<PAGE>
                                                                   Exhibit 10.19

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


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

                              W I T N E S S E T H:

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

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

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

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

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

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

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

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

               In consideration of her employment hereunder,

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

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

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

                                      -2-
<PAGE>

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

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

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

                                      -3-
<PAGE>

transactions or other arrangements which would give rise to her receipt or
payments or benefits hereunder, and such obligation of the Corporation shall
survive termination of this Agreement.

               (g) With respect to the issuance of any securities of the
Corporation to the Executive hereunder, if the Corporation is required to
withhold any tax for federal Insurance Contribution Act purposes and/or federal,
state or local income taxes, the Executive shall be permitted to satisfy, in
whole or in part, her obligation to pay such taxes by electing to have the
Corporation withhold a portion of the securities otherwise receivable by the
Executive, with the value of such securities to be based upon the Fair Market
Value (as defined in the Corporation's 1990 Omnibus Stock Incentive Plan (the
"Stock Option Plan")) of the Common Stock of the Corporation, determined as of
the date the amount of tax to be withheld is determined.

          3.   EXPENSES
               --------

               (a) The Corporation will reimburse the Executive for all
reasonable and necessary business and entertainment expenses incurred by her in
connection with the performance of her duties hereunder. To the extent such
expenses include air travel by the Executive, such travel will be on the
Corporation's corporate jet or, if not available, at a first class level, or
otherwise in a manner consistent with general corporate practice for the senior
executives of the Corporation. The Corporation shall pay additional compensation
to the Executive to hold her harmless from any income taxes she may owe as a
result of the reimbursement of expenses hereunder.

               (b) The Corporation shall furnish to the Executive for her sole
use a new, suitable automobile. The Corporation shall pay for all of the
operating costs, including a driver, cellular phone, maintenance and storage
costs of such automobile. The Corporation shall keep the automobile, the
Executive and the driver adequately insured against any and all liabilities for
injuries to passengers or other persons and damages to property, including the
automobile.

          4.   BENEFIT PLANS; MATERNITY LEAVE.
               ------------------------------

               The Executive shall be eligible, as of the date employment
commences hereunder, to participate in any other employee benefit programs
generally made available to senior executives of the Corporation which are now
or may hereafter be placed in effect. For any pregnancy of the Executive, she
shall be entitled to not less than eight weeks' paid maternity leave at the
prevailing rate of Minimum Salary hereunder. To the extent permitted by
applicable law, all insurance and other benefits coverage in respect of the
Executive shall be effective as of the date employment commences hereunder and
any and all waiting periods relating thereto shall be waived.

          5.   STOCK OPTIONS OR OTHER SIMILAR BENEFITS.
               ---------------------------------------

               (a) Executive will be granted, effective as of the date
employment commences hereunder, an option ("Option") to acquire an aggregate of
32,000 shares of

                                      -4-
<PAGE>

Common Stock, at a price equal to the Fair Market Value of the Corporation's
Common Stock on the date of grant in accordance with and pursuant to the Stock
Option Plan. The Option so granted will be an "incentive" option and will be
exercisable for ten years from the date of grant in cumulative annual
installments of 25% commencing one year from the date of grant. Notwithstanding
anything to the contrary set forth herein or in the Stock Option Plan, the
Option shall be deemed fully vested and exercisable for a period of five years
following termination of Executive's employment hereunder in the event her
employment is terminated without cause (as hereinafter defined).

               (b) If a registration statement is filed providing for the public
sale of shares of Common Stock by any executive of the Corporation, Executive
shall be entitled to have shares owned by her (whether acquired pursuant to the
Long-Term Incentive Plan, the Stock Option Plan or otherwise) included in such
registration statement to the extent, pro rata, that shares of other executives
are included and on the same terms and conditions as such other executives;
provided, however, that if in the opinion of counsel for the Corporation,
addressed to the Executive, the Executive is free to sell all the shares which
she has requested to be included in the registration statement without
registration, then the Corporation shall not be required, and the Executive
shall not have the right, to have such shares included in such registration
statement.

               (c) This section shall apply to the executors, heirs or legal
representatives of the Executive to the extent such executors, heirs or legal
representatives succeed to the right of Executive to acquire shares of Common
Stock of the Corporation.

          6.   VACATIONS.
               ---------

               The Executive shall be entitled to such vacations, at such times
and for such periods, as are in accordance with the vacation policies of the
Corporation then in effect for senior executives of the Corporation, but not
less than four weeks per year.

          7.   INSURANCE.
               ---------

               (a) During the Term of Employment, the Corporation shall maintain
in force at its expense (in lieu of any group life insurance coverage generally
made available to senior executive officers of the Corporation) a term life
insurance policy which shall be in the amount of not less than twice the sum of
(i) the then-prevailing annual amount of Minimum Salary hereunder and (ii) the
amount of the Executive's annual cash bonus in respect of the most recently
completed fiscal year of the Corporation (or, for the initial year hereunder, an
amount equal to $1,160,000). In connection therewith, the Corporation agrees
that such insurance policy shall be owned by the trust benefitting the
Executive's family or other beneficiaries which is utilized by the Executive for
the purpose of, among other things, obtaining or holding insurance on the life's
of the Executive (a "Trust"), and that the premiums payable by the Corporation
during the Term of Employment for the policy shall be paid to the Trust or, upon
the written request of the trustee thereof, to the applicable insurance company
or agent thereof.

                                      -5-
<PAGE>

               (b) The Executive agrees to submit to any physical examination
required by any prospective insurer, and will otherwise cooperate with the
Corporation in connection with any life insurance on the Executive's life the
Corporation is required, or may wish, to obtain.

               (c) In the event the Executive is determined to be suffering from
an illness or condition which would preclude the Corporation from obtaining the
insurance, contemplated by subparagraph (a) above (the "Specified Insurance
Level") at a cost substantially equivalent to the cost of obtaining such
insurance for a healthy individual of Executive's age and gender, the Company
shall purchase the face amount of such term life insurance, if any, that can be
purchased at a cost substantially equivalent to the cost of obtaining the
Specified Insurance Level for a healthy individual of Executive's age and
gender, provided that in the event any such illness or condition subsequently is
cured or subsides and additional insurance coverage then becomes available for
the Executive, the Corporation shall thereupon provide such additional coverage
for the Executive, subject to the terms of this Section y.

          8.   TERMINATION OF EMPLOYMENT AND RELATED COMPENSATION.
               --------------------------------------------------

               (a) The Executive's employment shall terminate hereunder upon any
of the following events:

                    (i)    Voluntary termination by the Executive;

                    (ii)   Termination for Cause;

                    (iii)  Termination by reason of the Executive's disability
          (as hereinafter defined);

                    (iv)   Termination by reason of the Executive's death; or

                    (v)    Termination upon expiration of the Term of
                           Employment.

               (b)  "Cause" for purposes hereof shall be deemed to exist if:

                    (i)   The Executive is convicted or pleads guilty or nolo
                                                                         ----
          contendere to any crime which constitutes a felony in the jurisdiction
          ----------
          involved and if convicted the conviction, through lapse of time or
          otherwise, is not subject to appeal; or

                   (ii)  Material breach by the Executive of any provision of
          this Agreement, provided that such breach continues for thirty
          business days after delivery of notice to her of the facts on which
          the Corporation bases a claim of material breach.  Such notice shall
          be given only if approved by a majority of the

                                      -6-
<PAGE>

          members of the Board of Directors, not including the Executive for
          determining a majority.

If the Executive is indicted or charged in an information for a crime or offense
which would be grounds for termination for Cause, her employment may be
suspended until the charges are dropped or she is acquitted.  During such period
the provisions of this Agreement, including compensation, shall continue in full
force and effect, except that the Executive shall not act as Executive Vice
President-Marketing, and she shall be available on reasonable notice at
reasonable times for consultation on the business and affairs of the
Corporation.

               (c)    The Executive may elect, by notice to the Corporation, to
treat any of the following acts or omissions by the Corporation to which she has
not given her express consent as a termination without Cause;

                      (i)     If she is not appointed or retained as Executive
          Vice President-Marketing;

                      (ii)    With respect to acts or omissions other than those
          specifically stated in this paragraph (c), if the Corporation shall
          not substantially comply with its obligations under this Agreement and
          such failure shall not be corrected within ten business days after
          delivery of notice to the Corporation of the facts on which the
          Executive bases a claim of non-compliance;

                      (iii)   The assignment to the Executive of any duties
          inconsistent with her position as Executive Vice President-Marketing;

                      (iv)    A relocation of the Executive's office to a place
          further from the Baltimore area than Camp Hill, Pennsylvania;

                      (v)     A charge of material breach by the Corporation
          under Section 8(b)(ii) hereof which is determined by final judgment to
          have been made without adequate basis in law or fact;

                      (vi)    The sale by the Corporation of all or
          substantially all of its assets and business or a merger or
          consolidation of the Corporation with a company other than a
          subsidiary of the Corporation if, as a result of which, a majority of
          the members of the Board of Directors of the surviving or resulting
          entity are persons who were not immediately prior to the merger or
          consolidation directors of the Corporation;

                      (vii)   A change in control (as hereinafter defined) of
          the Corporation; or

                      (viii)  If Martin L. Grass is no longer serving the
          Corporation in the positions of Chairman and Chief Executive Officer
          thereof.

                                      -7-
<PAGE>

               (d)    "Disability" shall be deemed to exist if, in the judgment
of a physician licensed to practice in the Commonwealth of Pennsylvania selected
by the Board of Directors, the Executive has been unable or will be unable due
to mental or physical incapacity, disease or injury to perform the duties or
services specified herein for a period of not less than six consecutive months.
For purposes hereof, the date of such disability shall be the date of the
determination by such physician.

               (e)    For purposes hereof, a "change in control" shall be deemed
to have occurred if, at any time prior to February 27, 1999, voting power
representing more than 20% of the Corporation's outstanding Common Stock (or
equivalent in voting power of any class or classes of outstanding securities of
the Corporation ordinarily entitled to vote in elections of directors) shall be
acquired, directly or indirectly, by any individual, corporation or group, other
than persons who are members of the Board of Directors at the date hereof or who
succeed to the ownership of securities of the Corporation of any such members of
the Board as executor, administrator, heir or intestate distributee of such
persons. "Group" shall mean persons who act in concert as described in Section
14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). "Change in Control" shall not include increases in the percentage of
voting power of persons who beneficially own or control stock on the date of
this Agreement which occur solely as a result of a reduction in the amount of
stock outstanding.

               (f)    The notice required by paragraph (c) of this Section 8
shall be given within 60 days of the occurrences of a described event in which
is not required to be reported on a Schedule 13D or Schedule 14D or equivalent,
or within 90 days after the filing of a report on Schedule 13D or Schedule 14D
or equivalent, reporting the event on which the Executive elects to claim a
termination without Cause.

          9.   COMPENSATION AFTER TERMINATION.
               ------------------------------

               (a)    In the event this Agreement expires pursuant to its terms
or in the event the Executive's employment terminates hereunder for any reason,
the Corporation shall have no further obligations or duties to the Executive,
except that the Executive shall be entitled to receive:

                      (i)    All salary due and owing to the Executive hereunder
          up to the termination or expiration date, as the case may be
          (hereinafter collectively referred to as the "Termination Date"), and
          any bonus or incentive compensation for any year prior to the year of
          termination which has not been paid, and any bonus or incentive
          compensation for the year of termination (which shall be pro-rated
          based on the number of days in the year to the Termination Date),
          provided that, if such bonus or incentive compensation is
          discretionary in amount, the Executive shall receive, on the
          Termination Date, a payment for the year of termination at least equal
          to a pro-rata portion of the prior year's bonus or incentive
          compensation payment made to her, and if the bonus or incentive
          compensation is non-discretionary, the Executive shall receive, on the
          date such bonus or incentive compensation would otherwise have been
          payable, a payment

                                      -8-
<PAGE>

          for the year of termination at least equal to a pro-rata portion of
          the amount which would have been payable for the entire year (with the
          entire year's amount calculated in a manner consistent with the terms
          of the non-discretionary plan or program);

                    (ii)     Expense reimbursements due and owing to the
          Executive as of the Termination Date, plus payment for accrued
          vacation as of the Termination Date at the rate of the then-prevailing
          Minimum Salary;

                    (iii)    Payment, in accordance with prior Corporation
          practice, of health and medical benefits and of life insurance
          premiums contemplated hereby through the Termination Date and, in the
          case of death or disability, (A) any payments and benefits to which
          the Executive is entitled under the Deferred Compensation Agreement
          and (B) payment pursuant to the Long-Term Incentive Plan, simultaneous
          with the payment thereof to other executive officers of the
          Corporation receiving similar payments of such number of shares of the
          Corporation's Common Stock (or the equivalent value thereof (assuming
          the shares are freely-tradeable) in cash in lieu thereof) determined
          by multiplying 150,000 shares of the Corporation's Common Stock
          (subject to adjustment as provided elsewhere herein) or their
          equivalent value in cash (assuming the shares are freely-tradeable),
          as the case may be, by a fraction the numerator of which is the number
          of weeks which elapsed from the date Executive's employment hereunder
          commenced to the Termination Date and the denominator of which is 208;

                    (iv)     In the case of expiration of the Term of
          Employment, payment pursuant to the Long-Term Incentive Plan of all
          the shares of Common Stock (or the equivalent value thereof in cash
          (assuming the shares are freely-tradeable) to which she is then
          entitled (i.e., upon or as a result of completion of the Measurement
          Period), such payment to be simultaneous with the payment to other
          executive officers of the Corporation receiving similar payments;

                    (v)      All rights to the Option set forth in Section 5
          hereof, subject to the terms of the Stock Option Plan (as such terms
          are to be modified for the Executive in accordance with the terms of
          this Agreement; and

                    (vi)     Payment of all applicable amounts due to the
          Executive pursuant to clause (b) below.

               (b)  In the event Executive's employment is terminated hereunder
prior to February 27, 1999 for any reason other than (i) death, (ii) disability,
(iii) voluntary termination by the Executive (other than pursuant to Section
8(c) hereof) or (iv) for Cause, then the Executive shall be entitled, in
addition to any amounts payable pursuant to Paragraph 9(a) above, to receive a
lump sum payment on the Termination Date equal to the present value, discounted
at the Prime Rate from the date the amounts would otherwise by payable hereunder
(the "Present

                                      -9-
<PAGE>

Value Amount"), of the sum of (I) the Long-Term Incentive Plan Cash Payout (as
hereinafter defined) plus (II) the Minimum Salary (assuming said salary is at
the then-prevailing rate) plus the amount of the Executive's annual cash bonus
(assuming the bonus is at the same level as that for the most recently completed
fiscal year of the Corporation (or for the initial year hereunder the amount of
the initial target bonus specified in Section 2(c) hereof) which Executive would
have received for the period through the remaining balance of the Term of
Employment had her employment not terminated and (III) an amount equal to the
Minimum Salary (assuming said salary is at the then-prevailing rate) for the 24
month period commencing March 1, 1999. Notwithstanding the foregoing, if the
Present Value Amount exceeds an amount equal to 299% of the Executive's "base
amount" as defined in Section 280G (b) (3) of the Internal Revenue Code of 1986,
as amended (the "Code") less any other amounts treated as payments contingent
upon a change of control within the meaning of Section 280G of the Code (the
"Alternate Amount"), but the Present Value Amount after reduction for all
federal, state and local taxes (including, but not limited to, the excise tax
imposed on "excess parachute payments" pursuant to Section 4999 of the Code, if
applicable) is less than the Alternate Amount after reduction for all taxes (as
described above), the amount payable hereunder shall be the Alternate Amount.
For purposes hereof, the "Long-Term Incentive Plan Cash Payout" shall mean the
payment in cash to the Executive of an amount equal to the value of 93,029
shares of the Corporation's Common Stock (subject to adjustment as provided
elsewhere herein) under the Long-term Incentive Plan, such value to be
determined as of the Termination Date and assuming the shares are freely-
tradeable.

               (c)  Payments to the Executive pursuant to federal, state or
local government or agency benefits or disability insurance policies shall not
reduce the Corporation's obligations to the Executive.

          10.  APPLICABLE LAW.
               --------------

               This Agreement is to be governed by and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania applicable to agreements made
and to be performed wholly within such Commonwealth, except with respect to the
powers of the Corporation, which are governed by Delaware law.

          11.  AMENDMENT OF PLANS.
               ------------------

               Subject to the terms of this Agreement, the Corporation may
amend, terminate or modify any employee benefit programs or practices heretofore
or hereafter adopted by the Corporation so long as any amendment, termination or
modification does not adversely affect the Executive.

          12.  ASSIGNMENT.
               ----------

               This Agreement shall be binding upon the parties hereto, their
heirs, successors and assigns, except as otherwise set forth herein. This
Agreement is personal in nature and may not be assigned by either party except
that, subject to the provisions of Section

                                      -10-
<PAGE>

8(c) herein, the Corporation may assign this Agreement to any person who shall
acquire all or substantially all of the assets and business of the Corporation
and shall explicitly agree to perform the obligations of the Corporation in all
respects, but the Corporation shall not thereby be relieved of any such
obligations.

          13.  INDEMNIFICATION.
               ---------------

               To the fullest extent not inconsistent with applicable law, in
the event that the Executive is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that she is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, the Corporation shall indemnify the Executive and hold her
haramless, against all expenses (including costs and attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by her in connection with such action, suit or proceeding if she acted in good
faith and a manner she reasonable believed to be in or not opposed to the best
interest of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe her conduct unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contender or its equivalent., shall not, of
                              --------------
itself, create a presumption that the Executive did not act in good faith and in
a manner which she reasonably believed to be in or not opposed to the best
interest of the Corporation, or that, with respect to any criminal action or
proceeding, this Executive had reasonable cause to believe that her conduct was
un1awful. The provisions of this Section 13 shall not be deemed edxclusive of
any of her rights of indemnification to which the Executive may be entitled or
which may be granted to her, and it shall be in addition to any rights of
idemnification to which she may be entitled wider any policy of insurance. These
provisions sball continue in effect after the Executive has ceased to be a
director, officer, employee or agent of the Corporation and shall inure to the
benefit of Executive's heirs, executors, adminiscratore 'and intestate
distributees.

          All litigation or inquiries by third parties (for example, but not
limited to, those by shareholders - direct or derivative or government agencies)
arising out of or in connection with the Agreement or Executive's performance
orluance hereunder, against either the Corporation or the Executive or both,
shall be defended as opposed by the parties hereto, as the case may be, to
support this Agreement, and the costs, fees and expenses thereof, including fees
of counsel for the parties, shall be borne by the Corporation.

          14.  ARBITRATION.
               -----------

          Any controversy or claim between the Corporation and Executive, their
representatives, heirs, successors and assigns, arising out of or relating to
this Agreement or any breach or asserted breach hereof or questioning the
validity and binding effect hereof shall be determined by arbitration conducted
in Ba1timore, Maryland in accordance. with the Rules of the American Arbitration
Association then obtaining, and judgment upon any award rendered may be entered
in any court having jurisdiction thereof.  The decision of the arbitrators shall
be final

                                      -11-
<PAGE>

and binding upon the parties hereto. All of the Executive's costs and expenses
(including attorneys' fees) arising out of or in connection with any matters
submitted to arbitration pursuant to this Section 14 shall be paid by the
Corporation, unless the award of the arbitrators shall explicitly find that the
Executive's claim or her defense against a claim by the Corporation was
frivolous and completely without merit, in which case the executive shall pay
the costs and expenses (including, without limitation, reasonable attorney's
fees) incurred by the corporation in such connection. The term of this Section
14 shall survive the termination of this Agreement.

          15.  LEGAL FEES
               ----------

          The Corporation shall pay for all fees, up to $7,500 in the aggregate,
and expenses of counsel to the Executive for services rendered by such counsel
in connection with this Agreement.

          16.  NOTICES.
               -------

          Any notice or other communication required to or which may be given to
any party hereunder, shall be in writing and shall be deemed given effectively
if delivered personally to such party (or any officer thereof in the case of the
Corporation) or if mailed, by registered, or certified mail, postage prepaid,
return receipt requested, addressed to such other party at the address first set
forth above.  Any party may change the address to which notices are to be sent
by giving written notice of any such change in the manner provided herein.

          17.  CONFIDENTIAL INFORMATION.
               ------------------------

               (a)    The Executive recognizes that as an executive of the
Corporation she will have access to secret and confidential information
regarding the Corporation, its products, customers and plane. The Executive
acknowledges that such information is of great value to the Corporation, and is
the sole property of the Corporation and that such information has been and will
be acquired by her in confidence. In consideration. of the obligations
undertaken by the corporation as set forth herein, the Executive will not, at
any time, during or after her employment hereunder, reveal, divulge or make
known, except as authorized by the Corporation or required on its behalf or
required pursuant to legal or administrative processes, any information of a
confidential nature concerning the Corporation acquired by the Executive during
the course of her employment.

               (b)    The Executive agrees that any breach or threatened breach
by her of any provisions of this Section 2.7 shall entitle the Corporation, in
addition to any other legal or equitable remedies available to it, to apply to
any court of competent jurisdiction to enjoin such breach or threatened breach
without the posting of any bond or any security.

               (c)    This Section 17 shall survive the termination of the
Executive's employment hereunder.

          18.  COVENANT NOT TO COMPETE.
               -----------------------

                                      -12-
<PAGE>

               (a)    The Executive recognizes that the services to be performed
by her hereunder are special, unique and extraordinary. The parties confirm that
it is reasonably necessary for the protection of the Corporation that the
Executive agree, and accordingly, the Executive does hereby agree that she will
not, directly or indirectly, except for the benefit of the Corporation, at any
time during her employment hereunder, and thereafter during the Restricted
Period, as hereinafter defined, provided the Corporation shall duly perform it.
obligations to the Executive pursuant to this Agreement:

                      (i)     Become an officer, director, stockholder, partner.
          associate, employee, owner agent, creditor, independent contractor or
          co-venturer of, or otherwise be interested in or associated with, any
          other corporation, firm or business engaged, in any geographical area
          in which the Corporation or any of its subsidiaries is engaged, in a
          Competitive Business (as hereinafter defined);

                      (ii)    Solicit or cause or authorize, directly or
          indirectly, to be solicited for employment for or on behalf of herself
          or third parties, any persons who were at any time within one year
          prior to the cessation of her employment hereunder, employees of the
          Corporation;

                      (iii)   Employ or Cause or authorize, directly or
          indirectly, to be employed for or on behalf or herself or third
          parties, any such employees of the Corporation; or

                      (iv)    Directly or indirectly participate in the
          management or operation of or have direct supervisory responsibility
          with respect to the management or operation of a major chain of retail
          drug stores.

A corporation, firm or business shall not be deemed to be engaged in a
"Competitive Business" unless such entity operates exclusively a major chain of
retail drugstores.

               (b)    The Executive agrees that any breach or threatened breach
by her of any provisions of this Section 18 shall entitle the Corporation, in
addition to any other legal or equitable remedies available to it, to apply to
any court of competent jurisdiction to enjoin such breach or threatened breach
without the posting of any bond or any security. If any of the restrictions
contained herein shall be deemed to be unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration,
geographical. scope, or other provisions hereof, and in its reduced form this
paragraph shall then be enforceable in the manner contemplated hereby.

               (c)    This Section 18 shall not be construed to prevent the
Executive from owning in the aggregate an amount not exceeding three percent
(3%) of the issued and outstanding voting securities of any class of any
corporation whose voting capital stock is traded on a national securities
exchange or in the over-the-counter market. For this purpose "outstanding voting
securities" shall be deemed to include, the voting securities issuable upon

                                      -13-
<PAGE>

conversion of a corporation's outstanding convertible securities, whether or not
immediately convertible, and the voting securities of a corporation issuable
upon exercise of outstanding warrants and option to acquiring voting securities,
whether or not immediately exercisable, and "voting securities" of a corporation
shall be deemed to include securities convertible into or exercisable for voting
capital stock, valued at the number of shares such securities are convertible
into or exercisable for the purpose of determining percentage ownership of
outstanding voting securities

               (d)    The term "Restricted Period" as used in this Section 16
shall mean the one-year period following the date on which employment of the
Executive terminates.

               (e)    This Section 18 shall survive the termination of the
Executive employment hereunder for the period provided in paragraph (d)

               (f)    Notwithstanding anything in this Agreement to the
contrary, if the, Executive violates any of the provisions of paragraph (a)
hereof during the Restricted period and fails to cease such violation and to
remedy the consequences of such violation within ten days after notice from the
Corporation specifying such violation and if the Corporation obtains a final
judgment from a court of competent jurisdiction to the effect that the Executive
has violated a provision of paragraph (a) and has failed to cease such violation
and to remedy the consequences of such violation within ten days after notice
from the Corporation all obligations of the Corporation to compensate the
Executive shall cease, and the Corporation shall be entitled to recover from the
Executive compensation received by the Executive while such violation existed.

          19.  MODIFICATION.
               ------------

               The foregoing is the entire agreement between the parties
relating to the subject matter hereof (except the Deferred Compensation
Agreement), and supersedes all prior agreements. This Agreement may not be
altered, modified, changed or discharged and none of the provisions hereof may
be waived except in writing, signed by the party to be charged therewith. A
failure strictly to enforce any of the terms of this Agreement shall not be
deemed to be a waiver of the right to enforce any such term at any subsequent
time. In the event of a conflict between the terms of the Agreement and the
terms of the Deferred Compensation Agreement or any plan or program of the
corporation, the terms of this Agreement shall be controlling.

          20.  MISCELLANEOUS.
               -------------

               (a)    The Executive acknowledges that the remedy at law for any
material breach or threatened material breach by her of the performance of her
obligations hereunder will be inadequate and that the Corporation shall be
entitled to injunctive relief therefor.

               (b)    The Corporation recognizes that a termination without
Cause will subject the Executive to losses and damages, the amount of which
might not readily be

                                      -14-
<PAGE>

determined, and that there exist only a limited number of employment
opportunities comparable in stature, compensation and opportunity to employment
as the Executive Vice President -Marketing of the Corporation. Therefore, the
Executive shall not be required to seek or accept employment in mitigation of
any obligations of the Corporation arising by reason of her termination without
Cause.

          21.  SECTION HEADINGS.
               ----------------

               The headings or titles of the sections of this Agreement are not
a part of this Agreement and are not intended to aid in the construction of any
provisions thereof.

                  [Balance of page intentionally left blank.]

                                      -15-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.


ATTEST                              RITE AID CORPORATION


____________________________        By:  /s/ Martin L. Grass
                                         ______________________________
                                         Martin L. Grass
                                         Chairman and Chief Executive Officer


____________________________             /s/ Beth Kaplan
                                         ______________________________
                                         Beth Kaplan

                                      -16-
<PAGE>

                                                                      EXHIBIT A


                         NON-NEGOTIABLE PROMISSORY NOTE

$1,900,000                                                      AUGUST 28, 1996


     FOR VALUE RECEIVED, the undersigned, Beth Kaplan (the "Borrower"), hereby
promises to pay to Rite Aid Corporation, a Delaware corporation (the "Payee"),
the principal sum of One Million Nine Hundred Thousand Dollars ($1,900,000),
together with accrued interest, compounded annually, on the unpaid balance of
such principal amount which shall accrue from the date funds are advanced
hereunder, at an annual rate of interest equal to the prime rate of interest
announced by Morgan Guaranty Trust Company of New York from time to time during
the period the indebtedness hereunder is outstanding , with changes therein to
be effective as they occur.  The principal of, and accrued interest on, this
Note shall be payable in full by the Borrower to the Payee at 5:00 p.m., local
time, on August 14, 2000, subject to the terms hereof.

     Payments on this Note shall be paid to the  Payee at its principal office
in Camp Hill, Pennsylvania, (or where otherwise specified by the payee), by
certified or official bank check or personal check (subject to collection)
payable to the Payee.  In lieu of said forms of payment, the Borrower shall have
the option to deliver shares of Common Stock of the Payee  in satisfaction or
partial satisfaction, as the case may be, of this Note (so long as the Payee is
legally permitted to acquire said shares), such shares to be valued for purposes
hereof at their Fair Market Value (as constituted on the date hereof) as of the
date immediately preceding the date of delivery thereof to the Corporation.  IF
the date set for any payment on this Note is a Saturday, Sunday or legal
holiday, such payment shall be due on the next succeeding business day.

     This Note shall be secured by a pledge of any shares of common stock of the
Payee issued to the Borrower by the Payee pursuant to the Payee's Long-Term
Incentive Plan (the "Shares") as provided in a Stock Pledge Agreement
substantially in the form of Annex I hereto (the "Stock Pledge Agreement"), to
be entered into between the Payee and the Borrower upon receipt by the Borrower
of said shares.

     Principal and accrued interest on this Note are subject to mandatory
prepayment in the event that (a) the Long-Term Incentive Plan Cash Payout (as
defined in that certain Employment Agreement by and between the Payee and the
Borrower dated as of August 14, 1996 (the "Employment Agreement") is received by
the Borrower or (b) the Borrower sells all or any portion of the Shares prior to
the date on which the principal and accrued interest on this Note would
otherwise become due and payable (such sale is hereinafter referred to as a
"Pre-maturity Sale"). The amount to be prepaid shall be an amount (the
"Mandatory Prepayment Amount") equal to the net after-tax proceeds received by
the Borrower through the Long-Term Incentive Plan Cash Payout or upon such Pre-
maturity Sale (calculated in each case assuming the maximum Federal, state and
city tax rates applicable as of the date of such transaction).  Any principal
not prepaid under the terms of this Note shall remain outstanding and interest
shall continue to accrue thereon.  As collateral security for the payment of the
Mandatory Prepayment Amount, Borrower hereby grants

                                      A-1
<PAGE>

to Payee a lien upon and security interest in the Long-Term Incentive Plan Cash
Payout and the cash proceeds of a Pre-maturity Sale, in either case up to a
maximum aggregate amount equal to the unpaid principal of and accrued inters on
this Note, such lien and security interest to continue until the Mandatory
Prepayment Amount is paid in accordance herewith.

     The principal of and accrued interest on this Note may be prepaid at any
time, in whole, or from time to time in part, without penalty, by giving to the
Payee written notice of prepayment which shall state the intention to prepay.
Amounts prepaid hereunder shall be applied first to accrued interest and then to
principal owing hereunder.

     In the event (each, an "Event of Default") (i) that the Borrower commences
an action under any law relating to bankruptcy, insolvency or relief of debtors,
there is commenced against the Borrower an action under any such law which
results in the entry of an order for relief or such action remains undismissed
for a period of 60 days or the Borrower otherwise becomes insolvent, (ii) that
the Borrower fails to make complete payment of principal or accrued interest
when due under this Note or (iii) that the Borrower materially violates the
Pledge Agreement, the Payee may accelerate this Note and may, by written notice
to the Borrower, declare the entire unpaid principal amount and all such accrued
and unpaid interest thereon to be immediately due and payable and, thereupon,
the unpaid principal amount and all such accrued and unpaid interest shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by the Borrower;
provided, however, if any of the Events of Default described int (ii) or (iii)
--------  -------
of this paragraph occurs, the Borrower may, at any time before the date that is
10 business days after the occurrence of such event without the consent of the
Payee, remedy such failure or material violation, and, if the Borrower timely
effects such remedy, the Payee may not accelerate this Note as described above.
The failure of the Payee to accelerate this Note shall not constitute a waiver
of any of the Payee's rights under this Note as long as any of the Events of
Default described in (i), (ii) or (iii) continues.

     In case this Note shall become mutilated, defaced or apparently destroyed,
lost or stolen, upon the written request of the Payee, the Borrower shall issue
and execute a new Note in exchange and substitution for the Note so apparently
destroyed, lost or stolen.  Thereafter, no amount shall be due and payable or
owing under the mutilated, defaced or apparently destroyed, lost or stolen Note.

     The provisions of this Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
the conflicts of law rules thereof.

                  [Balance of page intentionally left blank.]


                                      A-2
<PAGE>

  IN WITNESS WHEREOF, this Note has been duly executed and delivered by Borrower
on the date first above written.


                                            BORROWER


                                            ______________________________
                                            Beth Kaplan


FOR VALUE RECEIVED, the undersigned, the spouse of the Borrower named in the
foregoing promissory note, (the "Note"), intending to be legally bound, hereby
guarantees and shall be surety for, subject to the terms hereof, the due and
punctual payment by the Borrower of all amounts that may become due and payable
under the Note until either (a) the date the Borrower receives securities (or
cash in lieu thereof) pursuant to or in respect of the Rite Aid Corporation
Long-Term Incentive Plan or (b) the date securities (or cash in lieu thereof) to
which the Borrower is otherwise entitled under said Plan is applied to satisfy
any obligations of the Borrower under the Note, as the case may be.
Notwithstanding the amount or value of any securities or cash payment received
by the Borrower or applied on her behalf in connection with said Plan, upon the
earlier to occur of the dates referred to in clauses (a) and (b) above, the
obligation of the undersigned hereunder shall terminate and be of no further
force or effect.


                                            ______________________________
                                            Bruce Sholk







                                      A-3
<PAGE>

                                                                         Annex I
                                                                         -------

                             STOCK PLEDGE AGREEMENT

     STOCK PLEDGE AGREEMENT (the "Agreement"), dated as of ________, 199__,
among RITE AID CORPORATION, a Delaware Corporation (the "Pledgee" or the
"Corporation"), and BETH KAPLAN (the "Pledgor").

     WHEREAS, the Pledgee and the Pledgor are parties to an Employment Agreement
(the "Employment Agreement") dated as of August __, 1996; and

     WHEREAS, the Pledgor is a participant under the  Corporation's Long-Term
Incentive Plan pursuant to which the Corporation has issued [_______] shares of
common stock, par value $____ per share (the "Common Stock") to the Pledgor
[number of shares to correspond to number received pursuant to Long-Term
Incentive Plan];

     NOW THEREFORE, in consideration of the foregoing and of mutual undertakings
set forth in this Agreement, the Pledgee and the Pledgor agree as follows:

     1.   As collateral security for the full and timely payment, performance
and observance of all indebtedness (the "Indebtedness") of the Pledgor to the
Pledgee under the Pledgor's promissory note dated August __, 1996 in the
principal amount of $1,900,000 (the "Note"), the Pledgor herewith deposits and
pledges with the Pledgee, in form transferable for delivery, and grants to the
Pledgee a security interest in, [_____] shares of the Common Stock and such
additional property at any time and from time to time receivable by the Pledgee
hereunder or otherwise distributed in respect of or in exchange for any or all
such shares (collectively, the "Pledged Securities").

     2.   Notwithstanding anything to the contrary contained in this Agreement,
if no Event of Default (as defined in the Note) shall have occurred and be
continuing, any and all cash dividends and any other cash distributions at any
time and from time to time declared or paid upon or with respect to any of the
Pledged Securities shall be paid to the Pledgor.

     3.   The Pledgor may sell all or any portion of the Pledged Securities.  IN
such an event, the Pledgor shall deliver to the Pledgee a sale notice specifying
the number of Pledged Securities to be sold, and concurrently with payment of
the Mandatory Prepayment Amount (as that term is defined in the Note) by the
Pledgor to the Pledgee, the Pledgee shall promptly deliver to a third-party
licensed broker-dealer in Securities the number of  Pledged Securities specified
in the Sale Notice for sale for the account of the Pledgor.

     4.   This security interest in all Pledged Securities not delivered to the
Pledgor pursuant to the preceding paragraph shall continue until the Note has
been paid in full.  Upon payment in full of the Note, the Pledgee shall promptly
return to the Pledgor all previously undelivered Pledged Securities.



                                      I-1
<PAGE>

     5.   Any notice or demand hereunder shall be deemed to have been
sufficiently given for all purposes hereof if mailed, postage prepaid, by
registered or certified mail, return receipt requested, or delivered, to the
appropriate party at the address specified in the Employment Agreement or at
such other address as such party may theretofore have designated in writing and
given in like manner to the other party.

     6.   This Agreement and the rights and obligations of the Pledgee and the
Pledgor hereunder shall be construed in accordance with and governed by the law
of the Commonwealth of Pennsylvania, cannot be changed orally and shall bind and
inure to the benefit of the Pledgor and the Pledgee and their respective
successors and assigns, and all subsequent holders of the Indebtedness.

     7.   This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but one and the same instrument.

     IN WITNESS WHEREOF, the Pledgor has duly executed this Agreement and the
Pledgee has caused this Agreement to be duly executed by its officer duly
authorized as of the day and year first above written.

                                      RITE AID CORPORATION


                                      By:   ____________________________
                                            Martin L. Grass
                                            Chairman and Chief Executive
                                              Officer

                                      Pledgor:


                                      __________________________________





                                      I-2
<PAGE>

                                                                       EXHIBIT B

                        Fiscal 1997 Executive Bonus Plan
                        --------------------------------


Program based on increase in earnings per share over fiscal 1996, Results
interpolated at intermediate points.
Charge for Acquisition Reserve is excluded.
Target Bonus is the following percent of base salary:

Executive Vice Presidents  45%


       Increase in               Earnings Per        % of Target
Earnings Per Share             Share Required              Bonus
------------------             --------------              -----
    15.0% or above                     $2.182                 10%
             14.5%                      2.172                140%
             14.0%                      2.163                130%
             13.5%                      2.153                120%
             13.0%                      2.144                110%
------------------------------------------------------------------
            12.50%         TARGET       2.134    TARGET      100%
------------------------------------------------------------------
            12.0%                       2.125                 90%
            11.5%                       2.115                 80%
            11.0%                       2.106                 70%
            10.5%                       2.096                 60%
            10.0%                       2.087                 50%
   Below    10.0%                       2.086                  0%





                                      I-3
<PAGE>

                                                                       EXHIBIT C

                     Long-Term Incentive Plan Compensation
                    Performance Improvement Award Structure
                    ---------------------------------------



                                Average
                        E.P.S. Increase          % Earned
                        ---------------          --------
                                 12.0%               100%
                                 11.5%                90%
                                 11.0%                80%
                                 10.5%                70%
                                 10.0%                60%
                                  9.5%                50%
                                  9.0%                40%
                                  8.5%                30%
                                  8.0%                20%
                          Below     8%                 0%
<PAGE>

                                                                       EXHIBIT D

                        DEFERRED COMPENSATION AGREEMENT
                        -------------------------------

     AGREEMENT entered into as of the ____ day of September, 1996, by and
between RITE AID CORPORATION, with offices at 30 Hunter Lane, Camp Hill,
Pennsylvania 17011 ("Corporation"), and the employee named on the signature page
of this Agreement ("Employee").

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

     WHEREAS, to assist Employee in providing for the contingencies of death,
disability and old age dependency, Corporation and Employee desire to enter into
this Agreement ("Agreement") to provide Employee with deferred compensation.

     NOW, THEREFORE,  Corporation and Employee hereby agree as follows:

     1.   (a)  In the event that Employee's employment with Corporation
terminates after Employee has reached age sixty five (65) and has completed at
least twenty (20) years of service with Corporation, Employee shall be entitled
to retirement ("Retirement") with the compensation provided in this Agreement.
In such event, the Corporation shall pay to Employee, monthly and amount equal
to one twelfth (1/12) of sixty (60%) percent of the average of the three (3)
highest annual base salaries paid or accrued in respect of three (3) fiscal
years of the Corporation within the last ten (10) fiscal years of the
Corporation within the last ten (10) fiscal years of the Corporation prior to
termination of Employee's employment; provided, however, that in the event
Employee's
<PAGE>

Retirement commences after at least six (6) months of the fiscal year in which
Employee's Retirement takes place have elapsed, that fiscal year shall be
included as the tenth year in the calculation of the Retirement Allowance and
Employee shall be deemed to have been paid an annual base salary for that entire
fiscal year at the highest rate paid to Employee in that fiscal year. The
monthly amount of such payments shall hereinafter be referred to as the
:Retirement Allowance". Monthly payments of Retirement Allowance shall commence
on the first day of the month next following Employee's Retirement and shall
continue for one hundred eighty (180) months. All payments of Retirement
Allowance under this Agreement shall be made subject to such withholding and
deductions as may be required by law.

          (b) If the Employee's service with the Corporation is terminated or
suspended by reason of disability ("Disability"), then regardless of the
Employee's age or length of service, and provided Employee is not then receiving
disability payments under Corporation's Long Term Disability Plan, if requested
by Employee and if approved by the Board of Directors in its sole discretion,
Corporation shall pay to Employee, monthly, commencing on the first day of the
third month next following its receipt of Employee's request, so much of the
Retirement Allowance (determined at the date of Employee's Disability) as the
Board of Directors shall deem appropriate. Such monthly payments shall continue
until the earlier of: (1) the cessation of Employee's Disability (whether or not
Employee returns to active employment with Corporation or with another employer)
or (ii) Employee's death.

     Employee shall be deemed to have incurred a Disability only if according to
certification of competent medical authority approved or selected by
Corporation's Board of Directors ("Board of



                                       2
<PAGE>

Directors"), Employee is incapable of performing normal duties with Corporation
by reason of medically determinable physical or mental impairment which will
persist for an indeterminate period of time; provided, however, that so long as
the Employment Agreement, dated August 14, 1996, between the Corporation and
Employee is in effect, Employee shall be deemed to have incurred a Disability if
Employee has suffered a "disability" as defined in that Employment Agreement.

          (c) If after receiving monthly Disability payments under this
Agreement, Employee returns to employment with Corporation, the total dollar
amount of Retirement Allowance received by Employee during Employee's Disability
shall, in any manner deemed equitable by the Board of Directors be subtracted
from the aggregate Retirement Allowance to which Employee may later become
entitled at such time as that Retirement Allowance becomes payable under this
Agreement.  However, there shall not be subtracted from the Retirement Allowance
any payments received under any other disability insurance or program not
arising out of this Agreement.

     2.   (a)  If Employee dies  while employed by Corporation or while subject
to a Disability, Corporation shall pay to Employee's beneficiary designated
pursuant to Section 5 or as otherwise provided in that Section, a Retirement
Allowance the amount of which shall be calculated as if the death had occurred
(i) after Employee had completed twenty (20) years of service with Corporation
and (ii) after Employee had reached age sixty five (65); reduced by one-180th of
the aggregate amount, if any, paid to Employee under Section 1(b).  Monthly
payment of that Retirement Allowance shall commence on the first day of the
month next following the date of Employee's death and shall continue for one
hundred eighty (180) months.



                                       3
<PAGE>

          (b) If Employee dies after payments under Section 1 have commended,
but before payments have been completed, the remaining payments shall be
continued to Employee's beneficiary designated pursuant to Section 5 or as
otherwise provided in that Section.

     3.   If Employee's employment with Corporation terminates for any reason
other than Retirement, disability or death, this Agreement shall terminate and
no benefits shall be payable pursuant to this Agreement to Employee or to any
person or entity claiming by, from or through Employee.

     4.   If at any time Employee is discharged for good cause by Corporation
with the acquiescence of the Board of Directors, or if subsequent to Employee's
retirement, disability or death, it is discovered that Employee committed an act
which could have resulted in Employee's discharge for good cause by Corporation,
had it been known to Corporation, this Agreement shall terminate and any and all
rights and benefits of Employee and of any person claiming by, from or through
Employee under this Agreement shall be forfeited and any benefits then being
paid or to be paid in the future shall cease.  In the case of an after-
discovered fact, the Board of Directors shall determine whether there has been
an act which would have justified a discharge for good cause using reasonable
and non-discriminatory standards.

     5.   Employee shall designate in writing on a firm delivered to the Board
of Directors (Attention: Chairman) a beneficiary or beneficiaries and successor
beneficiaries (including address) to receive the benefits, if any, payable under
this Agreement upon Employee's death.  The Board of Directors shall decide which
beneficiary or beneficiaries, if any, shall have been validly designated. Such
designation of beneficiary may be revoked and changed by Employee, from time to
time, in


                                       4
<PAGE>

writing on a form delivered to the Board of Directors (Attention: Chairman), and
shall be revoked automatically if the designated beneficiary or beneficiaries
predeceases Employee, in which case a new designation of beneficiary or
beneficiaries may be made. If, at the time of Employee's death no designation of
beneficiary is then in effect, or following Employee's death, upon the death of
all successor beneficiaries designated by Employee, all remaining Retirement
Allowance shall be paid to Employee's estate.

     6.   Employee's rights under this Agreement and the rights of Employee's
beneficiary or estate may not be assigned, transferred, pledged or encumbered.

     7.   In determining Employee's length of service with Corporation for
purposes of this Agreement there shall be counted any period of: (a) employment
with any business entity controlling, controlled by or under common control with
Corporation; (b) employment with any business entity at the request of
Corporation; (c) service prior to the date of this Agreement with any business
entity referred to in (a) and (b) of this Section and (d) any period of
disability (whether or not payments of the Retirement Allowance were made to
Employee as a result thereof).

     8.   Nothing contained in this Agreement shall be construed as conferring
upon Employee the right to continue in the employ of Corporation in any capacity
and the employment rights of Employee shall be determined as if this Agreement
had never been executed.

     9.   If at any time after Retirement Employee, without the prior consent of
the Board of Directors, undertakes employment with or provides consulting or
advisory services to any person


                                       5
<PAGE>

or entity engaged in the continental United States: (a) in any business in which
Corporation or any entity, employment with which would, for purposes of this
Agreement, constitute employment by the Corporation, is engaged (whether or not
in competition with Corporation or such entity) or (b) in the operation of
pharmacy benefit manager, Employee's right to any remaining Retirement Allowance
otherwise payable under this Agreement shall at that time cease and terminate
permanently. The provisions of this Section 9 shall not be applicable with
respect to employment by or consulting services to a trade association of
persons or entities referred to in (a) of this Section.

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

     11.  (a)  The Board of Directors shall have full power and authority to
interpret, construe and administer this Agreement and shall not be liable to
Employee or any person or entity claiming by, from or through Employee for any
section taken or omitted in connection with interpretation, construction or
administration or this Agreement and no action taken or omitted by the Board of
Directors in connection with the interpretation, construction or administration
of any similar or dissimilar agreement between Corporation and any other
employee of Corporation shall


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<PAGE>

be reason of this Agreement create any cause of action in Employee or any person
or entity claiming by, from or through Employee. All decisions, interpretations
and actions of the Board of Directors taken in connection with this Agreement,
including any claims for benefits made under this Agreement, shall be
conclusive, final and binding on all parties.

          (b)    If the Board of Directors denies the claim of an Employee or of
any person claiming by, from or through Employee (a "Claimant") for payment of
the Retirement Allowance under this Agreement, the Board of Directors shall
provide written notice, within sixty (60) days after receipt of the claim,
setting forth in a manner calculated to be understood by the Claimant.

          (i)    the specific reasons for such denial;

          (ii)   the specific reference to the provisions of this Agreement on
which denial is based;

          (iii)  a description of any additional material or information
necessary to perfect the claim and an explanation of why such material or
information is needed; and

          (iv)   an explanation of this Agreement's claim review procedure and
the time limitations of this subsection applicable thereto.

     Employee or any Claimant whose claim for payment of the Retirement
Allowance has been denied may request review by the Board of Directors of the
denied claim by notifying the Board of



                                       7
<PAGE>

Directors in writing within sixty (60) days after receipt of the notification of
claim denial. As part of said review procedure, the Employee or claimant or
their authorized representatives may review pertinent documents and submit
issues and comments to the Board of Directors in writing. The Board of Directors
shall render its decision to Employee or the Claimant in writing in a manner
calculated to be understood by the Employee or Claimant not later than sixty
(60) days after receipt of the request for review, unless special circumstances
require an extension of time, in which case decision shall be rendered as soon
after the sixty (60) day period as possible, but not later than one hundred
twenty (120) days after receipt of the request for review. The decision on
review shall sate the specific reasons therefor and the specific Agreement
references on which it is based.

     12.  This Agreement shall be binding upon and inure to the benefit of this
Corporation, its successors and assigns, and Employee, Employee's beneficiary ,
heirs, executors, administrators and legal representatives.

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

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


                                       8
<PAGE>

     15.  Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered or certified mail; if
to Employee, to the address shown on the books of Corporation; and if to
Corporation, to the address shown above or such other address as Corporation may
have designated in writing, or if actually received by the person to whom sent.

     16.  This Agreement shall be subject to and construed in accordance with
the law of the Commonwealth of  Pennsylvania where it is made without giving
effect to principles of conflict of law.




                                       9
<PAGE>

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

RITE AID CORPORATION                     EMPLOYEE



By: /s/ Martin L. Grass                  /s/ Beth Kaplan
    ___________________                  ______________________
     Martin L. Grass                     Name: Beth Kaplan
     Chairman of the Board and
     Chief Executive Officer





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