Exhibit 10.1

 

Execution Copy

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of the 8th day
of August, 2019 by and between Rite Aid Corporation, a Delaware corporation (the
“Company”) and Heyward Donigan (“Executive”).

 

WHEREAS, Executive desires to provide the Company with her services and the
Company desires to hire and employ Executive on the terms and subject to the
conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Executive (individually a “Party” and together the “Parties”),
intending to be legally bound, agree as follows:

 

1.             Term of Employment.

 

The term of Executive’s employment under this Agreement shall commence on
August 12, 2019 (the “Commencement Date”) and, unless earlier terminated
pursuant to Section 5 below, shall continue for a period ending on the date that
is two (2) years following the Commencement Date (the “Original Term of
Employment”).  The Original Term of Employment shall be automatically renewed
for successive one (1) year terms (the “Renewal Terms”) unless at least one
hundred eighty (180) days prior to the expiration of the Original Term of
Employment or any Renewal Term, either Party notifies the other Party in writing
that he or it is electing to terminate this Agreement at the expiration of the
then current term of employment.  “Term” shall mean the Original Term of
Employment and all Renewal Terms.

 

2.             Position and Duties.

 

2.1          Generally.  During the Term, (i) Executive shall serve as Chief
Executive Officer of the Company and shall have such duties, responsibilities
and authority as are customary for such position and such other titles, duties,
responsibilities and authorities as shall be assigned by the Board of Directors
of the Company (the “Board”) from time to time consistent with such position,
and (ii) the Board shall take necessary action to increase the size of the Board
and appoint Executive to fill the vacancy at its next meeting and Executive
shall hold office until the next annual election of directors; subsequently,
unless otherwise agreed with Executive, the Board shall nominate Executive to
serve as a member of the Board.  Except as permitted by Section 2.2 or otherwise
approved by the Board, Executive shall devote her full working time, attention,
knowledge and skills faithfully and to the best of her ability, to the duties
and responsibilities assigned by the Board in furtherance of the business
affairs and activities of the Company and its subsidiaries, affiliates and
strategic partners.  Executive shall report solely to the Board. 
Contemporaneously with the termination of Executive’s employment for any reason,
Executive shall automatically resign from all offices and positions she holds
with the Company or any subsidiary without any further action on the part of
Executive or the Company; provided,

 

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however, that Executive agrees to execute any additional documents required or
requested by the Company with respect to such resignations.

 

2.2          Other Activities.  Anything herein to the contrary notwithstanding,
nothing in this Agreement shall preclude Executive from engaging in the
following activities:  (i) serving on the board of directors of a reasonable
number of trade associations and/or charitable organizations, subject to the
approval of the Board which shall not be unreasonably withheld, (ii) engaging in
charitable activities and community affairs, and (iii) managing her personal
investments and affairs, provided that Executive’s activities pursuant to
clauses (i), (ii) or (iii) do not violate Sections 6 or 7 below or materially
interfere with the proper performance of her duties and responsibilities under
this Agreement.  Executive shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions, and restrictions as the
Company may from time to time establish for officers of the Company or employees
generally.  Executive shall not be permitted to serve on board of directors of
any public companies without the prior approval of the Board.

 

3.             Compensation.

 

3.1          Base Salary.  During the Term, as compensation for her services
hereunder, Executive shall receive a salary at the annualized rate of One
Million Dollars ($1,000,000) per year (“Base Salary” as may be adjusted from
time to time, subject to Section 5.4), which shall be paid in accordance with
the Company’s normal payroll practices and procedures, less such deductions or
offsets required by applicable law or otherwise authorized by Executive.

 

3.2          Annual Performance Bonus.  Executive shall participate each fiscal
year during the Term in the Company’s annual bonus plan as adopted and approved
by the Board or the Compensation Committee of the Board (the “Compensation
Committee”) from time to time.  For the current fiscal year (FY 2020),
Executive’s annual target bonus opportunity pursuant to such plan shall equal
two hundred percent (200%) (the “Annual Target Bonus”) of the Base Salary,
subject to proration beginning with the fiscal period in which the Commencement
Date falls, determined by multiplying the Annual Target Bonus by a fraction
(x) the numerator of which is the number of fiscal periods (months) in which
Executive is employed during the 2020 fiscal year, beginning with the month in
which the Commencement Date occurs and (y) the denominator of which is 12.  For
subsequent fiscal years, the Annual Target Bonus may be adjusted by the
Compensation Committee (however, in no event shall it be less than 200% of Base
Salary).  Payment of any bonus earned shall be made in accordance with the terms
of the Company’s annual bonus plan as in effect for the year for which the bonus
is earned.

 

3.3          Inducement and Equity Awards.

 

(a)           Employment Inducement Award — Restricted Stock.  As an inducement
to commence employment with the Company, on the Commencement Date, Executive
will be granted a number of shares of restricted Company Common Stock, par value
$1.00 per share (“Company Stock”) (the “Restricted Stock”) determined by
dividing $2,000,000 by the closing price of a share of Company Stock on the
Commencement Date.  The vesting restrictions on the Restricted Stock shall lapse
as to one-third (1/3) of the shares on each of the first three (3) anniversaries
from the Commencement Date, subject to continued service on each

 

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applicable vesting date, and the Restricted Stock shall otherwise be evidenced
by and subject to the terms of the Employment Inducement Award Agreement.

 

(b)           Employment Inducement Award — Stock Options.  As a further
inducement to commence employment with the Company, on the Commencement Date,
Executive will be granted a number of non-qualified stock options to purchase
shares of Company Stock (the “Stock Options”) valued at $2,000,000 in the
aggregate on the date of grant, determined by the Company utilizing the Black
Scholes option pricing model.  The Stock Options will have an exercise price
equal to the fair market value of a share of Company Stock on the date of grant
and shall vest and become exercisable as to one-quarter (1/4) of the Stock
Options on each of the first four (4) anniversaries from the Commencement Date,
subject to continued service on each applicable vesting date, and shall
otherwise be evidenced by and subject to the terms of the Employment Inducement
Award Agreement.

 

(c)           Cash Inducement Award.  In connection with the entry into this
Agreement, Executive shall receive an inducement payment equal to Three Million
Two Hundred Thousand Dollars ($3,200,000) (the “Cash Inducement Payment”), which
shall be paid in cash within the first five (5) days after the Commencement
Date, less such deductions or offsets required by applicable law or otherwise
authorized by Executive.  The Cash Inducement Payment is subject to repayment to
the Company within thirty (30) days after the Executive’s employment is
terminated by the Company for Cause or by Executive without Good Reason (in
either case, the “Repayment Deadline”) in the amount of the full pre-tax amount
of the Cash Inducement Payment if such termination occurs on or before the first
anniversary of the Commencement Date or in the amount of One Million Two Hundred
Thousand Dollars ($1,200,000) if such termination occurs on or before the second
anniversary of the Commencement Date and after the first anniversary of the
Commencement Date.  In the event Executive does not repay the Company in full by
the Repayment Deadline, if applicable, then the Company may, in its sole
discretion, either (i) offset any other amounts payable to Executive by the
Company or any of its affiliates in satisfaction of the full Cash Inducement
Payment or (ii) cause Executive to forfeit (or otherwise recoup) any equity
interests that Executive holds in respect of the Company or any of its
affiliates in an amount equal to the full Cash Inducement Payment, in each case
subject to applicable law.

 

(d)           Participation in the LTIP.  Executive will be eligible to
participate during the Term in the Company’s 2014 Omnibus Equity Plan and any
successor plan (the “LTIP”) beginning with the Company’s 2021 fiscal year. 
Executive’s target long term incentive award under the LTIP will be equal to
four hundred fifty percent (450%) of Executive’s Base Salary.  The terms and
frequency, if any, of long-term incentive award issuances to Executive under the
LTIP shall be consistent with the award issuances to senior executives of the
Company generally, which shall be in the sole discretion of the Board.

 

4.             Additional Benefits.

 

4.1          Employee Benefits.  During the Term, Executive shall be eligible to
participate in the employee benefit plans (including, but not limited to
medical, dental and life insurance plans, short-term and long-term disability
coverage, and 401(k) plans) in which officers of the Company are generally
eligible to participate, subject to satisfaction of any eligibility

 

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requirements and the other generally applicable terms of such plans.  Nothing in
this Agreement shall prevent the Company from amending or terminating any
employee benefit plans of the Company from time to time as the Company deems
appropriate.

 

4.2          Expenses.  The Company shall reimburse Executive for any expenses
reasonably incurred by her during the Term (and at any time during her
employment thereafter), in furtherance of her duties hereunder, including
travel, meals and accommodations (but excluding relocation expenses and
commuting expenses), upon submission of vouchers or receipts and in compliance
with such rules and policies relating thereto as the Company may from time to
time adopt or as may be required in order to permit such payments to be taken as
proper deductions by the Company or any subsidiary under the Internal Revenue
Code of 1986, as amended, and the rules and regulations adopted pursuant thereto
now or hereafter in effect (the “Code”).

 

4.3          Vacation.  Executive shall be entitled to twenty (20) days of paid
vacation during each year of the Term, subject to applicable Company policies as
in effect from time to time.

 

4.4          Automobile Allowance.  During the Term, the Company shall provide
Executive with an automobile allowance of $1,000 per month.

 

4.5          Annual Financial Planning Allowance.  During the Term, the Company
shall provide Executive with an annual executive planning allowance in the
amount of $10,000.  The provisions of Section 16.3 shall apply to any payments
or reimbursements made under this Section 4.5.

 

4.6          Indemnification.  The Company shall (a) indemnify and hold
Executive harmless, to the full extent permitted under applicable law, for, from
and against any and all losses, claims, costs, expenses, damages, liabilities or
actions (including security holder actions, in respect thereof) relating to or
arising out of Executive’s employment with and service as an officer of the
Company during the Term and at all times thereafter; and (b) pay all reasonable
costs, expenses and attorney’s fees incurred by Executive in connection with or
relating to the defense of any such loss, claim, cost, expense, damage,
liability or action, subject to Executive’s undertaking to repay in the event it
is ultimately determined that Executive is not entitled to be indemnified by the
Company.  Executive shall at all relevant times be covered as an insured under
any director and officer liability insurance that covers members of the Board. 
Following termination of Executive’s employment or service with the Company, the
Company shall cause any director and officer liability insurance policies
applicable to Executive prior to such termination of employment to remain in
effect for six (6) years following the date of termination of employment. The
provisions of Section 16.3 shall apply to any payments or reimbursements made
under this Section 4.6.

 

4.7          Relocation.  Within five (5) days of the Commencement Date, the
Company shall pay Executive, in a lump sum, the amount of Eighty Five Thousand
Dollars ($85,000) (the “Relocation Subsidy”), less such deductions or offsets
required by applicable law or otherwise authorized by Executive.  The Relocation
Subsidy is subject to repayment to the Company within thirty (30) days after the
Executive’s employment is terminated by the Company for Cause or by Executive
without Good Reason in the amount of the full pre-tax amount of the

 

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Relocation Subsidy if such termination occurs on or before the first anniversary
of the Commencement Date.

 

5.             Termination.

 

5.1          Termination of Executive’s Employment by the Company for Cause.

 

The Company may terminate Executive’s employment hereunder for Cause (as defined
below).  Such termination of employment shall be effected by written notice
thereof delivered by the Company to Executive, indicating in reasonable detail
the facts and circumstances alleged to provide a basis for such termination of
employment, and shall be effective as of the date of such notice in accordance
with Section 14 hereof.  “Cause, “ as determined in commercially reasonable good
faith by a resolution adopted by the affirmative vote of a majority of the Board
(after reasonable written notice to Executive setting forth in reasonable detail
the specific conduct of Executive upon which the Board relies in reaching its
determination, and a reasonable opportunity for Executive, together with her
counsel, to be heard before the Board prior to making such determination), shall
mean:  (i) Executive’s willful failure to perform the lawful duties or
responsibilities of her position with the Company or any subsidiary, or failure
to timely carry out any lawful and reasonable directive of the Board;
(ii) Executive’s misappropriation of any funds or property of the Company or any
subsidiary; (iii) the conduct by Executive which is a material violation of this
Agreement or written Company Policy or which materially interferes with
Executive’s ability to perform her duties; (iv) Executive’s engaging in conduct
constituting, or which could reasonably constitute, unlawful harassment or which
gives rise to, or which could reasonably give rise to, an actual or perceived
conflict of interest; (v) the commission by Executive of an act of fraud or
dishonesty toward the Company or any subsidiary with respect to any material
matter; (vi) Executive’s willful misconduct or gross negligence which
demonstrably damages or injures the Company or the Company’s reputation;
(vii) Executive is convicted of or pleads guilty to a felony; or (viii) the use
or imparting by Executive of any confidential or proprietary information of the
Company or any subsidiary in material violation of Section 6 below; provided,
that, in the case of conduct described in prong (i) or (iii) which, in the
Company’s reasonable discretion, is capable of being cured, Executive shall have
seven (7) days following Executive’s receipt of written notice from the Company
in which to cure the condition constituting Cause.

 

5.2          Compensation upon Termination by the Company for Cause or by
Executive without Good Reason.  Executive’s employment hereunder may be
terminated during the Term by the Company for Cause or by Executive without Good
Reason, provided that any termination of Executive’s employment by Executive
without Good Reason shall be effective upon a thirty (30) day notice to the
Company or such earlier date as the Company determines in its discretion and
designates in writing.  Without limiting Executive’s right to challenge the
Company’s assertion of Cause or the Company’s right to challenge Executive’s
assertion of Good Reason, a termination of Executive’s employment by the Company
for Cause or by Executive without Good Reason shall not constitute a breach of
this Agreement.  In the event of Executive’s termination of employment (i) by
the Company for Cause or (ii) by Executive without Good Reason:

 

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(a)           Executive shall be entitled to receive (i) all amounts of accrued
but unpaid Base Salary through the effective date of such termination of
employment; (ii) reimbursement for reasonable and necessary expenses incurred by
Executive through the date of notice of such termination of employment, to the
extent otherwise provided under Section 4.2 above; and (iii) all other vested
payments and benefits to which Executive may otherwise be entitled pursuant to
the terms of the applicable benefit plan or arrangement through the effective
date of such termination of employment ((i), (ii) and (iii), the (“Accrued
Benefits”)).  All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive’s employment with the Company shall terminate
effective as of the date of such termination of employment and Executive shall
not be entitled to any payments or benefits not specifically described in this
subsection (a) or (b) below.

 

(b)           Any portion of any restricted stock or any other cash or
equity-based incentive awards as to which the restrictions have not lapsed or as
to which any other conditions shall not have been satisfied prior to the date of
termination of employment shall be forfeited as of such date and any portion of
Executive’s stock options that have vested and become exercisable prior to the
date of termination of employment shall remain exercisable for a period of
ninety (90) days following the date of termination of employment (or, such later
date as may be permitted by the relevant stock option or equity plan, or, if
earlier, until the expiration of the respective terms of the options), whereupon
all such options shall terminate; provided, however, in the event of termination
of Executive’s employment by the Company for Cause, any stock options that have
not been exercised prior to the date of termination of employment shall
immediately terminate as of such date.

 

5.3          Compensation upon Termination of Executive’s Employment by the
Company Other Than for Cause or by Executive for Good Reason.  Executive’s
employment hereunder may be terminated during the Term by the Company other than
for Cause or by Executive for Good Reason.  In the event that Executive’s
employment hereunder is terminated by the Company other than for Cause or by
Executive for Good Reason:

 

(a)           Executive shall be entitled to receive (i) the Accrued Benefits,
(ii) an amount equal to two times the sum of Executive’s then Base Salary plus
Annual Target Bonus as of the date of termination of employment, such amount
payable in equal installments pursuant to the Company’s standard payroll
procedures for management employees over a period of two years commencing on the
payroll payment date for the first full payroll period following the date that
the Release (as defined below) becomes irrevocable (provided, if as of the date
of termination of employment the Release could become irrevocable in either of
two taxable years of Executive, to the extent required to avoid the imposition
of taxes and penalties under Section 409A of the Code, payments will not
commence before the first day of the later such taxable year), and (iii) with
respect to group health plan coverage, a lump sum payment in an amount equal to
the cost for of continuation coverage pursuant to Section 4980B of the Code
(“COBRA”) for Executive and her dependents to the extent covered by a Company
group health plan as of the date of termination of employment, for two years
following termination of employment.  Executive shall be solely responsible for
any taxes imposed on Executive arising from the Company’s payment of COBRA
amounts hereunder.

 

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(b)           On the date that the Release becomes irrevocable, (i) stock option
awards held by Executive shall vest and become immediately exercisable and
(ii) restrictions with respect to any awards of restricted stock shall lapse, in
each case to the extent such options would otherwise have become vested and
exercisable or such restrictions would have lapsed had Executive remained in the
employ of the Company for a period of two years following the date of
termination of employment.  All other awards held by Executive as of the date of
termination of employment shall be treated in accordance with the terms of such
awards.  Such portion of Executive’s stock options (together with any portion of
Executive’s stock options that have vested and become exercisable prior to the
date of termination of employment) shall remain exercisable for a period of
ninety (90) days following the date of termination of employment (or, such later
date as may be permitted by the relevant stock option or equity plan, or, if
earlier, until the expiration of the respective terms of the options), whereupon
all such options shall terminate.  Any remaining portion of Executive’s stock
options that have not vested (and do not vest by application of this
Section 5.3(b)) as of the date of termination of employment shall terminate as
of such date; and all shares of restricted stock as to which the restrictions
shall not have lapsed based on the application of this Section 5.3(b) shall be
forfeited as of such date.  In the event of a Change in Control (as defined in
the LTIP) that occurs during the Term, the provisions of section 14 of the LTIP
are incorporated herein by reference; provided, however, that, notwithstanding
anything to the contrary contained in such provisions, any performance-based
equity award shall be treated in accordance with the terms of the applicable
award agreement, which shall be no less favorable than those provided for other
senior executives of the Company generally.

 

(c)           If a termination of employment pursuant to Section 5.3 of the
Agreement occurs following the start of the Company’s fiscal year, Executive
shall also be entitled to receive, at the same time as is paid to other eligible
participants in the bonus plan, following determination by the Compensation
Committee (or the Board) of the Company’s performance under the applicable
annual performance goals for the fiscal year, a pro rata annual bonus determined
by multiplying the performance level achieved (relative to Executive’s Annual
Target Bonus amount) by the fraction (x) the numerator of which is the number of
fiscal periods (months) in which Executive is employed during the fiscal year
and (y) the denominator of which is 12.  Executive shall also receive any unpaid
annual bonus earned for any completed fiscal year preceding the date of
termination of employment.

 

(d)           All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive’s employment with the Company shall terminate
effective as of the date of such termination of employment and Executive shall
not be entitled to any payments or benefits not specifically described in
5.3(a) through (c).

 

Any termination of employment pursuant to this Section 5.3 shall be effective
upon a thirty (30) day notice thereof or the Company may elect in its sole
discretion to reduce or eliminate the notice period and pay Executive her Base
Salary for some or all of the notice period in lieu of notice.  Without limiting
Executive’s right to challenge the Company’s assertion of Cause or the Company’s
right to challenge Executive’s assertion of Good Reason, a termination of
Executive’s employment by the Company other than for Cause or by Executive for
Good Reason shall not constitute a breach of this Agreement.  To be eligible for
the payment, benefits and equity rights described in Section 5.3(a)(ii)-(iii),
(b) and (c) above, Executive must

 

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(x) execute, within forty-five (45) days after the date of termination of
employment, not revoke, and abide by a release (which shall be substantially in
the form attached hereto as Appendix A) of all other claims (the “Release”),
(y) cooperate with the Company in the event of litigation, and (z) fully comply
with Executive’s obligations under Sections 6 and 7 below.

 

5.4          Definition of Good Reason.  For purposes of this Agreement, “Good
Reason” shall mean the occurrence of any one of the following:

 

(a)           the assignment to Executive of any duties or responsibilities
materially inconsistent with Executive’s status and positions as Chief Executive
Officer of the Company, or any material adverse change in Executive’s title or
reporting relationship; or

 

(b)           any decrease in Executive’s then Base Salary to which Executive
has not agreed to in writing; or

 

(c)           a material breach by the Company of this Agreement;

 

provided, however, that Executive has provided written notice (which shall set
forth in reasonable detail the specific conduct of the Company that constitutes
Good Reason and the specific provisions of this Agreement on which Executive
relies) to the Company of the existence of any condition described in any one of
the subparagraphs (a), (b), or (c) within thirty (30) days of Executive’s
knowledge of the initial existence of such condition, and the Company has not
cured the condition within thirty (30) days of the receipt of such notice.  Any
termination of employment by Executive for Good Reason pursuant to Section 5.3
must occur no later than the date that is the three (3) month anniversary of
Executive’s knowledge of the initial existence of the condition giving rise to
the termination right.

 

5.5          Compensation upon Termination of Executive’s Employment by Reason
of Executive’s Death or Total Disability.  During the Term, Executive’s
employment hereunder shall terminate upon Executive’s death and may be
terminated by the Company on account of Executive’s Total Disability (as defined
below).  In the event that Executive’s employment with the Company is terminated
by reason of Executive’s death or due to involuntary termination of Executive’s
employment by the Company on account of Executive’s Total Disability (as defined
below), subject to the requirements of applicable law:

 

(a)           Executive or Executive’s estate, as the case may be, shall be
entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable
under the then current disability and/or death benefit plans, as applicable, in
which Executive is a participant and (iii) with respect to group health plan
coverage, a lump sum payment in an amount equal to the cost of continuation
coverage pursuant to COBRA for Executive and her dependents to the extent
covered by a Company group health plan as of the date of termination of
employment, for a period of two years following the date of termination of
employment.  Executive or Executive’s estate shall be solely responsible for any
taxes imposed on Executive arising from the Company’s payment of COBRA amounts
hereunder.  Executive or Executive’s estate shall also be entitled to receive,
at the same time as is paid to other eligible participants in the bonus plan,
following determination by the Compensation Committee (or the Board) of the
Company’s performance under the applicable annual performance goals for the
fiscal year, a pro rata annual

 

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bonus determined by multiplying the performance level achieved  (relative to
Executive’s Annual Target Bonus amount) by the fraction (x) the numerator of
which is the number of fiscal periods (months) in which Executive is employed
during the fiscal year and (y) the denominator of which is 12.  Executive or
Executive’ estate shall also be entitled to any unpaid annual bonus earned for
any completed fiscal year preceding the date of termination of employment.

 

(b)           (i) Stock option awards held by Executive shall vest and become
immediately exercisable and (ii) restrictions with respect to any awards of
restricted stock shall lapse, in each case to the extent such options would
otherwise have become vested and exercisable or such restrictions would have
lapsed had Executive remained in the employ of the Company for a period of two
years following the date of termination of employment pursuant to this
Section 5.5.  All other awards held by Executive as of the date of termination
of employment shall be treated in accordance with the terms of such awards. 
Such portion of Executive’s stock options (together with any portion of
Executive’s stock options that have vested and become exercisable prior to the
date of termination of employment) shall remain exercisable for a period of
ninety (90) days following the date of termination of employment (or, such later
date as may be permitted by the relevant stock option or equity plan, or, if
earlier, until the expiration of the respective terms of the options), whereupon
all such options shall terminate.  Any remaining portion of Executive’s stock
options that have not vested (and do not vest by application of this
Section 5.5(b)) as of the date of termination of employment shall terminate as
of such date; and all shares of restricted stock as to which the restrictions
shall not have lapsed based on the application of this Section 5.5(b) shall be
forfeited as of such date.

 

(c)           All other rights of Executive (and, except as provided in
Section 5.6 below, all obligations of the Company) hereunder or otherwise in
connection with Executive’s employment with the Company shall terminate
effective as of the date of such termination of employment and Executive shall
not be entitled to any payments or benefits not specifically described in
Section 5.5(a) through (c).

 

“Total Disability” shall mean any physical or mental disability that prevents
Executive from (a)(i) performing one or more of the essential functions of her
position for a period of not less than ninety (90) days in any twelve (12) month
period and (ii) which is expected to be of permanent or indeterminate duration
but expected to last at least twelve (12) continuous months or result in death
of Executive as determined (y) by a physician selected by the Company or its
insurer or (z) pursuant to the Company’s benefit programs; or (b) reporting to
work for ninety (90) or more consecutive business days or as a result of which
Executive is unable to engage in any substantial activity.

 

5.6          Change in Control Best Payments Determination.  Any other provision
of this Agreement to the contrary notwithstanding, if any portion of any payment
or benefit under this Agreement either individually or in conjunction with any
payment or benefit under any other plan, agreement or arrangement (all such
payments and benefits, the “Total Payments”) would constitute an “excess
parachute payment” within the meaning of Internal Revenue Code Section 280G,
that is subject to the tax imposed by Section 4999 of such Code, then the Total
Payments to be made to Executive shall be reduced, but only to the extent that
Executive would retain a greater amount on an after-tax basis than he would
retain absent such reduction, such that the value of the Total Payments that
Executive is entitled to receive shall be $1 less than the

 

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maximum amount which the Employee may receive without becoming subject to the
excise tax under Section 4999 of the Code.  For purposes of this Section 5.6,
the determination of whichever amount is greater on an after-tax basis shall be
(i) based on maximum federal, state and local income and employment tax rates
and the tax that would be imposed on Executive pursuant to Section 4999 and
(ii) made at the Company’s expense by consultants selected by the Company prior
to the date of the change in control, which determination shall be binding on
both Executive and the Company.  Any such reduction as may apply under this
Section 5.6 shall be applied in the following order: (i) payments that are
payable in cash the full amount of which are treated as parachute payments under
Treasury Regulation Section 1.280G-1, Q&A 24(a) shall be reduced (if necessary,
to zero), with amounts that are payable last reduced first; (ii) payments and
benefits due in respect of any equity the full amount of which are treated as
parachute payments under Treasury Regulation Section 1.280G-1, Q&A 24(a), with
the highest values reduced first (as such values are determined under Treasury
Regulation Section 1.280G-1, Q&A 24), shall next be reduced; (iii) payments that
are payable in cash that are valued at less than full value under Treasury
Regulation Section 1.280G-1, Q&A 24, with amounts that are payable last reduced
first, shall next be reduced; (iv) payments and benefits due in respect of any
equity valued at less than full value under Treasury Regulation
Section 1.280G-1, Q&A 24, with the highest values reduced first (as such values
are determined under Treasury Regulation Section 1.280G-1, Q&A 24), shall next
be reduced; and (v) all other non-cash benefits not otherwise described in
clauses (ii) or (iv) shall be next reduced pro-rata.

 

5.7          No Other Severance or Termination Benefits.  Except as expressly
set forth herein, Executive shall not be entitled to any contractual severance
or other benefits upon termination of employment with the Company under any
circumstances and for any or no reason, including, but not limited to any
severance pay under any Company severance plan, policy or practice.

 

6.             Protection of Confidential Information.

 

Executive acknowledges that during the course of her employment with the
Company, its subsidiaries, affiliates and strategic partners, she will be
exposed to documents and other information regarding the confidential affairs of
the Company, its subsidiaries, affiliates and strategic partners, including
without limitation, information about their past, present and future financial
condition, pricing strategy, prices, suppliers, cost information, business and
marketing plans, the markets for their products, key personnel, past, present or
future actual or threatened litigation, trade secrets, and other intellectual
property, current and prospective customer lists, operational methods,
acquisition plans, prospects, plans for future development and other business
affairs and information about the Company and its subsidiaries, affiliates and
strategic partners not readily available to the public (the “Confidential
Information”).  Executive further acknowledges that the services to be performed
under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character.  In recognition of the foregoing, Executive covenants
and agrees as follows:

 

6.1          No Disclosure or Use of Confidential Information.  Subject to
Section 6.3, below, at no time shall Executive ever divulge, disclose, or
otherwise use any Confidential Information (other than as necessary to perform
her duties under this Agreement and in furtherance of the Company’s best
interests), unless and until such information is readily

 

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available in the public domain by reason other than Executive’s disclosure or
use thereof in violation of the first clause of this Section 6.1.  Executive
acknowledges that Company is the owner of, and that Executive has no rights to,
any trade secrets, patents, copyrights, trademarks, know-how or similar rights
of any type, including any modifications or improvements to any work or other
property developed, created or worked on by Executive during the Term of this
Agreement.

 

6.2                               Return of Company Property, Records and
Files.  Upon the termination of Executive’s employment at any time and for any
reason, or at any other time the Board may so direct, Executive shall promptly
deliver to the Company’s offices in Harrisburg, Pennsylvania all of the property
and equipment of the Company, its subsidiaries, affiliates and strategic
partners (including any cell phones, pagers, credit cards, personal
computers, etc.) and any and all documents, records, and files, including any
notes, memoranda, customer lists, reports or any and all other documents,
including any copies thereof, whether in hard copy form or on a computer disk or
hard drive, which relate to the Company, its subsidiaries, affiliates, strategic
partners, successors or assigns, and/or their respective past and present
officers, directors, employees or consultants (collectively, the “Company
Property, Records and Files”); it being expressly understood that, upon
termination of Executive’s employment at any time and for any reason, Executive
shall not be authorized to retain any of the Company Property, Records and
Files, any copies thereof or excerpts therefrom.  Executive further agrees that
Executive shall permanently delete any Company Property, Records and Files which
cannot be returned to the Company in their entirety (including any such Company
Property, Records or Files on a cloud storage system).

 

6.3                               Permitted Disclosures.   Pursuant to 18 U.S.C.
§ 1833(b), Executive understands that Executive will not be held criminally or
civilly liable under any Federal or State trade secret law for the disclosure of
a trade secret of the Company that (a) is made (i) in confidence to a Federal,
State, or local government official, either directly or indirectly, or to
Executive’s attorney and (ii) solely for the purpose of reporting or
investigating a suspected violation of law; or (b) is made in a complaint or
other document that is filed under seal in a lawsuit or other proceeding. 
Executive understands that if Executive files a lawsuit for retaliation by the
Company for reporting a suspected violation of law, Executive may disclose the
trade secret to Executive’s attorney and use the trade secret information in the
court proceeding if Executive (x) files any document containing the trade secret
under seal, and (y) does not disclose the trade secret, except pursuant to court
order.  Nothing in this Agreement, or any other agreement that Executive has
with the Company, is intended to conflict with 18 U.S.C. § 1833(b) or create
liability for disclosures of trade secrets that are expressly allowed by such
section.  Further, nothing in this Agreement or any other agreement that
Executive has with the Company shall prohibit or restrict Executive from
(A) making any voluntary disclosure of information or documents concerning
possible violations of law to any governmental agency or legislative body, or
any self-regulatory organization, in each case, without advance notice to the
Company; or (B) responding to a valid subpoena, court order or similar legal
process; provided, however, that prior to making any such disclosure pursuant to
this Section 6.3(B), Executive shall provide the Company with written notice of
the subpoena, court order or similar legal process sufficiently in advance of
such disclosure to afford the Company a reasonable opportunity to challenge the
subpoena, court order or similar legal process.

 

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7.                                      Noncompetition and Other Matters.

 

7.1                               Noncompetition.  During Executive’s employment
with the Company and during the twelve (12) month period following the
termination of Executive’s employment with the Company for any reason (the
“Restricted Period”), Executive will not, directly or indirectly, engage in
Competition with the Company or any of its subsidiaries in the Restricted Area
(as defined below).  “Competition” shall mean engaging in any activity for a
Competitor of the Company or any of its subsidiaries, with or without
compensation, whether as a principal, agent, partner, officer, director,
employee, advisor, independent contractor, investor, consultant or stockholder
(except as a less than five percent (5%) shareholder of a publicly traded
company) or otherwise.  A “Competitor” shall mean any person, corporation or
other entity and its parents, subsidiaries, affiliates and assigns,
(collectively, a “Person”) that engages, or is preparing to engage, in the same
or substantially similar business as one or more business units of the Company
or its subsidiaries.  As of the Commencement Date, it is understood that the
Company’s business units include:  (1) pharmacy benefits management (“PBM”),
including the administration of pharmacy benefits for businesses, government
agencies or health plans; mail order pharmacy; specialty pharmacy and Medicare
Part D services; (2) the sale of prescription drugs either at retail or over the
internet; and (3) retail health care (“RediClinic”).  It is understood and
agreed that PBM competitors include, but are not limited to, CVS Health, Express
Scripts and Optum, as well as health plans or insurers that provide PBM
services.  It is also understood and agreed that retail pharmacy competitors
include any individual or entity that sells or has imminent plans to sell
prescription drugs, including but not limited to, drugstore companies such as
Walgreens Boots Alliance and CVS Health; mass merchants such as Wal-Mart
Stores, Inc. and Target Corp.; and food/drug combinations such as Kroger Co.,
Albertsons LLC and Ahold USA.  It is understood and agreed that RediClinic
competitors include, but are not limited to, Walgreen’s Take Care Clinics, CVS
Health’s Minute Clinics and The Little Clinic. During Executive’s employment by
the Company or one of its subsidiaries and during the Restricted Period,
Executive will not directly or indirectly, engage in any activity that involves
providing audit review or other consulting or advisory services with respect to
any relationship between the Company and any third party.  The “Restricted Area”
means those states within the United States in which the Company, including its
subsidiaries, conducts its business, including the District of Columbia and
Puerto Rico.

 

7.2                               Noninterference.  During the Restricted
Period, Executive shall not, directly or indirectly, solicit, induce, or attempt
to solicit or induce any officer, director, employee, agent or consultant of the
Company or any of its subsidiaries, affiliates, strategic partners, successors
or assigns to terminate his, her or its employment or other relationship with
the Company or its subsidiaries, affiliates, strategic partners, successors or
assigns for the purpose of associating with any Competitor of the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns, or
otherwise encourage any such person or entity to leave or sever his, her or its
employment or other relationship with the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns for any other reason.

 

7.3                               Nonsolicitation.  During the Restricted
Period, Executive shall not, directly or indirectly, solicit, induce, or attempt
to solicit or induce any customers, clients, vendors, suppliers or consultants
then under contract to the Company or its subsidiaries, affiliates, strategic
partners, successors or assigns, to terminate, limit or otherwise modify his,
her or its

 

12

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relationship with the Company or its subsidiaries, affiliates, strategic
partners, successors or assigns, for the purpose of associating with any
Competitor of the Company or its subsidiaries, affiliates, strategic partners,
successors or assigns, or otherwise encourage such customers, clients, vendors,
suppliers or consultants then under contract to terminate his, her or its
relationship with the Company or its subsidiaries, affiliates, strategic
partners, successors or assigns for any reason.  During the Restricted Period,
Executive shall not hire, either directly or through any employee, agent or
representative, any person known by Executive to be (or to have been) a field
and corporate management employee of the Company or any subsidiary or any such
person who was employed by the Company or any subsidiary within 180 days of such
hiring.

 

8.                                      Rights and Remedies upon Breach.  If
Executive breaches, or threatens to commit a breach of, any of the provisions of
Sections 6 or 7 above (the “Restrictive Covenants”), the Company and its
subsidiaries, affiliates, strategic partners, successors or assigns shall have
the following rights and remedies, each of which shall be independent of the
others and severally enforceable, and each of which shall be in addition to, and
not in lieu of, any other rights or remedies available to the Company or its
subsidiaries, affiliates, strategic partners, successors or assigns at law or in
equity:

 

8.1                               Specific Performance.  The right and remedy to
have the Restrictive Covenants specifically enforced by any court of competent
jurisdiction by injunctive decree or otherwise (without the necessity of posting
a bond), it being agreed that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns and that money damages
would not provide an adequate remedy to the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns.

 

8.2                               Accounting.  The right and remedy to require
Executive to account for and pay over to the Company or its subsidiaries,
affiliates, strategic partners, successors or assigns, as the case may be, all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Executive as a result of any transaction or activity constituting a
breach of any of the Restrictive Covenants.

 

8.3                               Cessation and Recoupment of Payments.  In the
event that Executive is receiving payments and benefits pursuant to Section 5.3,
above, the right and remedy to immediately cease making and providing Executive
any future payments and benefits (except for the Accrued Benefits) and be
promptly reimbursed by Executive for any payments and benefits (except for the
Accrued Benefits) paid or provided to Executive pursuant to Section 5.3 during
the period of such breach by Executive.

 

8.4                               Extension of Restriction in the Event of
Breach.  The right and remedy to extend the length of time of the Restricted
Period for a period of time equal to the period of time during which Executive
was or is in breach of such provision.

 

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9.                                      Enforceability in Jurisdictions. 
Executive intends to and hereby confers jurisdiction to specifically enforce the
Restrictive Covenants by issuing an injunction in aid of arbitration upon the
courts of any jurisdiction within the Restricted Area.  If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of
Executive that such determination not bar or in any way affect the right of the
Company or its subsidiaries, affiliates, strategic partners, successors or
assigns to the relief provided herein in the courts of any other jurisdiction
within the geographic scope of such covenants, as to breaches of such covenants
in such other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.

 

10.                               Reasonableness; Severability; Modification. 
Executive acknowledges and agrees that the Restrictive Covenants are reasonable
and necessary given Executive’s position of trust and confidence within the
Company and Executive’s significant access to confidential information. 
Executive further agrees that the Restrictive Covenants are valid in geographic
and temporal scope and in all other respects.  If any provision of the
Restrictive Covenants is held to be excessively broad as to duration, activity
or subject, it is the desire of the Company and Executive that such provisions
be construed by limiting and reducing them so as to be enforceable to the
maximum extent allowed by applicable law and then fully enforced as so
modified.  In the event that any one or more of the provisions shall be held to
be invalid, illegal or unenforceable, it is the desire of the Company and
Executive that the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.  any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full force and effect without regard to the invalid portions.

 

11.                               No Violation of Third-Party Rights; Other
Representations.

 

(a)                                 Executive represents, warrants and covenants
that he:

 

(i)                                     will not, in the course of employment,
infringe upon or violate any proprietary rights of any third party (including,
without limitation, any third party confidential relationships, patents,
copyrights, mask works, trade secrets, or other proprietary rights);

 

(ii)                                  is not a party to any conflicting
agreements with third parties, which will prevent him from fulfilling the terms
of employment and the obligations of this Agreement;

 

(iii)                               does not have in her possession any
confidential or proprietary information or documents belonging to others and
will not disclose to the Company, use, or induce the Company to use, any
confidential or proprietary information or documents of others;

 

(iv)                              agrees to respect any and all valid
obligations which he may now have to prior employers or to others relating to
confidential information, inventions, discoveries or other intellectual property
which are the property of those prior employers

 

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or others, as the case may be; and

 

(v)                                 is not currently a defendant in any pending
or threatened litigation or arbitration, or, to Executive’s knowledge, subject
to an investigation, including with any current or former employer or business
associate, in each case, regarding allegations relating to sexual or other types
of harassment or abusive behavior.

 

(b)                                 Executive has supplied to the Company a copy
of each written agreement with any of Executive’s prior employers, as well as
any other agreements to which Executive is subject, which includes any
obligation of confidentiality, assignment of intellectual property,
nonsolicitation or noncompetition.  Executive has listed each of such agreements
in Appendix B.

 

(c)                                  Executive agrees to indemnify and hold the
Company harmless from any loss, claim, damage, cost or expense of any kind
(including without limitation, reasonable attorney fees) to which the Company
may be subjected by virtue of a breach by Executive of the foregoing
representations, warranties, and covenants.

 

12.                               Arbitration.  Except as necessary for
Executive or the Company and its subsidiaries, affiliates, successors or assigns
or Executive to specifically enforce, or enjoin a breach of, this Agreement (to
the extent such remedies are otherwise available), including, without
limitation, pursuant to Section 8.1, above, the Parties agree that any and all
disputes that may arise in connection with, arising out of or relating to this
Agreement, or any dispute that relates in any way, in whole or in part, to
Executive’s employment with the Company or any subsidiary or affiliate, the
termination of that employment or any other dispute by and between the Parties
or their subsidiaries, affiliates, successors or assigns, shall be submitted to
final and binding arbitration in Harrisburg, Pennsylvania according to the
National Employment Dispute Resolution Rules and procedures of the American
Arbitration Association at the time in effect.  This arbitration obligation
extends, to the fullest extent permitted by law, to any and all claims that may
arise by and between the Parties or their subsidiaries, affiliates, strategic
partners, successors or assigns, and expressly extends to, without limitation,
claims or causes of action for wrongful employment termination, impairment of
ability to compete in the open labor market, breach of an express or implied
contract, breach of the covenant of good faith and fair dealing, breach of
fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of
emotional distress, disability, loss of future earnings, and claims under the
Pennsylvania Constitution, the United States Constitution, and applicable state
and federal fair employment laws, federal and state equal employment opportunity
laws, and federal and state labor statutes and regulations, including, but not
limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards
Act, as amended, the Americans With Disabilities Act of 1990, as amended, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and any other state or federal law.  The Company shall pay all fees and
expenses of the arbitrator (other than a filing fee that Executive would have
paid to commence litigation in a state court located in Harrisburg,
Pennsylvania, in the event that Executive commences such arbitration
hereunder).  Executive understands that by entering into this Agreement,
Executive is waiving Executive’s rights to have a court determine Executive’s
rights, including under federal, state or local statutes prohibiting employment
discrimination, including sexual harassment and discrimination on the basis of
age, race, color, religion, national origin, disability, veteran status or any
other factor

 

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prohibited by governing law.  Executive further understands that there is no
intent herein to interfere with the Equal Employment Opportunity Commission’s
right to enforce the laws it oversees or your right to file an administrative
charge of employment discrimination or a similar state or local administrative
agency.

 

13.                               Assignment.

 

(a)                                 Neither this Agreement, nor any of
Executive’s rights or obligations hereunder, may be assigned or otherwise
subject to hypothecation by Executive.  Any attempt by Executive to anticipate,
alienate, assign, sell, transfer, pledge, encumber or charge the same shall be
void.  In the event of Executive’s death, the Company shall pay to Executive’s
estate all unpaid amounts that were payable to Executive immediately prior to
her death.

 

(b)                                 The Company may freely assign its rights and
obligations hereunder, and Executive hereby consents to any such assignment, in
whole or in part, to any of the Company’s subsidiaries, affiliates, or parent
corporations. The Company shall assign this Agreement to any successor or assign
in connection with the sale of all or substantially all of the Company’s assets
or stock, or in connection with any merger in which the Company is not the
survivor, or any acquisition and/or reorganization involving the Company.

 

14.                               Notices.

 

All notices and other communications under this Agreement shall be in writing
and shall be: (i) in writing; (ii) delivered personally, by fax, by electronic
mail, by courier service, or by certified or registered mail, first class
postage prepaid and return receipt requested; (iv) deemed to have been received
on the date of delivery or, if sent by certified or registered mail, on the
third (3rd) business day after the mailing thereof, or if sent by fax,
twenty-four (24) hours after transmission of a fax; and (iv) addressed as
follows (or to such other address as the Party entitled to notice shall
hereafter designate in accordance with the terms hereof):

 

If to the Company:

Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: General Counsel
Fax: (717) 760-7867
Email: jcomitale@riteaid.com

 

 

If to Executive:

Heyward Donigan, at the address noted on Appendix C.

 

Any Party may change such Party’s address for notices by notice duly given
pursuant hereto.

 

15.                               General.

 

15.1                        No Offset or Mitigation.  The Company’s obligation
to make the payments provided for in, and otherwise to perform its obligations
under this Agreement shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action that the Company may have
against Executive or others whether in respect of claims made under this
Agreement or otherwise.  In no event shall Executive be obligated to seek other
employment or

 

16

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take any other action by way of mitigation of the amounts, benefits and other
compensation payable or otherwise provided to Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced, regardless
of whether Executive obtains other employment.

 

15.2                        Negotiation Expenses.  The Company shall pay
Executive’s reasonable professional fees incurred to negotiate and prepare this
Agreement and all related agreements up to an aggregate amount of $7,500. The
provisions of Section 16.3 shall apply to all reimbursements made under this
Section 15.2.

 

15.3                        Governing Law.  This Agreement is executed in
Pennsylvania and shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania without giving effect to
conflicts of laws principles thereof which might refer such interpretations to
the laws of a different state or jurisdiction.

 

15.4                        Entire Agreement.  This Agreement sets forth the
entire understanding of the Parties relating to Executive’s employment with the
Company and cancels and supersedes all agreements, arrangements and
understandings relating thereto made prior to the date hereof, written or oral,
between Executive and the Company and/or any subsidiary or affiliate.

 

15.5                        Amendments: Waivers.  This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms or covenants
hereof may be waived, only by a written instrument executed by the Parties, or
in the case of a waiver, by the Party waiving compliance. The failure of any
Party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such Party at a later time to enforce the
same.  No waiver by any Party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.

 

15.6                        Conflict with Other Agreements.  Executive
represents and warrants that neither her execution of this Agreement nor the
full and complete performance of her obligations hereunder will violate or
conflict in any respect with any written or oral agreement or understanding with
any person or entity.

 

15.7                        Successors and Assigns.  This Agreement shall inure
to the benefit of and shall be binding upon the Company (and its successors and
assigns) and Executive and her heirs, executors and personal representatives.

 

15.8                        Withholding.  Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable under this
Agreement all federal, state, local, payroll and foreign taxes that are required
to be withheld by applicable laws or regulations.

 

15.9                        General Severability.  The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.  If any
provision of this Agreement shall be held invalid or unenforceable in part, the
remaining portion of such provision, together with all other provisions of this
Agreement, shall remain valid and enforceable and continue in full force and
effect to the fullest extent consistent with law.

 

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15.10                 Survival. In the event of any termination of Executive’s
employment during the Term, or upon or after expiration of the Term, Executive
and the Company nevertheless shall continue to be bound by the terms and
conditions set forth in Section 4.6 and Sections 6 through 10 above, which shall
survive the expiration of the Term.

 

15.11                 Captions.  The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

 

15.12                 Counterparts; Electronic Signatures.  This Agreement may
be executed by the Parties hereto in separate counterparts; each of which when
so executed and delivered shall be an original but all such counterparts
together shall constitute one and the same instrument.  Each party agrees that
electronic signatures, whether digital or encrypted, of either party to this
Agreement, are intended to authenticate this writing and to have the same force
and effect as manual signatures.

 

16.                               Compliance with Code Section 409A.

 

16.1                        Interpretation.  The intent of the Parties is that
payments and benefits under this Agreement comply with Section 409A of the Code
(“409A”), to the extent subject thereto, and accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in
compliance therewith.  Notwithstanding anything contained herein to the
contrary, Executive shall not be considered to have terminated employment with
the Company for purposes of any payments under this Agreement which are subject
to 409A until Executive has incurred a “separation from service” from the
Company within the meaning of 409A.

 

16.2                        Payment of Benefits.  To the extent necessary to
avoid adverse tax consequences, and except as described below, any payment to
which Executive becomes entitled under the Agreement, or any arrangement or plan
referenced in this Agreement, that constitutes “deferred compensation” under
409A, and is (a) payable upon Executive’s termination of employment; (b) at a
time when Executive is a “specified employee” as defined by 409A shall not be
made until the first payroll date after the earliest of:  (1) the expiration of
the six (6) month period (the “Deferral Period”) measured from the date of
Executive’s “separation from service” within the meaning of such term under
409A; or (2) the date of Executive’s death.

 

On the first payroll date after the expiration of the Deferral Period, all
payments that would have been made during the Deferral Period (whether in a
single lump sum or in installments) shall be paid as a single lump sum to
Executive or, if applicable, her beneficiary.  This section shall not apply to
any payment which meets the short term deferral exception to 409A or constitutes
“separation pay” as described in Treasury Regulation Section 409A-1(b)(9) (in
general, payments (i) that are made on an involuntary separation from service
which (ii) do not exceed the lesser of two (2) times (x) Executive’s annualized
compensation for the taxable year preceding the year in which the separation
from service occurs or (y) the Code Section 401(a)(17) limit on compensation for
the year in which separation from service occurs and (iii) are paid in total by
the end of the second calendar year following the calendar year in which the
separation from service occurs).

 

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The Company shall pay to Executive the Accrued Benefits, within ten (10) days
after the Date of Termination.  Notwithstanding the foregoing, if Executive is a
“specified employee”, as defined by 409A, and payment of the Accrued Benefits is
required to be delayed under 409A, the Company shall pay to Executive the
Accrued Benefits on the first payroll date after the six (6) month anniversary
of the Date of Termination.

 

For purposes of 409A, each payment and each installment described in this
Agreement shall be considered a separate payment from each other payment or
installment and to the extent required by 409A, a payment due upon termination
of employment will only be paid upon Executive’s separation from service within
the meaning of such term under 409A.

 

16.3                        Reimbursements.  To the extent required by 409A,
with regard to any provision that provides for the reimbursement of costs and
expenses, or for the provision of in-kind benefits:  (i) the right to such
reimbursement or in-kind benefit shall not be subject to liquidation or exchange
for another benefit; (ii) the amount of expenses or in-kind benefits available
or paid in one (1) year shall not affect the amount available or paid in any
subsequent year; and (iii) such payments shall be made on or before the last day
of Executive’s taxable year in which the expense occurred.

 

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IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of
the date first written above.

 

 

RITE AID CORPORATION

 

 

 

/s/ James J. Comitale

 

By: James J. Comitale

 

Its: SVP, General Counsel and Secretary

 

 

 

EXECUTIVE

 

 

 

/s/ Heyward Donigan

 

Heyward Donigan

 

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Appendix A to Employment Agreement

[Form of Severance Agreement and Release]

 

This Agreement (this “Agreement”) confirms the terms of the separation of
employment of [NAME] (“you”) from Rite Aid Corporation (the “Company,” and
together with you, the “Parties”).  Capitalized terms not otherwise defined
herein will have the meanings attributed to them in your employment agreement
with the Company, effective as of [DATE] (the “Employment Agreement”).

 

1.                                      Separation Date. Your last day of
employment with the Company will be [DATE] (the “Separation Date”) and as of
such date you shall cease to be employed by the Company in any capacity and you
will automatically resign from all positions you then hold with the Company and
its subsidiaries including as a member of the Board of Directors of the Company
(as well as of the Board of Directors of any of the Company’s subsidiaries), to
the extent applicable.  You agree to execute any additional documents required
or requested by the Company to effectuate your resignations from such
positions.  You agree that, following the Separation Date, you will not
represent yourself to be associated in any ongoing capacity with the Company or
any of its subsidiaries or affiliates.

 

2.                                      Accrued Benefits; Severance.

 

(a)                                 Whether or not this Agreement becomes
effective pursuant to its terms, the Company will pay you the amount of accrued
but unpaid base salary through the Separation Date and reimburse you for
reasonable expenses incurred by you in furtherance of your duties through the
date of notice of your termination of employment in accordance with Company
policies, less all applicable withholdings and deductions.(1)

 

(b)                                 Provided that this Agreement becomes
effective pursuant to its terms and you remain in compliance with this
Agreement, and with the Restrictive Covenants, at all times, the Company will
pay and provide you with the severance benefits, at the time and in the form,
set forth in Section 5.3 of the Employment Agreement, less all applicable
withholdings and deductions.

 

3.                                      Release.

 

(a)                                 You hereby release, discharge and forever
acquit the Company, and its affiliates and subsidiaries and each of their
respective past, present and future stockholders, members, partners,  directors,
managers, employees, agents, attorneys, heirs, legal representatives, and each
of the successors and assigns of the foregoing, in their personal and
representative capacities (individually, “Company Party,” and collectively, the
“Company Parties”), from liability for, and hereby waive, any and all claims,
charges, liabilities, causes of action, rights, complaints, sums of money,
suits, debts, covenants, contracts, agreements, promises, benefits, obligations,
damages, demands or liabilities of every nature, kind and

 

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(1)         In addition, the actual Release will include a specific list of
vested benefits under employee benefit plans to be excluded from the Release
requirement.

 

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description, in law, equity or otherwise, whether known or unknown, suspected or
unsuspected (collectively, “Claims”) which you or your heirs, executors,
administrators, spouse, relatives, successors or assigns ever had, now have or
may hereafter claim to have by reason of any matter, cause or thing whatsoever:
(i) arising from the beginning of time through the date upon which you sign this
Agreement including, but not limited to (A) any such Claims relating in any way
to your employment relationship with the Company or any other Company Parties,
and (B) any such Claims arising under any federal, state, local or foreign
statute or regulation, including, without limitation, the Age Discrimination in
Employment Act of 1967, as amended by the Older Workers Benefit Protection Act
(the “ADEA”), Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974,
the Pennsylvania Human Relations Act, the Pennsylvania Equal Pay Law and any
other federal, state, local or foreign law (statutory, regulatory or otherwise)
that may be legally waived and released; (ii) relating to wrongful employment
termination; or (iii) arising under or relating to any policy, agreement,
understanding or promise, written or oral, formal or informal, between the
Company or any of the other Company Parties and you, including, without
limitation, the Employment Agreement and any incentive compensation plan or
equity plan with any Company Party.  Notwithstanding the above, this release
does not extend to (I) claims for Accrued Benefits; (II) claims for worker’s
compensation benefits or for an occupational disease; (III) any whistleblower
claims arising under the Sarbanes-Oxley Act or Dodd-Frank Wall Street Reform and
Consumer Protection Act; (IV) claims to require the Company to honor its
commitments set forth in this Agreement; (V) claims to interpret or to determine
the scope, meaning or effect of this Agreement; (VII) claims for indemnification
and officers and directors liability insurance coverage under the Employment
Agreement, the Company’s charter, by-laws or applicable law, as applicable;
and/or (VIII) claims that cannot be waived as a matter of law pursuant to
federal, state, or local law (collectively, clauses (I) through (VIII) are the
“Excluded Claims”).

 

(b)                                 You further acknowledge and agree that,
except with respect to the Accrued Benefits, the Company Parties have fully
satisfied any and all obligations whatsoever owed to you arising out of your
employment with the Company or any other Company Party, and that no further
payments or benefits are owed to you by the Company or any other Company Party.

 

4.                                      Attorney Consultation; Voluntary
Agreement.

 

(a)                                 You acknowledge that (i) the Company has
advised you to consult with an attorney of your own choosing before signing this
Agreement, (ii) you have been given the opportunity to seek the advice of
counsel, (iii) you have carefully read and fully understand all of the
provisions of this Agreement, including the release in Section 3 (the
“Release”), (iv) the Release specifically applies to any rights or claims you
may have against the Company Parties pursuant to the ADEA, (v) you are entering
into this Agreement knowingly, freely and voluntarily in exchange for good and
valuable consideration to which you are not otherwise entitled and (vi) you have
the full power, capacity and authority to enter into this Agreement.

 

5.                                      Review and Revocation Period.

 

(a)                                 You have forty-five (45) days following your
receipt of this Agreement (the “Consideration Period”) to review its terms,
including the Release, and to reflect

 

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upon them and consider whether you want to sign it, although you may sign it
sooner; provided, however, that you may not sign this Agreement prior to the
Separation Date.  You acknowledge and agree that changes to this Agreement,
whether material or immaterial, do not restart the running of the Consideration
Period.  You understand and agree that you may consent to this Agreement,
including the Release, by signing and returning this Agreement within the
applicable time frame to General Counsel, Rite Aid Corporation, 30 Hunter Lane,
Camp Hill, PA 17011 or by e-mail at jcomitale@riteaid.com.

 

(b)                                 You may revoke your consent to the Release
within the seven day period beginning on the date you execute this Agreement
(such seven day period being referred to herein as the “Release Revocation
Period”). To be effective, such revocation must be in writing signed by you and
delivered to the Company at the above address before 11:59 p.m., Eastern
Standard time, on the last day of the Release Revocation Period.

 

(c)                                  In the event of such revocation by you, the
Release shall be of no force or effect, and you will not have any rights and the
Company will not have any obligations under Section 2(b) of this Agreement. 
Provided that you do not revoke your consent to the Release within the Release
Revocation Period, the Release shall become effective on the eighth (8th)
calendar day after the date upon which you execute this Agreement (the “Release
Effective Date”).

 

6.                                      Restrictive Covenants.  You acknowledge
and agree that the Restrictive Covenants, and any other written restrictive
covenants and confidentiality agreements in effect with the Company, are
incorporated herein by reference and fully made a part hereof for all purposes
and remain in full force and effect.

 

7.                                      Cooperation.  You agree that, at
mutually agreeable times, you will meet with representatives of the Company, or
its respective parent or subsidiary company representatives and provide any
information you acquired during the course of your employment relating in any
way to any legal disputes involving the Company.  You further agree that you
will cooperate fully with the Company relating to any such litigation matter or
other legal proceeding in which you were involved or on which you have knowledge
by virtue of your employment with the Company, including any existing or future
litigation or other legal proceeding involving the Company, whether
administrative, civil or criminal in nature in which and to the extent the
Company deems your cooperation necessary.  You will be entitled to reimbursement
by the Company of reasonable costs and expenses incurred by you in connection
with complying with your obligations under this Section 7.

 

8.                                      Non-Disparagement. You agree that you
will not make any negative comments or disparaging remarks, in writing, orally
or electronically (“Disparaging Remarks”), about the Company or any of the other
Company Parties and their respective products and services.  The Company agrees
to instruct members of its senior management team not to, for as long as such
individuals remain affiliated with the Company, make any Disparaging Remarks
about you; provided, however, that nothing in this Section 8 shall prohibit you
from (a) making truthful and accurate statements or disclosures that are
required by applicable law or legal process; (b) making any voluntary disclosure
of information or documents concerning possible violations of law to any
governmental agency or legislative body, or any self-regulatory

 

23

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organization; or (c) exercising protected rights to the extent that such rights,
by law, cannot be waived by agreement.

 

9.                                      No Admission.  Nothing herein will be
deemed to constitute an admission of wrongdoing by you or any of the Company
Parties.  Neither this Agreement nor any of its terms may be used as an
admission or introduced as evidence as to any issue of law or fact in any
proceeding, suit or action, other than an action to enforce this Agreement.

 

10.                               Counterparts.  This Agreement may be executed
in counterparts, and each counterpart, when so executed and delivered, will be
deemed to be an original and both counterparts, taken together, will constitute
one and the same Agreement.  A faxed or .pdf-ed signature will operate the same
as an original signature.

 

11.                               Successors and Assigns.  This Agreement will
inure to the benefit of and be binding upon the Company and any successor
organization which shall succeed to the Company by acquisition, merger,
consolidation or operation of law, or by acquisition of assets of the Company
and any assigns.  You may not assign this Agreement, provided that in the event
of your death prior to receiving all of the payments provided by Section 2 of
this Agreement, any remaining payments will be made to your estate.

 

12.                               Severability; Blue-Penciling.  The provisions
of this Agreement are severable and the invalidity of any one or more provisions
will not affect the validity of any other provision.  In the event that a court
of competent jurisdiction shall determine that any provision of this Agreement
or the application thereof is unenforceable in whole or in part because of the
scope thereof, the Parties hereto agree that said court in making such
determination shall have the power to reduce the scope of such provision to the
extent necessary to make it enforceable, and that this Agreement in its reduced
form shall be valid and enforceable to the full extent permitted by law.

 

13.                               Governing Law.  This Agreement will be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to any conflict of law principles thereof that
would give rise to the application of the laws of any other jurisdiction.

 

14.                               Entire Agreement/No Oral Modifications.  This
Agreement constitutes the entire agreement between you and any of the Company
Parties with respect to the subject matter hereof and supersedes all prior
discussions, negotiations, representations, arrangements or agreements relating
thereto, whether written or oral, including but not limited to the Employment
Agreement, provided, however, that Sections 6 and 7 of the Employment Agreement
shall remain in effect for the duration and on the terms set forth therein.  You
represent that in executing this Agreement, you have not relied on any
representation or statement not set forth herein.  No amendment or modification
of this Agreement shall be valid or binding on the Parties unless in writing and
signed by both Parties.

 

*        *        *

 

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IN WITNESS WHEREOF, the Parties have signed this Agreement as of the dates
indicated below.

 

Rite Aid Corporation

 

[Executive Name]

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

[Executive Name]

 

 

 

 

 

 

Title:

 

Date:

 

 

 

 

 

 

Date:

 

 

 

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