PHAR MOR INC
M DAVID SCHWARTZ EMPLOYMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>a2002-10qexa.txt
<DESCRIPTION>M DAVID SCHWARTZ EMPLOYMENT AGREEMENT
<TEXT>


                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT



     This Amended and Restated Employment Agreement (the "Agreement") is entered
into   by   and   between   Phar-Mor,   Inc.,   a   Pennsylvania    Corporation,
Debtor-in-Possession (the "Company"),  and M. David Schwartz (the "Employee") as
of February 15, 2002 (the "Effective Date").

     WHEREAS,  Employee is currently  employed by Company  pursuant to a written
employment agreement dated June 5, 1997 (the "Existing Agreement"),  as amended;
and

     WHEREAS,  the Company desires to continue  employing Employee upon modified
terms and conditions of employment; and

     WHEREAS, the Company and Employee desire to set forth in this Agreement the
terms and conditions of Employee's continued employment.

     NOW,  THEREFORE,  in  consideration  of the mutual  promises and  covenants
contained herein, the parties agree as follows:

I.       EMPLOYMENT AND TERM.

     The Company  hereby  employs  Employee  and  Employee  hereby  accepts such
employment,  upon the terms and conditions hereinafter set forth. This Agreement
shall  commence on the  Effective  Date and continue in force and effect for the
stated term (the "Stated Term") of two years and shall be automatically extended
daily,  it being the intent of the parties that this Agreement shall have a term
that is an "evergreen" or "rolling" term of two years,  unless sooner terminated
pursuant to the provisions of Section IV of the Agreement.

II.      DUTIES.

         Subject to the provisions of Section IV of this Agreement:

     A. The Company shall employ  Employee and Employee  shall serve the Company
for the Stated Term in the capacity of President and Chief Operating  Officer of
the Company. The Company agrees that the duties that may be assigned to Employee
shall be usual and customary  duties of the offices or positions to which he may
from time to time be appointed or elected.  Employee  shall have such  corporate
power and authority as reasonably  required to enable the discharge of duties in
any office that may be held.

     B.  Employee  agrees  to devote  substantially  all of his  business  time,
energies and  abilities to the  business of the  Company.  Nothing  herein shall
prevent  Employee,  upon approval of the Board,  from serving,  or continuing to
serve  upon  termination  of  employment,  as a  director  or  trustee  of other
corporations or businesses that are not in competition  with the business of the
Company as set forth in Section V of this Agreement or in  competition  with any
present or future affiliate of the Company.

     C. Employee shall report to the Chief Executive Officer and Chairman of the
Board or, at the Board's direction, to the Board.

III.     COMPENSATION.

     A.  Base  Salary.  The  Company  shall  pay to  Employee  a base  salary of
$695,500.00 per year for the first year of the Stated Term. Such salary shall be
paid weekly to the Employee  and shall be subject to increase  effective on each
June 1st thereafter beginning with June 1, 2002. The amount of the increase,  if
any, shall be determined by the Company based upon the individual performance of
the Employee  and the  Company,  in general.  Should  confirmation  of a Plan of
Reorganization  or approval of a sale of the Company or substantially all of its
assets by the  Bankruptcy  Court not occur on or before  June 1, 2002,  then any
increase for the Employee  shall only be effective  after review by the official
committee of unsecured creditors of the Company.  Should such committee disagree
with the Company's  recommendation  for the  increase,  then the matter shall be
submitted to the Bankruptcy Court for its  consideration.  In no event shall the
minimum annual salary be decreased. Amounts payable shall be reduced by standard
withholding  and  other  deductions   authorized  by  Employee  or  required  by
applicable law.

     B. Operating Bonus. The Company will pay to Employee  annually an operating
bonus in an amount not less than the amount  Employee  is  entitled to under the
Company's  incentive/bonus  plan. For the Company's  fiscal year ending in 2002,
the  Employee  shall be  entitled  to  receive a bonus  equal to 60% of his base
salary  earned  during  such fiscal year (the  "Target  Bonus"),  subject to the
achievement of certain  financial  objectives under such plan.  Thereafter,  the
Company  will  pay the  Employee  a bonus  equal  to the  amount  to which he is
entitled  under the  incentive/bonus  plan of the Company in effect from time to
time.  If the  fiscal  year of the  Company  is  changed,  or if the  Employee's
employment is terminated  without Cause (as defined in Section IV.B.  hereof) or
by the  Employee  for Good  Reason (as  defined in Section  IV.C.  hereof),  the
Employee  will  receive,  in addition to all other  compensation  to which he is
entitled, an operating bonus pro-rated to the amount to which he would otherwise
be entitled  hereunder  based on the number of months in the short year, or such
other  equitable  method as may be  mutually  agreed  upon by  Employee  and the
Company.

     C.  Retention  Bonus.  Notwithstanding  any  other  amounts  due  per  this
Agreement,  Employee shall receive a retention bonus of $650,000  payable during
the course of the Company's  bankruptcy  proceedings as follows: (1) 33 1/3% due
and payable to the Employee on December 15,  2001;  and (2) 66 2/3% due,  earned
and payable to the Employee upon  confirmation  of a plan of  reorganization  or
approval of a sale of the  Company or  substantially  all of its assets,  by the
Bankruptcy  Court. If the Employee is terminated  during the Stated Term of this
Agreement  for any reason  other than  Cause,  or the  Employee  terminates  his
employment for Good Reason,  Employee shall be paid  immediately  any balance of
the retention bonus.

     D. Stock  Options.  Employee has  previously  earned and received  numerous
stock  options  over the  course of  employment  to the  Effective  Date of this
Agreement.  If, at any time,  the  Employee's  employment  is  terminated by the
Company  without Cause, or the Employee  terminates  employment with the Company
for Good Reason,  all said options shall  immediately  vest.  During the term of
this Agreement Employee shall remain eligible,  subject to the discretion of the
Company, to receive additional option awards ("Additional Options").

     E. Other Stock or Equity Plans.  Employee  shall be eligible to participate
under any other  stock or  equity  incentive  plan or  benefit  provided  by the
Company to senior  officers at the  discretion  of the Company.  For purposes of
this Agreement,  "senior officer" means an officer of the Company of the rank of
senior vice president or above.

     F. Welfare Benefit Plans.  The Company shall, at its sole cost and expense,
pay for all (and not less than all) of the medical,  hospitalization  and dental
costs and expenses of Employee  and his spouse and  children  (which may, at the
Company's sole election, include insurance,  supplemental coverage and/or direct
payment/reimbursement),  and the Company  shall  reimburse  Employee for any net
after tax cost  incurred  by him in  connection  with any of the  foregoing.  In
addition,  the  Company  shall  maintain  a  disability  insurance  policy  (the
"Disability  Income  Policy") which shall pay to Employee at least sixty percent
(60%) of his Base Salary  during any period of  disability  up to age 75,  which
insurance shall be in lieu of any disability insurance otherwise provided by the
Company.

     Employee shall participate in all retirement and other benefit plans of the
Corporation available from time to time to employees and/or senior executives of
the Company.

     During the Stated Term, the Company shall also pay such amounts to Employee
as may be required to permit Employee, or a trust established by him, to acquire
and  maintain a whole life  insurance  policy or  policies in the face amount of
$1,000,000.00,  or at Employee's election, a term policy requiring an equivalent
premium,  on  Employee's  life,  issued  by  a  nationally-recognized  insurance
carrier(s)  having the highest and second highest  available  Best rating;  such
payment shall be paid in such amounts so that  Employee  incurs no net after tax
cost in connection therewith.

     G. Expenses. Employee shall be entitled to receive prompt reimbursement for
all  reasonable  employment  expenses  incurred  by him in  accordance  with the
policies,  practices and  procedures of the Company as in effect  generally with
respect  to  senior  officers.  In  addition,  the  parties  recognize  that the
Company's retail stores,  warehouses,  headquarters and other potential business
opportunities  are spread over a large  geographical area and are in a number of
metropolitan  areas. Also, in order to facilitate the Employee's  performance of
his duties,  the Employee  will be provided  with the use of a vehicle  owned or
leased by the Company or a comparable  vehicle  allowance and will be reimbursed
for all reasonable and customary  charges Employee incurs in connection with the
operation of such vehicle (such as for fuel,  insurance and maintenance) and, in
addition,   the  Company  will  provide  other  convenient   time-efficient  and
cost-effective   transportation  for  Employee's  business  travel  requirements
commensurate  with  transportation  made  available to other  similarly-situated
presidents/chief operating officers.

     H. Vacation.  Employee shall be entitled  during the term of this Agreement
to four (4) weeks paid vacation per annum. Employee may accumulate vacation only
to the extent permitted by the policies, practices and procedures of the Company
as in effect generally with respect to senior officers.

     I. Attorneys' Fee Reimbursement.  Within ten days after presentation of the
invoice  therefore,  the Company  shall pay to the law firm of  Honigman  Miller
Schwartz and Cohn in Detroit,  Michigan,  an amount not to exceed $10,000.00 for
legal fees incurred by Employee  relative to the  preparation and review of this
Agreement.

     J. Reservation of Right to Amend.  With respect to the benefits provided to
Employee in accordance  with Section III.E.,  the Company  reserves the right to
modify, suspend or discontinue any and all of the plans, practices, policies and
programs  at any time  without  recourse  by  Employee so long as such action is
taken with  respect to senior  officers  or  management  generally  and does not
single out Employee.

     K. Liability Insurance.  During the Stated Term, the Company shall maintain
customary  directors'  and officers'  liability  insurance if such  insurance is
available to the Company at reasonable costs.

IV.      TERMINATION.

     A. Death or Disability. Employee's employment shall terminate automatically
upon Employee's death. If the Company determines in good faith that a Disability
of Employee has occurred  (pursuant to the  definition of  Disability  set forth
below),  Company may  terminate  Employee's  employment  by  providing  Employee
written  notice in  accordance  with Section XVI of the  Company's  intention to
terminate  Employee's  employment.  In such event,  Employee employment with the
Company shall  terminate  effective on the 30th day after receipt of such notice
by Employee,  provided  that,  within the 30 days after such  receipt,  Employee
shall not have returned to full-time performance of his duties.

     For  purposes of this  Agreement,  "Disability"  means a physical or mental
impairment  which (i)  substantially  limits a major life  activity of Employee,
(ii) renders Employee unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an undue hardship on the
Company,  and (iii) has  contributed to Employee's  absence from his duties with
the Company on a full-time basis for more than 60 consecutive  days. The Company
reserves the right, in good faith, to make the determination of Disability under
this Agreement based upon  information (as to items (i) and (ii) above) supplied
by a  physician  selected  by the  Company or its  insurers  and  acceptable  to
Employee or his legal  representative (such agreement as to acceptability not to
be withheld unreasonably).

     B.  Cause.  The  Company  may  terminate  Employee's  employment  for Cause
(pursuant to the  definition  of Cause set forth  below) by  providing  Employee
written  notice in  accordance  with Section XVI of the  Company's  intention to
terminate  Employee's  employment,  setting  forth in such  notice the  specific
grounds therefor.  In such event,  Employee's  employment with the Company shall
terminate effective as of the date of receipt of such notice by Employee.

     For  purposes of this  Agreement,  "Cause"  means (1) a material  breach by
Employee of Employee's  obligations  under Section II of this  Agreement  (other
than as a result of  incapacity  due to  physical or mental  illness),  which is
demonstrably  willful and deliberate on the Employee's  part and is committed in
bad  faith  or  without  reasonable  belief  that  such  conduct  is in the best
interests of the Company,  or which is the result of Employee's gross neglect of
duties,  and, in either case,  not  remedied in a reasonable  period of time not
more than five days after  receipt of written  notice from the Board  specifying
such breach, (2) the conviction of Employee of a felony or other crime involving
fraud,  dishonesty or moral  turpitude,  or (3) the  commission by Employee of a
fraud which results in a material financial loss to the Company.

     C. Good  Reason.  Employee may  terminate  Employee's  employment  for Good
Reason.  Employee shall provide the Company  written  notice in accordance  with
Section XVI of Employee's intention to terminate Employee's  employment for Good
Reason, setting forth in such notice the grounds therefor. Employee's employment
with the Company shall terminate effective as of the earlier of (i) the 15th day
after the Company's  receipt of such notice or (ii) such later date as set forth
in such notice, unless the Company has cured the grounds therefor.

     For purposes of this Agreement, "Good Reason" means (1) Employee's position
(including  responsibilities,  title,  reporting  requirements  or authority) is
reduced  below the level set forth in Section II.A.  hereof (2) employee  and/or
his job  functions  are  transferred  to a location  more than 25 miles from the
location of his current office (3) the Company fails in any material  respect to
comply with the  provisions of Section III of this Agreement (4) the Company has
within the prior twelve  months  undergone a Change of Control  (pursuant to the
definition of Change of Control set forth below), or (5) the Company purports to
terminate  Employee's  employment  otherwise than as expressly permitted by this
Agreement or without  payment of any amounts  required to be paid under  Section
IV.F.  For purposes of this  Agreement,  "Change of Control"  shall mean (a) the
acquisition by any individual, entity or group of beneficial ownership of 20% or
more of either (i) the then  outstanding  shares of common stock of the Company,
or (ii) the combined voting power of the then outstanding  voting  securities of
the Company  entitled to vote  generally  in the  election of  directors  of the
Company or (b) individuals who, as of the date of this Agreement, constitute the
Board cease for any reason to  constitute  at least a majority of the Board;  or
(c) approval by the shareholders of the Company of a  reorganization,  merger or
consolidation which results in a change of the ownership and/or voting rights of
30% or more of (i) the then  outstanding  shares of common stock of the Company,
or (ii) a  majority  of the  members  of the Board of the  Company do not remain
members of the Board of the entity resulting from such reorganization, merger or
consolidation;  or  (d)  approval  by  the  shareholders  of  the  Company  of a
liquidation or dissolution of the Company,  or the sale or other  disposition of
all or substantially all of the assets of the Company.  For the purposes of this
Agreement,  Change of Control  shall not include any change in  ownership of the
Company's  common stock resulting from any  transaction  between the Company and
Avatex Corporation, the Company's principal shareholder.

     D. Other Than Cause or Good Reason or Death or Disability.  The Company may
terminate  Employee's  employment  without cause by providing  Employee  written
notice in accordance  with Section XVI of the  Company's  intention to terminate
Employee's  employment.  In such event,  Employee's  employment  shall terminate
effective on the 30th day after receipt of such notice by Employee.

     E.  Termination  by Employee  Other Than for Good Reason.  The Employee may
voluntarily   terminate  his  employment   with  the  Company  for  any  reasons
whatsoever,  other than in a situation where he has Good Reason for doing so, by
providing  Employer  written notice  thereof in accordance  with Section XVI. In
such event, Employee's employment shall terminate effective on the thirtieth day
after the receipt of such notice by Company unless the parties mutually agree to
an earlier termination.

     F.  Obligations  of the  Company  Upon  Termination.  Upon  termination  of
Employee's  employment  for any  reason,  the  Company  shall  have  no  further
obligations  to  Employee  (or his  estate or legal  representative)  under this
Agreement other than the following:

     1. Death or Disability. If Employee's employment is terminated by reason of
Employee's  Death  or  Disability,  the  Company  shall  (a)  pay the sum of (i)
Employee's annual base salary through the end of the calendar month during which
the termination  occurs (to the extent not theretofore  paid),  (ii) any accrued
vacation pay not theretofore paid, and (iii) any accrued incentive  compensation
that has been fixed and  determined,  which the Company shall pay to Employee or
his estate or beneficiary,  as applicable,  in a lump sum in cash within 30 days
of the date of termination,  or earlier as may be required by applicable law (b)
pay any  amounts  then due or payable  pursuant  to the terms of any  applicable
welfare  benefit plans  notwithstanding  such  termination of employment and (c)
perform its  obligations  under any then  outstanding  stock option  awards,  in
accordance with the terms of any applicable  stock or equity incentive plan (the
sum of the amounts and  benefits  described in clauses (a), (b) and (c) shall be
hereinafter referred to as the "Accrued Obligations").

     2. Cause. If Employee's  employment is terminated by the Company for Cause,
the Company  shall  timely pay any Accrued  Obligations.  If it is  subsequently
determined  that the Company did not have Cause for  termination  under  Section
IV.B.,  then the  Company's  decision to terminate  shall be deemed to have been
made under Section  IV.D,  and the amounts  payable  under Section  IV.F.3 below
shall be the only amounts Employee may receive for his termination.

     3. Other Than for Cause or by Reason of Death or Disability. If the Company
terminates  Employee's  employment (other than for Cause or because of his Death
or  Disability),  or Employee  terminates his  employment  for Good Reason,  the
Company shall pay the following:

     a.  Salary,  Bonus,  and Stock  Options.  Company  shall (1) timely pay any
Accrued  Obligations  (including but not limited to any immediately vested stock
options in accordance  with Section  III.D.  herein) and any prorated  operating
bonus and the retention  bonus as described in Sections  III.B.  and C., and (2)
pay  Employee  a lump sum equal to $1.2  million in the event  termination  is a
result of a "Change of Control",  as defined herein,  occurring  simultaneous or
prior to the Company emerging from its current bankruptcy  proceedings and $1.35
million otherwise. In addition, any Additional Options granted to Employee under
any  applicable  stock  or  equity  incentive  plan  shall  accelerate  and vest
immediately.

     b.  Additional  Benefits  Company  shall pay on behalf of Employee the full
cost of the  continuation  for one  year  all  benefits  currently  received  by
Employee  including,  but not limited to that level of health  benefit  coverage
provided  by the  Company to  Employee  and/or his family  immediately  prior to
termination of his employment. Employee shall be entitled to exercise his rights
to continued  coverage under COBRA upon the expiration of said year of continued
health benefit  coverage.  Additionally,  Company shall pay Employee any and all
other benefits due at the time of termination,  with the exception of sick leave
and vacation  pay.  Employee  agrees to use best efforts to mitigate the cost of
such benefits to the Company.

     4.  Termination  by Employee  Other Than for Good  Reason.  If the Employee
voluntarily  terminates his employment with the Company without Good Reason, the
Company shall timely pay any Accrued Obligations.

     5.  Withholdings and Deductions.  Any payment made pursuant to this Section
IV.F. shall be paid, less standard  withholdings and other deductions authorized
by  Employee or required by law.  All amounts due  Employee  under this  Section
IV.F.  shall be paid within 14 days after the date of  termination or as earlier
required by law.

     6. Exclusive Remedy. Employee agrees that the payments contemplated by this
Agreement shall  constitute the exclusive and sole remedy for any termination of
his  employment,  and  Employee  covenants  not to assert  or  pursue  any other
remedies, at law or in equity, with respect to any termination of employment.

V.       NONCOMPETITION.

     Employee  agrees that for that  portion of the Stated Term during  which he
remains in the  employ of the  Company,  he will not,  directly  or  indirectly,
without the prior written consent of the Board, provide consulting services with
or without pay, own,  manage,  operate,  join,  control,  participate  in, or be
connected as a stockholder,  partner,  employee,  director, officer or otherwise
with any other person,  entity or organization engaged directly or indirectly in
the business of operating a regional or national discount drug store chain.

VI.      UNIQUE SERVICES; INJUNCTIVE RELIEF; SPECIFIC PERFORMANCE.

     Employee  agrees (i) that the services to be rendered by Employee  pursuant
to this Agreement,  the rights and privileges granted to the Company pursuant to
this  Agreement and the rights and  privileges  granted to Employee by virtue of
his  position,  are  of  a  special,  unique,   extraordinary,   managerial  and
intellectual character,  which gives them a peculiar value, the loss of which to
the Company  cannot be adequately  compensated  in damages in any action at law,
(ii) that the Company will or would suffer  irreparable  injury if Employee were
to terminate this Agreement  without Good Reason or to compete with the business
of the Company or solicit employees of the Company in violation of Section V. or
VII.  of this  Agreement,  and (iii)  that the  Company  would by reason of such
breach or violation of this Agreement be entitled to the remedies of injunction,
specific  performance  and  other  equitable  relief  in a court of  appropriate
jurisdiction.  Employee  consents  to the  jurisdiction  of a court of equity to
enter provisional equitable relief to prevent a breach or anticipatory breach of
Section V. of this Agreement by Employee.

VII.     SOLICITING EMPLOYEES.

     Employee,  while  employed  by the  Company  and  for  one  year  following
termination  of his  employment,  will not  directly or  indirectly  solicit any
employee of the Company or of any  subsidiary  or affiliate of the Company in an
executive,  managerial,  sales or marketing  capacity to work for any  business,
individual,  partnership, firm, corporation, or other entity then in competition
with the  business  of the  Company or of any  subsidiary  or  affiliate  of the
Company.

VIII.    CONFIDENTIAL INFORMATION.

     Employee  agrees that during the Stated Term of this  Agreement  and at all
times  thereafter  (notwithstanding  the  termination  of this  Agreement or the
expiration of the Stated Term of this Agreement):

     A.  Employee  shall hold in a  fiduciary  capacity  for the  benefit of the
Company all secret or  Confidential  Information,  knowledge or data relating to
the Company or any of its affiliated companies,  and their respective businesses
that are obtained by Employee during his employment by the Company or any of its
affiliated  companies and that are not or do not become public  knowledge (other
than by acts by Employee or his representatives in violation of this Agreement).

     For the purposes of this  Agreement,  "Confidential  Information"  includes
financial  information  about the  Company  (including  gross  profit  margins),
contract terms with the Company's  vendors and others,  customer lists and data,
trade  secrets  and such  other  competitively  sensitive  information  to which
Employee  has  access  as a result  of his  positions  with the  Company.  After
termination of Employee's employment with the Company, he shall not, without the
prior written consent of the Company,  or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it.

     B.  Employee  agrees that all styles,  designs,  lists,  materials,  books,
files, reports, computer equipment,  pharmacy cards, Company automobiles,  keys,
door  opening  cards,  correspondence,  records  and other  documents  ("Company
material")  used,  prepared or made  available to  Employee,  shall be and shall
remain the property of the Company.  Upon the  termination  of employment or the
expiration  of  this  Agreement,   all  Company   materials  shall  be  returned
immediately  to the Company,  and  Employee  shall not make or retain any copies
thereof.

IX.      SUCCESSORS.

     A. This  Agreement  is personal to Employee and neither it nor any benefits
hereunder shall, without the prior written consent of the Company, be assignable
by Employee.

     B. This  Agreement  shall inure to the  benefit or and be binding  upon the
Company and its  successors and assigns and any such successor or assignee shall
be deemed  substituted for the Company under the terms of this Agreement for all
purposes.  As used herein,  "successor" and "assignee" shall include any person,
firm,  corporation  or  other  business  entity  that at any  time,  whether  by
purchase, merger or otherwise,  directly or indirectly acquires the stock of the
Company or to which the Company  assigns  this  Agreement by operation of law or
otherwise.

X.       WAIVER.

     No waiver of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other  breach of this  Agreement.
No waiver shall be binding unless in writing and signed by the party waiving the
breach.

XI.      MODIFICATION.

     This  Agreement  may not be  amended  or  modified  other than by a written
agreement  executed by the  Employee  and (a) the Chairman of the Board or (b) a
duly  authorized  member of the Board who is not an officer or  employee  of the
Company or a subsidiary of the Company.

XII.     SAVINGS CLAUSE.

     If any  provision  of this  Agreement  or the  application  thereof is held
invalid, the invalidity shall not affect other provisions or applications of the
Agreement  that  can  be  given  effect   without  the  invalid   provisions  or
applications,  and to this end the  provisions of this Agreement are declared to
be severable.

XIII.    COMPLETE AGREEMENT.

     This  Agreement   constitutes   and  contains  the  entire   agreement  and
understanding  concerning  Employee's  employment and the other subject  matters
addressed  herein  between the parties and  supersedes  and  replaces  all prior
negotiations and all agreements proposed or otherwise,  whether written or oral,
concerning  the  subject  matters  of this  Agreement,  including  the  Existing
Agreement.

XIV.     GOVERNING LAW.

     This Agreement  shall be deemed to have been executed and delivered  within
the State of Ohio, and the rights and obligations of the parties hereunder shall
be construed and enforced in accordance  with,  and governed by, the laws of the
State of Ohio without regard to principles of conflict of laws.

XV.      CAPTIONS.

     The  captions  of this  Agreement  are not part of the  provisions  of this
Agreement and shall have no force or effect.

XVI.     COMMUNICATIONS.

     All notices,  requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered or if mailed
by registered or certified mail, postage prepaid, addressed:

                  If to Employee, to
                  M. David Schwartz
                  8032 Tippecanoe Road
                  Canfield, Ohio 44406;

                  If to Company, to
                  20 Federal Plaza West
                  Youngstown, Ohio 4450l,
                  Attention:  Chairman of the Board of Directors.

     Either  party may change  the  address  at which  notice  shall be given by
written notice given in the above manner.

XVII.    ARBITRATION.

     Except as otherwise provided in Section VI. of this Agreement, any dispute,
controversy  or claim  arising  out of or in respect of this  Agreement  (or its
validity,  interpretation  or enforcement),  the employment  relationship or the
subject  matter  of this  Agreement  shall at the  request  of  either  party be
submitted to and settled by arbitration  conducted in either Cleveland,  Ohio or
Pittsburgh,  Pennsylvania,  as directed by the party requesting the arbitration,
in  accordance  with the  Employment  Dispute  Resolution  Rules of the American
Arbitration  Association.  The  arbitration  shall be  governed  by the  Federal
Arbitration Act (9 U.S.C. ss. 1-16).  The arbitration of such issues,  including
the determination of any amount of damages suffered,  shall be final and binding
upon the parties to the maximum extent  permitted by law. The arbitrator in such
action shall not be authorized to ignore,  change, modify, add to or delete from
any  provision  of this  Agreement.  Judgment  upon the  award  rendered  by the
arbitrator  may be  entered  by  any  court  having  jurisdiction  thereof.  The
arbitrator  shall award  reasonable  expenses  (including  reimbursement  of the
assigned arbitration costs) to the prevailing party upon application therefor.

XVIII. EXECUTIONS.

     This Agreement may be executed in one or more  counterparts,  each of which
shall be deemed an original,  but all of which together shall constitute one and
the same Agreement.  Photographic copies of such signed counterparts may be used
in lieu of the originals for any purpose.

XIX.
     LEGAL COUNSEL.

     In entering this  Agreement,  the parties  represent  that they have relied
upon the advice of their  respective  attorneys,  who are attorneys of their own
choice,  and that the  terms of this  Agreement  have been  completely  read and
explained to them by their attorneys,  and that those terms are fully understood
and voluntarily accepted by them.

XX.      LIMITATION ON PAYMENTS.

     A. Notwithstanding  anything contained herein to the contrary, prior to the
payment of any  amounts  pursuant  to Section  IV.F.3.  hereof,  an  independent
national accounting firm designated by the Company (the "Accounting Firm") shall
compute whether there would be any "excess  parachute  payments"  payable to the
Employee,  within the meaning of Section  280G of the  Internal  Revenue Code of
1986,  as  amended  (the  "Code),  taking  into  account  the  total  "Parachute
payments,"  within  the  meaning  of  Section  280G of the Code,  payable to the
Employee or  otherwise.  If there would be any excess  parachute  payments,  the
Accounting Firm will compute the net after-tax proceeds to the Employee,  taking
into  account  the excise tax  imposed by Section  4999 of the Code,  if (i) the
payments  hereunder  were  reduced,  but not  below  zero,  such  that the total
parachute  payments payable to the Employee would not exceed three (3) times the
"base amount" as defined in Section 280G of the Code,  less One Dollar  ($1.00),
or (ii) the  payments  hereunder  were not  reduced.  If reducing  the  payments
hereunder  would  result in a greater  after-tax  amount to the  Employee,  such
lesser  amount  shall be paid to the  Employee.  If not  reducing  the  payments
hereunder  would  result in a greater  after-tax  amount to the  Employee,  such
payments shall not be reduced. The determination by the Accounting Firm shall be
binding upon the Company and the Employee  subject to the application of Section
XX.B. hereof.

     B. As a result of the uncertainty in the application of Section 280G of the
Code,  it is possible  that  excess  parachute  payments  will be paid when such
payment would result in a less after-tax amount to the Employee; this is not the
intent hereof. In such cases, the payment of any excess parachute  payments will
be void ab initio as regards  any such  excess.  Any excess will be treated as a
loan by the Company to the Employee.  The Employee will return the excess to the
Company,  within  fifteen  (15)  business  days  of  any  determination  by  the
Accounting  Firm  that  excess  parachute  payments  have  been paid when not so
intended,  with interest at an annual rate equal to the rate provided in Section
1274(d) of the Code (or 120% of such rate if the Accounting Firm determines that
such rate is  necessary  to avoid an excise tax under  Section 4999 of the Code)
from the  date the  Employee  received  the  excess  until it is  repaid  to the
Company.

     C. All fees, costs and expenses (including, but not limited to, the cost of
retaining  experts) of the Accounting Firm shall be borne by the Company and the
Company  shall  pay such  fees,  costs  and  expenses  as they  become  due.  In
performing the computations required hereunder, the Accounting Firm shall assume
that taxes will be paid for state and federal  purposes at the highest  possible
marginal  tax rates which  could be  applicable  to the  Employee in the year of
receipt of the payments, unless the Employee agrees otherwise.

XXI.     CONSULTING AGREEMENT.

     The parties  agree to enter into a  post-termination  consulting  agreement
wherein  Employee shall provide  certain  operational,  merchandising  and other
related consulting services. The term of such agreement shall be no greater than
one year and the amount of the payments  thereunder  shall be  determined at the
time Employee is terminated.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the date first above written.

 PHAR-MOR, INC.


By: ___________________________             __________________________________
        Abbey J. Butler                                       M. David Schwartz
        Co-Chairman and Chief
        Executive Officer

By: ___________________________
        Melvyn J. Estrin
        Co-Chairman and Chief
        Executive Officer



DET_B\294823.5


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