Californiaand a 68,000 square foot office building in Warwick, Rhode Island.

On a regular basis and as part of our normal business, we evaluate store performance and mayreduce in size, close or relocate a store if the store is redundant, under performing or otherwisedeemed unsuitable. When we reduce in size, close or relocate a store, we often continue to haveleasing obligations or own the property. We attempt to sublease this space. As of March 1, 2008, wehave 8,932,280 square feet of excess space, of which 5,078,480 square feet was subleased.

Item 3. Legal Proceedings

We are subject from time to time to various claims and lawsuits and governmental investigationsarising in the ordinary course of business. Some of these suits purport or have been determined to beclass actions and/or seek substantial damages. We believe these matters are adequately covered byinsurance or, if not so covered, are without merit or are of such nature or involve amounts that wouldnot have a material adverse effect on our financial conditions, results of operations or cash flows ifdecided adversely.

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

None

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchasesof Equity Securities.

Our common stock is listed on the New York Stock Exchange under the symbol ‘‘RAD.’’ OnApril 18, 2008, we had approximately 30,268 stockholders of record. Quarterly high and low stockprices, based on the New York Stock Exchange (‘‘NYSE’’) composite transactions, are shown below.

Fiscal Year Quarter High Low

2009 (through April 18, 2008) . . . . . . . . . . . . . . . . . . . . . . First $2.99 $2.29

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . First 6.59 5.53Second 6.70 4.84Third 5.11 3.48Fourth 4.41 1.95

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . First 4.85 3.79Second 4.74 4.07Third 4.87 4.28Fourth 6.36 4.75

We have not declared or paid any cash dividends on our common stock since the third quarter offiscal 2000 and we do not anticipate paying cash dividends on our common stock in the foreseeablefuture. Our senior secured credit facility and some of the indentures that govern our other outstandingindebtedness restrict our ability to pay dividends. See ‘‘Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.’’

We have not sold any unregistered equity securities during the period covered by this report, norhave we repurchased any equity securities, other than issuances to Jean Coutu Group, during theperiod covered by this report.

The Chief Executive Officer of the Company certified to the NYSE on June 21, 2007 that she wasnot aware of any violation by the Company of the NYSE’s corporate governance listing standards.

23

11APR200823035430

STOCK PERFORMANCE GRAPH

The graph below compares the yearly percentage change in the cumulative total stockholder returnon our common stock for the last five fiscal years with the cumulative total return on (i) the Russell1000 Consumer Staples Index, and (ii) the Russell 1000 Index, over the same period (assuming theinvestment of $100.00 in our common stock and such indexes on March 1, 2003 and reinvestment ofdividends).

For comparison of cumulative total return, we have elected to use the Russell 1000 ConsumerStaples Index, consisting of 44 companies including the three largest drugstore chains, and the Russell1000 Index. This allows comparison of the company to a peer group of similar sized companies. We areone of the companies included in the Russell 1000 Consumer Staples Index and the Russell 1000 Index.The Russell 1000 Consumer Staples Index is a capitalization-weighted index of companies that provideproducts directly to consumers that are typically considered nondiscretionary items based on consumerpurchasing habits. The Russell 1000 Index consists of the largest 1000 companies in the Russell 3000Index and represents the universe of large capitalization stocks from which many active moneymanagers typically select.

Comparison of 5 Years Cumulative Total ReturnAssumes Initial Investment of $100

February 2008

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Do

llars

2003 2004 2005 2006 2007 2008

RITE AID CORP Russell 1000 Index Russell 1000 Consumer Staples Index

2003 2004 2005 2006 2007 2008

RITE AID CORP . . . . . . . . . . . . . . . . . . . . . . . 100.00 232.53 145.84 153.79 248.80 111.25Russell 1000 Index . . . . . . . . . . . . . . . . . . . . . . . 100.00 139.69 150.12 164.92 185.15 178.16Russell 1000 Consumer Staples Index . . . . . . . . . 100.00 131.88 139.90 148.97 169.90 173.17

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Item 6. Selected Financial Data

The following selected financial data should be read in conjunction with ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations’’ and the auditedconsolidated financial statements and related notes appearing on pages 58-99.

Selected financial data for the fiscal years 2007, 2006, 2005 and 2004 have been adjusted to reflectthe operations of our 28 stores in the Las Vegas market area as a discontinued operations as theCompany has entered into an agreement to sell the prescription files and terminate the operations ofthese stores. The disposition was announced on January 4, 2008.

Selected financial data for March 1, 2008 includes Brooks Eckerd results of operations for thethirty-nine week period ended March 1, 2008.

Fiscal Year Ended

March 1, March 3, March 4, February 26, February, 28,2008 2007 2006 2005 2004

(52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)

(Dollars in thousands, except per share amounts)Summary of Operations:Revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . $24,326,846 $17,399,383 $17,163,044 $16,715,598 $16,501,227Costs and expense:

Cost of goods sold(2) . . . . . . . . . . . . . . . . . . . 17,689,272 12,710,609 12,491,642 12,127,547 12,079,569Selling, general and administrative expenses(3)(4) . 6,366,137 4,338,462 4,275,098 4,094,782 4,006,841Store closing and impairment charges . . . . . . . . 86,166 49,317 68,692 35,655 22,074Interest expense . . . . . . . . . . . . . . . . . . . . . . 449,596 275,219 277,017 294,871 313,498Acquisition related financing commitment charge . 12,900 — — — —Loss (gain) on debt modifications and retirements,

net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,662 9,186 19,229 35,315(Gain) loss on sale of assets and investments, net . (3,726) (11,139) (6,463) 2,247 2,022

Total costs and expenses . . . . . . . . . . . . . . . . . . 24,600,345 17,381,130 17,115,172 16,574,331 16,459,319

(Loss) income before income taxes . . . . . . . . . . . (273,499) 18,253 47,872 141,267 41,908Income tax expense (benefit)(5) . . . . . . . . . . . . . 802,701 (11,609) (1,228,136) (165,930) (46,232)

Net (loss) income from continuing operations . . . . . (1,076,200) 29,862 1,276,008 307,197 88,140Loss from discontinued operations, net of gain on

disposal and income tax benefit . . . . . . . . . . . . (2,790) (3,036) (3,002) (4,719) (4,761)

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . $ (1,078,990) $ 26,826 $ 1,273,006 $ 302,478 $ 83,379

Basic and diluted (loss) income per share:Basic (loss) income per share . . . . . . . . . . . . . . . $ (1.54) $ (0.01) $ 2.36 $ 0.50 $ 0.11

Diluted (loss) income per share . . . . . . . . . . . . . . $ (1.54) $ (0.01) $ 1.89 $ 0.47 $ 0.11

Year-End Financial Position:Working capital . . . . . . . . . . . . . . . . . . . . . . . . $ 2,123,855 $ 1,363,063 $ 741,488 $ 1,335,017 $ 1,894,247Property, plant and equipment, net . . . . . . . . . . . 2,873,009 1,743,104 1,717,022 1,733,694 1,882,763Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 11,488,023 7,091,024 6,988,371 5,932,583 6,245,634Total debt(6) . . . . . . . . . . . . . . . . . . . . . . . . . 5,985,524 3,100,288 3,051,446 3,311,336 3,891,666Stockholders’ equity (deficit) . . . . . . . . . . . . . . . 1,711,185 1,662,846 1,606,921 322,934 (8,277)Other Data:Cash flows provided by (used in):

Operating activities . . . . . . . . . . . . . . . . . . . . 79,368 309,145 417,165 518,446 227,515Investing activities . . . . . . . . . . . . . . . . . . . . . (2,933,744) (312,780) (231,084) (118,985) (242,150)Financing activities . . . . . . . . . . . . . . . . . . . . 2,903,990 33,716 (272,835) (571,395) (15,931)

Capital expenditures . . . . . . . . . . . . . . . . . . . . . 740,375 363,728 341,349 222,417 267,373Basic weighted average shares . . . . . . . . . . . . . . . 723,923,000 524,460,000 523,938,000 518,716,000 515,822,000Diluted weighted average shares(7) . . . . . . . . . . . 723,923,000 524,460,000 676,666,000 634,062,000 525,831,000Number of retail drugstores . . . . . . . . . . . . . . . . 5,059 3,333 3,323 3,356 3,382Number of associates . . . . . . . . . . . . . . . . . . . . 112,800 69,700 70,200 71,200 72,500

(1) Revenues for the fiscal years 2007, 2006, 2005 and 2004 have been adjusted by $108,336, $107,924, $100,841 and $99,222,respectively for the effect of discontinued operations.

25

(2) Cost of goods sold for the fiscal years 2007, 2006, 2005 and 2004 have been adjusted by $80,988, $80,218, $75,347 and$84,166 respectively for the effect of discontinued operations.

(3) Selling, general and administrative expenses for the fiscal years 2007, 2006, 2005 and 2004 have been adjusted by $32,019,$32,323, $32,754 and $22,379 respectively for the effect of discontinued operations.

(4) Includes stock-based compensation expense. Stock based compensation expense for the fiscal year ended March 1, 2008 andMarch 3, 2007 was determined using the fair value method set forth in SFAS No. 123(R), ‘‘Share Based Payment’’. Stock-based compensation expense for the fiscal years end March 4, 2006, February 26, 2005 and February 28, 2004 wasdetermined using the fair value method set forth in SFAS No. 123 ‘‘Accounting for Stock-Based Compensation’’.

(5) Income tax benefit for the fiscal years 2007, 2006, 2005 and 2004 has been adjusted by $1,635, $1,616, $2,541 and $2,563respectively for the effect of discontinued operations.

(6) Total debt included capital lease obligations of $216.3 million, $189.7 million, $178.2 million, $168.3 million and$183.2 million, as of March 1, 2008, March 3, 2007, March 4, 2006, February 26, 2005 and February 28, 2004, respectively.

(7) Diluted weighted average shares for the years ended March 4, 2006 and February 26, 2005 included the impact of stockoptions, as calculated under the treasury stock method and convertible debt and preferred stock, as calculated under theif-converted method. Diluted weighted average shares for the year ended February 28, 2004 included the impact of stockoptions, as calculated under the treasury stock method.

26

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

Overview

Net loss for fiscal 2008 was $1,079.0 or $1.54 per basic and diluted share, compared to net incomefor fiscal 2007 of $26.8 million or net loss of $0.01 per diluted share, and $1,273.0 million, or $1.89 perdiluted share in fiscal 2006. Our operating results are described in detail in the Results of Operationssection of this Item 7. However, some of the key factors that impacted our results in fiscal 2008, 2007,and 2006 are summarized as follows:

Income Tax Valuation Allowance Adjustments. Net loss for fiscal 2008 included income tax expenseof $802.7 million. The income tax expense was primarily due to a non-cash increase of the valuationallowance on federal and state net deferred tax assets. Statement of Financial Accounting StandardsNo. 109, ‘‘Accounting for Income Taxes’’ (‘‘SFAS No. 109’’) requires a company to evaluate its deferredtax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets isrequired. According to SFAS No. 109, a cumulative loss in recent years is significant negative evidencein considering whether deferred tax assets are realizable. Based on the negative evidence, SFAS 109precludes relying on projections of future taxable income to support the recognition of deferred taxassets.

Net income for fiscal 2007 and 2006 included non-cash income tax benefits of $19.8 million and1,231.1 million, respectively, related to the recognition of net deferred tax assets as a result of therelease of a tax valuation allowance. Based upon a review of a number of factors, including historicaloperating performance and our expectation that we could generate sustainable consolidated taxableincome for the foreseeable future, we concluded at the end of fiscal 2006 that the majority of the netdeferred tax assets would be recognized. Thus, pursuant to SFAS No. 109, we recorded a tax benefitduring fiscal 2006 releasing a majority of the remaining valuation allowance, resulting in a non-cashincrease in net income of $1,231.1 million.

Acquisition of Brooks Eckerd. On June 4, 2007, we acquired all of the membership interests ofJean Coutu USA, the holding company for Brooks Eckerd, from Jean Coutu Group, pursuant to theterms of the Agreement dated August 23, 2006. As consideration for the Acquisition, we paid$2.31 billion in cash and issued 250 million shares of Rite Aid common stock. We financed our cashpayment via the establishment of a new term loan facility, issuance of senior notes and borrowingsunder our existing revolving credit facility. As part of the arrangement of the financing necessary tocomplete the Acquisition, we incurred a $12.9 million fee for bridge financing that ultimately was notneeded. This fee was recorded as an acquisition related financing commitment charge in our statementof operations for fiscal 2008.

As of March 1, 2008, Jean Coutu Group owns 251.9 million shares of Rite Aid common stock,which represents approximately 28.6% of the total Rite Aid voting power. We expanded our Board ofDirectors to 14 members, with four of the seats being held by members designated by the Jean CoutuGroup. In connection with the Acquisition, we entered into a Stockholder Agreement (the‘‘Stockholder Agreement’’) with Jean Coutu Group and certain family members. The StockholderAgreement contains provisions relating to Jean Coutu Group’s ownership interest in the Company,board and board committee composition, corporate governance, stock ownership, stock purchase rights,transfer restrictions, voting arrangements and other matters. We have also entered into a RegistrationRights Agreement with Jean Coutu Group giving Jean Coutu Group certain rights with respect to theregistration under the Securities Act of 1933, as amended, of the shares of our common stock issued toJean Coutu Group or acquired by Jean Coutu Group pursuant to certain stock purchase rights or openmarket rights under the Stockholder Agreement.

The Brooks Eckerd stores and distribution centers are being integrated in phases. We havecompleted integrating the six distribution centers and are well on our way to completing systemsconversions in all of the acquired stores by the end of May 2008. We have also begun the minorremodel phase of the Brooks Eckerd stores, which we expect to complete by October 2008.

27

Debt Refinancing. In fiscal years 2007 and 2006, we took several steps to extend the terms of ourdebt, lower our interest rates and obtain more flexibility. In fiscal 2007, we issued our 7.5% seniorsecured notes due January 2015, the proceeds of which were used to redeem our 9.5% senior securednotes due February 2011. We incurred a charge to call these notes prior to maturity and recorded awrite-off of unamortized debt issue costs. These items totaled $18.7 million, which was recorded as aloss on debt modification in fiscal 2007. In fiscal 2006, we amended our senior secured credit facility toconsist solely of a $1.75 billion revolving credit facility, paid at maturity the remaining outstandingprincipal on two existing notes and completed the early redemption of another existing note. As aresult of amending our senior secured credit facility and the early redemption of an existing note, werecorded a loss on debt modification of $9.2 million

Hurricane Katrina. On August 27, 2005, Hurricane Katrina made landfall in Louisiana andproceeded to move through Mississippi and Alabama, causing one of the worst natural disasters in thehistory of the United States. As a result of this disaster, we had to close 14 stores, which resulted inlost inventory and fixed assets. We also incurred repair and maintenance charges related to ourclean-up efforts. In February 2007, we entered into a final binding settlement of our claims underHurricane Katrina with our insurance carriers. As a result of this settlement, we recorded a gain infiscal 2007 of $17.6 million. The portion of this gain related to reimbursement for lost and damagedfixed assets was $9.4 million and was recorded as a gain on sale of assets and investments. The portionrelating to reimbursement for lost or damaged inventory was $2.2 million and was recorded as areduction of costs of goods sold. The portion of this gain related to repair and maintenance and otherclean-up charges was $6.0 million and was recorded as a reduction of selling, general and administrativeexpenses (‘‘SG&A’’).

Dilutive Equity Issuances. At March 1, 2008, 830.2 million shares of common stock wereoutstanding and an additional 141.8 million shares of common stock were issuable related tooutstanding stock options and preferred stock.

Our 141.8 million shares of potentially issuable common stock consist of the following:Outstanding Preferred

Strike price Stock Options(a) Stock Total

(Shares in thousands)

$5.50 and under . . . . . . . . . . . . . . . . . . . . . . . . 49,827 77,163 126,990$5.51 to $7.50 . . . . . . . . . . . . . . . . . . . . . . . . . 11,017 — 11,017$7.51 and over . . . . . . . . . . . . . . . . . . . . . . . . . 3,818 — 3,818

Total issuable shares . . . . . . . . . . . . . . . . . . . . . 64,662 77,163 141,825

(a) The exercise of these options would provide cash of $313.6 million

Results of Operations

The results of operations for the fiscal years ended March 1, 2008, March 3, 2007 and March 4,2006 have been adjusted to reflect the operations of our 28 stores in the Las Vegas market area as adiscontinued operation, as the Company has entered into an agreement to sell the prescription filesand terminate the operations of these stores. This disposition was announced on January 4, 2008.

28

Revenue and Other Operating Data

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

(Dollars in thousands)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,326,846 $ 17,399,383 $17,163,044Revenue growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.8% 1.4% 2.7%Same store sales growth(1) . . . . . . . . . . . . . . . . . . . . . . . . 1.3% 3.4% 1.1%Pharmacy sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.2% 2.2% 2.0%Same store pharmacy sales growth(1) . . . . . . . . . . . . . . . . . 1.7% 4.4% 0.3%Pharmacy sales as a % of total sales . . . . . . . . . . . . . . . . . . 66.7% 63.7% 63.2%Third-party sales as a % of total pharmacy sales . . . . . . . . . 95.9% 95.4% 93.9%Front-end sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.0% 0.1% 3.8%Same store front-end sales growth(1) . . . . . . . . . . . . . . . . . 0.7% 1.9% 2.6%Front-end sales as a % of total sales . . . . . . . . . . . . . . . . . 33.3% 36.3% 36.8%Store data:

Total stores (beginning of period) . . . . . . . . . . . . . . . . . . 3,333 3,323 3,356New stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 40 17Closed stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (183) (32) (56)Store acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,862 2 6Total stores (end of period) . . . . . . . . . . . . . . . . . . . . . . 5,059 3,333 3,323Remodeled stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 19 173Relocated stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 66 53

(1) Same store sales for fiscal 2006 are calculated by comparing the 53 week period ended March 4,2006 with the 53 week period ended March 5, 2005.

Revenues

Fiscal 2008 compared to Fiscal 2007: The 39.8% growth in revenue was driven primarily by theacquisition of Brooks Eckerd. In addition, same store sales increased 1.3% over the prior year. Thisincrease consisted of 1.7% pharmacy same store sales increase and a 0.7% increase in front end samestore sales. Same store sales trends which do not include the results of the Brooks Eckerd stores aredescribed in the following paragraphs. We include in same store sales all stores that have been openedat least one year. Stores in liquidation are considered closed. Relocation stores are not included insame store sales until one year has lapsed. Brooks Eckerd store sales decreased from last year’scomparable period due primarily to the expected impact of current and ongoing integration activities.The Brooks Eckerd stores are being integrated in phases, and therefore integration activities areexpected to have a negative impact on Brooks Eckerd store sales trends in future periods.

Pharmacy same store sales increased 1.7%, primarily driven by an increase in price perprescription and by same store prescription growth of 0.5%. In addition to favorable demographictrends, our script growth was positively impacted by Medicare Part D and by initiatives such as ourfocus on customer satisfaction, prescription file buys, our senior citizen loyalty program and the newand relocated store program. Partially offsetting these items was an increase in generic sales and lowerreimbursement including lower reimbursement rates from the new Medicare Part D program. The rateof same store pharmacy sales growth has declined from the previous year primarily due to a lower rateof new enrollment in the Medicare Part D program, a greater mix of generic prescriptions and aweaker cough, cold and flu season.

Front end same store sales increased 0.7% from the prior year, due to strong performance in corecategories, such as over-the-counter and consumables and a higher percentage of promotional sales

29

were offset somewhat by the impact of a difficult economic environment during the holiday season anda weaker cough, cold and flu season than in the prior year.

Fiscal 2007 compared to Fiscal 2006: The 1.4% growth in revenues for fiscal 2007 was driven byfront-end sales growth of 0.1% and pharmacy sales growth of 2.2%. Sales growth in front-end andpharmacy was driven by increases in same store sales, which are discussed in more detail in theparagraphs below, offset somewhat by the additional week in fiscal 2006.

Fiscal 2007 pharmacy same store sales increased 4.4% due to same store prescription growth of2.0% and an increase in price per prescription. In addition to favorable demographic trends, our scriptgrowth was positively impacted by Medicare Part D and by initiatives such as our focus on customersatisfaction, prescription file buys, our senior loyalty program, our health condition programs and thenew and relocated store program. These items were partially offset by an increase in generic sales, amilder cough, cold and flu season and lower reimbursement rates, including lower reimbursement ratesfrom the Medicare Part D program.

Fiscal 2007 front-end same store sales increased 1.9%, primarily as a result of strong performancein core categories, such as over-the-counter and health and beauty and an increase in sales driven bypromotional activities. These items were partially offset primarily by a decrease in photo and film salesand a milder cough, cold and flu season.

Costs and Expenses

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

(Dollars in thousands)

Costs of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,689,272 $12,710,609 $12,491,642Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,637,574 4,688,774 $ 4,671,402Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.3% 26.9% 27.2%Selling, general and administrative expenses . . . . . . . . . . . . . $ 6,366,137 $ 4,338,462 $ 4,275,098Selling, general and administrative expenses as a percentage

of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.2% 25.0% 24.9%Store closing and impairment charges . . . . . . . . . . . . . . . . . 86,166 49,317 68,692Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,596 275,219 277,017Acquisition related financing commitment charge . . . . . . . . . 12,900 — —Loss on debt modifications and retirements, net . . . . . . . . . . — 18,662 9,186Gain on sale of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . (3,726) (11,139) (6,463)

Cost of Goods Sold

Gross margin rate was 27.3% for fiscal 2008 compared to 26.9% in fiscal 2007. The improvementin gross margin rate was driven by an improvement in pharmacy gross margin rates, front end grossmargin rates, and a lower LIFO charge than the prior year. The improvement in the pharmacy grossmargin rate was primarily due to an increase in the percentage of generic drugs sold and a lower costof generics partially offset by lower reimbursement rates and an increase in Medicare Part D sales as apercentage of total pharmacy sales. The improvement in the front-end gross margin rate was primarilydue to an increase in vendor promotional support. The reduction in LIFO charges was primarily due tolower pharmacy product inflation than in the prior year. These improvements were partially offset byan increase in distribution expense as a percentage of sales, due to higher fuel costs and increases inother expenses not offset by productivity improvements.

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Gross margin rate was 26.9% for fiscal 2007 compared to 27.2% in fiscal 2006. Gross margin ratewas primarily negatively impacted by a decline in front-end gross margin rate, which was caused by ahigher mix of promotional sales and a reduction in photo and film gross profit. Gross margin rate wasalso negatively impacted by the recording of a LIFO charge of $43.0 million in fiscal 2007 compared toa $32.2 million charge in fiscal 2006. Our pharmacy gross profit had a slight positive contribution toconsolidated gross margin rate due to the increase in sales. However, our pharmacy gross margin ratewas down slightly. Although there was an increase in generic prescriptions and a reduction in pharmacyshrink, these positive factors were offset by a reduction in reimbursement rates, particularly fromMedicare Part D prescriptions.

We use the last-in, first-out (LIFO) method of inventory valuation. The LIFO charge was$16.1 million in fiscal 2008, $43.0 million in fiscal 2007 and $32.2 million in fiscal 2006.

Selling, General and Administrative Expenses

SG&A for fiscal 2008 was 26.2% as a percentage of revenue, compared to 25.0% in fiscal 2007.The increase in SG&A as a percentage of revenues was primarily due to an increase in expensesrelated to the integration of the Brooks Eckerd stores and distribution centers, an increase indepreciation and amortization expense related primarily to increased intangible assets resulting fromthe preliminary allocation of the purchase price of Brooks Eckerd and an increase in rent andoccupancy expense from new and relocated stores and the sale and leaseback of owned stores. Theseincreases were partially offset by expense control in other expense categories. We will continue to incurexpenses related to the integration of the Brooks Eckerd stores in fiscal 2009.

SG&A for fiscal 2007 was 25.0% as a percentage of revenues, compared to 24.9% in fiscal 2006.SG&A was positively impacted by effective labor and expense control, offset by an increase in rent andoccupancy expense from new and relocated stores and the sale-leaseback of owned stores and anincrease in depreciation and amortization expense resulting from capital expenditures related toprescription file buys and new and relocated stores. Also negatively impacting the comparison to fiscal2006 was a $20.0 million accrual reversal recorded in fiscal 2006 resulting from the United StatesAttorney closing its investigation involving matters related to prior management’s business practices.

Store Closing and Impairment Charges

Store closing and impairment charges consist of:

Year Ended

March 1, March 3, March 4,2008 (52 2007 (52 2006 (53Weeks) Weeks) Weeks)

(Dollars in thousands)

Impairment charges . . . . . . . . . . . . . . . . . . . . . . . $30,823 $31,425 $46,114Store and equipment lease exit charges . . . . . . . . . 55,343 17,892 22,578

$86,166 $49,317 $68,692

Impairment Charges. In fiscal 2008, 2007, and 2006, store closing and impairment charges includenon-cash charges of $30.8 million, $31.4 million and $46.1 million, respectively, for the impairment oflong-lived assets at 420, 342, and 414 stores, respectively. These amounts include the write-down oflong-lived assets to estimated fair value at stores that were identified for impairment as part of ouron-going store performance review at all of our stores or management’s intention to relocate or close aspecific store.

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Store and Equipment Lease Exit Charges. In fiscal 2008, 2007, and 2006, we recorded charges for66, 49, and 43 stores, respectively, to be closed or relocated under long-term leases. Charges to close astore, which principally consist of lease termination costs, are recorded at the time the store is closedand all inventory is liquidated, pursuant to the guidance set forth in SFAS No. 146, ‘‘Accounting forCosts Associated with Exit or Disposal Activities’’. We calculate our liability for closed stores on astore-by-store basis. The calculation includes the discounted effect of future minimum lease paymentsand related ancillary costs, from the date of closure to the end of the remaining lease term, net ofestimated cost recoveries that may be achieved through subletting properties or favorable leaseterminations. We evaluate these assumptions each quarter and adjust the liability accordingly. Theincrease in the store and equipment lease exit charge for the fiscal year 2008 was primarily due to anincrease in the number of stores closed and a decrease in the discount rate used to calculate the storelease exit charge liability.

As part of our ongoing business activities, we assess stores for potential closure. Decisions to closestores in future periods would result in charges for store lease exit costs and liquidation of inventory, aswell as impairment of assets at these stores.

Interest Expense

In fiscal 2008, 2007, and 2006, interest expense was $449.6 million, $275.2 million and$277.0 million, respectively. The increase in interest expense in 2008 compared to 2007 was primarilydue to increased borrowings to fund the Brooks Eckerd acquisition and related integration activitiespartially offset by lower interest rates. Interest expense for 2007 decreased from 2006 due to an extraweek in fiscal 2006 which was partially offset by slightly higher borrowings and slightly higher interestrates.

The annual weighted average interest rates on our indebtedness in fiscal 2008, 2007 and 2006 were7.5%, 7.6% and 7.4%, respectively.

Income Taxes

Income tax expense of $802.7 million and income tax benefits of $11.6 million, and $1,228.1 millionhave been recorded for fiscal 2008, fiscal 2007 and fiscal 2006, respectively. The fiscal 2008 income taxexpense included non-cash income tax expense of $920.4 million related to the increase of the valuationallowance on federal and state net deferred tax assets. SFAS No. 109 requires a company to evaluate itsdeferred tax assets on a regular basis to determine if a valuation allowance against the net deferred taxassets is required. In determining whether a valuation allowance is required, we take into account allavailable positive and negative evidence with regard to the recognition of a deferred tax asset includingour past earnings history, expected future earnings, the character and jurisdiction of such earnings,unsettled circumstances that, if unfavorably resolved, would adversely affect recognition of a deferredtax asset, carryback and carryforward periods, and tax planning strategies that could potentially enhancethe likelihood of realization of a deferred tax asset. According to SFAS No. 109, a cumulative loss inrecent years is significant negative evidence in considering whether deferred tax assets are realizable.Based on the negative evidence, SFAS No. 109 precludes relying on projections of future taxableincome to support the recognition of deferred tax assets. The ultimate realization of deferred tax assetsis dependent upon the existence of sufficient taxable income generated in the carryforward periods.

The existence of negative evidence at March 1, 2008, was primarily the result of the recentlycompleted acquisition of Brooks Eckerd and the impact on current year earnings due to plannedintegration and acquisition activities, compounded by the weakening economy during the later half ofthe year.

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The fiscal 2007 income tax benefit included a non-cash state tax benefit of $24.1 million whichprimarily related to an increase in our state tax rate applied to the net deferred tax assets partiallyoffset by a non-cash state tax expense of $9.1 million related to an increase in the valuation allowance.The fiscal 2006 benefit was primarily comprised of a federal and state non-cash income tax benefit of$1,231.1 million for the release of valuation allowances for net deferred tax assets that, at the time, hadan expected future utilization. That utilization was based upon an ongoing review of a number offactors, including historical operating performance and our expectation that we could generatesustainable consolidated taxable income for the foreseeable future.

We monitor all available evidence related to our ability to utilize our remaining net deferred taxassets. We maintained a valuation allowance of $1,104.0 million and $239.8 million against remainingnet deferred tax assets at fiscal year end 2008 and 2007, respectively.

We underwent an ownership change for statutory tax purposes during fiscal 2002, which resulted ina limitation on the future use of net operating loss carryforwards. This limitation was considered whendetermining the required level for the valuation allowance.

Liquidity and Capital Resources

General

We have five primary sources of liquidity: (i) cash and cash equivalents, (ii) cash provided byoperating activities, (iii) the sale of accounts receivable under our receivable securitization agreements,(iv) the revolving credit facility under our senior secured credit facility and (v) sale-leasebacks of ownedproperty. Our principal uses of cash are to provide working capital for operations, to service ourobligations to pay interest and principal on debt, to provide funds for capital expenditures and the costsof integrating the Brooks Eckerd stores and distribution centers.

2008 Transactions

Credit Facility

Our senior credit facility includes a $1.75 billion revolving credit facility. Borrowings under therevolving credit facility currently bear interest at LIBOR plus 1.50%, if we choose to make LIBORborrowings, or at Citibank’s base rate plus 0.50%. The interest rate can fluctuate depending on theamount of revolver availability, as specified in the senior secured credit facility. We are required to payfees of 0.25% per annum on the daily unused amount of the revolving credit facility. The amountsdrawn on the revolving credit facility become due and payable in September 2010.

Our ability to borrow under the senior secured credit facility is based upon a specified borrowingbase consisting of inventory and prescription files. At March 1, 2008, we had $849.0 million ofborrowings outstanding under the revolving credit facility. At March 1, 2008, we also had letters ofcredit outstanding against the revolving credit facility of $184.8 million, which gave us additionalborrowing capacity of $716.2 million. However, our 8.125% senior secured notes due May 2010 and our7.5% senior secured notes due March 2015 limit the amount of secured debt we may incur in such amanner that we cannot fully draw our revolver. This lien limitation is based upon the amount ofoutstanding inventory and accounts receivable that we have available under the borrowing basecalculations in the note indentures and is more restrictive than our secured debt incurrence availabilityin the same bond indentures. As of March 1, 2008, the lien limitations under the 8.125% seniorsecured notes due May 2010 and our 7.5% senior secured notes due March 2015 limited our additionalborrowing capacity under our revolver to approximately $441.6 million. We currently have anoutstanding consent solicitation to the holders of our 8.125% senior secured notes due May 2010 andour 7.5% senior secured notes due March 2015 to amend the note indentures which would allow us to

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incur an additional $320 million of secured debt and thereby eliminate a mismatch between the debtand lien covenants in such indentures.

The Tranche 1 Term Loans currently bear interest at LIBOR plus 1.50%, if we choose to makeLIBOR borrowings, or at Citibank’s base rate plus 0.50%. The interest rate can fluctuate depending onthe amount of availability under our revolving credit facility, as specified in the senior secured creditfacility. The amounts outstanding under the Tranche 1 Term Loans become due and payable onSeptember 30, 2010, or earlier, if there is a shortfall in our borrowing base under our revolving creditfacility.

On June 4, 2007, we amended our senior secured credit facility, to establish a new senior securedterm loan in the aggregate principal amount of $1,105.0 million and borrowed the full amountthereunder. A portion of the proceeds from the borrowings under this senior secured term loan (the‘‘Tranche 2 Term Loans’’) were used to fund the acquisition of Brooks Eckerd. The Tranche 2 TermLoans will mature on June 4, 2014 and currently bears interest at LIBOR plus 1.75%, if we choose tomake LIBOR borrowings, or at Citibank’s base rate plus 0.75%. We must make mandatoryprepayments of the Tranche 2 Term Loans with the proceeds of asset dispositions (subject to certainlimitations), with a portion of any excess cash flow generated by us and with the proceeds of certainissuances of equity and debt (subject to certain exceptions). If at any time there is a shortfall in ourborrowing base under our revolving credit facility, prepayment of the Tranche 2 Term Loans may alsobe required.

The senior secured credit facility allows us to have outstanding, at any time, up to $1.5 billion insecured second priority debt and unsecured debt in addition to borrowings under the senior securedcredit facility and existing indebtedness, provided that not in excess of $750.0 million of such securedsecond priority debt and unsecured debt shall mature or require scheduled payments of principal priorto three months after September 30, 2014. The senior secured credit facility allows us to incur anunlimited amount of unsecured debt with a maturity beyond three months after September 30, 2014.The senior secured facility also allows for the repurchase of any debt with a maturity on or beforeJune 4, 2014 and for the repurchase of debt with a maturity after June 4, 2014 if we maintainavailability on the revolving credit facility of at least $100.0 million.

The senior secured credit facility contains covenants, which place restrictions on the incurrence ofdebt beyond the restrictions described above, the payment of dividends, mergers and acquisitions andthe granting of liens. The senior secured credit facility also requires us to maintain a minimum fixedcharge coverage ratio, but only if availability on the revolving credit facility is less than $100.0 million.

The senior secured credit facility provides for events of default including nonpayment,misrepresentation, breach of covenants and bankruptcy. It is also an event of default if we fail to makeany required payment on debt having a principal amount in excess of $50.0 million or any event occursthat enables, or which with the giving of notice or the lapse of time would enable, the holder of suchdebt to accelerate the maturity of such debt.

Preferred Stock Transactions

During the fourth quarter of fiscal 2005, we issued 2.5 million shares of our Series E MandatoryConvertible Series E preferred stock (‘‘Series E preferred stock’’). The Series E preferred stockautomatically converted into common stock on February 1, 2008 at a rate of 14.0056 common sharesper preferred share, as determined by the adjusted applicable market value of our common stock (asdefined in the Series E preferred stock agreement) on the date of conversion. The Series E preferredstock conversion resulted in the issuance of 35.0 million shares of our common stock to the holders ofthe Series E preferred stock.

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Other Debt Transactions

On June 4, 2007 we incurred $1.22 billion aggregate principal amount of senior notes. The issueconsisted of $410.0 million of 9.375% senior notes due 2015 and $810.0 million of 9.5% senior notesdue 2017. Our obligations under each series of notes are guaranteed fully and unconditionally, jointlyand severally, by all of our subsidiaries that guarantee our obligations under our existing senior securedcredit facility and our outstanding senior secured notes. The notes are unsecured, unsubordinatedobligations of Rite Aid Corporation and rank equally in right of payment with all of our otherunsecured, unsubordinated debt. The indentures governing the notes contain covenants that limit ourability and the ability of our restricted subsidiaries to, among other things; incur additional debt, paydividends or make other restricted payments, purchase, redeem or retire capital stock or subordinateddebt, make asset sales, enter into transactions with affiliates, incur liens, enter into sale-leasebacktransactions, provide subsidiary guarantees, make investments and merge or consolidate with any otherpersons.

Sale Leaseback Transactions

During fiscal 2008 we sold a total of 22 owned stores to independent third parties. Net proceedsfrom these sales were $93.3 million. Concurrent with these sales, we entered into agreements to leasethe stores back from the purchasers over minimum lease terms of 20 years. We accounted for 14 ofthese leases as operating leases and the remaining eight were accounted for using the financing methodas these lease agreements contain a clause that allow the buyer to force us to repurchase the propertiesunder certain conditions. A gain on the sale of these stores of $8.0 million was deferred and is beingrecorded over the minimum term of these leases.

2007 Transactions

Debt Transactions

In November 2006, we entered into an amendment of our senior secured credit facility to permitthe financing of the Acquisition. Pursuant to the terms of the senior secured facility amendment, weestablished a senior secured term loan facility in the aggregate principal amount of $145.0 million andborrowed the full amount thereunder. Proceeds from the borrowings under the new senior securedterm loan facility (the ‘‘Tranche 1 Term Loans’’) were used to pay amounts outstanding under therevolving credit facility, which had been used to repay, at maturity, the outstanding principal andaccrued interest payable under our 12.5% senior secured notes due September 2006.

Other Transactions

In February 2007, we issued $500.0 million aggregate principal amount of 7.5% senior securednotes due 2017. These notes are unsubordinated obligations of Rite Aid Corporation and rank equallyin right of payment with all other unsubordinated indebtedness. Our obligations under the notes areguaranteed, subject to certain limitations, by subsidiaries that guarantee the obligations under oursenior secured credit facility and other secured notes. The guarantees are secured, subject to thepermitted liens, by shared second priority liens, with holders of our 8.125% senior secured notes due2010 and our 7.5% senior secured notes due 2015, granted by subsidiary guarantors on all their assetsthat secure the obligations under the senior secured credit facility, subject to certain exceptions. Theindenture governing the 7.5% senior secured notes due 2017 contains covenant provisions that, amongother things, include limitations on our ability to pay dividends, make investments or other restrictedpayments, incur debt, grant liens, sell assets and enter into sale-leaseback transactions. Proceeds fromthis offering were used to repay outstanding borrowings on our revolving credit facility and to fund theredemption of our 9.5% senior secured notes due 2011. Per the terms of the indenture that governed

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the 9.5% senior secured notes due 2011, we paid a premium to the noteholders of 104.75% of par. Werecorded a loss on debt modification of $18.7 million related to the early redemption of the 9.5%senior secured notes due 2011, which included the call premium and unamortized debt issue costs onthe notes.

In February 2007, we issued $500.0 million aggregate principal amount of 8.625% senior notes due2015. These notes are unsecured. The indenture governing the 8.625% senior notes due 2015 containsprovisions that, among other things, include limitations on our ability to pay dividends, makeinvestments or other restricted payments, incur debt, grant liens, sell assets and enter intosale-leaseback transactions. The 8.625% senior notes due 2015 are guaranteed, subject to certainlimitations, by subsidiaries that guarantee the obligations under the senior secured credit facility.Proceeds from the issuance of the notes were used to repay borrowings under our revolving creditfacility.

In January 2007, we paid at maturity the remaining outstanding principal amount of $184.1 millionof our 7.125% notes due January 2007. We funded this payment with borrowings under the revolvingcredit facility.

In December 2006, we paid at maturity the remaining outstanding principal amount of$250.0 million of our 4.75% convertible notes due December 2006. We funded this payment withborrowings under the revolving credit facility.

In September 2006, we completed the early redemption of all of our outstanding $142.0 million ofour 12.5% senior secured notes due September 2006. We funded this payment with borrowing underour revolving credit facility, which were subsequently repaid with borrowings of the Tranche 1 TermLoans.

Sale-Leaseback Transactions

During fiscal 2007, we sold a total of 29 owned stores to independent third parties. Net proceedsfrom these sales were approximately $82.1 million. Concurrent with these sales, we entered intoagreements to lease the stores back from the purchasers over minimum lease terms of 20 years. Weaccounted for 24 of these leases as operating leases and the remaining five leases were accounted forusing the financing method, as these lease agreements contain a clause that allows the buyer to force usto purchase the properties under certain conditions. Subsequent to March 3, 2007, the clause thatallowed the buyer to force us to repurchase the properties lapsed on four of the five leases. Therefore,these leases are now accounted for as operating leases.

2006 Transactions

Preferred Stock Transactions

In fiscal 2006, we issued 4.8 million shares of Series I Mandatory Convertible Preferred Stock(‘‘Series I preferred stock’’) at an offering price of $25 per share. Dividends on the Series I preferredstock are $1.38 per share per year, and are due and payable on a quarterly basis in either cash orcommon stock or a combination of both at our election. The Series I preferred stock will automaticallyconvert into common stock on November 17, 2008 at a rate that is dependent upon the adjustedapplicable market value of our common stock (as defined in the Series I Certificate of Designations). Ifthe adjusted applicable market value of our common stock is $5.30 a share or higher at the conversiondate, then the Series I preferred stock is convertible at a rate of 4.7134 per share of our common stockfor every share of Series I preferred stock outstanding. If the adjusted applicable market value of ourcommon stock is less than or equal to $4.42 per share at the conversion date, then the Series Ipreferred stock is convertible at a rate of 5.6561 shares of our common stock for every share of Series I

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preferred stock outstanding. If the adjusted applicable market value of our common stock is between$4.42 per share and $5.30 per share at the conversion date, then the Series I preferred stock isconvertible into common stock at a rate that is between 4.7134 and 5.6561 per share. The holder mayconvert shares of the Series I preferred stock into common stock at any time prior to the mandatoryconversion date at the rate of 4.7134 per share. The Series I preferred stock is also convertible at ouroption, but only if the adjusted applicable market value of our common stock exceeds $9.55. If we aresubject to a cash acquisition (as defined in the Certificate of Designations) prior to the mandatoryconversion date, the holder may elect to convert the shares of Series I preferred stock into shares ofcommon stock using a conversion rate set forth in the Certificate of Designations. The holder will alsoreceive a payment equal to the present value of all scheduled dividends through the mandatoryconversion date.

Proceeds from the issuance of the Series I preferred stock, along with borrowings under therevolver, were used to redeem all shares of our Series F preferred stock, at 105% of the liquidationpreference of $100 share. We paid a premium to redeem the Series F preferred stock of $5.9 million.

Sale Leaseback Transactions

During fiscal 2006, we sold a total of 32 owned stores to independent third parties. Net proceedsfrom these sales were approximately $85.3 million. Concurrent with these sales, we entered intoagreements to lease the stores back from the purchasers over minimum lease terms of 20 years. Weaccounted for 30 of these leases as operating leases and the remaining two leases were accounted forusing the financing method, as these lease agreements contain a clause that allows the buyer to force usto purchase the properties under certain conditions. Subsequent to March 4, 2006, the clause thatallowed the buyer to force us to repurchase the properties lapsed on one of the two leases. Therefore,this lease is now accounted for as an operating lease.

Other Transactions

On December 15, 2005, we paid at maturity the remaining outstanding principal amount of$38.0 million of our 6.0% fixed-rate senior notes due December 2005.

On July 15, 2005, we completed the early redemption of all of our outstanding $150.0 millionaggregate principal amount of 11.25% notes due July 2008 at their contractually determined earlyredemption price of 105.625% plus accrued interest. We funded this redemption with borrowings underour receivable securitization agreements. We recorded a loss on debt modification of $9.2 millionrelated to this transaction.

On April 15, 2005, we paid at maturity the remaining outstanding principal amount of$170.5 million of our 7.625% senior notes due April 2005.

Off Balance Sheet Obligations

We maintain receivables securitization agreements with several multi-seller asset-backedcommercial paper vehicles (‘‘CPVs’’). Under the terms of the securitization agreements, we sellsubstantially all of our eligible third party pharmaceutical receivables to a bankruptcy remote SpecialPurpose Entity (‘‘SPE’’) and retain servicing responsibility. The assets of the SPE are not available tosatisfy the creditors of any other person, including any of our affiliates. These agreements provide forus to sell, and for the SPE to purchase these receivables. The SPE then transfers an interest in thesereceivables to various CPVs.

The amount of transferred receivables outstanding at any one time is dependent upon a formulathat takes into account such factors as default history, obligor concentrations and potential dilution

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(‘‘Securitization Formula’’). Adjustments to this amount can occur on a weekly basis. At March 1, 2008and March 3, 2007, the total of outstanding receivables that have been transferred to the CPVs were$435.0 million and $350.0 million, respectively. The following table details receivable transfer activityfor the years presented (in thousands):

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Average amount of outstanding receivables transferred . . . . . . . $ 332,115 $ 334,588 $ 243,639Total receivable transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,992,000 $4,674,000 $3,716,000Collections made by the Company as part of the servicing

arrangement on behalf of the CPVs . . . . . . . . . . . . . . . . . . . $4,907,000 $4,654,000 $3,536,000

At March 1, 2008 and March 3, 2007, we retained an interest in the third party pharmaceuticalreceivables not transferred to the CPVs of $493.8 million and $255.1 million, respectively, inclusive ofthe allowance for uncollectible accounts, which is included in accounts receivable, net, on theconsolidated balance sheet.

On September 18, 2007 we amended our securitization agreements. As a result of this amendmentthe total amount of interest in receivables than can be transferred to the CPV was increased to$650.0 million from $400.0 million. The ongoing program fee was decreased from the CPVs’commercial paper rate (which often approximates 1-month LIBOR) plus 1.125% to the CPVs’commercial paper rate plus 1.00%. The liquidity fee was reduced from 0.375% to 0.25%.

Rite Aid guarantees certain performance obligations of our affiliates under the securitizationagreements, which include continued servicing of such receivables, but does not guarantee thecollectibility of the receivables and obligor creditworthiness. The CPVs have a commitment to purchasethat ends September 2008 with the option to annually extend the commitment to purchase. Should anyof the CPVs fail to renew their commitment under these securitization agreements, we have access to abackstop credit facility, which is backed by the CPVs and which expires in September 2010. It is ourintent to renew our receivables securitization agreements with the CPVs.

Proceeds from the collections under the receivables securitization agreements are submitted to anindependent trustee on a daily basis. The trustee withholds any cash necessary to (1) fund amountsowed to the CPVs as a result of such collections and, (2) fund the CPVs when the SecuritizationFormula indicates a lesser amount of outstanding receivables transferred is warranted. The remainingcollections are swept to our corporate concentration account. At March 1, 2008 and March 3, 2007, wehad $3.3 million and $3.0 million of cash, respectively, that was restricted for the payment of trusteefees.

We have determined that the transactions meet the criteria for sales treatment in accordance withSFAS No. 140 ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities’’. Additionally, we have determined that we do not hold a variable interest in the CPVs,pursuant to the guidance in FIN 46R, ‘‘Consolidation of Variable Interest Entities’’, and therefore havedetermined that de-recognition of the transferred receivables is appropriate.

As of March 1, 2008, we had no material off balance sheet arrangements, other than thereceivables securitization agreements described above and operating leases, which are included in thetable below.

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Contractual Obligations and Commitments

The following table details the maturities of our indebtedness and lease financing obligations as ofMarch 1, 2008, as well as other contractual cash obligations and commitments.

Payment due by period

Less Than1 Year 1 to 3 Years 3 to 5 Years After 5 Years Total

(Dollars in thousands)

Contractual Cash ObligationsLong term debt(1) . . . . . . . . . . . . . $ 569,095 $2,140,615 $ 704,903 $ 5,477,465 $ 8,892,078Capital lease obligations(2) . . . . . . . 43,374 51,209 50,882 187,034 332,499Operating leases(3) . . . . . . . . . . . . . 967,181 1,894,107 1,690,219 6,573,665 11,125,172Open purchase orders 378,678 — — — 378,678Redeemable preferred stock(4) . . . . — — — 20,175 20,175Other, primarily self insurance and

retirement plan obligations(5) . . . 134,208 161,085 39,861 94,984 430,138Minimum purchase commitments(6) — — 14,000 1,500,000 1,514,000

Total contractual cash obligations . $2,092,536 $4,247,016 $ 2,499,865 $13,853,323 $22,692,740

CommitmentsLease guarantees . . . . . . . . . . . . . . $ 22,922 $ 44,575 $ 42,106 $ 114,682 $ 224,285Outstanding letters of credit . . . . . . 184,780 — — — 184,780

Total commitments . . . . . . . . . . . $ 207,702 $ 44,575 $ 42,106 $ 114,682 $ 409,065

(1) Includes principal and interest payments for all outstanding debt instruments. Interest wascalculated on variable rate instruments using rates as of March 1, 2008.

(2) Represents the minimum lease payments on non-cancelable leases, including interest, but net ofsublease income.

(3) Represents the minimum lease payments on non-cancelable leases, net of sublease income.

(4) Represents value of redeemable preferred stock at its redemption date.

(5) Includes the undiscounted payments for self-insured medical coverage, actuarially determinedundiscounted payments for self-insured workers’ compensation and general liability, and actuariallydetermined obligations for defined benefit pension and nonqualified executive retirement plans.

(6) Represents commitments to purchase products from certain vendors.

Obligations for income tax uncertainties pursuant to FIN 48 of approximately $82.6 million are notincluded in the table above as we are uncertain as to if or when such amounts may be settled.

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

Cash flow provided by operating activities was $79.4 million in fiscal 2008. Cash flow was positivelyimpacted by net proceeds from our accounts receivable securitization and a reduction in accountsreceivable partially offset by an increase in inventory and a decrease in accounts payable. The increasein inventory was primarily caused by Brooks Eckerd integration activities. Integration activities thatrequire a temporary investment in inventory include replacing non-go-forward inventory, increasing thenumber of SKU’s at the Brooks Eckerd distribution centers and retrofitting the planograms in theBrooks Eckerd stores. We expect the levels of inventory to decrease as these activities are completed.

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The decrease in accounts payable was primarily due to conforming vendor terms as part of theintegration efforts.

Cash flow provided by operating activities was $309.1 million in fiscal 2007. Cash flow fromoperating activities was positively impacted by income from operations, net proceeds of $20.0 millionfor the sale of certain of our third party receivables and a decrease in accounts payable. These itemswere partially offset by increases in accounts receivable and inventory.

Cash provided by operating activities was $417.2 million in fiscal 2006. Cash flow from operatingactivities was positively impacted by net proceeds of $180.0 million from the sale of certain of our thirdparty receivables and receipts of cash related to insured losses. These items were partially offset by anincrease in inventory net of an increase in accounts payable and an increase in accounts receivable andprepaid expenses.

Cash used in investing activities was $2,933.7 million in fiscal 2008. Cash used was primarily for theacquisition of Brooks Eckerd and purchase of property, plant and equipment and intangible assetsoffset by proceeds from sale-leaseback transactions and asset dispositions.

Cash used in investing activities was $312.8 million in fiscal 2007. Cash was used for: the purchaseof property, plant and equipment, the purchase of prescription file and capitalizable direct acquisitioncosts related to our pending acquisition of Brooks Eckerd. Cash was provided by proceeds from oursale leaseback transactions and proceeds from other asset dispositions.

Cash used in investing activities was $231.1 million in fiscal 2006. Cash was used for: the purchaseof property, plant and equipment and the purchase of prescription files. Cash was provided by proceedsfrom our sale leaseback transactions and by proceeds from other asset dispositions.

Cash provided by financing activities was $2,904.0 in fiscal 2008. Cash provided by financing wasprimarily provided by proceeds from issuance of long-term debt utilized to fund the Brooks Eckerdacquisition, net proceeds from our revolving credit facility, the change in the zero balance cashaccounts and net proceeds from the issuance of common stock, offset by financing costs paid, scheduleddebt payments and preferred stock dividends.

Cash provided by financing activities was $33.7 million in fiscal 2007. Cash provided from issuanceof two bonds and the term loan portion of our senior secured credit facility was used to fund theredemption and payment at maturity of several bonds and to pay down a portion of the outstandingborrowings under our revolving credit facility.

Cash used in financing activities was $272.8 million in fiscal 2006, due to the amending of ourcredit facility and principal payments on long term debt.

Capital Expenditures

We plan to make total capital expenditures of approximately $600 million during fiscal 2009,consisting of approximately 40% related to the new store construction, store relocation, store remodeland store improvement projects, 30% related to the integration of Brooks Eckerd, 10% related to thepurchase of prescription files from independent pharmacies and 20% related to technologyenhancements, improvements to distribution centers, and other corporate requirements. Managementexpects that these capital expenditures will be financed primarily with cash flow from operatingactivities, proceeds from sale leaseback transactions and use of the revolving credit facility.

Future Liquidity

We are highly leveraged. Our high level of indebtedness: (i) limits our ability to obtain additionalfinancing; (ii) limits our flexibility in planning for, or reacting to, changes in our business and theindustry; (iii) places us at a competitive disadvantage relative to our competitors with less debt;

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(iv) renders us more vulnerable to general adverse economic and industry conditions; and (v) requiresus to dedicate a substantial portion of our cash flow to service our debt, including additional debtincurred for the acquisition of Brooks Eckerd. Based upon our current levels of operations, plannedimprovements in our operating performance and the opportunities that we believe the acquisition ofBrooks Eckerd provides, we believe that cash flow from operations together with available borrowingsunder the senior secured credit facility, sales of accounts receivable under our securitizationagreements, proceeds from sale-leaseback of owned properties and other sources of liquidity will beadequate to meet our requirements for working capital, debt service and capital expenditures includingcapital expenditures related to the completion of the Brooks Eckerd integration, for the next twelvemonths. We will continue to assess our liquidity position and potential sources of supplemental liquidityin light of our operating performance, and other relevant circumstances. Should we determine, at anytime, that it is necessary to obtain additional short-term liquidity, we will evaluate our alternatives andtake appropriate steps to obtain sufficient additional funds. The restrictions on the incurrence ofadditional indebtedness in our senior secured credit facility and several of our bond indentures maylimit our ability to obtain additional funds. There can be no assurance that any such supplementalfunding, if sought, could be obtained or if obtained, would be on terms acceptable to us.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48) ‘‘Accounting for Uncertaintyin Income Taxes, an interpretation of FASB Statement No. 109.’’ The interpretation establishes criteriafor recognizing and measuring the financial statement tax effects of positions taken on a company’s taxreturns. A two-step process is prescribed whereby the threshold for recognition is amore-likely-than-not test that the tax position will be sustained upon examination, based on thetechnical merits of the position. If it is determined that a tax position should be recognized, then thetax position is measured at the largest amount of benefit that is greater than 50 percent likely of beingrealized upon ultimate settlement. We adopted FIN 48 on March 4, 2007.

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. This standardestablishes a standard definition for fair value, establishes a framework under generally acceptedaccounting principles for measuring fair value and expands disclosure requirements for fair valuemeasurements. This standard is effective for financial statements issued for fiscal years beginning afterNovember 15, 2007. In December 2007, a FASB Staff Position (FSP) was proposed, and subsequentlyapproved, to delay the effective dates of SFAS No. 157 as it relates to all nonfinancial assets andnonfinancial liabilities, except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis, or at least annually. We are currently evaluating the effect of theadoption of SFAS No. 157 on our financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assetsand Financial Liabilities, Including an Amendment of FASB Statement No. 115’’. SFAS No. 159 permitsentities to choose to measure many financial instruments and certain other items at fair value that arenot currently required to be measured at fair value. Unrealized gains and losses on items for which thefair value option has been elected are reported in earnings. SFAS No. 159 does not affect any existingaccounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159is effective for fiscal years beginning after November 15, 2007. We do not expect to elect fair valuetreatment for our financial assets.

In December 2007, the FASB issued SFAS No. 141 (Revised) ‘‘Business Combinations’’. SFAS 141(Revised) establishes principles and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the assets acquired and liabilities assumed in a businesscombination and make several changes to the method of accounting for business combinationspreviously set forth in SFAS No. 141. SFAS No. 141 (Revised) will become effective for acquisitionsconsummated in fiscal years beginning after December 15, 2008.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon ourconsolidated financial statements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts of assets, liabilities,revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis,we evaluate our estimates, including those related to allowance for uncollectible receivables, inventoryshrink, impairment, self insurance liabilities, pension benefits, lease exit liabilities, income taxes andlitigation. We base our estimates on historical experience, current and anticipated business conditions,the condition of the financial markets and various other assumptions that are believed to be reasonableunder existing conditions. Variability reflected in the sensitivity analyses presented below is reasonablylikely based on our recent historical experience. Actual results may differ materially from theseestimates and sensitivity analyses.

The following critical accounting policies require the use of significant judgments and estimates bymanagement:

Allowance for uncollectible receivables: Almost all of our prescription sales are made to customersthat are covered by third party payors, such as insurance companies, prescription benefit managementcompanies, government agencies, private employers, health maintenance organizations or othermanaged care providers. We recognize and report receivables that represent the amount owed to us forsales made to customers, who are employees or members of those payors, which have not yet beenpaid. We maintain an allowance for the amount of these receivables deemed to be uncollectible. Thisallowance is calculated based upon historical collection and write-off activity adjusted for currentconditions. The estimated bad debt write-off rate is calculated by dividing historical write-offs for themost recent twelve months, for which collection activities have been completed, by third party payorsales for the same period. A bad debt expense is recognized by applying the estimated write-off rate tothird party payor sales for the period. There have been no significant changes in the assumptions usedto calculate our estimated write-off rate over the past three years. If the financial condition of thepayors were to deteriorate, resulting in an inability to make payments, an additional reserve would berecorded in the period in which the change in financial condition first became known. Based on currentconditions, we do not expect a significant change to our write-off rate in future periods. A one basispoint difference in our estimated write-off rate for the year ended March 1, 2008, would have affectedpretax income by approximately $1.3 million.

Inventory: The carrying value of our inventory is reduced by a reserve for estimated shrink lossesthat occur between physical inventory dates. When estimating these losses, we consider historical lossresults at specific locations (including stores and distribution centers), as well as overall loss trends asdetermined during physical inventory procedures. The estimated shrink rate is calculated by dividinghistorical shrink results for the most recent six months by the sales for the same period. Shrink expenseis recognized by applying the estimated shrink rate to sales since the last physical inventory. There havebeen no significant changes in the assumptions used to calculate our shrink rate over the last threeyears. Although possible, we do not expect a significant change to our shrink rate in future periods. A10 basis point difference in our estimated shrink rate for the year ended March 1, 2008, would haveaffected pretax income by approximately $8.3 million.

Impairment of Long-Lived Assets: We evaluate long-lived assets, including stores and excludinggoodwill, for impairment annually, or whenever events or changes in circumstances indicate that theassets may not be recoverable. We have identified each store as an asset group for purposes ofperforming this evaluation. Our evaluation of whether possible impairment indicators exist includescomparing future cash flows expected to be generated by the store to the carrying value of the store’sassets. If the estimated future cash flows of the asset group (store level) are less than the carrying

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amount of the store’s assets, we calculate an impairment loss by comparing the carrying value of thestore’s assets to the fair value of such assets. We determine fair value by discounting the estimatedfuture cash flows of the store discussed above.

Cash flows are calculated utilizing the detailed store financial plan for the year immediatelyfollowing the current year end. To arrive at cash flow estimates for additional future years, we projectsales growth by store (consistent with our overall business planning objectives and results), anddetermine the incremental cash flow that such sales growth will contribute to that store’s operations.The discount rate used is a weighted average cost of capital, which is internally developed.

The assumptions utilized in calculating impairment are updated annually. Should actual salesgrowth rates and related incremental cash flow differ from those forecasted and projected, we mayincur future impairment charges related to the stores being evaluated. Changes in our discount rate of50 basis points would not have a material impact on the total impairment recorded in Fiscal 2008.

Goodwill Impairment: As disclosed in the consolidated financial statements, we have unamortizedgoodwill in the amount of $1,783.4 million as of March 1, 2008. We perform an annual impairment test ofgoodwill. If certain events or circumstances occur that would indicate a reduced fair value in our reportingunit could exist, we would then perform our impairment test more frequently. Our impairment calculationis based upon a comparison of the book value of our equity compared to our estimated fair value. Weestimate fair value utilizing both a discounted cash flow analysis that is based upon forward year projectionsthat are developed as part of our business planning process, as well as the value implied by our year endquoted stock price. Significant differences between these two methods are reconciled and adjustments, ifnecessary, are incorporated into our discounted cash flow analysis.

These forward year projections utilize assumptions that are based upon historical trends,management’s estimates of economic conditions and our strategic plans, which are consistent withassumptions utilized in evaluating Long-Lived assets for impairment as discussed above. Significantassumptions are annual sales increases and the discount rate utilized. The discount rate used is aweighted average cost of capital, which is internally developed.

Our calculation as of March 1, 2008 resulted in no impairment of goodwill being identified.However, changes to our strategic plans or economic conditions could result in our cash flows beingless than projected, which could result in a material change to our goodwill impairment valuation infuture periods. An increase in our discount rate of 50 basis points would not have resulted in animpairment of goodwill as of March 1, 2008.

Self-insurance liabilities: We expense claims for self-insured medical, dental, workers’compensation and general liability insurance coverage as incurred including an estimate for claimsincurred but not paid. The expense for self-insured medical and dental claims incurred but not paid isdetermined by multiplying the average claim value paid over the most recent twelve months by theaverage number of days from the same period between when the claims were incurred and paid. Therehave been no significant changes in assumptions used to determine days lag over the last three years.Should a greater amount of claims occur compared to what was previously estimated, or medical costsincrease beyond what was anticipated, expense recorded may not be sufficient, and additional expensemay be recorded. A one day change in days lag for the year ended March 1, 2008, would have affectedpretax income by approximately $0.6 million.

The expense for self-insured workers’ compensation and general liability claims incurred but notpaid is determined using several factors, including historical claims experience and development,severity of claims, medical costs and the time needed to settle claims. We discount the estimatedexpense for workers’ compensation to present value as the time period from incurrence of the claim tofinal settlement can be several years. We base our estimates for such timing on previous settlementactivity. The discount rate is based on the current market rates for Treasury bills that approximate the

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average time to settle the workers’ compensation claims. These assumptions are updated on an annualbasis. A 25 basis point difference in the discount rate for the year ended March 1, 2008, would haveaffected pretax income by approximately $2.1 million.

Benefit plan accrual: We have several defined benefit plans, under which participants earn aretirement benefit based upon a formula set forth in the plan. We record expense related to these plansusing actuarially determined amounts that utilize various assumptions. Key assumptions used in theactuarial valuations include the mortality rate, the discount rate, the expected rate of return on planassets and the rate of increase in future compensation levels. These rates are updated annually and arebased on available public information, market interest rates and internal plans regarding compensationand any other changes impacting benefits.

These assumptions have not significantly changed over the last three years, except that thediscount rate has been adjusted due to changes in rates derived from published high-quality long-termbond indices, the terms of which approximate the term of the cash flows to pay the accumulatedbenefit obligations when due. A decrease of 25 basis points in the discount rate, assuming no otherchanges in the estimates, increases the amount of the projected benefit obligation and the relatedrequired expense by $3.3 million and $0.6 million, respectively.

Lease exit liabilities: We record reserves for closed stores based on future lease commitments,anticipated ancillary occupancy costs and anticipated future subleases of properties. The reserves arecalculated at the individual location level and the assumptions are assessed at that level. Subleaseincome is estimated based on agreements in place at the time of reserve assessment. The reserve forlease exit liabilities is discounted using a credit adjusted risk free interest rate. Reserve estimates andrelated assumptions are updated on a quarterly basis.

A substantial amount of our closed stores were closed prior to our adoption of SFAS No. 146,‘‘Accounting for Costs Associated with Exit or Disposal Activities’’, effective January 1, 2003. Therefore,if interest rates change, reserves may be increased or decreased. In addition, changes in the real estateleasing markets can have an impact on the reserve. As of March 1, 2008, a 50 basis point variance inthe credit adjusted risk free interest rate would have affected pretax income by approximately$4.0 million for Fiscal 2008.

Income taxes: We currently have net operating loss (‘‘NOL’’) carryforwards that can be utilized tooffset future income for federal and state tax purposes. These NOLs generate a significant deferred taxasset. We regularly review the deferred tax assets for recoverability considering the relative impact ofnegative and positive evidence including our historical profitability, projected taxable income, theexpected timing of the reversals of existing temporary differences and tax planning strategies. Theweight given to the potential effect of the negative and positive evidence is commensurate with theextent to which it can be objectively verified. We will establish a valuation allowance against deferredtax assets when we determine that it is more likely than not that some portion of our deferred taxassets will not be realized. There have been no significant changes in the assumptions used to calculateour valuation allowance over the last three years. Changes in valuation allowance from period to periodare included in the tax provision in the period of change.

We recognize tax liabilities in accordance with FIN 48 and we adjust these liabilities when ourjudgment changes as a result of the evaluation of new information not previously available. Due to thecomplexity of some of these uncertainties, the ultimate resolution may result in a payment that ismaterially different from our current estimate of the tax liabilities.

Litigation reserves: We are involved in litigation on an on-going basis. We accrue our best estimateof the probable loss related to legal claims. Such estimates are developed in consultation with in-housecounsel, and are based upon a combination of litigation and settlement strategies. These estimates areupdated as the facts and circumstances of the cases develop and/or change. To the extent additionalinformation arises or our strategies change, it is possible that our best estimate of the probable liabilitymay also change. Changes to these reserves during the last three fiscal years were not material.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risks

Our future earnings, cash flow and fair values relevant to financial instruments are dependentupon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices andinterest rates. Our major market risk exposure is changing interest rates. Increases in interest rateswould increase our interest expense. We enter into debt obligations to support capital expenditures,acquisitions, working capital needs and general corporate purposes. Our policy is to manage interestrates through the use of a combination of variable-rate credit facilities, fixed-rate long-term obligationsand derivative transactions. We currently do not have any derivative transactions outstanding.

The table below provides information about our financial instruments that are sensitive to changesin interest rates. The table presents principal payments and the related weighted average interest ratesby expected maturity dates as of March 1, 2008.

Fair Valueat March 1

2009 2010 2011 2012 2013 Thereafter Total 2008

(Dollars in thousands)Long-term debt, Including current portionFixed rate . . . . . . . . . . . . . . . . . . . . . $150,470 $ 186 $ 358,687 $ 198 $ 213 $3,160,508 $3,670,262 $2,902,318Average Interest Rate . . . . . . . . . . . . . 6.13% 7.08% 8.16% 7.00% 7.00% 8.52% 8.38%Variable Rate . . . . . . . . . . . . . . . . . . . $ 8,287 $11,050 $1,005,050 $11,050 $11,050 $1,052,513 $2,099,000 $1,896,705Average Interest Rate . . . . . . . . . . . . . 4.91% 4.91% 4.93% 4.91% 4.91% 4.91% 4.92%

Our ability to satisfy our interest payment obligations on our outstanding debt will depend largelyon 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 ourinterest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equityfinancing to satisfy those obligations, our business and results of operations will be materially adverselyaffected. We cannot be assured that any replacement borrowing or equity financing could besuccessfully completed.

The interest rate on the variable-rate borrowings under our senior secured credit facility are basedon LIBOR. Changes in one month LIBOR affect our cost of borrowings because the interest rate onour variable-rate obligations is based on LIBOR. If the market rates of interest for one month LIBORchange by 10% (approximately 31 basis points) as compared to the LIBOR rate of 3.11% as ofMarch 1, 2008 our annual interest expense would change by approximately $6.5 million based upon ourvariable-rate debt outstanding of approximately $2,099.0 million on March 1, 2008.

A change in interest rates generally does not have an impact upon our future earnings and cashflow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt isacquired to fund the debt repayment, future earnings and cash flow may be affected by changes ininterest rates. This effect would be realized in the periods subsequent to the periods when the debtmatures.

In addition to the financial instruments listed above, the program fees incurred on proceeds fromthe sale of receivables under our receivables securitization agreements are determined based onLIBOR.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements and notes thereto are included elsewhere in this report andare incorporated by reference herein. See Item 15 of Part IV.

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

Not applicable

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Item 9A. Controls and Procedures

(a) Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief FinancialOfficer, has evaluated the effectiveness of disclosure controls and procedures (as such term is definedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the‘‘Exchange Act’’)) as of the end of the period covered by this report. Based on such evaluation, ourChief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period,our disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.Under the supervision and with the participation of our management, including our Chief ExecutiveOfficer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on the framework in ‘‘Internal Control-IntegratedFramework’’ issued by the Committee of Sponsoring Organizations of the Treadway Commission. Wehave excluded from our assessment the internal control over financial reporting of the 814 storesacquired from Brooks Eckerd that had not been converted to the legacy Rite Aid systems as ofMarch 1, 2008. Assets at these stores constituted 12.3% of our total assets as of March 1, 2008. Salesgenerated by these stores constituted 12.1% of our total revenues for the year ended March 1, 2008.Based on this evaluation, our management has concluded that, as of March 1, 2008, we did not haveany material weaknesses in our internal control over financial reporting and our internal control overfinancial reporting was effective.

Attestation Report of the Independent Registered Public Accounting Firm

The attestation report of our independent registered public accounting firm, Deloitte &Touche LLP, on our internal control over financial reporting is included after the next paragraph.

(c) Changes in Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarterended March 1, 2008 that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders ofRite Aid CorporationCamp Hill, Pennsylvania

We have audited the internal control over financial reporting of Rite Aid Corporation andsubsidiaries (the ‘‘Company’’) as of March 1, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. As described in Management’s Annual Report on Internal Control Over FinancialReporting, management excluded from its assessment the internal control over financial reportingrelating to 814 stores acquired on June 4, 2007 in conjunction with the acquisition of JCG (PJC)USA, LLC, which stores have not yet been converted to the Company’s systems and processes, andconstitute 12.3% of total assets and 12.1% of total revenues of the consolidated financial statementamounts as of and for the year ended March 1, 2008. Accordingly, our audit did not include theinternal control over financial reporting for such unconverted stores. The Company’s management isresponsible for maintaining effective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintainedin all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the designand operating effectiveness of internal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under thesupervision of, the company’s principal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors, management, and other personnelto provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles.A company’s internal control over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including thepossibility of collusion or improper management override of controls, material misstatements due toerror or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluationof the effectiveness of the internal control over financial reporting to future periods are subject to therisk that the controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of March 1, 2008, based on the criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We have also audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated financial statements and financial statement scheduleas of and for the year ended March 1, 2008 of the Company and our report dated April 28, 2008expressed an unqualified opinion on those financial statements and financial statement schedule.

Deloitte & Touche LLP

Philadelphia, PennsylvaniaApril 28, 2008

Item 9B. Other Information

None

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PART III

We intend to file with the SEC a definitive proxy statement for our 2008 Annual Meeting ofStockholders, to be held on June 25, 2008, pursuant to Regulation 14A not later than 120 days afterMarch 1, 2008. The information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated byreference from that proxy statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The consolidated financial statements of the Company and report of the independentregistered public accounting firm identified in the following index are included in this report from theindividual pages filed as a part of this report:

1. Financial Statements

The following financial statements, report of the independent registered public acounting firm andsupplementary data are included herein:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Consolidated Balance Sheets as of March 1, 2008 and March 3, 2007 . . . . . . . . . . . . . . . . . . . . . . 59Consolidated Statements of Operations for the fiscal years ended March 1, 2008, March 3, 2007

and March 4, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Consolidated Statements of Stockholders’ Equity (Deficit) for the fiscal years ended March 1,

2008, March 3, 2007 and March 4, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Consolidated Statements of Cash Flows for the fiscal years ended March 1, 2008, March 3, 2007

and March 4, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

2. Financial Statement SchedulesSchedule II—Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable, not required or the requiredinformation is included in the consolidated financial statements or notes thereto.

3. Exhibits

ExhibitNumbers Description Incorporation By Reference To

2.1 Stock Purchase Agreement, dated August 23, 2006, by and between Exhibit 2 to Form 8-K, filed onRite Aid Corporation and The Jean Coutu Group (PJC) Inc. August 24, 2006

2.2 Amended and Restated Stockholder Agreement, dated August 23, Exhibit 2.2 to Form 10-Q, filed on2006, amended and restated as of June 4, 2007, by and between Rite July 12, 2007Aid Corporation, The Jean Coutu Group (PJC) Inc., Jean Coutu,Marcelle Coutu, Francois J. Coutu, Michel Coutu, Louis Coutu,Sylvie Coutu and Marie-Josee Coutu

2.3 Registration Rights Agreement, dated August 23, 2006, by and Exhibit 10.2 to Form 8-K, filed onbetween Rite Aid Corporation and The Jean Coutu Group August 24, 2006(PJC) Inc.

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

3.2 Certificate of Amendment to the Restated Certificate of Exhibit 3(ii) to Form 8-K, filed onIncorporation dated February 22, 1999 November 2, 1999

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ExhibitNumbers Description Incorporation By Reference To

3.3 Certificate of Amendment to the Restated Certificate of Exhibit 3.4 to RegistrationIncorporation dated June 27, 2001 Statement on Form S-1, File

No. 333-64950, filed on July 12,2001

3.4 Certificate of Amendment to the Restated Certificate of Exhibit 4.4 to RegistrationIncorporation dated June 4, 2007 Statement on Form S-8, File

No. 333-146531, filed onOctober 5, 2007

3.5 7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock Exhibit 3.2 to Form 8-K, filed onCertificate of Designation dated January 28, 2005 February 2, 2005

3.6 6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock Exhibit 3.3 to Form 8-K, filed onCertificate of Designation dated January 28, 2005 February 2, 2005

3.7 5.5% Series I Mandatory Convertible Preferred Stock Certificate of Exhibit 3.1 to Form 8-K, filed onDesignation dated August 2, 2005 August 24, 2005

3.8 Amended and Restated By-laws Exhibit 3.1 to Form 8-K, filed onApril 13, 2007

3.9 Amendment to Sections 1, 3 and 4 of Article V of Amended and Exhibit 3.1 to Form 8-K, filed onRestated By-laws December 21, 2007

4.1 Indenture, dated August 1, 1993, by and between Rite Aid Exhibit 4A to RegistrationCorporation, as issuer, and Morgan Guaranty Trust Company of New Statement on Form S-3, FileYork, as trustee, related to the Company’s 6.70% Notes due 2001, No. 033-63794, filed on June 3,7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 19932005 and 6.875% Notes due 2013

4.2 Supplemental Indenture, dated as of February 3, 2000, between Rite Exhibit 4.1 to Form 8-K filed onAid Corporation, as issuer, and U.S. Bank Trust National Association February 7, 2000as successor to Morgan Guaranty Trust Company of New York, tothe Indenture dated as of August 1, 1993, relating to the Company’s6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due2027, 7.625% Notes due 2005 and 6.875% Notes due 2013

4.3 Indenture, dated as of December 21, 1998, between Rite Aid Exhibit 4.1 to RegistrationCorporation, as issuer, and Harris Trust and Savings Bank, as trustee, Statement on Form S-4, Filerelated to the Company’s 5.50% Notes due 2000, 6% Notes due No. 333-74751, filed on March 19,2005, 6.125% Notes due 2008 and 6.875% Notes due 2028 1999

4.4 Supplemental Indenture, dated as of February 3, 2000, between Rite Exhibit 4.4 to Form 8-K, filed onAid Corporation and Harris Trust and Savings Bank, to the February 7, 2000Indenture dated December 21, 1998, between Rite Aid Corporationand Harris Trust and Savings Bank, related to the Company’s 5.50%Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and6.875% Notes due 2028

4.5 Indenture, dated as of April 22, 2003, between Rite Aid Corporation, Exhibit 4.11 to Form 10-K, filedas issuer, and BNY Midwest Trust Company, as trustee, related to on May 2, 2003the Company’s 8.125% Senior Secured Notes due 2010

50

ExhibitNumbers Description Incorporation By Reference To

4.6 Supplemental Indenture, dated as of June 4, 2007, between Rite Aid Exhibit 4.6 to Form 10-Q, filed onCorporation, the subsidiaries named therein and The Bank of New January 9, 2008York Trust Company, N.A. to the Indenture dated as of April 22,2003 between Rite Aid Corporation and BNY Midwest TrustCompany, related to the Company’s 8.125% Senior Secured Notesdue 2010

4.7 Indenture, dated as of May 20, 2003, between Rite Aid Corporation, Exhibit 4.12 to Form 10-Q, filedas issuer, and BNY Midwest Trust Company, as trustee, related to on July 3, 2003the Company’s 9.25% Senior Notes due 2013

4.8 Supplemental Indenture, dated as of June 4, 2007, between Rite Aid Exhibit 4.8 to Form 10-Q, filed onCorporation, the subsidiaries named therein and The Bank of New January 9, 2008York Trust Company, N.A. to the Indenture dated as of May 20,2003 between Rite Aid Corporation and BNY Midwest TrustCompany, related to the Company’s 9.25% Senior Secured Notes due2013

4.9 Indenture, dated as of January 11, 2005, among Rite Aid Exhibit 99.2 to Form 8-K, filed onCorporation, the subsidiary guarantors described therein, and BNY January 13, 2005Midwest Trust Company, as trustee, related to the Company’s 7.5%Senior Secured Notes due 2015

4.10 Supplemental Indenture, dated as of June 4, 2007, between Rite Aid Exhibit 4.10 to Form 10-Q, filedCorporation, the subsidiaries named therein and The Bank of New on January 9, 2008York Trust Company, N.A. to the Indenture dated as of January 11,2005 between Rite Aid Corporation and BNY Midwest TrustCompany, related to the Company’s 7.5% Senior Secured Notes due2015

4.11 Indenture, dated as of February 15, 2007, between Rite Aid Exhibit 99.1 to Form 8-K, filed onCorporation, as issuer, the subsidiary guarantors named therein and February 26, 2007The Bank of New York Trust Company, N.A., as trustee, related tothe Company’s 7.5% Senior Secured Notes due 2017

4.12 Supplemental Indenture, dated as of June 4, 2007, between Rite Aid Exhibit 4.12 to Form 10-Q, filedCorporation, the subsidiaries named therein and The Bank of New on January 9, 2008York Trust Company, N.A. to the Indenture dated as of February 21,2007 between Rite Aid Corporation and The Bank of New YorkTrust Company, N.A., related to the Company’s 7.5% Senior SecuredNotes due 2017

4.13 Indenture, dated as of February 15, 2007, between Rite Aid Exhibit 99.2 to Form 8-K, filed onCorporation, as issuer, and The Bank of New York Trust Company, February 26, 2007N.A., as trustee, related to the Company’s 8.625% Senior Notes due2015

4.14 Supplemental Indenture, dated as of June 4, 2007, between Rite Aid Exhibit 4.14 to Form 10-Q, filedCorporation, the subsidiaries named therein and The Bank of New on January 9, 2008York Trust Company, N.A. to the Indenture dated as of February 21,2007 between Rite Aid Corporation and The Bank of New YorkTrust Company, N.A., related to the Company’s 8.625% SeniorSecured Notes due 2015

51

ExhibitNumbers Description Incorporation By Reference To

4.15 Amended and Restated Indenture, dated as of June 4, 2007 among Exhibit 4.1 to Form 8-K, filed onRite Aid Corporation (as successor to Rite Aid Escrow Corp.), the June 6, 2007subsidiary guarantors named therein and The Bank of New YorkTrust Company, N.A., as Trustee, related to the Company’s 9.375%Senior Notes due 2015

4.16 Amended and Restated Indenture, dated as of June 4, 2007 among Exhibit 4.2 to Form 8-K, filed onRite Aid Corporation (as successor to Rite Aid Escrow Corp.), the June 6, 2007subsidiary guarantors named therein and The Bank of New YorkTrust Company, N.A., as Trustee, related to the Company’s 9.5%Senior Notes due 2017

4.17 Amendment and Restatement Agreement, dated as of November 8, Exhibit 10.1 to Form 8-K, filed on2006, relating to the Credit Agreement dated as of June 27, 2001, as November 15, 2006amended and restated as of September 30, 2005, among Rite AidCorporation, the lenders from time to time party thereto, CiticorpNorth America, Inc., as administrative agent and collateral processingagent and Bank of America, N.A., as syndication agent

4.18 First Amendment and Restatement and Waiver dated as of June 4, Exhibit 10.2 to Form 10-Q, filed2007, to the Amendment and Restatement Agreement dated as of on July 12, 2007November 8, 2006, relating to the Credit Agreement dated as ofJune 27, 2001, as amended and restated as of September 30, 2005among Rite Aid Corporation, the lenders from time to time partythereto, Citicorp North America, Inc., as administrative agent andcollateral processing agent and Bank of America, N.A., assyndication agent

4.19 Amendment No. 4 to Receivables Financing Agreement and Exhibit 10.2 to Form 8-K filed onConsent, dated as of November 9, 2006, by and among Rite Aid November 15, 2006Funding II, CAFCO, LLC, Jupiter Securitization Corporation,Variable Funding Capital Company LLC, Citibank, N.A., JPMorganChase Bank, N.A., as investor agent, Wachovia Bank, NationalAssociation, as investor agent, Citicorp North America, Inc., asinvestor agent and program agent, Rite Aid Hdqtrs. Funding, Inc., ascollection agent, and certain other parties thereto as originators

4.20 Amendment No. 7 to Receivables Financing Agreement and Exhibit 10.3 to Form 10-Q, filedConsent, dated as of September 18, 2007, by and among Rite Aid on October 10, 2007Funding II, CAFCO, LLC, CRC Funding, LLC, Falcon AssetSecuritization Company LLC, Variable Funding CapitalCompany LLC, Citibank, N.A., JPMorgan Chase Bank, NA.,Wachovia Bank, National Association, Citicorp North America, Inc.,Rite Aid Hdqtrs. Funding, Inc., as collection agent, and certain otherparties thereto as originators

4.21 Definitions Annex to the Senior Loan Documents and the Second Exhibit 4.12 to Form 10-Q, filedPriority Debt Documents on October 3, 2005

52

ExhibitNumbers Description Incorporation By Reference To

4.22 Second Amendment, dated as of September 30, 2005, to the Exhibit 4.13 to Form 10-Q, filedAmended and Restated Collateral Trust and Intercreditor on October 3, 2005Agreement, dated as of June 27, 2001, as amended and restated asof May 28, 2003, among Rite Aid Corporation and its subsidiariesthat are a party thereto, the collateral trustees, the collateralprocessing co-agents and the trustees of various indentures coveredby this agreement

4.23 First Amendment, dated as of September 22, 2004, to the Amended Exhibit 10.2 to Form 10-Q filedand Restated Collateral Trust and Intercreditor Agreement, dated as on September 25, 2004of June 27, 2001, among Rite Aid Corporation, the SubsidiaryGuarantors (named therein), Wilmington Trust Company, ascollateral trustee; the senior collateral processing co-agents (namedtherein) and the senior collateral agents (named therein)

4.24 Amended and Restated Collateral Trust and Intercreditor Agreement Exhibit 10.2 to Form 8-K, filed ondated as of May 28, 2003, among Rite Aid Corporation, each May 30, 2003Subsidiary of Rite Aid named therein or which becomes a partyhereto, Wilmington Trust Company, as collateral trustee for theholders from time to time of the Second Priority Debt Obligations,Citicorp North America, Inc., as senior collateral processing co-agent,JPMorgan Chase Bank, as senior collateral processing co-agent forthe Senior Secured Parties under the Senior Loan Documents, U.S.Bank and Trust, as trustee under the 12.5% Note Indenture, BNYMidwest Trust Company, as trustee under the 9.5% Note Indentureand as trustee under the 8.125% Note Indenture, and each otherSecond Priority Representative which becomes a party thereto

4.25 Senior Subsidiary Guarantee Agreement, dated as of June 27, 2001, Exhibit 10.31 to Registrationas amended and restated as of May 28, 2003, and as supplemented Statement on Form S-1, Fileas of September 27, 2004, among the Subsidiary Guarantors and No. 333-64950, filed on July 12,Citicorp North America, Inc., as collateral processing agent 2001

4.26 Senior Subsidiary Security Agreement, dated as of June 27, 2001, as Exhibit 10.32 to Registrationamended and restated as of May 28, 2003, as supplemented by Statement on Form S-1, FileSupplement No. 1 dated as of June 27, 2004, and as amended and No. 333-64950, filed on July 12,restated as of September 22, 2004 by the Subsidiary Guarantors in 2001favor of the Citicorp North America, Inc. and JPMorgan ChaseBank, N.A., as collateral processing co-agents

4.27 Senior Indemnity, Subrogation and Contribution Agreement, dated Filed herewithas of June 27, 2001, as amended and restated as of May 28, 2003,and supplemented as of September 27, 2004, among Rite AidCorporation, the Subsidiary Guarantors, and Citicorp NorthAmerica, Inc. and JPMorgan Chase Bank, N.A., as collateralprocessing co-agents

4.28 Credit Agreement, dated as of June 27, 2001, as amended and Exhibit 10.2 on Form 10-Q, filedrestated as of June 4, 2007, among Rite Aid Corporation, the lenders on July 12, 2007party thereto, Citicorp North America, Inc., as administrative agentand collateral processing agent, and Bank of America, N.A., assyndication agent

53

ExhibitNumbers Description Incorporation By Reference To

4.29 Representative Supplement No. 1 to the Amended and Restated Filed herewithCollateral Trust and Intercreditor Agreement, dated as of January 11,2005, by BNY Midwest Trust Company, as Trustee

4.30 Representative Supplement No. 2 to the Amended and Restated Filed herewithCollateral Trust and Indenture Agreement, dated as of February 21,2007, by the Bank of New York Trust Company, N.A., as Trustee

4.31 Second Priority Subsidiary Guarantee Agreement, dated as of Exhibit 10.34 to RegistrationJune 27, 2001, as amended and restated as of May 28, 2003, and as Statement on Form S-1, Filesupplemented as of January 5, 2005, among the Subsidiary No. 333-64950, filed on July 12,Guarantors and Wilmington Trust Company, as collateral agent 2001

4.32 Second Priority Subsidiary Security Agreement, dated as of June 27, Exhibit 10.35 to Registration2001, as amended and restated as of May 28, 2003, as supplemented Statement on Form S-1, Fileas of January 5, 2005, and as amended in the Reaffirmation No. 333-64950, filed on July 12,Agreement and Amendment dates as of January 11, 2005, by the 2001Subsidiary Guarantors in favor of Wilmington Trust Company, ascollateral trustee.

4.33 Second Priority Indemnity, Subrogation and Contribution Agreement, Filed herewithdated as of June 27, 2001, as amended and restated as of May 28,2003, and as supplemented as of January 5, 2005, among theSubsidiary Guarantors and Wilmington Trust Company, as collateralagent

4.34 Participation Agreement, dated as of June 27, 2001, among Rite Aid Exhibit 10.38 to RegistrationRealty Corp., as lessee, Rite Aid Corporation, as guarantor, Wells Statement on Form S-1, FileFargo, as trustee and lessor, the persons named therein as note No. 333-64950, filed on July 12,holders and certificate holders and Citicorp USA, Inc., as 2001administrative agent

4.35 Amendment No. 1 to the Participation Agreement, dated as of Exhibit 10.29 to Form 10-K, filedJune 27, 2001, dated as of February 22, 2002, among Rite Aid Realty on May 2, 2003Corp., as lessee, Rite Aid Corporation, as guarantor, Wells Fargo, astrustee and lessor, the persons named therein as note holders andcertificate holders and Citicorp USA, Inc., as administrative agent

4.36 Amendment No. 2 to the Participation Agreement, dated as of Exhibit 10.30 to Form 10-K, filedJune 27, 2001, dated as of December 23, 2002, among Rite Aid on May 2, 2003Realty Corp., as lessee, Rite Aid Corporation, as guarantor, WellsFargo, as trustee and lessor, the persons named therein as noteholders and certificate holders and Citicorp USA, Inc., asadministrative agent

4.37 Amendment No. 3 to the Participation Agreement, dated as of Exhibit 10.31 to Form 10-K, filedJune 27, 2001, dated as of February 6, 2003, among Rite Aid Realty on May 2, 2003Corp., as lessee, Rite Aid Corporation, as guarantor, Wells Fargo, astrustee and lessor, the persons named therein as note holders andcertificate holders and Citicorp USA, Inc., as administrative agent

54

ExhibitNumbers Description Incorporation By Reference To

4.38 The Receivables Financing Agreement, dated as of September 21, Exhibit 10.3 to Form 10-Q, filed2004, by and among Rite Aid Funding I, as borrower, Rite Aid on September 28, 2004Hdqtrs. Funding, Inc., as collection agent, Citicorp NorthAmerica, Inc., as program agent and as an investor agent, Citibank,N.A., as a bank, Wachovia Bank, National Association, as an investoragent and as a bank, JPMorgan Chase Bank, N.A. (as successor toBank One, NA), as an investor agent and as a bank, CAFCO, LLC,as an investor, Falcon Asset Securitization Company LLC (assuccessor to Jupiter Securitization Corporation), as an investor,Variable Funding Capital Company LLC (as successor to Blue RidgeAsset Funding Corporation), as an investor, and Rite AidCorporation and the companies named therein, as originators

4.39 The Originator Purchase Agreement, dated as of September 21, Exhibit 10.4 to Form 10-Q, filed2004, by and among Rite Aid Hdqtrs. Funding, Inc., as purchaser on September 28, 2004and as collection agent, Rite Aid Corporation, as parent, and thecompanies named therein, as sellers

4.40 The Secondary Purchase Agreement, dated as of September 21, 2004, Exhibit 10.5 to From 10-Q, filedbetween Rite Aid Hdqtrs. Funding, Inc., as seller and as collection on September 28, 2004agent, and Rite Aid Funding I, as purchaser

4.41 The Tertiary Purchase Agreement, dated as of September 21, 2004, Exhibit 10.6 to From 10-Q, filedamong Rite Aid Funding I, as seller, Rite Aid Funding II, as on September 28, 2004purchaser, and Rite Aid Hdqtrs. Funding, Inc., as collection agent

4.42 The Intercreditor Agreement, dated as of September 22, 2004, by Exhibit 10.7 to From 10-Q, filedand among Rite Aid Hdqtrs. Funding, Inc., Rite Aid Funding I, Rite on September 28, 2004Aid Funding II, Citicorp North America, Inc., as program agent andsenior collateral agent, JPMorgan Chase Bank and Rite AidCorporation and the companies named therein

10.1 1999 Stock Option Plan* Exhibit 10.1 to Form 10-K, filedon May 21, 2001

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

10.3 2001 Stock Option Plan* Exhibit 10.3 to Form 10-K, filedon May 21, 2001

10.4 2004 Omnibus Equity Plan* Exhibit 10.4 to Form 10-K, filedon April 28, 2005

10.5 2006 Omnibus Equity Plan* Exhibit 10 to Form 8-K, filed onJanuary 22, 2007

10.6 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.7 to Form 10-K, filedRobert G. Miller, dated as of April 9, 2003* on May 2, 2003

10.7 Amendment No. 1 to Employment Agreement by and between Rite Exhibit 10.8 to Form 10-K, filedAid Corporation and Robert G. Miller, dated as of April 28, 2005* on April 28, 2005

10.8 Amendment No. 2 to Employment Agreement by and between Rite Filed herewithAid Corporation and Robert G. Miller, dated as of April 28, 2008*

10.9 Side Agreement to Employment Agreement between Rite Aid Filed herewithCorporation and Robert G. Miller, dated as of November 28, 2006*

55

ExhibitNumbers Description Incorporation By Reference To

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

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

10.12 Amendment No. 1 to Employment Agreement by and between Rite Exhibit 10.12 to Form 10-Q, filedAid Corporation and Mary F. Sammons, dated as of May 7, 2001* on May 21, 2001

10.13 Amendment No. 2 to Employment Agreement by and between Rite Exhibit 10.3 to Form 10-Q, filedAid Corporation and Mary F. Sammons, dated as of September 30, on October 7, 20032003*

10.14 Side Agreement to Employment Agreement by and between Rite Filed herewithAid Corporation and Mary F. Sammons, dated as of October 11,2006*

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

10.16 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.1 to Form 10-Q, filedDouglas E. Donley, dated as of August 1, 2000* on December 22, 2005

10.17 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.2 to Form 10-Q, filedMark de Bruin, dated as of February 5, 2003* on December 22, 2005

10.18 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.20 to Form 10-K, filedJames Mastrian, dated as of September 27, 1999* on May 21, 2001

10.19 Rite Aid Corporation Special Executive Retirement Plan* Exhibit 10.15 to Form 10-K, filedon April 26, 2004

10.20 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.49 to Form 10-K, filedRobert B. Sari, dated as of February 28, 2001* on May 21, 2001

10.21 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.4 to Form 10-Q, filedKevin Twomey, dated as of September 30, 2003* on October 7, 2003

10.22 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.1 to Form 10-Q, filedBrian Fiala, dated as of June 26, 2007* on July 12, 2007

10.23 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.26 to RegistrationRobert Easley, dated as of August 20, 2007* Statement on Form S-4, File

No. 333-146383, filed onSeptember 28, 2007

10.24 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.20 to Form 10-K, filedPierre Legault, dated as of February 2, 2007* on April 30, 2007

10.25 Supply Agreement by and between Rite Aid Corporation and Filed herewithMcKesson Corporation, dated as of December 22, 2003**

10.26 First Amendment to Supply Agreement by and between Rite Aid Filed herewithCorporation and McKesson Corporation, dated as of December 8,2007**

56

ExhibitNumbers Description Incorporation By Reference To

10.27 Management Services Agreement by and between Rite Aid Filed herewithCorporation and Leonard Green & Partners, L.P., dated as ofJanuary 1, 2003

10.28 Fourth Amendment to Management Services Agreement by and Filed herewithbetween Rite Aid Corporation and Leonard Green & Partners, L.P.,dated as of February 12, 2007

11 Statement regarding computation of earnings per share Filed herewith (see note 3 to theconsolidated financial statements)

12 Statement regarding computation of ratio of earnings to fixed Filed herewithcharges

21 Subsidiaries of the Registrant Filed herewith

23 Consent of Independent Registered Public Accounting Firm Filed herewith

31.1 Certification of CEO pursuant to Rule 13a-14(a)/15d-14 (a) under Filed herewiththe Securities Exchange Act of 1934

31.2 Certification of CFO pursuant to Rule 13a-14 (a)/15d-14 (a) under Filed herewithSecurities Exchange Act of 1934

32 Certification of CEO and CFO pursuant to 18 U.S.C., Section 1350, Filed herewithas adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002

* Constitutes a compensatory plan or arrangement required to be filed with this Form 10-K.

** Confidential portions of this Exhibit were redacted and filed separately with the Securities and ExchangeCommission pursuant to a request for confidential treatment.

57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ofRite Aid CorporationCamp Hill, Pennsylvania

We have audited the accompanying consolidated balance sheets of Rite Aid Corporation andsubsidiaries (the ‘‘Company’’) as of March 1, 2008 and March 3, 2007, and the related consolidatedstatements of operations, stockholders’ equity, and cash flows for each of the three years in the periodended March 1, 2008. Our audits also included the financial statement schedule listed in the Index atItem 15(a)(2). These financial statements and financial statement schedule are the responsibility of theCompany’s management. Our responsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,the financial position of Rite Aid Corporation and subsidiaries as of March 1, 2008 and March 3, 2007,and the results of their operations and their cash flows for each of the three years in the period endedMarch 1, 2008, in conformity with accounting principles generally accepted in the United States ofAmerica. Also, in our opinion, such financial statement schedule, when considered in relation to thebasic consolidated financial statements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

We have also audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the Company’s internal control over financial reporting as ofMarch 1, 2008, based on the criteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated April 28,2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Deloitte & Touche LLP

Philadelphia, PennsylvaniaApril 28, 2008

58

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

March 1, March 3,2008 2007

ASSETSCurrent assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,762 $ 106,148Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,971 374,493Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,936,827 2,335,679Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . 163,334 136,668

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,921,894 2,952,988Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,873,009 1,743,104Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,783,372 656,037Other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,187,327 178,220Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,163 1,380,942Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,258 179,733

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,488,023 $ 7,091,024

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:

Current maturities of long-term debt and lease financing obligations . . . . $ 185,609 $ 16,184Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,768 902,807Accrued salaries, wages and other current liabilities . . . . . . . . . . . . . . . . 1,110,288 670,934Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,374 —

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,798,039 1,589,925Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,610,489 2,909,983Lease financing obligations, less current maturities . . . . . . . . . . . . . . . . . . 189,426 174,121Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,178,884 754,149

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,776,838 5,428,178

Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Stockholders’ equity:Preferred stock—series E, par value $1 per share; liquidation value $50

per share; 2,500 shares authorized; shares issued 0 and 2,500 . . . . . . . . — 120,000Preferred stock—series G, par value $1 per share; liquidation value $100

per share; 2,000 shares authorized; shares issued 1,393 and 1,299 . . . . . 139,253 129,917Preferred stock—series H, par value $1 per share; liquidation value $100

per share; 2,000 shares authorized; shares issued 1,352 and 1,274 . . . . . 135,202 127,385Preferred stock—series I, par value $1 per share; liquidation value $25

per share; 5,200 shares authorized; shares issued 4,820 . . . . . . . . . . . . 116,415 116,415Common stock, par value $1 per share; 1,500,000 shares authorized;

shares issued and outstanding 830,209 and 536,686 . . . . . . . . . . . . . . . 830,209 536,686Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,047,499 3,118,299Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,537,276) (2,462,197)Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,117) (23,659)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,711,185 1,662,846Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . $11,488,023 $ 7,091,024

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

59

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,326,846 $17,399,383 $17,163,044Costs and expenses:

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,689,272 12,710,609 12,491,642Selling, general and administrative expenses . . . . . . . . . . . 6,366,137 4,338,462 4,275,098Store closing and impairment charges . . . . . . . . . . . . . . . . 86,166 49,317 68,692Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,596 275,219 277,017Acquisition related financing commitment charge . . . . . . . 12,900 — —Loss on debt modifications and retirements, net . . . . . . . . — 18,662 9,186Gain on sale of assets, net . . . . . . . . . . . . . . . . . . . . . . . . (3,726) (11,139) (6,463)

24,600,345 17,381,130 17,115,172

(Loss) income before income taxes . . . . . . . . . . . . . . . . . . . (273,499) 18,253 47,872Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . 802,701 (11,609) (1,228,136)

Net (loss) income from continuing operations . . . . . . . . . . $ (1,076,200) $ 29,862 $ 1,276,008

Loss from discontinued operations, net of gain on disposaland income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . (2,790) (3,036) (3,002)

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,078,990) $ 26,826 $ 1,273,006

Computation of (loss) income applicable to commonstockholders:Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,078,990) $ 26,826 $ 1,273,006Accretion of redeemable preferred stock . . . . . . . . . . . . . . (102) (102) (102)Cumulative preferred stock dividends . . . . . . . . . . . . . . . . (32,533) (31,455) (32,723)Premium to redeem preferred stock . . . . . . . . . . . . . . . . . — — (5,883)Preferred stock beneficial conversion . . . . . . . . . . . . . . . . (556) — —

(Loss) income applicable to common stockholders . . . . . . . $ (1,112,181) $ (4,731) $ 1,234,298

Basic and diluted (loss) income per share:Basic (loss) income per share . . . . . . . . . . . . . . . . . . . . . . $ (1.54) $ (0.01) $ 2.36

Diluted (loss) income per share . . . . . . . . . . . . . . . . . . . . $ (1.54) $ (0.01) $ 1.89

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

60

61

RITE AID CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006(In thousands)

AccumulatedAdditional Other

Preferred Stock Preferred Preferred Preferred Preferred Paid-In Accumulated ComprehensiveSeries E Stock-Series F Stock-Series G Stock-Series H Stock-Series I Common Stock Capital Deficit Income (Loss) Total

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Amount

BALANCE FEBRUARY 26, 2005 . . . . . . . . . . . . . . . . . . 2,500 $ 120,000 1,131 $ 113,081 1,131 $113,081 1,131 $113,081 — $ — 520,438 $520,438 $3,121,404 $(3,756,146) $(22,005) $ 322,934Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273,006 1,273,006Other comprehensive income:Minimum pension liability . . . . . . . . . . . . . . . . . . . . . . (3,425) (3,425)Tax benefit from minimum pension liability adjustment . . . . . . . 1,409 1,409

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . 1,270,990Exchange of restricted shares for taxes . . . . . . . . . . . . . . . . (340) (340) (914) (1,254)Issuance of restricted stock . . . . . . . . . . . . . . . . . . . . . . 4,202 4,202 (4,202) —Cancellation of restricted stock . . . . . . . . . . . . . . . . . . . . (839) (839) 839 —Amortization of restricted stock balance . . . . . . . . . . . . . . . 6,274 6,274Stock-based compensation expense . . . . . . . . . . . . . . . . . . 13,987 13,987Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . 4,206 4,206 7,356 11,562Tax benefit from exercise of stock options . . . . . . . . . . . . . . 2,976 2,976Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . 46 4,569 81 8,126 69 6,939 (19,634) —Issuance of Series I preferred stock . . . . . . . . . . . . . . . . . 4,820 116,074 116,074Redemption of Series F stock . . . . . . . . . . . . . . . . . . . . (1,177) (117,650) (5,883) (123,533)Cash dividends paid on preferred shares . . . . . . . . . . . . . . . (13,089) (13,089)

BALANCE MARCH 4, 2006 . . . . . . . . . . . . . . . . . . . . . 2,500 $ 120,000 — $ — 1,212 $121,207 1,200 $120,020 4,820 $116,074 527,667 $527,667 $3,114,997 $(2,489,023) $(24,021) $ 1,606,921

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,826 26,826Other comprehensive income:Minimum pension liability . . . . . . . . . . . . . . . . . . . . . . 6,802 6,802Tax provision from minimum pension liability adjustment . . . . . . (2,813) (2,813)

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . 30,815Adjustment to initially apply FAS No. 158, net of tax benefit of

$2,560 (see Note 15) . . . . . . . . . . . . . . . . . . . . . . . . (3,627) (3,627)Exchange of restricted shares for taxes . . . . . . . . . . . . . . . . (723) (723) (2,421) (3,144)Issuance of restricted stock . . . . . . . . . . . . . . . . . . . . . . 4,790 4,790 (4,790) —Cancellation of restricted stock . . . . . . . . . . . . . . . . . . . . (972) (972) 972 —Amortization of restricted stock balance . . . . . . . . . . . . . . . 10,702 10,702Stock-based compensation expense . . . . . . . . . . . . . . . . . . 11,630 11,630Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . 5,924 5,924 14,462 20,386Tax benefit from exercise of stock options . . . . . . . . . . . . . . 4,202 4,202Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . 87 8,710 74 7,365 (16,075) —Adjustment to issuance costs of Series I preferred stock . . . . . . . 341 341Cash dividends paid on preferred shares . . . . . . . . . . . . . . . (15,380) (15,380)

BALANCE MARCH 3, 2007 . . . . . . . . . . . . . . . . . . . . . 2,500 $ 120,000 — $ — 1,299 $129,917 1,274 $127,385 4,820 $116,415 536,686 $536,686 $3,118,299 $(2,462,197) $(23,659) $ 1,662,846

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,078,990) (1,078,990)Other comprehensive income:Changes in Defined Benefit Plans . . . . . . . . . . . . . . . . . . 6,285 6,285Tax provision from minimum pension liability adjustment . . . . . . (2,743) (2,743)

Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . (1,075,448)Adjustment to initially apply FIN 48 . . . . . . . . . . . . . . . . . 4,467 4,467Issuance of shares to Jean Coutu Group . . . . . . . . . . . . . . . 250,000 250,000 840,000 1,090,000Exchange of restricted shares for taxes . . . . . . . . . . . . . . . . (1,423) (1,423) (7,080) (8,503)Issuance of restricted stock . . . . . . . . . . . . . . . . . . . . . . 7,179 7,179 (7,179) —Cancellation of restricted stock . . . . . . . . . . . . . . . . . . . . (1,382) (1,382) 1,382 —Amortization of restricted stock balance . . . . . . . . . . . . . . . 21,224 21,224Stock-based compensation expense . . . . . . . . . . . . . . . . . . 19,215 19,215Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . 4,135 4,135 8,629 12,764Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . 94 9,336 78 7,817 (17,153) —Preferred stock beneficial conversion . . . . . . . . . . . . . . . . . 556 (556) —Conversion of Series E preferred stock . . . . . . . . . . . . . . . . (2,500) (120,000) 35,014 35,014 84,986 —Cash dividends paid on preferred shares . . . . . . . . . . . . . . . (15,380) (15,380)

BALANCE MARCH 1, 2008 . . . . . . . . . . . . . . . . . . . . . — $ — — $ — 1,393 $139,253 1,352 $135,202 4,820 $116,415 830,209 $830,209 $4,047,499 $(3,537,276) $(20,117) $ 1,711,185

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

RITE AID CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

OPERATING ACTIVITIES:Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,078,990) $ 26,826 $ 1,273,006Adjustments to reconcile to net cash provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472,473 270,307 249,755Store closings and impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,166 49,317 68,692LIFO charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,114 43,006 32,188Gain on sale of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,826) (11,139) (6,462)Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,439 22,331 20,261Acquisition related financing commitment charge . . . . . . . . . . . . . . . . . . . . . 12,900 — —Loss on debt modifications and retirements, net . . . . . . . . . . . . . . . . . . . . . . — 18,662 9,186Changes in deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805,204 (13,362) (1,211,646)Proceeds from sale of inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,811 — —Tax benefit from the exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . — — 2,976Proceeds from insured loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,550 593 24,319Changes in operating assets and liabilities:

Net proceeds from accounts receivable securitization . . . . . . . . . . . . . . . . . 85,000 20,000 180,000Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,820 (39,543) (51,494)Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (306,360) (37,275) (63,445)Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . 31,191 1,028 (62,061)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,812 13,427 (13,961)Income taxes receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,155) 1,454 (21,263)Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115,624) 14,219 71,641Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,157) (70,706) (84,527)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . 79,368 309,145 417,165

INVESTING ACTIVITIES:Payments for property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . (687,529) (334,485) (287,785)Intangible assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,846) (29,243) (53,564)Acquisition of Jean Coutu, USA, net of cash acquired . . . . . . . . . . . . . . . . . . (2,306,774) (18,369) —Proceeds from sale-leaseback transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 48,985 55,563 77,307Proceeds from dispositions of assets and investments . . . . . . . . . . . . . . . . . . . 58,470 9,348 26,355Proceeds from insured loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,950 4,406 6,603

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,933,744) (312,780) (231,084)

FINANCING ACTIVITIES:Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307,867 1,145,000 —Net proceeds from (payments to) revolver . . . . . . . . . . . . . . . . . . . . . . . . . . 549,000 (234,000) 534,000Principal payments on bank credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . — — (448,875)Proceeds from financing secured by owned property . . . . . . . . . . . . . . . . . . . 44,267 26,527 8,001Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,939) (901,297) (377,023)Change in zero balance cash accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,606 15,662 26,393Net proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . . . . 12,764 20,386 11,562Net proceeds from the issuance of preferred stock . . . . . . . . . . . . . . . . . . . . — — 116,885Payments for the redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . — — (123,533)Payments for preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,380) (15,380) (13,089)Excess tax deduction on stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,587 —Deferred financing costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,195) (24,769) (7,156)

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . 2,903,990 33,716 (272,835)

Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 49,614 30,081 (86,754)Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,148 76,067 162,821

Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,762 $ 106,148 $ 76,067

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

62

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies

Description of Business

The Company is a Delaware corporation and through its wholly-owned subsidiaries, operates retaildrugstores in the United States of America. It is one of the largest retail drugstore chains in the UnitedStates, with 5,059 stores in operation as of March 1, 2008. The Company’s drugstores’ primary businessis pharmacy services. The Company also sells a full selection of health and beauty aids and personalcare products, seasonal merchandise and a large private brand product line.

The Company’s operations consist solely of the retail drug segment. Revenues are as follows:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Pharmacy sales . . . . . . . . . . . . . . . . . . . . $16,179,170 $11,042,183 $10,810,713Front-end sales . . . . . . . . . . . . . . . . . . . . 8,049,446 6,272,333 6,267,332Other revenue . . . . . . . . . . . . . . . . . . . . . 98,230 84,867 84,999

$24,326,846 $17,399,383 $17,163,044

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to February 29 or March 1. The fiscal yearended March 1, 2008 and March 3, 2007 included 52 weeks. The fiscal year ended March 4, 2006included 53 weeks.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its whollyowned subsidiaries. All significant intercompany accounts and transactions have been eliminated inconsolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments, which are readilyconvertible to known amounts of cash and which have original maturities of three months or less whenpurchased.

Allowance for Uncollectible Receivables

Approximately 96% of prescription sales are made to customers that are covered by third-partypayors, such as insurance companies, government agencies and employers. The Company recognizesreceivables that represent the amount owed to the Company for sales made to customers or employeesof those payors that have not yet been paid. The Company maintains a reserve for the amount of thesereceivables deemed to be uncollectible. This reserve is calculated based upon historical collectionactivity adjusted for current conditions.

63

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Inventories

Inventories are stated at the lower of cost or market. Inventory balances include the capitalizationof certain costs related to purchasing, freight and handling costs associated with placing inventory in itslocation and condition for sale. The Company uses the last-in, first-out (‘‘LIFO’’) method of accountingfor substantially all of its inventories. At March 1, 2008 and March 3, 2007, inventories were $562,728and $546,614, 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 retailmethod for store inventories and the cost method for distribution facility inventories. The LIFO chargewas $16,114, $43,006 and $32,188 for fiscal years 2008, 2007, and 2006, respectively.

Impairment of Long-Lived Assets

Asset impairments are recorded when the carrying value of assets are not recoverable. Forpurposes of recognizing and measuring impairment of long-lived assets, the Company categorizes assetsof 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 lowestlevel of identifiable cash flows ascertainable to evaluate impairment. Assets being tested forrecoverability at the store level include tangible long-lived assets and identifiable, finite-lived intangiblesthat arose in purchase business combinations. Corporate assets to be held and used are evaluated forimpairment based on excess cash flows from the stores that support those assets. Goodwill is evaluatedbased on a comparison of the estimated fair value of the Company with its total capitalization includinglong term debt and stockholders’ equity.

The Company reviews long-lived assets to be held and used for impairment annually or wheneverevents or changes in circumstances indicate that the carrying amount of an asset may not berecoverable. If the sum of the undiscounted expected future cash flows is less than the carrying amountof the asset, the Company recognizes an impairment loss. Impairment losses are measured as theamount by which the carrying amount of the asset exceeds the fair value of the asset. When fair valuesare not available, the Company estimates fair value using the expected future cash flows discounted ata rate commensurate with the risks associated with the recovery of the asset.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation andamortization. The Company provides for depreciation using the straight-line method over the followinguseful 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 estimateduseful life of the asset or the term of the lease. When determining the amortization period of aleasehold improvement, the Company considers whether discretionary exercise of a lease renewaloption is reasonably assured. If it is determined that the exercise of such option is reasonably assured,the Company will amortize the leasehold improvement asset over the minimum lease term, plus theoption period. This determination depends on the remaining life of the minimum lease term and anyeconomic penalties that would be incurred if the lease option is not exercised.

64

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Capitalized lease assets are recorded at the lesser of the present value of minimum lease paymentsor fair market value and amortized over the estimated useful life of the related property or term of thelease.

The Company capitalizes direct internal and external development costs and direct externalapplication development costs associated with internal-use software. Neither preliminary evaluationcosts nor costs associated with the software after implementation are capitalized. For fiscal years 2008,2007 and 2006, the Company capitalized costs of approximately $3,399, $4,956 and $3,563, respectively.

Intangible Assets

Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquiredentities. In accordance with the provisions of Statements of Financial Accounting Standards (‘‘SFAS’’)No. 142, ‘‘Goodwill and Intangible Assets’’, the Company does not amortize goodwill. The Companyalso has certain finite-lived intangible assets that are amortized over their useful lives. The value offavorable and unfavorable leases on stores acquired in business combinations are amortized over theterms of the leases on a straight-line basis. Prescription files acquired in business combinations areamortized over an estimated useful life of ten years on an accelerated basis, which approximates theanticipated prescription file retention and related cash flows. Purchased prescription files acquired inother than business combinations are amortized over their estimated useful lives of five years on astraight line basis.

Revenue Recognition

For all sales other than third party pharmacy sales, the Company recognizes revenue from the saleof merchandise at the time the merchandise is sold. For third party pharmacy sales, revenue isrecognized at the time the prescription is filled, which is or approximates when the customer picks upthe prescription. 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.

Cost of Goods Sold

Cost of goods sold includes the following: the cost of inventory sold during the period, includingrelated vendor rebates and allowances, costs incurred to return merchandise to vendors, inventoryshrink costs, purchasing costs and warehousing costs which include inbound freight costs from thevendor, distribution payroll and benefit costs, distribution center occupancy costs and depreciationexpense and delivery expenses to the stores.

Vendor Rebates and Allowances

Rebates and allowances received from vendors relate to either buying and merchandising orpromoting the product. Buying and merchandising related rebates and allowances are recorded as areduction of cost of goods sold as product is sold. Buying and merchandising rebates and allowancesinclude all types of vendor programs such as cash discounts from timely payment of invoices, purchasediscounts or rebates, volume purchase allowances, price reduction allowances and slotting allowances.Product promotion related rebates and allowances, primarily related to advertising, are recorded as a

65

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

reduction in selling, general and administrative expenses when the advertising commitment has beensatisfied.

Rent

The Company records rent expense on operating leases on a straight-line basis over the minimumlease term. The Company begins to record rent expense at the time that the Company has the right touse the property. From time to time, the Company receives incentive payments from landlords thatsubsidize lease improvement construction. These leasehold incentives are deferred and recognized on astraight-line basis over the minimum lease term.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include store and corporate administrative payroll andbenefit costs, occupancy costs which include retail store and corporate rent costs, facility and leaseholdimprovement depreciation and utility costs, advertising, repair and maintenance, insurance, equipmentdepreciation and professional fees.

Repairs and Maintenance

Routine repairs and maintenance are charged to operations as incurred. Improvements and majorrepairs, which extend the useful life of an asset, are capitalized and depreciated.

Advertising

Advertising costs, net of specific vendor advertising allowances, are expensed in the period theadvertisement first takes place. Advertising expenses, net of vendor advertising allowances, for fiscal2008, 2007 and 2006 were $375,025, $295,232 and $293,545, respectively.

Insurance

The Company is self-insured for certain general liability and workers’ compensation claims. Forclaims that are self-insured, stop-loss insurance coverage is maintained for workers’ compensationoccurrences exceeding $750 and general liability occurrences exceeding $2,000. The Company utilizesactuarial studies as the basis for developing reported claims and estimating claims incurred but notreported relating to the Company’s self-insurance. Workers’ compensation claims are discounted topresent value using a risk-free interest rate.

A majority of the Company-sponsored associate medical plans are self-insured. The remainingCompany-sponsored associate medical plans are covered through guaranteed cost contracts.

Benefit Plan Accruals

The Company has several defined benefit plans, under which participants earn a retirement benefitbased upon a formula set forth in the plan. The Company records expense related to these plans usingactuarially determined amounts that are calculated under the provisions of SFAS No. 87, ‘‘Employer’s

66

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

Accounting for Pensions’’. Key assumptions used in the actuarial valuations include the discount rate,the expected rate of return on plan assets and the rate of increase in future compensation levels.

Stock-Based Compensation

The Company has several stock option plans, which are described in detail in Note 15. TheCompany accounts for stock-based compensation under SFAS No. 123(R), ‘‘Share-Based Payment’’,which requires companies to account for share-based payments to associates using the fair valuemethod of expense recognition. Fair value for stock options can be calculated using either a closedform or open form calculation method. SFAS No. 123(R) requires companies to recognize optionexpense over the requisite service period of the award, net of an estimate for the impact of awardforfeitures.

The Company adopted SFAS No. 123(R) effective March 5, 2006 using the modified prospectivetransition method. The Company had previously adopted the provisions of SFAS No. 123, ‘‘Accountingfor Stock-Based Compensation’’ effective March 2, 2003 and had been recognizing expense on a ratablebasis related to share-based payments to associates using the fair value method. The adoption of SFASNo. 123(R) did not have a material impact on its financial position and results of operations.

SFAS No. 123(R) also requires the company to reclassify tax benefits realized upon the exercise ofstock options in excess of that which is associated with the expense recognized for financial reportingpurposes. These amounts are presented as a financing cash inflow rather than as a reduction of incometaxes paid in the consolidated statement of cash flows.

Store Pre-opening Expenses

Costs incurred prior to the opening of a new or relocated store, associated with a remodeled storeor related to the opening of a distribution facility are charged against earnings when incurred.

Litigation Reserves

The Company is involved in litigation on an ongoing basis. The Company accrues its best estimateof the probable loss related to legal claims. Such estimates are developed in consultation with in-houseand outside counsel, and are based upon a combination of litigation and settlement strategies.

Store Closing Costs and Lease Exit Charges

When a store is closed, the Company records an expense for unrecoverable costs and accrues aliability equal to the present value at current credit adjusted risk-free interest rates of the remaininglease obligations and anticipated ancillary occupancy costs, net of estimated sublease income. Otherstore closing and liquidation costs are expensed when incurred.

Income Taxes

Deferred income taxes are determined based on the difference between the financial reporting andtax bases of assets and liabilities. Deferred income tax expense (benefit) represents the change duringthe reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of

67

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

acquisitions and dispositions. Deferred tax assets include tax loss and credit carryforwards and arereduced by a valuation allowance if, based on available evidence, it is more likely than not that someportion of the deferred tax assets will not be realized. Changes in valuation allowances from period toperiod are included in the tax provision in the period of change.

The Company has net operating loss (‘‘NOL’’) carryforwards that can be utilized to offset futureincome for federal and state tax purposes. These NOLs generate a significant deferred tax asset. TheCompany regularly reviews the deferred tax assets for recoverability considering historical profitability,projected taxable income, the expected timing of the reversals of existing temporary differences and taxplanning strategies.

The Company recognizes tax liabilities in accordance with FIN 48 and management adjusts theseliabilities with changes in judgement as a result of the evaluation of new information not previouslyavailable. Due to the complexity of some of these uncertainties, the ultimate resolution may result in apayment that is materially different from the current estimate of the tax liabilities.

Sales Tax Collected

Sales taxes collected from customers and remitted to various governmental agencies are presentedon a net basis (excluded from revenues) in the Company’s statement of operations.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanying notes. Actual resultscould differ from those estimates.

Significant Concentrations

The Company’s pharmacy sales were primarily to customers covered by health plan contracts,which typically contract with a third party payor that agrees to pay for all or a portion of a customer’seligible prescription purchases. During fiscal 2008, the top five third party payors accounted forapproximately 36.3% of the Company’s total sales, the largest of which represented 11.3% of totalsales. Third party payors are entities such as an insurance company, governmental agency, healthmaintenance organization or other managed care provider, and typically represent several health carecontracts and customers. During fiscal 2008, state sponsored Medicaid agencies accounted forapproximately 6.3% of the Company’s total sales, the largest of which was less than 2.0% of theCompany’s total sales. Any significant loss of third-party payor business could have a material adverseeffect on the Company’s business and results of operations.

During fiscal 2008, the Company purchased brand pharmaceuticals and some genericpharmaceuticals which amounted to approximately 93.7% of the dollar volume of its prescription drugsfrom a single wholesaler, McKesson Corp. (‘‘McKesson’’), under a contract expiring April 2010. Withlimited exceptions, the Company is required to purchase all of its branded pharmaceutical productsfrom McKesson. If the Company’s relationship with McKesson was disrupted, the Company could have

68

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

temporary difficulty filling prescriptions until a replacement wholesaler agreement was executed, whichwould negatively impact the business.

Derivatives

The Company may enter into interest rate swap agreements to hedge the exposure to increasingrates with respect to its variable rate debt, when the Company deems it prudent to do so. Uponinception of interest rate swap agreements, or modifications thereto, the Company performs acomprehensive review of the interest rate swap agreements based on the criteria as provided by SFASNo. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’, as amended by SFASNo. 138. As of March 1, 2008 and March 3, 2007, the Company had no interest rate swaparrangements or other derivatives.

Discontinued Operations

For purposes of determining discontinued operations, the Company has determined that the storelevel is a component of the entity within the context of SFAS 144, ‘‘Accounting for the Impairment orDisposal of Long-Lived Assets’’. A component of an entity comprises operations and cash flows thatcan be clearly distinguished, operationally and for financial reporting purposes, from the rest of theCompany. The Company routinely evaluates its store base and closes non-performing stores. TheCompany evaluates the results of operations of these closed stores both quantitatively and qualitativelyto determine if appropriate for reporting as discontinued operations. Stores sold where the Companyretains the prescription files are excluded from the analysis as the Company retains direct cash flowsresulting from the migration of revenue to existing stores.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48) ‘‘Accounting for Uncertaintyin Income Taxes, an interpretation of FASB Statement No. 109.’’ The interpretation establishes criteriafor recognizing and measuring the financial statement tax effects of positions taken on a company’s taxreturns. A two-step process is prescribed whereby the threshold for recognition is amore-likely-than-not test that the tax position will be sustained upon examination, based on thetechnical merits of the position. If it is determined that a tax position should be recognized, then thetax position is measured at the largest amount of benefit that is greater than 50 percent likely of beingrealized upon ultimate settlement. The Company adopted FIN 48 on March 4, 2007.

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. This standardestablishes a standard definition for fair value, establishes a framework under generally acceptedaccounting principles for measuring fair value and expands disclosure requirements for fair valuemeasurements. This standard is effective for financial statements issued for fiscal years beginning afterNovember 15, 2007. In December 2007, a FASB Staff Position (FSP) was proposed, and subsequentlyapproved, to delay the effective dates of SFAS No. 157 as it relates to all nonfinancial assets andnonfinancial liabilities, except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis, or at least annually. The Company is currently evaluating the impact ofadopting SFAS No. 157.

69

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

1. Summary of Significant Accounting Policies (Continued)

In February 2007, the FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assetsand Financial Liabilities, Including an Amendment of FASB Statement No. 115’’. SFAS No. 159 permitsentities to choose to measure many financial instruments and certain other items at fair value that arenot currently required to be measured at fair value. Unrealized gains and losses on items for which thefair value option has been elected are reported in earnings. SFAS No. 159 does not affect any existingaccounting literature that requires certain assets and liabilities to be carried at fair value. The Companydoes not expect to adopt SFAS No. 159.

In December 2007, the FASB issued SFAS No. 141 (Revised) ‘‘Business Combinations’’. SFAS 141(Revised) establishes principles and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the assets acquired and liabilities assumed in a businesscombination, and makes several changes to the method of accounting for business combinationspreviously set forth in SFAS No. 141. SFAS No. 141 (Revised) will become effective for acquisitionsconsummated in fiscal years beginning after December 15, 2008.

2. Acquisition

On June 4, 2007, the Company acquired of all of the membership interests of JCG (PJC)USA, LLC (‘‘Jean Coutu USA’’), the holding company for the Brooks Eckerd drugstore chain (‘‘BrooksEckerd’’), from Jean Coutu Group (PJC) Inc. (‘‘Jean Coutu Group’’), pursuant to the terms of theStock Purchase Agreement (the ‘‘Agreement’’) dated August 23, 2006. As consideration for theacquisition of Jean Coutu USA (the ‘‘Acquisition’’), the Company paid $2,307,747 and issued 250,000shares of Rite Aid common stock. The Company financed the cash payment via the establishment of anew term loan facility, issuance of senior notes and borrowings under its existing revolving creditfacility. The consideration associated with the common stock was $1,090,000 based on a stock price of$4.36 per share, representing the average closing price of Rite Aid common stock beginning two daysprior to the announcement of the Acquisition on August 24, 2006 and ending two days after theannouncement.

At March 1, 2008, the Jean Coutu Group owned approximately 28.6% of total Rite Aid votingpower. The Company expanded its Board of Directors to 14 members, with four of the seats being heldby members designated by the Jean Coutu Group. In connection with the Acquisition, the Companyentered into a Stockholder Agreement (the ‘‘Stockholder Agreement’’) with Jean Coutu Group andcertain Coutu family members. The Stockholder Agreement contains provisions relating to Jean CoutuGroup’s ownership interest in the Company, board and board committee composition, corporategovernance, stock ownership, stock purchase rights, transfer restrictions, voting arrangements and othermatters. The Company and Jean Coutu Group also entered into a Registration Rights Agreementgiving Jean Coutu Group certain rights with respect to the registration under the Securities Act of1933, as amended, of the shares of Rite Aid common stock issued to Jean Coutu Group or acquired byJean Coutu Group pursuant to certain stock purchase rights or open market rights under theStockholder Agreement.

The Company’s consolidated financial statements for the fiscal year ended March 1, 2008 includeBrooks Eckerd results of operations for the thirty-nine week period ended March 1, 2008. The

70

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

2. Acquisition (Continued)

Company’s financial statements reflect preliminary purchase accounting adjustments in accordance withSFAS No. 141 ‘‘Business Combinations’’, whereby the purchase price was preliminarily allocated to theassets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.

The following allocation of the purchase price and the estimated transaction costs is preliminaryand is based on information available to the Company’s management at the time the consolidatedfinancial statements were prepared. Accordingly, the allocation is expected to change and the impact ofsuch changes may be material. The Company will finalize the allocation of the purchase price in thequarter ended May 31, 2008.

Preliminary purchase priceCash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,307,747Stock consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,090,000Capitalized acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,264

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,441,011

Preliminary purchase price allocationCash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,868Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,798Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,319,058Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,763

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,821,487Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914,486Intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131,550Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,127,335Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,790

Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,101,648

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 577,354Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,931Other current liabilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,146

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,043,431Deferred tax liability—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,360Other long-term liabilities(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,846

Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,660,637

Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,441,011

(1) Included in intangible assets are prescription file intangibles of $693,500 and intangibleassets for operating leases with favorable market terms of $438,050.

(2) Included in other current liabilities is an accrual for severance payments to associates ofBrooks Eckerd who were involuntarily terminated of $11,137.

71

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

2. Acquisition (Continued)

(3) Included in other long-term liabilities is an accrual of $28,502 to reserve for theremaining lease liability of Brooks Eckerd stores for which the Company entered into aformal plan to close. Also included in other long-term liabilities is an intangible liabilityof $143,100 for operating leases with unfavorable market terms.

In connection with the Acquisition, the Company entered into a transition services agreement withthe Jean Coutu Group. Under the terms of this agreement, Jean Coutu Group provides certaininformation technology, network and support services to the Company. Jean Coutu Group must providethese services to the Company for a minimum period of nine months following the closing date of theAcquisition. The Company has extended the term of the agreement for two additional three monthperiods and has the option to further extend the term of the agreement for an additional three-monthperiod. The Company recorded an expense of $4,085 for services provided under this agreement for theyear ended March 1, 2008.

The following unaudited pro forma consolidated financial data gives effect to the Acquisition as ifit had occurred as of the beginning of the periods presented.

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Net revenues . . . . . . . . . . . . . . . . . . . . . . $26,747,000 $27,315,600 $26,766,900Net (loss) income . . . . . . . . . . . . . . . . . . . (1,133,300) (79,800) 1,164,700Basic (loss) income per share . . . . . . . . . . $ (1.57) $ (0.14) $ 1.45Diluted (loss) income per share . . . . . . . . $ (1.57) $ (0.14) $ 1.31

The pro forma combined information assumes the acquisition of Brooks Eckerd occurred at thebeginning of each period presented. These results have been prepared by combining the historicalresults of the Company and historical results of Brooks Eckerd. The pro forma financial data for allperiods presented include adjustments to reflect the incremental interest expense that results from theincurrence of the additional debt to finance the acquisition and additional depreciation andamortization expense resulting from the preliminary purchase price allocation described above. The proforma information for the fiscal year ended March 1, 2008 includes charges of $154,222 resulting fromthe integration of the Brooks Eckerd stores. Pro forma results for periods prior to the acquisition donot include any incremental cost savings that may result from the integration. Additionally, pro formaresults for periods prior to the acquisition have not been adjusted to reflect the divestiture of storesrequired by the FTC.

The pro forma information does not purport to be indicative of the results that actually wouldhave been achieved if the operations were combined during the periods presented and is not intendedto be a projection of future results or trends.

72

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

3. (Loss) Income Per Share

Basic (loss) income per share is computed by dividing (loss) income available to commonstockholders by the weighted average number of shares of common stock outstanding for the period.Diluted (loss) income per share reflects the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into common stock or resulted in theissuance of common stock that then shared in the income of the Company subject to anti-dilutionlimitations.

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Numerator for (loss) income per share:Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,078,990) $ 26,826 $1,273,006Accretion of redeemable preferred stock . . . . . . . . . . . . . . . . (102) (102) (102)Cumulative preferred stock dividends . . . . . . . . . . . . . . . . . . . (32,533) (31,455) (32,723)Premium to redeem preferred stock . . . . . . . . . . . . . . . . . . . . — — (5,883)Preferred stock beneficial conversion . . . . . . . . . . . . . . . . . . . (556) — —

(Loss) income attributable to common stockholders . . . . . . . . . . $(1,112,181) $ (4,731) $1,234,298

Plus: Interest on convertible debt . . . . . . . . . . . . . . . . . . . . . . — — 5,936Plus: Cumulative preferred stock dividends . . . . . . . . . . . . . . . — — 32,723Plus: Redemption premium on preferred stock . . . . . . . . . . . . — — 5,883

(Loss) income attributable to common stockholders—diluted . . . $(1,112,181) $ (4,731) $1,278,840

Denominator:Basic weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . 723,923 524,460 523,938Outstanding options, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 7,749Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . — — 106,517Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 38,462

Diluted weighted average shares . . . . . . . . . . . . . . . . . . . . . . 723,923 524,460 676,666

Basic and diluted (loss) income per share:Basic (loss) income per share . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.54) $ (0.01) $ 2.36

Diluted (loss) income per share . . . . . . . . . . . . . . . . . . . . . . . $ (1.54) $ (0.01) $ 1.89

73

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

3. (Loss) Income Per Share (Continued)

The following potential common shares have been excluded from the computation of dilutedearnings per share:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Stock options and unvested restricted stock . . . . . . 52,036 54,460 38,427Convertible preferred stock . . . . . . . . . . . . . . . . . 108,074 94,291 —Convertible notes(1) . . . . . . . . . . . . . . . . . . . . . . — 38,462 —

160,110 187,213 38,427

(1) Although the 4.75% convertible notes were paid at maturity in December 2006, they areincluded on this table because the weighted average shares outstanding would have beenincluded in the income per share calculation for the fiscal year ended March 3, 2007 ifthe security had been dilutive.

4. Store Closing and Impairment Charges

Store closing and impairment charges consisted of:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Impairment charges . . . . . . . . . . . . . . . . . . . . . . . $30,823 $31,425 $46,114Store and equipment lease exit charges . . . . . . . . . 55,343 17,892 22,578

$86,166 $49,317 $68,692

Impairment Charges

In fiscal 2008, 2007, and 2006, store closing and impairment charges included non-cash charges of$30,823, $31,425 and $46,114, respectively, for the impairment of long-lived assets at 420, 342 and 414stores, respectively. These amounts included the write-down of long-lived assets at stores that wereassessed for impairment because of management’s intention to relocate or close the store, or becauseof changes in circumstances that indicate the carrying value of an asset may not be recoverable.

Store and Equipment Lease Exit Charges

During fiscal 2008, 2007, and 2006, the Company recorded charges for 66, 49 and 43 stores,respectively, to be closed or relocated under long term leases. Charges to close a store, whichprincipally consist of lease termination costs, are recorded at the time the store is closed and allinventory is liquidated, pursuant to the guidance set forth in SFAS No. 146, ‘‘Accounting for Costs

74

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

4. Store Closing and Impairment Charges (Continued)

Associated with Exit or Disposal Activities’’. The Company calculates its liability for closed stores on astore-by-store basis. The calculation includes the discounted effect of future minimum lease paymentsand related ancillary costs, from the date of closure to the end of the remaining lease term, net ofestimated cost recoveries that may be achieved through subletting properties or through favorable leaseterminations. The Company evaluates these assumptions each quarter and adjusts the liabilityaccordingly.

The following table reflects the closed store charges that relate to new closures, changes inassumptions and interest accretion. The table also reflects the increase in the closed store reserverelated to the acquisition of the existing closed store portfolio from Brooks Eckerd as well as theadditional liability related to the acquired stores that Company management plans to close as a resultof the acquisition. These liabilities represent the estimated fair value of the respective store leasecommitments as of the date of the acquisition and are therefore recorded as part of allocation of thepurchase price of Brooks Eckerd.

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Balance—beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195,205 $208,455 $220,903Provision for present value of noncancellable lease payments of

closed stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,464 14,288 18,482Changes in assumptions about future sublease income,

terminations and change of interest rate . . . . . . . . . . . . . . . . . . 16,482 (4,283) (4,201)Reversals of reserves for stores that management has determined

will remain open . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,465) (812) (271)Interest accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,874 9,274 8,814Leased properties of Jean Coutu USA closed or designated to be

closed as part of the integration plan . . . . . . . . . . . . . . . . . . . . 133,864 — —Cash payments, net of sublease income . . . . . . . . . . . . . . . . . . . . (55,742) (31,717) (35,272)

Balance—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $329,682 $195,205 $208,455

The Company’s revenues and income before income taxes for fiscal 2008, 2007, and 2006 includedresults from stores that have been closed or are approved for closure as of March 1, 2008. The revenueand operating losses of these stores for the periods are presented as follows:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $523,775 $547,778 $700,390(Loss) income from operations . . . . . . . . . . . . . . . (14,165) 902 3,813

75

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

4. Store Closing and Impairment Charges (Continued)

Included in loss from operations for fiscal 2008, 2007, and 2006 are depreciation and amortizationcharges of $9,246, $4,995 and $6,283, respectively, and closed store inventory liquidation charges of$6,193, $5,415 and $7,401, respectively. Loss from operations does not include any allocation ofcorporate level overhead costs. The above results are not necessarily indicative of the impact that theseclosures will have on revenues and operating results of the Company in the future, as the Companyoften transfers the business of a closed store to another Company store, thereby retaining a portion ofthese revenues. The amounts indicated above do not include the results of operations for stores closedrelated to discontinued operations.

5. Discontinued Operations

During the fourth quarter of fiscal 2008, the Company entered into agreements to sell theprescription files of 28 of its stores in the Las Vegas Nevada area. The Company owns four of thesestores and the remaining stores are leased. The Company has assigned the lease rights of 17 of thesestores to other entities and is in the process of closing the remaining leased stores. The Company plansto sell the owned stores. The sale and transfer of the prescription files has been completed and theinventory at the stores is in the process of being liquidated.

The Company has presented the operating results of and the gain on the sale of Las Vegas as adiscontinued operation in the statement of operations for all fiscal years presented. The followingamounts have been segregated from continuing operations and included in discontinued operations:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

(Dollars in thousands)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90,815 $108,336 $107,924Costs and expenses:

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,171 80,988 80,218Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 33,039 32,019 32,324Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,100) — —

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,110 113,007 112,542

Loss from discontinued operations before income taxes . . . . . . . . . . (4,295) (4,671) (4,618)

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,505) (1,635) (1,616)

Net loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . $ (2,790) $ (3,036) $ (3,002)

The assets and liabilities of the divested stores for the years ended March 1, 2008 and March 2,2007 are not significant and have not been segregated in the consolidated balance sheets.

76

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

6. Income Taxes

The provision for income taxes was as follows:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Current tax expense (benefit):Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (355) $ 3,771 $ (6,621)State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,183 (3,585) (17,424)

828 186 (24,045)Deferred tax expense (benefit):

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 726,167 16,056 (1,086,891)State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,706 (27,851) (117,200)

801,873 (11,795) (1,204,091)Total income tax expense (benefit) . . . . . . . . . . $802,701 $(11,609) $(1,228,136)

A reconciliation of the expected statutory federal tax and the total income tax benefit was asfollows:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Expected federal statutory expense at 35% . . . . $ (95,725) $ 6,388 $ 16,755Nondeductible expenses . . . . . . . . . . . . . . . . . . 6,476 3,460 2,568State income taxes, net . . . . . . . . . . . . . . . . . . . (25,789) (24,140) 3,155Recoverable tax and reduction of previously

recorded liabilities . . . . . . . . . . . . . . . . . . . . (999) (5,376) (19,527)Credits generated . . . . . . . . . . . . . . . . . . . . . . . (1,699) (1,022) —Valuation allowance . . . . . . . . . . . . . . . . . . . . . 920,437 9,081 (1,231,087)Total income tax expense (benefit) . . . . . . . . . . $802,701 $(11,609) $(1,228,136)

The income tax expense for fiscal 2008 included $920,437 related to the increase of the valuationallowance on federal and state net deferred tax assets. Statement of Financial Accounting StandardsNo. 109, ‘‘Accounting for Income Taxes’’ (‘‘SFAS No. 109’’) requires a company to evaluate its deferredtax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets isrequired. According to SFAS No. 109, a cumulative loss in recent years is significant negative evidencein considering whether deferred tax assets are realizable. Based on the negative evidence, SFASNo. 109 precludes relying on projections of future taxable income to support the recognition ofdeferred tax assets. As such, except for tax planning strategies, the Company has not utilizedprojections of future taxable income to support the recognition of deferred tax assets. The ultimaterealization of deferred tax assets is dependent upon the existence of sufficient taxable incomegenerated in the carryforward periods.

77

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

6. Income Taxes (Continued)

At March 1, 2008 the Company had a cumulative loss which was primarily due to the recentlycompleted acquisition of Brooks Eckerd and the impact on current year earnings due to plannedintegration activities, compounded by the weakening economy during the later half of the year.

The income tax benefit for fiscal 2007 included a state tax benefit of $24,140 which primarilyrelated to an increase in the Company’s state tax rate applied to the net deferred tax assets.

The income tax benefit for fiscal 2006 included $1,231,087 related to the reduction of the valuationallowance on federal and state net deferred tax assets that, at the time, were expected to have futureutilization.

The tax effect of temporary differences that gave rise to significant components of deferred taxassets and liabilities consisted of the following at March 1, 2008 and March 3, 2007:

2008 2007

Deferred tax assets:Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,802 $ 17,469Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,033 170,293Liability for lease exit costs . . . . . . . . . . . . . . . . . . . . . 151,519 92,136Pension, retirement and other benefits . . . . . . . . . . . . . 154,141 111,126Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,201 13,927Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,920 71,727Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,058,418 1,022,015

Total gross deferred tax assets . . . . . . . . . . . . . . . . . . 1,765,034 1,498,693Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,103,973) (239,836)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 661,061 1,258,857Deferred tax liabilities:

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,417 97,657Long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,546 (255,326)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,309 3,558

Total gross deferred tax liabilities . . . . . . . . . . . . . . . 353,272 (154,111)Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 307,789 $1,412,968

Prior year’s classifications in the above table were reclassed during fiscal 2008 to conform tocurrent year presentation.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

Unrecognized tax benefits balance at March 4, 2007 . . . . . . . . . . . . . . . . $ 23,004Increases to prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . 31,122Increases to prior year tax positions for Brooks Eckerd Acquisition . . . . 178,759Increases to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . 3,459Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,330)

Unrecognized tax benefits balance at March 1, 2008 . . . . . . . . . . . . . . . . 233,014

78

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

6. Income Taxes (Continued)

Effective March 4, 2007, the Company adopted the provisions of FIN 48. As of March 4, 2007,unrecognized tax benefits totaled $37,186, including interest and penalties. As a result of theimplementation of FIN 48, the Company’s tax contingencies decreased $6,636, and after the deferredtax impact of $2,170, the net effect was accounted for as an increase to retained earnings of $4,466.The decrease in unrecognized tax benefits would have decreased income tax expense in prior periods.

As of June 4, 2007, with the acquisition of Brooks Eckerd, a liability and reduction of deferred taxassets of $200,015, including tax, interest and penalties was established for uncertain tax positions. TheCompany is still evaluating the tax positions of the acquired entities and adjustments, if any, could bematerial. Upon finalization of the purchase price allocation, any such adjustments related topre-acquisition tax periods will result in adjustments to assets and liabilities acquired in connection withthe Acquisition. The Company is indemnified by Jean Coutu Group for certain tax liabilities incurredfor all years ended up to and including June 4, 2007. Although the Company is indemnified by JeanCoutu Group, the Company remains the primary obligor to the tax authorities with respect to any taxliability arising for the years prior to the acquisition. Accordingly, as of March 1, 2008 the Companyhad a corresponding recoverable indemnification asset from Jean Coutu Group, included in the ‘‘OtherAssets’ line of the Consolidated Balance Sheets, to reflect the indemnification for such liabilities.

As of March 1, 2008 the total amount of unrecognized tax benefits that would be recorded as anadjustment to goodwill and not impact the effective tax rate in a future period was $200,015. Theremaining unrecognized tax benefits would impact the effective tax rate in a future period. Upon theadoption of SFAS 141(R) which applies to our fiscal year 2010, changes in income tax uncertaintiesrecorded in a business combination will also affect income tax expense and will no longer impactgoodwill. Additionally, any impact on the effective rate may be mitigated by the valuation allowancethat is maintained against the Company’s net deferred tax assets. While it is expected that the amountof unrecognized tax benefits will change in the next twelve months, management does not expect thechange to have a significant impact on the results of operations or the financial position of theCompany.

The Company recognizes interest and penalties related to tax contingencies as income tax expense.Prior to the adoption of FIN 48, the Company included interest as income tax expense and penalties asan operating expense. As of March 1, 2008 and March 4, 2007, the total amount of accrued incometax-related interest and penalties was $33,608 and $14,182, respectively.

The Company files U.S. federal income tax returns as well as income tax returns in those stateswhere it does business. The federal income tax returns are closed to examination by the InternalRevenue Service (IRS) through fiscal 2002. However, any net operating losses that were generated inthese prior closed years may be subject to examination by the IRS upon utilization. The IRS iscurrently examining the consolidated U.S. income tax return for Brooks Eckerd for fiscal years 2004and 2005. Additionally, the IRS is examining the consolidated U.S. income tax return for Rite AidCorporation and subsidiaries for fiscal years 2006 and 2007. State income tax returns are generallysubject to examination for a period of three to five years after filing of the respective return. However,as a result of reporting IRS audit adjustments, the Company has statutes open in some states fromfiscal 1996.

79

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

6. Income Taxes (Continued)

Net Operating Losses, Capital Losses and Tax Credits

At March 1, 2008, the Company had federal net operating loss (NOL) carryforwards ofapproximately $2,505,000, the majority of which will expire, if not utilized, between fiscal 2019 and2022. The Company underwent an ownership change for statutory tax purposes during fiscal 2002,which resulted in a limitation on the future use of net operating loss carryforwards.

At March 1, 2008, the Company had state NOL carryforwards of approximately $4,704,000, themajority of which will expire between fiscal 2015 and 2022.

At March 1, 2008, the Company had federal business tax credit carryforwards of $52,979, themajority of which will expire between 2013 and 2020. In addition to these credits, the Company hasalternative minimum tax credit carryforwards of $9,355.

Valuation Allowances

The valuation allowances as of March 1, 2008 and March 3, 2007 apply to the net deferred taxassets of the Company. In the fourth quarter of 2008, a non-cash tax charge of $920,437 was recordedto establish a valuation allowance against the net deferred tax assets. The fiscal 2007 net decrease inthe valuation allowance resulted primarily from the expiration of capital loss and state net operatingloss carryforwards which had been fully reserved as of the beginning of the fiscal year. The Companymaintained a valuation allowance of $1,103,973 and $239,836 against net deferred tax assets at fiscalyear end 2008 and 2007, respectively.

7. Accounts Receivable

The Company maintains an allowance for doubtful accounts receivable based upon the expectedcollectibility of accounts receivable. The allowance for uncollectible accounts at March 1, 2008 andMarch 3, 2007 was $40,990 and $30,246, respectively. The Company’s accounts receivable are dueprimarily from third-party payors (e.g., pharmacy benefit management companies, insurance companiesor governmental agencies) and are recorded net of any allowances provided for under the respectiveplans. Since payments due from third-party payors are sensitive to payment criteria changes andlegislative actions, the allowance is reviewed continually and adjusted for accounts deemed uncollectibleby management.

The Company maintains securitization agreements with several multi-seller asset-backedcommercial paper vehicles (‘‘CPVs’’). Under the terms of the securitization agreements, the Companysells substantially all of its eligible third party pharmaceutical receivables to a bankruptcy remoteSpecial Purpose Entity (SPE) and retains servicing responsibility. The assets of the SPE are notavailable to satisfy the creditors of any other person, including any of the Company’s affiliates. Theseagreements provide for the Company to sell, and for the SPE to purchase these receivables. The SPEthen transfers an interest in these receivables to various CPVs.

The amount of transferred receivables outstanding at any one time is dependent upon a formulathat takes into account such factors as default history, obligor concentrations and potential dilution(‘‘Securitization Formula’’). Adjustments to this amount can occur on a weekly basis. At March 1, 2008

80

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

7. Accounts Receivable (Continued)

and March 3, 2007, the total of outstanding receivables that have been transferred to the CPVs were$435,000 and $350,000, respectively. The following table details receivable transfer activity for the yearspresented:

Year Ended

March 1, March 3, March 4,2008 2007 2006

(52 Weeks) (52 Weeks) (53 Weeks)

Average amount of outstanding receivables transferred . . . . . . . $ 332,115 $ 334,588 $ 243,639Total receivable transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,992,000 $4,674,000 $3,716,000Collections made by the Company as part of the servicing

arrangement on behalf of the CPVs . . . . . . . . . . . . . . . . . . . $4,907,000 $4,654,000 $3,536,000

At March 1, 2008 and March 3, 2007, the Company retained an interest in the third partypharmaceutical receivables not transferred to the CPVs of $493,833 and $255,057, respectively, inclusiveof the allowance for uncollectible accounts, which is included in accounts receivable, net, on theconsolidated balance sheet.

On September 18, 2007, the Company amended its securitization agreements. As a result of thisamendment the total amount of interest in receivables than can be transferred to the CPV wasincreased to $650,000 from $400,000. The ongoing program fee was decreased from the CPVs’commercial paper rate (which often approximates 1-month LIBOR) plus 1.125% to the CPVs’commercial paper rate plus 1.00%. The liquidity fee was reduced from 0.375% to 0.25%. The programand the liquidity fees are recorded as a component of selling, general and administrative expenses.Program and liquidity fees for fiscal 2008, 2007 and 2006 were $22,314, $21,885 and $12,805,respectively.

Rite Aid Corporation guarantees certain performance obligations of its affiliates under thesecuritization agreements, which includes the continued servicing of such receivables, but does notguarantee the collectibility of the receivables and obligor creditworthiness. The CPVs have acommitment to purchase that ends September 2008 with the option to annually extend the commitmentto purchase. Should any of the CPVs fail to renew their commitment under these securitizationagreements, the Company has access to a backstop credit facility, which is backed by the CPVs andwhich expires in September 2010, to provide liquidity to the Company.

Proceeds from the collections under the receivables securitization agreements are submitted to anindependent trustee on a daily basis. The trustee withholds any cash necessary to (1) fund amountsowed to the CPVs as a result of such collections and, (2) fund the CPVs when the SecuritizationFormula indicates a lesser amount of outstanding receivables transferred is warranted. The remainingcollections are swept to the Company’s corporate concentration account. At March 1, 2008 andMarch 3, 2007, the Company had $3,277 and $3,000 of cash respectively that is restricted for thepayment of trustee fees.

81

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

7. Accounts Receivable (Continued)

The Company has determined that the transactions meet the criteria for sales treatment inaccordance with SFAS No. 140 ‘‘Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities’’. Additionally, the Company has determined that it does not hold avariable interest in the CPVs, pursuant to the guidance in FIN 46R, ‘‘Consolidation of Variable InterestEntities’’, and therefore has determined that the de-recognition of the transferred receivables isappropriate.

8. Property, Plant and Equipment

Following is a summary of property, plant and equipment, including capital lease assets, atMarch 1, 2008 and March 3, 2007:

2008 2007

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 358,849 $ 190,859Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902,281 616,907Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . 1,557,125 1,199,043Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,021,478 1,611,947Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . 239,061 100,762

5,078,794 3,719,518Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (2,205,785) (1,976,414)

Property, plant and equipment, net . . . . . . . . . . . . . . . . . $ 2,873,009 $ 1,743,104

Depreciation expense, which included the depreciation of assets recorded under capital leases, was$309,270, $230,168 and $217,160 in fiscal 2008, 2007 and 2006, respectively.

Included in property, plant and equipment was the carrying amount of assets to be disposed oftotaling $23,908 and $19,269 at March 1, 2008 and March 3, 2007, respectively.

9. Goodwill and Other Intangibles

The Company accounts for goodwill under the guidance set forth in SFAS No. 142, which specifiesthat all goodwill and indefinite life intangibles should not be amortized. Goodwill must be allocated toreporting units and evaluated for impairment on an annual basis. The Company has completed itsannual impairment evaluation for the year ended March 1, 2008, and concluded that there is nogoodwill impairment loss to be recognized. As of March 1, 2008 and March 3, 2007 the Company hadgoodwill of $1,783,372 and $656,037 and no other indefinite life intangibles. The increase in goodwill asof March 1, 2008 is a result of the acquisition of Jean Coutu USA.

82

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

9. Goodwill and Other Intangibles (Continued)

The Company’s intangible assets other than goodwill are finite-lived and amortized over theiruseful lives. Following is a summary of the Company’s intangible assets as of March 1, 2008 andMarch 3, 2007.

2008 2007

Remaining RemainingWeighted Weighted

Gross Average Gross AverageCarrying Accumulated Amortization Carrying Accumulated AmortizationAmount Amortization Period Amount Amortization Period

Favorable leases and other . $ 738,855 $(240,079) 12 years $297,679 $(199,414) 10 yearsPrescription files . . . . . . . . 1,152,620 (464,069) 9 years 428,281 (348,326) 3 years

Total . . . . . . . . . . . . . . . . $1,891,475 $(704,148) $725,960 $(547,740)

Also included in other non-current liabilities as of March 1, 2008 and March 3, 2007 areunfavorable lease intangibles with a net carrying amount of $147,035 and $18,040, respectively.

Amortization expense for these intangible assets and liabilities was $163,201, $40,139 and $32,595for fiscal 2008, 2007 and 2006, respectively. The anticipated annual amortization expense for theseintangible assets and liabilities is 2009—$185,234; 2010—$167,025; 2011—$154,277; 2012—$120,951 and2013—$95,995. The anticipated annual amortization expenses could change upon the final allocation ofthe purchase price of Brooks Eckerd.

10. Accrued Salaries, Wages and Other Current Liabilities

Accrued salaries, wages and other current liabilities consisted of the following at March 1, 2008and March 3, 2007:

2008 2007

Accrued wages, benefits and other personnel costs . . . . . . . . $ 392,753 $270,539Accrued sales and other taxes payable . . . . . . . . . . . . . . . . . 161,820 50,904Accrued store expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,516 95,977Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,199 253,514

$1,110,288 $670,934

83

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

11. Indebtedness and Credit Agreement

Following is a summary of indebtedness and lease financing obligations at March 1, 2008 andMarch 3, 2007:

2008 2007

Secured Debt:Senior secured revolving credit facility due September 2010 . . . . . . . . . . . . $ 849,000 $ 300,000Senior secured credit facility term loan due September 2010 . . . . . . . . . . . 145,000 145,000Senior secured credit facility term loan due June 2014 . . . . . . . . . . . . . . . . 1,105,000 —8.125% senior secured notes due May 2010 ($360,000 face value less

unamortized discount of $1,500 and $2,167) . . . . . . . . . . . . . . . . . . . . . . 358,500 357,8337.5% senior secured notes due January 2015 . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,0007.5% senior secured notes due March 2017 . . . . . . . . . . . . . . . . . . . . . . . . 500,000 500,000Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,740 1,521

3,160,240 1,504,354

Guaranteed Unsecured Debt:9.25% senior notes due June 2013 ($150,000 face value less unamortized

discount of $1,261 and $1,501) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,739 148,4998.625% senior notes due March 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 500,0009.375% senior notes due December 2015 ($410,000 face value less

unamortized discount of $5,458) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404,542 —9.5% senior notes due June 2017 ($810,000 face value less unamortized

discount of $12,033) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797,967 —

1,851,248 648,499

Unsecured Debt:6.125% fixed-rate senior notes due December 2008 . . . . . . . . . . . . . . . . . . 150,000 150,0006.875% senior debentures due August 2013 . . . . . . . . . . . . . . . . . . . . . . . . 184,773 184,7737.7% notes due February 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,000 295,0006.875% fixed-rate senior notes due December 2028 . . . . . . . . . . . . . . . . . . 128,000 128,000

757,773 757,773Lease financing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,263 189,662

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,985,524 3,100,288Current maturities of long-term debt and lease financing obligations . . . . . . . (185,609) (16,184)

Long-term debt and lease financing obligations, less current maturities . . . . . $5,799,915 $3,084,104

2008 Transactions:

The Company has a senior secured credit facility that includes a $1,750,000 revolving credit facility.Borrowings under the revolving secured credit facility currently bear interest at LIBOR plus 1.50%, ifthe Company chooses to make LIBOR borrowings, or at Citibank’s base rate plus 0.50%. The interestrate can fluctuate depending upon the amount of the revolver availability, as specified in the senior

84

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

11. Indebtedness and Credit Agreement (Continued)

secured credit facility. The Company is required to pay fees of 0.25% per annum on the daily unusedamount of the revolving credit facility. The amounts drawn on the revolving credit facility become dueand payable in September 2010.

The Company’s ability to borrow under the revolving credit facility is based upon a specifiedborrowing base consisting of inventory and prescription files. At March 1, 2008, the Company had$849,000 of borrowings outstanding under the revolving credit facility. At March 1, 2008, the Companyalso had letters of credit outstanding against the revolving credit facility of $184,780, which gave theCompany additional borrowing capacity under the revolving credit facility of $716,221.

However, the Company’s 8.125% senior secured notes due May 2010 and its 7.5% senior securednotes due March 2015 limit the amount of secured debt the Company may incur in such a manner thatwe cannot fully draw on our revolver. This lien limitation is based upon the amount of outstandinginventory and accounts receivable that the Company has available under the borrowing basecalculations in the note indentures and is more restrictive than the secured debt incurrence availabilityin the same note indentures. As of March 1, 2008, the lien limitations under the 8.125% senior securednotes due May 2010 and the 7.5% senior secured notes due March 2015 limited borrowing capacityunder the revolver to approximately $441,570 at March 1, 2008. The Company currently has anoutstanding consent solicitation to the holders of the 8.125% senior secured notes due May 2010 andthe 7.5% senior secured notes due March 2015 to amend the note indentures which would allow us toincur an additional $320,000 of secured debt and thereby eliminate a mismatch between the debt andlien covenants in such indentures.

In November 2006, the Company entered into an amendment of its senior secured credit facility topermit the closing of the acquisition of Brooks Eckerd. Pursuant to the terms of the senior securedcredit facility amendment, the Company borrowed $145,000 under a senior secured term loan. Proceedsfrom the borrowings under this senior secured term loan (the ‘‘Tranche 1 Term Loans’’) were used topay amounts outstanding under the revolving credit facility.

The Tranche 1 Term Loans currently bear interest at LIBOR plus 1.50%, if the Company choosesto make LIBOR borrowings, or at Citibank’s base rate plus 0.50%. The interest rate can fluctuatedepending on the amount of availability under the Company’s revolving credit facility, as specified inthe senior secured credit facility. The amounts outstanding under the Tranche 1 Term Loans becomedue and payable on September 30, 2010, or earlier, if there is a shortfall in the Company’s borrowingbase under its revolving credit facility.

On June 4, 2007, the Company amended its senior secured credit facility to establish a new seniorsecured term loan in the aggregate principal amount of $1,105,000 and borrowed the full amountthereunder. A portion of the proceeds from the borrowings under this senior secured term loan (the‘‘Tranche 2 Term Loans’’) were used to fund the acquisition of Brooks Eckerd. The Tranche 2 TermLoans will mature on June 4, 2014 and currently bears interest at LIBOR plus 1.75%, if the Companychooses to make LIBOR borrowings, or at Citibank’s base rate plus 0.75%. The Company must makemandatory prepayments of the Tranche 2 Term Loans with the proceeds of asset dispositions (subject tocertain limitations), with a portion of any excess cash flow generated by the Company and with theproceeds of certain issuances of equity and debt (subject to certain exceptions). If at any time there is a

85

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

11. Indebtedness and Credit Agreement (Continued)

shortfall in the Company’s borrowing base under the Company’s revolving credit facility, prepayment ofthe Tranche 2 Term Loans may also be required.

The senior secured credit facility allows the Company to have outstanding, at any time, up to$1,500,000 in secured second priority debt and unsecured debt in addition to borrowings under thesenior secured credit facility and existing indebtedness, provided that not in excess of $750,000 of suchsecured second priority debt and unsecured debt shall mature or require scheduled payment ofprincipal prior to three months after September 30, 2014. The senior secured credit facility allows theCompany to incur an unlimited amount of unsecured debt with a maturity beyond three months afterSeptember 30, 2014. The senior secured facility also allows for the repurchase of any debt with amaturity on or before June 4, 2014, and for the repurchase of debt with a maturity after June 4, 2014,if the Company maintains availability on the revolving credit facility of at least $100,000.

The senior secured credit facility contains covenants, which place restrictions on the incurrence ofdebt beyond the restrictions described above, the payments of dividends, mergers and acquisitions andthe granting of liens. The senior secured credit facility also requires the Company to maintain aminimum fixed charge coverage ratio, but only if availability on the revolving credit facility is less than$100,000.

The senior secured credit facility provides for events of default including nonpayment,misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Companyfails to make any required payment on debt having a principal amount in excess of $50,000 or anyevent occurs that enables, or which with the giving of notice or the lapse of time would enable, theholder of such debt to accelerate the maturity of such debt.

Other Transactions

On June 4, 2007 the Company incurred $1,220,000 aggregate principal amount of senior notes. Theissue consisted of $410,000 of 9.375% senior notes due 2015 and $810,000 of 9.5% senior notes due2017. The Company’s obligations under each series of notes are fully and unconditionally guaranteed,jointly and severally, by all of the Company’s subsidiaries that guarantee its obligations under theexisting senior secured credit facility and other outstanding senior secured notes. The notes areunsecured, unsubordinated obligations of Rite Aid Corporation and rank equally in right of paymentwith all of the Company’s other unsecured, unsubordinated debt. The indentures governing the notescontain covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, amongother things, incur additional debt, pay dividends or make other restricted payments, purchase, redeemor retire capital stock or subordinated debt, make asset sales, enter into transactions with affiliates,incur liens, enter into sale-leaseback transactions, provide subsidiary guarantees, make investments andmerge or consolidate with any other persons.

2007 Transactions:

In February 2007, the Company issued $500,000 aggregate principal amount of 7.5% seniorsecured notes due 2017. These notes are unsubordinated obligations of Rite Aid Corporation and rankequally in right of payment with all other unsubordinated indebtedness. The Company’s obligations

86

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

11. Indebtedness and Credit Agreement (Continued)

under the notes are guaranteed, subject to certain limitations, by subsidiaries that guarantee theobligations under its senior secured credit facility. The guarantees are secured, subject to the permittedliens, by shared second priority liens, with holders of our 8.125% senior secured notes due 2010 andour 7.5% senior secured notes due 2015, granted by subsidiary guarantors on all their assets that securethe obligations under the senior secured credit facility, subject to certain exceptions. The indenturegoverning the 7.5% senior secured notes due 2017 contains covenant provisions that, among otherthings, include limitations on the Company’s ability to pay dividends, make investments or otherrestricted payments, incur debt, grant liens, sell assets and enter into sale-leaseback transactions.Proceeds from this offering were used to repay outstanding borrowings on the Company’s revolvingcredit facility and to fund the redemption of the Company’s 9.5% senior secured notes due 2011, bydeposit into an escrow fund with an independent trustee. Per the terms of the indenture that governedthe 9.5% senior secured notes due 2011, the Company paid a premium to the noteholders of 104.75%of par. The Company recorded a loss on debt modification of $18,662 related to the early redemptionof the 9.5% senior secured notes due 2011, which included the call premium and unamortized debtissue costs on the notes.

In February 2007, the Company issued $500,000 aggregate principal amount of 8.625% seniornotes due 2015. These notes are unsecured. The indenture governing the 8.625% senior notes due 2015contains provisions that, among other things, include limitations on the Company’s ability to paydividends, make investments or other restricted payments, incur debt, grant liens, sell assets and enterinto sale-leaseback transactions. The 8.625% senior notes due 2015 are guaranteed, subject to certainlimitations, by subsidiaries that guarantee the obligations under the senior secured credit facility.Proceeds from the issuance of the notes were used to repay borrowings under the Company’s revolvingcredit facility.

In January 2007, the Company paid at maturity the remaining outstanding principal amount of$184,074 of the Company’s 7.125% notes due January 2007. This payment was funded with borrowingsunder the revolving credit facility.

In December 2006, the Company paid at maturity the remaining outstanding principal amount of$250,000 of its 4.75% convertible notes due December 2006. This payment was funded with borrowingsunder the revolving credit facility.

In September 2006, the Company completed the early redemption of all of its outstanding$142,025 of its 12.5% senior secured notes due September 2006. This payment was funded withborrowing under the revolving credit facility, which were subsequently repaid with borrowings of theTranche 1 term loans.

2006 Transactions:

On December 15, 2005, the Company paid at maturity the remaining outstanding principal amountof $38,000 of the Company’s 6.0% fixed-rate senior notes due December 2005.

87

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

11. Indebtedness and Credit Agreement (Continued)

On July 15, 2005, the Company completed the early redemption of all of the Company’s $150,000aggregate principal amount of 11.25% notes due July 2008 at the Company’s contractually determinedearly redemption price of 105.625% plus accrued interest. The Company funded the redemption withborrowings under the Company’s receivable securitization agreements. The Company recorded a losson debt modification of $9,200 related to this transaction.

On April 15, 2005 the Company paid at maturity the remaining outstanding principal amount of$170,500 of the Company’s 7.625% senior notes due April 2005.

Other:

The annual weighted average interest rate on the Company’s indebtedness was 7.5%, 7.6%, and7.4% for fiscal 2008, 2007, and 2006, respectively.

The aggregate annual principal payments of long-term debt for the five succeeding fiscal years areas follows: 2009—$158,757; 2010—$11,236; 2011—$1,363,737; 2012—$11,248 and $4,224,284 in 2013and thereafter. The Company is in compliance with restrictions and limitations included in theprovisions of various loan and credit agreements.

Substantially all of Rite Aid Corporation’s wholly-owned subsidiaries guarantee the obligationsunder the senior secured credit facility. The subsidiary guarantees of the senior secured credit facilityare secured by a first priority lien on, among other things the inventory and prescription files of thesubsidiary guarantors. Rite Aid Corporation is a holding company with no direct operations and isdependent upon dividends, distributions and other payments from its subsidiaries to service paymentsdue under the senior secured credit facility. The 8.125% senior secured notes due 2010, the 7.5%senior secured notes due 2015 and the 7.5% senior secured notes due 2017 are guaranteed bysubstantially all of the Company’s wholly-owned subsidiaries, which are the same subsidiaries thatguarantee the senior secured credit facility and are secured on a second priority basis by the samecollateral as the senior secured credit facility. The 9.25% senior notes due 2013, the 8.625% seniornotes due 2015, the 9.375% senior notes due 2015 and the 9.5% senior notes due 2017 are alsoguaranteed by substantially all of the Company’s wholly-owned subsidiaries.

The subsidiary guarantees related to the Company’s senior secured credit facility and on anunsecured basis the guaranteed indentures are full and unconditional and joint and several, and thereare no restrictions on the ability of the parent to obtain funds from its subsidiaries. Also, the parentcompany has no independent assets or operations, and subsidiaries not guaranteeing the credit facilityand applicable indentures are minor. Accordingly, condensed consolidating financial information for theparent and subsidiaries is not presented.

12. Leases

The Company leases most of its retail stores and certain distribution facilities under noncancellableoperating and capital leases, most of which have initial lease terms ranging from five to 22 years. TheCompany also leases certain of its equipment and other assets under noncancellable operating leaseswith initial terms ranging from 3 to 10 years. In addition to minimum rental payments, certain store

88

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

12. Leases (Continued)

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 rentincreases. Total rental expense, net of sublease income of $10,331, $7,725, and $7,534, was $863,801,$586,776 and $569,269 in fiscal 2008, 2007, and 2006, respectively. These amounts include contingentrentals of $35,932, $30,786 and $31,345 in fiscal 2008, 2007, and 2006, respectively.

During fiscal 2008, the Company sold 22 owned stores to several independent third parties.Proceeds from these sales totaled $93,252. The Company entered into agreements to lease these storesback from the purchasers over minimum lease terms of 20 years. Fourteen leases are being accountedfor as operating leases and 8 are being accounted for under the financing method as of March 1, 2008,as these lease agreements contain a clause that allows the buyer to force the Company to repurchasethe property under certain conditions. Gains on these transactions of $8,015 have been deferred andare being recorded over the related minimum lease terms. Losses of $271, which relate to certain storesin these transactions, were recorded as losses on the sale of assets and investments for the year endedMarch 1, 2008.

During fiscal 2007, the Company sold a total of 29 owned stores to independent third parties.Proceeds from these sales totaled $82,090. The Company entered into agreements to lease the storesback from the purchasers over minimum lease terms of 20 years. Twenty-four leases were accounted foras operating leases and the remaining five leases were accounted for using the financing method, asthese lease agreements contained a clause that allowed the buyer to force the Company to purchasethe properties under certain conditions. Subsequent to March 3, 2007, the clause that allowed the buyerto force the Company to repurchase the properties lapsed on four of the five leases. Therefore, theseleases are now accounted for as operating leases. The Company recorded a capital lease obligation of$3,029 related to the remaining leases.

During fiscal 2006, the Company sold a total of 32 owned stores to independent third parties.Proceeds from these sales totaled $85,308. The Company entered into agreements to lease the storesback from the purchasers over minimum lease terms of 20 years. Thirty leases were accounted for asoperating leases and the remaining two leases were accounted for using the financing method, as theselease agreements contained a clause that allowed the buyer to force the Company to purchase theproperties under certain conditions. Subsequent to March 4, 2006, the clause that allowed the buyer toforce the Company to repurchase the properties lapsed on one of the two leases. Therefore, this leaseis now accounted for as operating lease. The Company recorded a capital lease obligation of $2,324related to the remaining lease.

89

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

12. Leases (Continued)

The net book values of assets under capital leases and sale-leasebacks accounted for under thefinancing method at March 1, 2008 and March 3, 2007 are summarized as follows:

2008 2007

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,193 $ 7,670Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,361 181,433Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,654 6,238Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,878 17,263Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (90,687) (79,316)

$155,399 $133,288

Following is a summary of lease finance obligations at March 1, 2008 and March 3, 2007:

2008 2007

Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . $170,116 $169,375Sale-leaseback obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,147 20,286Less current obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,837) (15,540)

Long-term lease finance obligations . . . . . . . . . . . . . . . . . . . . $189,426 $174,121

Following are the minimum lease payments for all properties under a lease agreement, net ofsublease income, that will have to be made in each of the years indicated based on non-cancelableleases in effect as of March 1, 2008:

Fiscal year Lease Financing Obligations Operating Leases

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,374 967,1812010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,617 970,3782011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,592 923,7292012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,496 870,0542013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,386 820,165Later years . . . . . . . . . . . . . . . . . . . . . . . 187,034 6,573,665

Total minimum lease payments . . . . . . . . . 332,499 11,125,172

Amount representing interest . . . . . . . . . . (116,236)

Present value of minimum lease payments . 216,263

13. Redeemable Preferred Stock

In March 1999 and February 1999, Rite Aid Lease Management Company, a wholly ownedsubsidiary 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 mandatorilyredeemable on April 1, 2019 at a redemption price of $100 per share plus accumulated and unpaid

90

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

13. Redeemable Preferred Stock (Continued)

dividends. The Class A Cumulative Preferred Stock pays dividends quarterly at a rate of 7.0% perannum of the par value of $100 per share when, as and if declared by the Board of Directors of RiteAid Lease Management Company in its sole discretion. The amount of dividends payable in respect ofthe Class A Cumulative Preferred Stock may be adjusted under certain events. The outstanding sharesof the Class A Preferred Stock were recorded at their estimated fair value of $19,253 for the fiscal 2000issuances, which equaled the sale price on the date of issuance. Because the fair value of the Class APreferred Stock was less than the mandatory redemption amount at issuance, periodic accretions tostockholders’ equity using the interest method are made so that the carrying amount equals theredemption amount on the mandatory redemption date. Accretion was $102 in fiscal 2008, 2007 and2006. The amount of this instrument is $20,174 and $20,072 and is recorded in Other Non-CurrentLiabilities as of March 1, 2008 and March 3, 2007, respectively.

14. Capital Stock

As of March 1, 2008, the authorized capital stock of the Company consists of 1,500,000 shares ofcommon stock and 20,000 shares of preferred stock, each having a par value of $1.00 per share.Preferred stock is issued in series, subject to terms established by the Board of Directors.

In fiscal 2006, the Company issued 4,820 shares of Series I Mandatory Convertible Preferred Stock(‘‘Series I preferred stock’’) at an offering price of $25 per share. Dividends on the Series I preferredstock are $1.38 per share per year, and are due and payable on a quarterly basis in either cash orcommon stock or a combination of both at the Company’s election. The Series I preferred stock willautomatically convert into common stock on November 17, 2008 at a rate that is dependent upon theadjusted applicable market value of the Company’s common stock (as defined in the Series I Certificateof Designations). If the adjusted applicable market value of the Company’s common stock is $5.30 ashare or higher at the conversion date, then the Series I preferred stock is convertible at a rate of4.7134 share of the Company’s common stock for every share of Series I preferred stock outstanding. Ifthe adjusted applicable market value of the Company’s common stock is less than or equal to $4.42 pershare at the conversion date, then the Series I preferred stock is convertible at a rate of 5.6561 sharesof the Company’s common stock for every share of Series I preferred stock outstanding. If the adjustedapplicable market value of the Company’s common stock is between $4.42 per share and $5.30 pershare at the conversion date, then the Series I preferred stock is convertible into common stock at arate that is between 4.7134 and 5.6561 per share. The holder may convert shares of the Series Ipreferred stock into common stock at any time prior to the mandatory conversion date at the rate of4.7134 per share. The Series I preferred stock is also convertible at the Company’s option, but only ifthe adjusted applicable market value of the Company’s common stock exceeds $9.55. If the Company issubject to a cash acquisition (as defined in the Certificate of Designations) prior to the mandatoryconversion date, the holder may elect to convert the shares of Series I preferred stock into shares ofcommon stock using a conversion rate set forth in the Certificate Designations. The holder will alsoreceive a payment equal to the present value of all scheduled dividends through the mandatoryconversion date.

Proceeds from the issuance of the Series I preferred stock, along with borrowings under therevolver, were used to redeem all shares of the Company’s Series F preferred stock, at 105% of the

91

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

14. Capital Stock (Continued)

liquidation preference of $100 share. The Company paid a premium to redeem the Series F preferredstock of $5,883, which was recorded as an increase to the accumulated deficit in the year endedMarch 4, 2006. This premium reduces net income available to common stockholders for fiscal 2006.The Company’s Series F preferred stock was held by Green Equity Investors, III, L.P., a related partyof the Company.

During the fourth quarter of fiscal 2005, the Company issued 2,500 shares of Series E MandatoryConvertible preferred stock (‘‘Series E preferred stock’’) at an offering price of $49 per share.Dividends on the Series E preferred stock were $3.50 per share per year, and were due and payable ona quarterly basis beginning on May 2, 2005. The dividends were payable in either cash or commonstock or a combination thereof at our election. The Series E preferred stock automatically convertedinto common stock on February 1, 2008 at a rate of 14.006 shares as determined by the adjustedapplicable market value of the Company’s common stock (as defined in the Series E preferred stockagreement at the date of conversion). The series E conversion resulted in the issuance of 35,014 sharesof Rite Aid common stock to the holders of the Series E preferred stock.

The Company also has outstanding Series G and Series H preferred stock. The Series G preferredstock has a liquidation preference of $100 per share and pays quarterly dividends at 7% of liquidationpreference. The Series G preferred stock can be redeemed at the Company’s election after January2009. The Series H preferred stock pays dividends of 6% of liquidation preference and can beredeemed at the Company’s election after January 2010. All dividends can be paid in either cash or inadditional shares of preferred stock, at the election of the Company. Any redemptions are at 105% ofthe liquidations preference of $100 per share, plus accrued and unpaid dividends. The Series G, and Hshares are all convertible into common stock of the Company, at the holder’s option, at a conversionrate of $5.50 per share.

15. Stock Option and Stock Award Plans

As disclosed in Note 1, effective March 5, 2006, the Company adopted SFAS No. 123(R), ‘‘Share-Based Payment’’ using the modified prospective transition method. Expense is recognized over therequisite service period of the award, net of an estimate for the impact of forfeitures. Operating resultsfor fiscal 2008, 2007 and 2006 include $40,439, $22,331, and $20,261 of compensation costs related tothe Company’s stock-based compensation arrangements.

The Company reserved 22,000 shares of its common stock for the granting of stock options andother incentive awards to officers and key associates under the 1990 Omnibus Stock Incentive Plan (the1990 Plan), which was approved by the shareholders. Options may be granted, with or without stockappreciation rights (‘‘SAR’’), at prices that are not less than the fair market value of a share ofcommon stock on the date of grant. The exercise of either a SAR or option automatically will cancelany related option or SAR. Under the 1990 Plan, the payment for SARs will be made in shares, cashor 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), underwhich 10,000 shares of common stock are authorized for the granting of stock options at the discretionof the Board of Directors.

92

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

15. Stock Option and Stock Award Plans (Continued)

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

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

In April 2004, the Board of Directors adopted the 2004 Omnibus Equity Plan, which was approvedby the shareholders. Under the plan, 20,000 shares of common stock are authorized for granting ofrestricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at thedirection of the Board of Directors.

In January 2007, the stockholders of Rite Aid Corporation approved the adoption of the Rite AidCorporation 2006 Omnibus Equity Plan. Under the plan, 50,000 shares of Rite Aid common stock areavailable for granting of restricted stock, stock options, phantom stock, stock bonus awards and otherequity based awards at the discretion of the Board of Directors. The adoption of the 2006 OmnibusEquity Plan became effective upon the closing of the acquisition.

All of the plans provide for the Board of Directors (or at its election, the CompensationCommittee) to determine both when and in what manner options may be exercised; however, it maynot be more than 10 years from the date of grant. All of the plans provide that stock options may begranted at prices that are not less than the fair market value of a share of common stock on the dateof grant. The aggregate number of shares authorized for issuance for all plans is 104,947 as of March 1,2008.

The Company has issued options to certain senior executives pursuant to their individualemployment contracts. These options were not issued out of the plans listed above, but are included inthe option tables herein. As of March 1, 2008, 6,163 of these options remain outstanding.

Stock Options

The Company determines the fair value of stock options issued on the date of grant using theBlack-Scholes-Merton option-pricing model. The following assumptions were used for options grantedin fiscal 2008, 2007 and 2006:

2008 2007 2006

Expected stock price volatility . . . . . . . . . . . . . . . . 52% 56% 59%Expected dividend yield . . . . . . . . . . . . . . . . . . . . 0.00% 0.0% 0.0%Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . 4.96% 4.99% 4.04%Expected option life . . . . . . . . . . . . . . . . . . . . . . . 5.5 years 5.5 years 4.0 years

The weighted average fair value of options granted during fiscal 2008, 2007, and 2006 was $3.20,$2.47, and $1.99, respectively.

93

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

15. Stock Option and Stock Award Plans (Continued)

Following is a summary of stock option transactions for the fiscal years ended March 1, 2008,March 3, 2007, and March 4, 2006:

WeightedAverage

Weighted Average Remaining AggregateExercise Contractual Intrinsic

Shares Price Per Share Term Value

Outstanding at February 26, 2005 . . . . . . . . . . . . . . . . 64,931 4.78Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,678 4.05Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,206) 2.75Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,685) 5.93

Outstanding at March 4, 2006 . . . . . . . . . . . . . . . . . . . 62,718 4.72Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,793 4.43Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,916) 3.44Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,999) 9.05

Outstanding at March 3, 2007 . . . . . . . . . . . . . . . . . . . 60,596 4.60Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,744 6.01Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,135) 3.09Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,543) 6.66

Outstanding at March 1, 2008 . . . . . . . . . . . . . . . . . . . 64,662 4.85 5.08 $2,642

Vested or expected to vest at March 1, 2008 . . . . . . . . 59,655 4.83 4.83 $2,642

Exercisable at March 1, 2008 . . . . . . . . . . . . . . . . . . . 47,642 4.68 3.82 $2,638

As of March 1, 2008, there was $33,365 of total unrecognized pre-tax compensation costs relatedto unvested stock options, net of forfeitures. These costs are expected to be recognized over a weightedaverage period of 2.76 years.

Cash received from stock option exercises for fiscal 2008, 2007, and 2006 was $12,764, $20,386, and$11,562 respectively. There was no income tax benefit from stock options for fiscal year 2008. Theincome tax benefits from stock option exercises totaled $4,202 and $2,976 for fiscal 2007 and 2006,respectively. The total intrinsic value of stock options exercised for fiscal 2008, 2007, and 2006 was$12,705, $12,346, and $5,229, respectively.

Restricted Stock

The Company provides restricted stock grants to associates under plans approved by thestockholders. Shares awarded under the plans vest in installments up to three years and unvested sharesare forfeited upon termination of employment. Additionally, vesting of 577 shares awarded to certainsenior executives is conditional upon the Company meeting specified performance targets. Following is

94

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

15. Stock Option and Stock Award Plans (Continued)

a summary of restricted stock transactions for the fiscal years ended March 1, 2008, March 3, 2007, andMarch 4, 2006:

WeightedAverage

Grant DateShares Fair Value

Balance at February 26, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,471 4.37Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,546 4.05Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (905) 3.92Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,377) 4.83

Balance at March 4, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,735 4.00Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,139 4.37Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,899) 4.02Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (973) 4.18

Balance at March 3, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,002 4.21Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,542 5.94Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,004) 4.12Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,568) 5.25

Balance at March 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,972 5.39

Compensation expense related to all restricted stock grants is being recorded over a three yearvesting period of these grants. At March 1, 2008, there was $33,348 of total unrecognized pre-taxcompensation costs related to unvested restricted stock grants, net of forfeitures. These costs areexpected to be recognized over a weighted average period of 1.98 years.

The total fair value of restricted stock vested during fiscal years 2008, 2007, and 2006 was $16,488,$7,632, and $3,548, respectively.

16. Retirement Plans

Defined Contribution Plans

The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k)defined contribution plans covering nonunion associates and certain union associates. The Companydoes not contribute to all of the plans. Per those plan provisions, the Company matches 100% of aparticipant’s pretax payroll contributions, up to a maximum of 3% of such participant’s pretax annualcompensation. Thereafter, the Company will match 50% of the participant’s additional pretax payrollcontributions, up to a maximum of 2% of such participant’s additional pretax annual compensation.Total expenses recognized for the above plans was $56,318 in fiscal 2008, $34,524 in fiscal 2007 and$32,633 in fiscal 2006.

The Chairman of the Board, President and Chief Executive Officer and a member of the Board ofDirectors are entitled to supplemental retirement defined contribution arrangements in accordance with

95

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

16. Retirement Plans (Continued)

their employment agreements, which vest immediately. The Company makes investments to fund theseobligations. Other officers, who are not participating in the defined benefit nonqualified executiveretirement plan, are included in a supplemental retirement plan, which is a defined contribution planthat is subject to a five year graduated vesting schedule. The expense recognized for these plans was$3,180 in fiscal 2008, $7,294 in fiscal 2007, and $4,862 in fiscal 2006.

Defined Benefit Plans

The Company and its subsidiaries also sponsor a qualified defined benefit pension plan thatrequires benefits to be paid to eligible associates based upon years of service and, in some cases,eligible compensation. The Company’s funding policy for the Rite Aid Pension Plan (The ‘‘DefinedBenefit Pension Plan’’) is to contribute the minimum amount required by the Employee RetirementIncome Security Act of 1974. However, the Company may, at its sole discretion, contribute additionalfunds to the plan. The Company made discretionary contributions of $10,100 in fiscal 2008, $10,700 infiscal 2007, and $8,100 in fiscal 2006.

The Company has established the nonqualified executive retirement plan for certain officers who,pursuant to their employment agreements, are not participating in the defined contributionsupplemental retirement plan. Generally, eligible participants receive an annual benefit, payablemonthly over fifteen years, equal to a percentage of the average of the three highest annual basesalaries paid or accrued for each participant within the ten fiscal years prior to the date of the eventgiving rise to payment of the benefit. This defined benefit plan is unfunded.

On March 3, 2007, the last day of the 2007 fiscal year, the Company adopted the provisions ofSFAS No. 158, ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88. 106 and 132(R)’’. This standard requires an employerto recognize the overfunded or underfunded status of a defined benefit postretirement plan as an assetor liability on the balance sheet and to recognize changes in the funded status in the year in which thechanges occur through other comprehensive income.

The initial incremental recognition of the funded status under SFAS No. 158 is recognized as anadjustment to accumulated other comprehensive loss as of March 3, 2007. The cumulative effect ofadopting the provisions of SFAS No. 158 as of March 3, 2007 was not material to the consolidatedfinancial statements. Subsequent changes in the funded status that are not included in net periodicbenefit cost will be reflected as a component of other comprehensive loss.

96

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

16. Retirement Plans (Continued)

Net periodic pension expense and other changes recognized in other comprehensive income for thedefined benefit plans included the following components:

Defined Benefit Nonqualified ExecutivePension Plan Retirement Plan

2008 2007 2006 2008 2007 2006

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,254 $ 3,231 $ 3,142 $ 49 $ 83 $ 77Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . 5,476 5,208 5,075 1,146 1,094 1,163Expected return on plan assets . . . . . . . . . . . . (5,054) (4,193) (3,788) — — —Amortization of unrecognized net transition

obligation . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 87 87 87Amortization of unrecognized prior service

cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997 728 831 — — —Amortization of unrecognized net loss (gain) . . 845 1,681 1,732 (445) 776 238

Net pension expense . . . . . . . . . . . . . . . . . . $ 5,518 $ 6,655 $ 6,992 $ 837 $2,040 $1,565

Other changes recognized in othercomprehensive loss:Unrecognized net gain arising during period $(3,928) $ (874)Amortization of unrecognized net transition

obligation . . . . . . . . . . . . . . . . . . . . . . . . — (87)Amortization of unrecognized prior service

costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . (997) —Amortization of unrecognized net (loss) gain (845) 445

Net amount recognized in othercomprehensive loss . . . . . . . . . . . . . . . . . . . (5,770) (516)

Net amount recognized in pension expenseand other comprehensive loss . . . . . . . . . . . $ (252) $ 321

97

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

16. Retirement Plans (Continued)

The table below sets forth a reconciliation from the beginning of the year for both the benefitobligation and plan assets of the Company’s defined benefit plans, as well as the funded status andamounts recognized in the Company’s balance sheet as of March 1, 2008 and March 3, 2007:

Defined Benefit Nonqualified ExecutivePension Plan Retirement Plan

2008 2007 2008 2007

Change in benefit obligations:Benefit obligation at end of prior year . . . . . . . . . . . . . . $ 98,680 $ 96,402 $ 21,153 $ 21,018Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,255 3,231 49 83Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,476 5,207 1,146 1,094Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,456) (5,906) (1,797) (1,651)Change due to change in assumptions . . . . . . . . . . . . . . (9,026) (3,523) (938) (156)Change due to plan amendment . . . . . . . . . . . . . . . . . . — 2,618 — —Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (628) 651 65 765

Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . $ 92,301 $ 98,680 $ 19,678 $ 21,153

Change in plan assets:Fair value of plan assets at beginning of year . . . . . . . . . $ 83,883 $ 72,647 $ — $ —Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . 10,100 10,700 1,797 1,651Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . 547 7,791 — —Distributions (including expenses paid by the plan) . . . . . (6,674) (7,255) (1,797) (1,651)

Fair value of plan assets at end of year . . . . . . . . . . . . . . . $ 87,856 $ 83,883 $ — $ —

Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,445) $(14,797) $(19,678) $(21,153)Unrecognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . — — — —Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . — — — —Unrecognized net transition obligation . . . . . . . . . . . . . . . . — — — —Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,445) $(14,797) $(19,678) $(21,153)

Amounts recognized in consolidated balance sheetsconsisted of:Prepaid pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ — $ —Accrued pension liability . . . . . . . . . . . . . . . . . . . . . . . . (4,445) (14,797) (19,678) (21,153)Pension intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Minimum pension liability included in accumulated other

comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . — — — —Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,445) $(14,797) $(19,678) $(21,153)Amounts recognized in accumulated other comprehensive

loss consist of:Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(12,875) $(17,648) $ (1,235) $ (1,663)Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,418) (5,415) — —Net transition obligation . . . . . . . . . . . . . . . . . . . . . . . . — — — (87)

Amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(17,293) $(23,063) $ (1,235) $ (1,750)

98

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

16. Retirement Plans (Continued)

The estimated net actuarial loss and prior service cost amounts that will be amortized fromaccumulated other comprehensive loss into net periodic pension expense in fiscal 2009 are $427 and$997, respectively.

The accumulated benefit obligation for the defined benefit pension plan was $91,786 and $98,083as of March 1, 2008 and March 3, 2007, respectively. The accumulated benefit obligation for thenonqualified executive retirement plan was $19,555 and $21,066 as of March 1, 2008 and March 3,2006, respectively.

The significant actuarial assumptions used for all defined benefit plans to determine the benefitobligation as of March 1, 2008, March 3, 2007, and March 4, 2006 were as follows:

NonqualifiedDefined Benefit Executive

Pension Plan Retirement Plan

2008 2007 2006 2008 2007 2006

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50% 5.75% 5.50% 6.50% 5.75% 5.50%Rate of increase in future compensation levels . . . . . . . . . . . . 5.00 5.00 5.00 3.00 3.00 3.00

Weighted average assumptions used to determine net cost for the fiscal years ended March 1,2008, March 3, 2007 and March 4, 2006 were:

Defined Benefit Nonqualified ExecutivePension Plan Retirement Plan

2008 2007 2006 2008 2007 2006

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.75% 5.50% 5.75% 5.75% 5.50% 5.75%Rate of increase in future compensation levels . . . . . . . . . . 5.00 5.00 5.00 3.00 3.00 3.00Expected long-term rate of return on plan assets . . . . . . . . 7.75 7.75 7.75 N/A N/A N/A

To develop the expected long-term rate of return on assets assumption, the Company consideredthe historical returns and the future expectations for returns for each asset class, as well as the targetasset allocation of the pension portfolio. This resulted in the selection of the 7.75% long-term rate ofreturn on plan assets assumption for fiscal 2008, 2007 and 2006.

The Company’s pension plan asset allocations at March 1, 2008 and March 3, 2007 by assetcategory were as follows:

March 1, 2008 March 3, 2007

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59% 60%Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . 41% 40%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%

99

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

16. Retirement Plans (Continued)

The investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan withassets, are to:

• Achieve a rate of return on investments that exceeds inflation over a full market cycle and isconsistent with actuarial assumptions;

• Balance the correlation between assets and liabilities by diversifying the portfolio among variousasset classes to address return risk and interest rate risk;

• Balance the allocation of assets between the investment managers to minimize concentrationrisk;

• Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and

• Control administrative and management costs.

The asset allocation established for the pension investment program reflects the risk tolerance ofthe Company, as determined by:

• The current and anticipated financial strength of the Company;

• the funded status of the plan; and

• plan liabilities.

Investments in both the equity and fixed income markets will be maintained, recognizing thathistorical results indicate that equities (primarily common stocks) have higher expected returns thanfixed income investments. It is also recognized that the correlation between assets and liabilities mustbe balanced to address higher volatility of equity investments (return risk) and interest rate risk.

The following targets are to be applied to the allocation of plan assets.

Category Target Allocation

U.S. equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45%International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15%U.S. fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

The Company expects to contribute $4,500 to the Defined Benefit Pension Plan and $2,412 to thenonqualified executive retirement plan during fiscal 2009.

100

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

16. Retirement Plans (Continued)

Following are the future benefit payments expected to be paid for the Defined Benefit PensionPlan and the nonqualified executive retirement plan during the years indicated:

NonqualifiedDefined Benefit Executive

Fiscal Year Pension Plan Retirement Plan

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,137 $ 2,4122010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,360 2,3972011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,644 1,8022012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,726 1,7942013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,074 1,8892014-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,860 8,508

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,801 $18,802

Other Plans

The Company participates in various multi-employer union pension plans that are not sponsoredby the Company. Total expenses recognized for the multi-employer plans were $13,341 in fiscal 2008,$13,326 in fiscal 2007 and $11,642 in fiscal 2006.

17. Commitments, Contingencies and Guarantees

Legal Proceedings

The Company is subject from time to time to various claims and lawsuits and governmentalinvestigations arising in the ordinary course of business. Some of these suits purport or have beendetermined to be class actions and/or seek substantial damages. In the opinion of the Company’smanagement, these matters are adequately covered by insurance or, if not so covered, are withoutmerit or are of such nature or involve amounts that would not have a material adverse effect on itsfinancial conditions, results of operations or cash flows if decided adversely.

Guaranteed Lease Obligations

In connection with certain business dispositions, the Company continues to guarantee leaseobligations for 120 former stores. The respective purchasers assume the Company’s obligations and are,therefore, primarily liable for these obligations. Assuming that each respective purchaser becameinsolvent, an event which the Company believes to be highly unlikely, management estimates that itcould settle these obligations for amounts substantially less than the aggregate obligation of $224,286 asof March 1, 2008. The obligations are for varying terms dependent upon the respective lease, thelongest of which lasts through February 17, 2024.

In the opinion of management, the ultimate disposition of these guarantees will not have amaterial effect on the Company’s results of operations, financial position or cash flows.

101

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

18. Supplementary Cash Flow Data

Year Ended

March 1, March 3, March 4,2008 2007 2006

Cash paid for interest (net of capitalized amounts of $2,069, $1,474and $934 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $353,711 $267,807 $260,224

Cash payments (refunds) from income taxes, net . . . . . . . . . . . . . . . . $ 2,404 $ (2,676) $ (2,829)

Equipment financed under capital leases . . . . . . . . . . . . . . . . . . . . . $ 11,667 $ 9,387 $ 12,173

Equipment received for noncash consideration . . . . . . . . . . . . . . . . . $ 3,411 $ 3,471 $ 1,506

Preferred stock dividends paid in additional shares . . . . . . . . . . . . . . $ 17,153 $ 16,075 $ 19,634

Reduction in lease financing obligation . . . . . . . . . . . . . . . . . . . . . . . $ 51,861 $ 13,629 $ 3,028

Accrued capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,344 $ 54,300 $ 43,150

19. Related Party Transactions

There were receivables from related parties of $507 and $428 at March 1, 2008 and March 3, 2007,respectively.

In connection with the acquisition of Jean Coutu, USA, the Company entered into a transitionservices agreement with the Jean Coutu Group. Under the terms of this agreement, Jean Coutu Groupprovides certain information technology, network and support services to the Company. Jean CoutuGroup must provide these services to the Company for a minimum period of nine months following theclosing date of the Acquisition. The Company has extended the term of the agreement for twoadditional three month periods and has the option to further extend the term of the agreement for anadditional three-month period. The Company recorded an expense of $4,085 for services providedunder this agreement for the year ended March 1, 2008.

During fiscal 2006, proceeds from the issuance of the Company’s Series I preferred stock, alongwith borrowings under the Company’s revolving credit facility, were used to redeem all of theCompany’s Series F preferred stock, which was held by Green Equity Investors, III, L.P., as discussedfurther in Note 13.

During fiscal 2008, 2007 and 2006, the Company paid Leonard Green & Partners, L.P., fees of$276, $334 and $458, for financial advisory services, respectively. These amounts include expensereimbursements of $89, $59 and $158 for the fiscal years 2008, 2007 and 2006, respectively. Jonathan D.Sokoloff, director, is an equity owners of Leonard Green & Partners, L.P. The Company has enteredinto a month-to-month agreement with Leonard Green & Partners, L.P., as amended whereby theCompany has agreed to pay Leonard Green & Partners, L.P., a monthly fee of $12.5, paid in arrears,for its consulting services. The consulting agreement also provides for the reimbursement ofout-of-pocket expenses incurred by Leonard Green & Partners, L.P.

102

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

20. Interim Financial Results (Unaudited)

Fiscal Year 2008

First Second Third FourthQuarter Quarter Quarter Quarter Year

Revenues . . . . . . . . . . . . . . . . . . . . . $4,430,413 $6,573,699 $6,497,912 $6,824,822 $24,326,846Cost of goods sold . . . . . . . . . . . . . . 3,214,834 4,783,888 4,754,057 4,936,493 17,689,272Selling, general and administrative

expenses . . . . . . . . . . . . . . . . . . . 1,119,642 1,742,146 1,730,053 1,774,296 6,366,137Store closing and impairment charges 4,030 16,587 21,836 43,713 86,166Interest expense . . . . . . . . . . . . . . . . 68,725 123,250 130,306 127,315 449,596Loss on debt modifications and

retirements, net . . . . . . . . . . . . . . — 12,900 — — 12,900(Gain) Loss on sale of assets and

investments, net . . . . . . . . . . . . . . (4,230) 1,651 (2,105) 958 (3,726)

4,403,001 6,680,422 6,634,147 6,882,775 24,600,345

Income (loss) before income taxes . . 27,412 (106,723) (136,235) (57,953) (273,499)Income tax (benefit) expense . . . . . . (900) (38,570) (52,739) 894,910 802,701

Net income (loss) from continuingoperations . . . . . . . . . . . . . . . . . . 28,312 (68,153) (83,496) (952,863) (1,076,200)

(Loss) income from discontinuedoperations, net of gain on disposaland income tax benefit . . . . . . . . . (678) (1,443) (1,352) 683 (2,790)

Net income (loss) . . . . . . . . . . . . . . . $ 27,634 $ (69,596) $ (84,848) $ (952,180) $(1,078,990)

Basic income (loss) per share(1) . . . . $ 0.04 $ (0.10) $ (0.12) $ (1.20) $ (1.54)

Diluted income (loss) per share(1) . . $ 0.04 $ (0.10) $ (0.12) $ (1.20) $ (1.54)

103

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

20. Interim Financial Results (Unaudited) (Continued)

Fiscal Year 2007

First Second Third FourthQuarter Quarter Quarter Quarter Year

Revenues . . . . . . . . . . . . . . . . . . . . . $4,309,644 $4,262,613 $4,293,624 $4,533,502 $17,399,383Cost of goods sold . . . . . . . . . . . . . . 3,132,647 3,117,966 3,146,259 3,313,737 12,710,609Selling, general and administrative

expenses . . . . . . . . . . . . . . . . . . . 1,077,924 1,074,047 1,071,612 1,114,879 4,338,462Store closing and impairment charges 12,588 6,446 5,119 25,164 49,317Interest expense . . . . . . . . . . . . . . . . 69,334 68,185 68,184 69,516 275,219Loss on debt modifications and

retirements, net . . . . . . . . . . . . . . — — — 18,662 18,662Loss (gain) on sale of assets and

investments, net . . . . . . . . . . . . . . 791 (2,146) (48) (9,736) (11,139)

4,293,284 4,264,498 4,291,126 4,532,222 17,381,130

Income (loss) before income taxes . . 16,360 (1,885) 2,498 1,280 18,253Income tax expense (benefit) . . . . . . 4,969 (2,639) 602 (14,541) (11,609)

Net income from continuingoperations . . . . . . . . . . . . . . . . . . 11,391 754 1,896 15,821 29,862

Loss from discontinued operations,net of gain on disposal and incometax benefit . . . . . . . . . . . . . . . . . . (436) (1,084) (792) (724) (3,036)

Net income (loss) . . . . . . . . . . . . . . . $ 10,955 (330) 1,104 15,097 26,826

Basic income (loss) per share(1) . . . . $ 0.01 $ (0.02) $ (0.01) $ 0.01 $ (0.01)

Diluted income (loss) per share(1) . . $ 0.01 $ (0.02) $ (0.01) $ 0.01 $ (0.01)

(1) Income (loss) per share amounts for each quarter may not necessarily total to the yearly income(loss) per share due to the weighting of shares outstanding on a quarterly and year-to-date basis.

During the fourth quarter of fiscal 2008, the Company recorded an income tax expense of $894,910related primarily to the establishment of a valuation allowance against deferred tax assets. TheCompany recorded store closing and impairment charges of $43,713. The Company recorded a credit of$25,259 to record an adjustment to the LIFO reserve, as inflation on pharmacy products was less thanestimated in previous quarters. The Company recorded a gain on the sale of assets in Las Vegas of$8,100.

During the second quarter of fiscal 2008, the Company recorded a charge of $12,900 related tocommitment fees for bridge financing of the Acquisition that was never utilized.

104

RITE AID CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(In thousands, except per share amounts)

20. Interim Financial Results (Unaudited) (Continued)

During the fourth quarter of fiscal 2007, the Company recorded a loss on debt modification of$18,662 related to the early redemption of its 9.5% notes due 2011. The Company recorded $25,164 instore closing and impairment charges. The Company recorded a total gain of $17,589 related to thesettlement of its claim for Hurricane Katrina with various insurance carriers.

21. Financial Instruments

The carrying amounts and fair values of financial instruments at March 1, 2008 and March 3, 2007are listed as follows:

2008 2007

Carrying Fair Carrying FairAmount Value Amount Value

Variable rate indebtedness . . . . . $2,099,000 $1,896,705 $ 445,000 $ 445,000Fixed rate indebtedness . . . . . . . $3,670,262 $2,902,318 $2,465,627 $2,353,634

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

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

LIBOR-based borrowings under credit facilities:

The carrying amounts for LIBOR-based borrowings under the credit facilities, term loans and termnotes are estimated based on the quoted market price of the financial instruments.

Long-term indebtedness:

The fair values of long-term indebtedness are estimated based on the quoted market prices of thefinancial instruments. If quoted market prices were not available, the Company estimated the fair valuebased on the quoted market price of a financial instrument with similar characteristics.

22. Hurricane Katrina

On August 29, 2005, Hurricane Katrina made landfall in Louisiana and proceeded to movethrough Mississippi and Alabama, causing one of the worst natural disasters in the history of theUnited States. As a result of this disaster, the Company had to close 14 stores, which resulted in lostinventory and fixed assets. The Company also incurred repair and maintenance charges related to itsclean-up efforts. In February 2007, the Company entered into a final binding settlement of its claimsunder Hurricane Katrina with its insurance carriers. As a result of this settlement, the Companyrecorded a gain in fiscal 2007 of $17,589. The portion of this gain related to reimbursement for lostand damaged fixed assets was $9,442 and was recorded as a gain on sale of assets and investments. Theportion relating to reimbursement for lost or damaged inventory was $2,169 and was recorded as areduction of costs of goods sold. The portion of this gain related to repair and maintenance and otherclean-up charges was $5,977 and was recorded as a reduction of SG&A.

105

RITE AID CORPORATION AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended March 1, 2008, March 3, 2007 and March 4, 2006

(dollars in thousands)

Additions AllowancesBalance at Charged to Related to Balance at

Allowances deducted from accounts receivable Beginning Costs and the Purchase of End offor estimated uncollectible amounts: of Period Expenses Deductions Jean Coutu, USA Period

Year ended March 1, 2008 . . . . . . . . . . . $30,246 $34,598 $34,015 10,392 $41,221Year ended March 3, 2007 . . . . . . . . . . . $32,336 $26,603 $28,693 — $30,246Year ended March 4, 2006 . . . . . . . . . . . $31,216 $34,702 $33,582 — $32,336

106

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

RITE AID CORPORATION

By: /s/ MARY F. SAMMONS

Mary F. SammonsChairman of the Board, President and

Chief Executive Officer

Dated: April 29, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signedbelow by the following persons on behalf of the registrant and in their respective capacities onApril 29, 2008.

Signature Title

/s/ MARY F. SAMMONS Chairman of the Board, President andChief Executive OfficerMary F. Sammons

/s/ MICHEL COUTUNon-Executive Co-Chairman of the Board

Michel Coutu

/s/ KEVIN TWOMEYChief Financial Officer and Executive Vice President

Kevin Twomey

/s/ DOUGLAS E. DONLEYChief Accounting Officer and Senior Vice President

Douglas E. Donley

/s/ JOSEPH B. ANDERSON, JRDirector

Joseph B. Anderson, Jr

/s/ ANDRE BELZILEDirector

Andre Belzile

/s/ FRANCOIS J. COUTUDirector

Francois J. Coutu

107

Signature Title

/s/ MICHAEL A. FRIEDMAN, MDDirector

Michael A. Friedman, MD

/s/ GEORGE G. GOLLEHERDirector

George G. Golleher

/s/ ROBERT A. MARIANODirector

Robert A. Mariano

/s/ ROBERT J. MILLERDirector

Robert J. Miller

/s/ MICHAEL N. REGANDirector

Michael N. Regan

/s/ PHILIP G. SATREDirector

Philip G. Satre

/s/ JONATHAN D. SOKOLOFFDirector

Jonathan D. Sokoloff

/s/ MARCY SYMSDirector

Marcy Syms

/s/ DENNIS WOODDirector

Dennis Wood

108

Exhibit 31.1

CERTIFICATIONS

I, Mary F. Sammons, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Rite Aid Corporation (the ‘‘Registrant’’);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cashflows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (‘‘the Exchange Act’’)) and internal controls overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for theRegistrant and have;

a. Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relatingto the Registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reportingthat occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscalquarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluationof internal control over financial reporting, to the Registrant’s auditors and the audit committee ofthe Registrant’s board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internalcontrol over financial reporting which are reasonably likely to adversely affect the Registrant’sability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have asignificant role in the Registrant’s internal control over financial reporting.

Date: April 29, 2008

By: /s/ MARY F. SAMMONS

Mary F. SammonsChairman of the Board, Presidentand Chief Executive Officer

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Exhibit 31.2

CERTIFICATIONS

I, Kevin Twomey, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Rite Aid Corporation (the ‘‘Registrant’’);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cashflows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (‘‘the Exchange Act’’)) and internal controls overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for theRegistrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relatingto the Registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reportingthat occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscalquarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluationof internal control over financial reporting, to the Registrant’s auditors and the audit committee ofthe Registrant’s board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internalcontrol over financial reporting which are reasonably likely to adversely affect the Registrant’sability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have asignificant role in the Registrant’s internal control over financial reporting.

Date: April 29, 2008

By: /s/ KEVIN TWOMEY

Kevin TwomeyExecutive Vice President and Chief Financial Officer

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Exhibit 32

Certification of CEO and CFO Pursuant to18 U.S.C. Section 1350,as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Rite Aid Corporation (the ‘‘Company’’)for the annual period ended March 1, 2008 as filed with the Securities and Exchange Commission onthe date hereof (the ‘‘Report’’), Mary F. Sammons, as President and Chief Executive Officer of theCompany, and Kevin Twomey, as Executive Vice President and Chief Financial Officer of theCompany, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of theSarbanes-Oxley Act of 2002, that to the best of her/his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.

/s/ MARY F. SAMMONS

Name: Mary F. SammonsTitle: Chairman of the Board, President

and Chief Executive OfficerDate: April 29, 2008

/s/ KEVIN TWOMEY

Name: Kevin TwomeyTitle: Executive Vice President and Chief Financial OfficerDate: April 29, 2008

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