EMPLOYMENT AGREEMENT



         This EMPLOYMENT  AGREEMENT (this "Employment  Agreement") is made as of
the 1st day of  October,  1997 by and between  PHAR-MOR,  INC.,  a  Pennsylvania
corporation (the "Corporation"), and MELVYN J. ESTRIN ("M.J. Estrin").

         WHEREAS, the Corporation desires to employ M.J. Estrin, and M.J. Estrin
desires  to be  employed  by the  Corporation,  on the terms and  subject to the
conditions set forth herein.

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

1.       Position, Term and Duties.

         1.1 The Corporation  hereby employs M.J. Estrin, and M.J. Estrin hereby
accepts  employment,  as the  Co-Chairman  of the Board and  Co-Chief  Executive
Officer of the  Corporation for a term that shall commence as of the date hereof
and shall continue such that this Employment Agreement shall at all times have a
rolling term of three (3) years (the "Term").

         1.2 M.J.  Estrin will render such  services to the  Corporation  as are
customarily  rendered by the  Co-Chairman  of the Board and  Co-Chief  Executive
Officer of the  Corporation,  and M.J.  Estrin  shall be deemed to satisfy  such
obligations  so long as he  continues  to hold such titles (it being  understood
that a termination of M.J. Estrin from either position "Without Cause" will be a
default by the Corporation under this Employment Agreement).  In furtherance and
not in limitation of the foregoing,  M.J. Estrin,  together with Abbey J. Butler
("A.J.  Butler")  pursuant to his Employment  Agreement with the  Corporation of
even date herewith (the "Butler Employment Agreement"), shall have the authority
and power for the  supervision,  hiring  and  termination  of the  Corporation's
senior  management.  M.J.  Estrin may render such services from such offices and
locations  as he deems  appropriate  and  desirable,  and in no event shall M.J.
Estrin be required  to  relocate.  Nothing in this  Employment  Agreement  shall
prohibit  M.J.  Estrin  from  engaging,  directly  or  indirectly,  in any  such
activities  with  other  companies,  ventures  or  investments  in any  capacity
whatsoever;  provided, however, that M.J. Estrin shall not accept an offer to be
retained as an employee, director, consultant or agent by, or purchase more than
a ten percent  (10%)  ownership  interest in any entity that  derives  more than
fifty percent  (50%) of its gross  revenues from the retail sale, at a discount,
of  pharmaceuticals  (other than an entity in which M.J. Estrin or his immediate
family currently owns or controls, directly or indirectly, an ownership interest
of at least one percent (1%)) without obtaining the prior written consent of the
Corporation's Board of Directors.

         1.3 To the  fullest  extent  permitted  or  required by the laws of the
state of incorporation  of the Corporation,  as may apply from time to time, the
Corporation  shall  indemnify and hold harmless  (including  advance  payment of
expenses) M.J. Estrin, in accordance with the terms of such laws, if M.J. Estrin
is made a party, or 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 M.J.  Estrin is or was an  officer or
director of the  Corporation or any subsidiary or affiliate of the  Corporation,
against expenses (including  reasonable attorneys' fees),  judgments,  fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any such action, suit or proceeding,  which  indemnification  shall include
the protection of the applicable  indemnification  provisions of the Amended and
Restated  Certificate of  Incorporation  and the Amended and Restated By-laws of
the Corporation  from time to time in effect.  In the event,  however,  that the
Amended and Restated  Certificate of Incorporation  and the Amended and Restated
Bylaws in effect from time to time provide less  protection to M.J.  Estrin than
this  Section 1.3,  then this Section 1.3 shall govern for all purposes  hereof.
This Section 1.3 shall survive the termination of this Employment  Agreement for
any reason whatsoever.

         1.4 If:

              1.4.1 (i) except as the result of a  termination  "With Cause" (as
defined in Section 5.1.1),  the Corporation  changes or diminishes M.J. Estrin's
titles,  duties or  responsibilities  as set forth in Sections 1.1 and 1.2 above
without his consent or (ii) the  Corporation  removes M.J. Estrin as Co-Chairman
of the Board or Co-Chief Executive Officer; or

              1.4.2 the Corporation requires M.J. Estrin to relocate; or

              1.4.3 the  Corporation  imposes  requirements on M.J.  Estrin,  or
gives instructions or directions to M.J. Estrin, which are (i) contrary to or in
violation of any law,  rule,  ordinance or regulation  and (ii) not withdrawn by
the Corporation after request by M.J. Estrin; or

              1.4.4  there  occurs a breach  (including,  but not  limited to, a
failure  to  make  any  payment  or  provide  any  benefit  referred  to in this
Employment  Agreement) by the Corporation of any of its  obligations  under this
Employment Agreement,  which breach has not been cured within sixty (60) days of
such failure and, if such breach has not been cured,  the Corporation  shall, in
addition to the other rights of M.J. Estrin hereunder,  be required to reimburse
M.J. Estrin for all costs and expenses  (including  reasonable  attorneys' fees)
incurred by him with respect to such breach; or

              1.4.5 there occurs a "change in control" (as hereinafter  defined)
of the Corporation; or

              1.4.6 any of the events described in Section 1.4.1,  1.4.2, 1.4.3,
or 1.4.4 of the Butler Employment  Agreement  occurs,  and A.J. Butler exercises
the right  described in such Section 1.4 of the Butler  Employment  Agreement to
terminate his employment  with the  Corporation,  then, in any such event,  M.J.
Estrin shall have the sole right,  exercisable within ninety (90) days after the
occurrence of such event,  to terminate  his  employment  with the  Corporation;
provided, however, that such termination by reason of any of such event(s) shall
not be considered a voluntary  resignation or termination of such  employment or
of this Employment  Agreement by M.J.  Estrin,  but rather shall be conclusively
considered a discharge of M.J. Estrin by the  Corporation  "Without  Cause".  If
M.J.  Estrin does not terminate his employment  with the  Corporation in writing
within such ninety (90)-day period, M.J. Estrin's continued voluntary employment
with the  Corporation  from and after the  expiration  of such  ninety  (90)-day
period will be deemed to be a waiver of M.J.  Estrin's  right to  terminate  his
employment with the Corporation  "Without Cause," with respect to, and only with
respect  to,  the  occurrence  of the  specific  event  which  gave  rise to his
termination  right and shall not bar such right of M.J.  Estrin if such specific
event occurs at any time in the future.

         1.5 In furtherance  and not in limitation of any of the foregoing,  for
purposes of this Employment  Agreement,  it shall be considered a termination by
the Corporation  "Without  Cause" if the  Corporation  terminates M.J. Estrin as
Co-Chairman of the Board or Co-Chief Executive Officer or both for any reason or
without  any reason  whatsoever  other than "With  Cause" (as defined in Section
5.1.1 below).

         1.6 The  term  "change  in  control"  means  the  first to occur of the
following events:

              1.6.1 any Person (as such term is defined in Section  13(d) of the
Securities  Exchange Act of 1934, as amended (the  "Exchange  Act")) or group of
commonly  controlled Persons (whether through common ownership,  by agreement or
otherwise,  but other  than a Person  or group of  Persons  owned or  controlled
directly  or  indirectly  by M.J.  Estrin ) becomes the  "beneficial  owner" (as
determined  pursuant to Rule 13d-3  promulgated under the Exchange Act) of forty
percent (40%) or more of the voting capital stock of the Corporation; or

              1.6.2 the Corporation's  stockholders  approve (a) an agreement to
merge,  consolidate  or  otherwise  combine  with,  or  otherwise  enter  into a
transaction with,  another Person (other than a Person or group of Persons owned
or controlled directly or indirectly by M.J. Estrin), which will result (whether
separately or in connection with a series of related  transactions)  in a change
in ownership of forty percent (40%) or more of the current voting control of, or
beneficial  rights to, the voting  capital stock of the  Corporation,  or (b) an
agreement  to sell  or  otherwise  dispose  of all or  substantially  all of the
Corporation's  assets (including,  without limitation,  a plan of liquidation or
dissolution)  which will result in a change in ownership of forty  percent (40%)
or more of either  control of the  Corporation's  assets or its  voting  capital
stock,  or (c) a  fundamental  alteration  in the  nature  of the  Corporation's
business.

2.       Compensation and Expenses.

         2.1 M.J.  Estrin's  "Base  Salary"  shall be Four  Hundred  Twenty-Five
Thousand  Dollars  ($425,000) per annum through the period ending  September 30,
1998 which Base Salary shall be increased as of each October 1 thereafter during
the Term by eight  percent (8%) of the Base Salary for the  previous  October 1.
The Base Salary shall be payable in accordance with the  Corporation's  standard
payroll practices for its senior executive officers.

         2.2 The Corporation will pay the following bonuses to M.J. Estrin:

              2.2.1 For each  fiscal year  during the Term  commencing  with the
1998 fiscal year of the  Corporation,  based on the  Corporation's  target bonus
plan,  the  Corporation's  Board of  Directors  shall  authorize an annual bonus
target (the "Annual  Bonus") of sixty percent  (60%) of M.J.  Estrin's then Base
Salary,  with a minimum bonus of twenty-one percent (21%) of such Base Salary if
the "entry level" goal for budgeted operating income is met (subject to pro rata
upward adjustment for performance between the entry level goal and targeted goal
for receipt of bonuses,  with M.J.  Estrin  receiving  an Annual  Bonus equal to
sixty  percent  (60%) of his then Base Salary if the target goal is met),  to be
paid to him if during the applicable fiscal year the  Corporation's  performance
meets the target objectives in respect of applicable  performance  goal(s) under
and subject to the terms of the  Corporation's  1997 (or more recent)  Corporate
Executive Bonus Plan or any successor incentive  compensation plan applicable to
the  Corporation's  senior officers  thereafter  (the  "Executive  Bonus Plan");
provided,  however,  if the  target  goal  under  such  Executive  Bonus Plan is
exceeded, then such Annual Bonus shall be increased to a level commensurate with
the amount of bonuses  payable to those senior  officers of the  Corporation who
are  situated  similarly to M.J.  Estrin.  The Annual Bonus shall be paid within
sixty (60) days after the end of the applicable  fiscal year. In addition to and
not in limitation of the foregoing,  the  Corporation  covenants and agrees that
(a) M.J.  Estrin  shall  have the right to  participate  in any other  incentive
compensation  plan(s) of the  Corporation  that may exist from time to time, (b)
regardless of the amount(s), if any, actually set aside by the Corporation under
any incentive  compensation  plan  (including  the Executive  Bonus Plan),  M.J.
Estrin shall  nevertheless  receive all (and not less than all) of the amount of
Annual Bonus payable to him under the  foregoing  formula,  (c) the  Corporation
will adopt reasonable targets for, and adequately fund, the Executive Bonus Plan
and (d) if the  Corporation  does not adopt  the  Executive  Bonus  Plan for any
subsequent  year,  then the  Corporation's  Board of Directors  and M.J.  Estrin
shall, in good faith,  agree upon a comparable bonus arrangement (using the most
recent year for which the Executive  Bonus Plan was in effect as a standard) for
M.J.  Estrin with  reasonable  targets and funding to provide  M.J.  Estrin with
benefits comparable to those described above.

              2.2.2  Commencing with the three (3)-year period ending  September
30, 2000, and for each three  (3)-year  period  thereafter  during the Term, the
Corporation  will pay (if earned) a  performance  payment  relating to each such
three-(3)-year period (the "Long-Term Performance Payment") to M.J. Estrin in an
amount  determined  in accordance  with the formula set forth in Schedule  2.2.2
attached hereto.

         2.3 Promptly upon submission of an itemized list of expenses reasonably
incurred by M.J. Estrin for all business-related  expenses,  including,  but not
limited  to,  telephone,  equipment  or  supply  usage,  entertainment,  travel,
business  and  professional   associations,   miscellaneous   items,  and  other
reasonable  charges  (including charges for office space and support services at
locations other than the  Corporation's  headquarters),  the  Corporation  shall
reimburse M.J. Estrin for all such expenses.

         2.4  The  parties  recognize  that  the  Corporation'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. In
order to facilitate M.J. Estrin's performance of his duties, M.J. Estrin will be
provided  with the use of a  vehicle  owned or leased  by the  Corporation  or a
comparable  vehicle  allowance and will be  reimbursed  for all  reasonable  and
customary  charges M.J.  Estrin incurs in connection  with the operation of such
vehicle (such as for fuel,  insurance  and  maintenance)  and, in addition,  the
Corporation will provide other  convenient,  time-efficient  and  cost-effective
transportation for M.J. Estrin's business travel requirements  commensurate with
transportation  made available to other chief  executive  officers,  such as the
lease of an aircraft;  provided, however, the Corporation shall not, without the
prior written consent of the Board of Directors, purchase an aircraft.

3. Insurance.  During the Term, the  Corporation  shall pay such amounts to M.J.
Estrin as may be required to permit M.J. Estrin,  or a trust established by him,
to acquire and  maintain a whole life  insurance  policy or policies in the face
amount of $1,5000,000, or, at M.J. Estrin's election, a term policy requiring an
equivalent  premium,  on M.J. Estrin's life,  issued by a  nationally-recognized
insurance carrier(s) having the highest or second highest available Best rating;
such  payment  shall be paid in such amounts so that M.J.  Estrin  incurs no net
after tax cost in connection therewith.

4.       Additional Compensation; Benefits.

         4.1 The  Corporation  has adopted for its  employees an  incentive  and
non-qualified  stock option plan (the "Stock Option Plan").  Simultaneously with
the execution of this Employment Agreement,  M.J. Estrin shall be granted rights
and options ("Options")  pursuant to the Stock Option Plan to purchase up to Two
Hundred Thousand  (200,000) shares of the Corporation's  common stock (par value
$0.01 per share) ("Option Shares") at a purchase price of Six and 84,375/100,000
Dollars  ($6.84375)  per share,  pursuant to that certain  Initial  Stock Option
Agreement  attached hereto as Exhibit A. The Options shall vest and become first
exercisable as to thirty-three  and thirty-four one hundredths  percent (33.34%)
on  the  date  hereof  and  an  additional  thirty-three  and  thirty-three  one
hundredths  percent  (33.33%) on each of the first two (2)  anniversaries of the
date hereof;  provided,  however, that such Options shall become fully vested on
the earlier of any termination of M.J. Estrin's employment "Without Cause", upon
his death or Permanent Disability,  or upon a "change in control" (as defined in
Section  1.6 above) and  provided  further,  that any  Options  that,  as of the
effective  date of a termination  "With Cause" (other than by reason of death or
Permanent  Disability),  have not become  exercisable  pursuant to this  Section
shall  expire.  The  Options may be  exercised  at any time or from time to time
during the period following the date the Options are vested; provided,  however,
that the  Options  will  only be  exercisable  for one (1) year  following  M.J.
Estrin's death or determination  of Permanent  Disability and for six (6) months
following  either  M.J.  Estrin's  written  voluntary  resignation  (other  than
pursuant to Section 1.4 above) or the  Corporation's  termination of M.J. Estrin
"With  Cause"  other than by reason of death or a Permanent  Disability  (or, if
such  termination  is  contested in a lawsuit  filed  within such six  (6)-month
period,  then six (6)  months  following  the  entry  of a final  non-appealable
judgment  by a court  of  competent  jurisdiction  upholding  the  Corporation's
termination "With Cause");  and provided  further,  however,  that,  following a
termination of M.J. Estrin "Without Cause", the Options will only be exercisable
until the later of (i)  fifty-four  (54) months from the date hereof or (ii) six
(6)  months  from the  date of such  termination  (or,  if such  termination  is
contested in a lawsuit  filed  within such six  (6)-month  period,  then six (6)
months  following  the entry of a final  non-appealable  judgment  by a court of
competent  jurisdiction  finding  that M.J.  Estrin's  termination  was "Without
Cause").  The Options are in addition to any other rights and options which,  at
the  Corporation's  sole election and in its sole discretion,  may be granted to
M.J. Estrin under any qualified, non-qualified, incentive, bonus and other stock
option plans which may be adopted by the Corporation.

              4.1.1 The  Corporation  covenants  and agrees  that,  unless  M.J.
Estrin elects otherwise, the Options shall, to the fullest extent possible under
applicable  Federal  income tax laws and under the Stock Option Plan, be treated
and  reported as incentive  stock  options as defined  under  Section 422 of the
Internal  Revenue  Code of 1986,  as amended  (the  "Code"),  and any  remaining
options  shall  be  treated  as  nonqualified  stock  options.  The  Corporation
covenants and agrees that, upon written request by M.J. Estrin,  the Corporation
shall  loan to M.J.  Estrin an amount or  amounts  equal to the  exercise  price
payable for the Option  Shares  being  acquired by M.J.  Estrin.  The  principal
amount of such loan or loans shall  become due on the  earliest of (a) the fifth
(5th)  anniversary  of the date of such loan,  (b) within five (5) business days
after settlement on M.J. Estrin's sale, if any, of the Option Shares acquired in
connection  therewith  and only to the extent of the proceeds  therefrom and any
remaining balance on such loan(s) (whether  principal or interest) after payment
of the net proceeds from such sale shall be forgiven and M.J. Estrin's liability
therefor  discharged  (provided,  however,  that,  if Option  Shares are sold or
otherwise  disposed  of by M.J.  Estrin in order to  satisfy  any tax  liability
associated  with the  exercise of the Options,  such loan(s)  shall not, at M.J.
Estrin's election,  become due under this Section  4.1.1(b)),  (c) within thirty
(30) days  following  the  effective  date of M.J.  Estrin's  written  voluntary
resignation  (other  than a  termination  pursuant  to  Section  1.4  above)  or
termination  (other than by death or Permanent  Disability)  by the  Corporation
"With  Cause"  (or,  if  later,  ten (10)  days  following  the entry of a final
non-appealable  judgment  by a court of  competent  jurisdiction  upholding  the
Corporation's termination "With Cause") or (d) upon M.J. Estrin's actual receipt
of the payment  described in Section 5.2(a) below (in which case the Corporation
may withhold  from such payment the unpaid  balance of the loan(s),  but only in
accordance  with  Section 5.4 below).  In  addition,  interest  shall be payable
semi-annually on the outstanding  principal  balance of any loan provided for in
this Section  4.1.1 at the mid-term  applicable  Federal rate (as defined  under
Section 1274(d) of the Code) in effect on the date of such loan or loans.

              4.1.2  With  respect  to  the  Options  (and  the  shares  of  the
Corporation's  capital stock to be received upon exercise of the Options),  M.J.
Estrin shall have such rights,  benefits and  protections,  pro rata and in pari
passu and on the same  terms and  conditions,  as are equal to the best  rights,
benefits and  protections as have been provided or may in the future be provided
to  any  executive  of  the  Corporation  or its  subsidiaries  regarding  their
respective options, warrants, stock rights and/or shares of capital stock in the
Corporation  (collectively  or  individually,   "Equity"),  concerning  vesting,
duration of rights and options  (including  duration  following a termination or
resignation),  loans by the  Corporation in connection  with the  acquisition of
Equity, terms of payment for the acquisition of Equity,  registration rights and
anti-dilution protection granted with respect to the Equity.

              4.1.3 In the event of any  conflict,  inconsistency  or  ambiguity
between the terms and provisions of this Employment  Agreement and the terms and
provisions of the Stock Option Plan and/or the Initial  Stock Option  Agreement,
the terms and provisions of this  Employment  Agreement shall govern and control
for all purposes  and in all  respects in order to provide M.J.  Estrin with the
maximum benefit of all of the foregoing.

         4.2 The Corporation  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  M.J.  Estrin  and his  spouse  and  children  (which  may,  at the
Corporation's  sole election,  include insurance,  supplemental  coverage and/or
direct  payment/reimbursement),  and the Corporation shall reimburse M.J. Estrin
for any net  after  tax  cost  incurred  by him in  connection  with  any of the
foregoing.  In addition,  the Corporation shall maintain a disability  insurance
policy (the  "Disability  Income  Policy") which shall pay to M.J.  Estrin 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 Corporation.

         4.3 M.J.  Estrin 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 Corporation.

         4.4  To  the  fullest  extent   possible  under   applicable  law,  the
Corporation will waive any and all vesting periods,  minimum service periods and
waiting  periods,  if any,  that may  otherwise  apply to M.J.  Estrin under any
insurance,   benefit  or  pension  plan  established  for  the  benefit  of  the
Corporation's employees.

         4.5 M.J.  Estrin shall be entitled to such periods of vacation and sick
leave allowance each year as provided under the Corporation's  vacation and sick
leave policy for senior executive officers.

5.       Termination.

         5.1 M.J. Estrin's  employment under this Agreement may be terminated by
the Corporation:  (a) immediately "With Cause" (as defined below) at any time by
action of the  Corporation's  Board of Directors;  or (b)  immediately  "Without
Cause".

              5.1.1 For  purposes  hereof,  "With  Cause"  shall  mean:  (a) the
conviction (after exhaustion of any and all appeals) of M.J. Estrin for a felony
involving the Corporation;  (b) the voluntary written resignation of M.J. Estrin
as a director,  officer or employee of the Corporation  (excluding a termination
pursuant to Section 1.4 above); (c) the death of M.J. Estrin; (d) the "Permanent
Disability" of M.J. Estrin.

              5.1.2 For purposes hereof,  "Permanent Disability" shall mean M.J.
Estrin's  inability for more than one hundred eighty (180)  consecutive  days to
perform substantially all of his services under Section 1.2 above, as determined
by a procedure  initiated  by the  Corporation's  Board of  Directors in writing
(with sufficient  detail as to the  Corporation's  basis for asserting that M.J.
Estrin has a Permanent  Disability)  after expiration of such one hundred eighty
(180)-day  period,  whereby,  if  M.J.  Estrin  contests  such  assertion,   the
Corporation  and M.J.  Estrin  shall each select a medical  doctor who renders a
written  determination  and, if such  doctors  disagree  as to their  respective
determinations,   they  shall  jointly  select  a  third  medical  doctor  whose
determination shall be binding.

         5.2 If M.J.  Estrin's  employment is terminated  "Without Cause" (which
term  "Without  Cause" shall mean any  termination  by the  Corporation  of M.J.
Estrin other than "With Cause,"  including any  termination  pursuant to Section
1.4 above), M.J. Estrin shall be entitled to receive (a) a lump sum cash payment
within one hundred  twenty  (120) days of  termination  equal to (i) the present
value  (assuming a five  percent  (5%)  discount  rate) of the total sum of what
would have been his Base Salary  payments  under  Section 2.1 for the  remaining
three (3) years of the Term,  plus (ii) the maximum Annual Bonus payable for the
remaining  three (3) years of the Term,  (b) the Long-Term  Performance  Payment
otherwise  payable in  accordance  with Section  2.2.2 above and (c) any and all
other  compensation,  benefits,  stock options  (granted  under this  Employment
Agreement or any other plan or  arrangement of the  Corporation)  and health and
disability  benefits accruing under this Employment  Agreement for the remaining
three  (3)  years of the  Term;  however,  in lieu of the  exercise  of any such
options,  M.J.  Estrin shall be entitled to receive,  at his sole election,  the
value of such stock  options  in an amount  equal to that  determined  under the
"Black Shoal's Formula",  with payment of the same to be made within one hundred
twenty (120) days of termination.

              5.2.1 If there occurs a "change in control" (as defined in Section
1.6  above),  and M.J.  Estrin  elects  to treat  such  change in  control  as a
termination by the  Corporation  "Without  Cause" pursuant to Section 1.4 above,
then the Long Term  Performance  Payment payable  pursuant to Subsection  5.2(b)
above shall be calculated as of the date of any such sale, other  disposition or
transaction  and paid as soon as practicable  but no later than ninety (90) days
thereafter.

         5.3 If M.J. Estrin's  employment is terminated "With Cause" (other than
by reason of death or Permanent Disability),  the Corporation shall not have any
other or further  obligations  to M.J.  Estrin under this  Agreement  (except as
provided in Section 4.1 above and except as to that portion of any unpaid salary
and other  compensation  and benefits  accrued and earned under this  Employment
Agreement as of the date of such  termination).  If M.J. Estrin's  employment is
terminated by reason of death or Permanent  Disability,  the  provisions of this
Employment   Agreement  relating  to  Base  Salary,   Annual  Bonus,   Long-Term
Performance Payment and any and all other compensation,  benefits, stock options
(granted under this Employment Agreement or any other plan or arrangement of the
Corporation) and health and disability  benefits  accruing under this Employment
Agreement  shall  continue  for the  remaining  three  (3)  years  of the  Term;
provided,  however,  in the  case of a  termination  by  reason  of a  Permanent
Disability,  the Base Salary payable during such remaining three (3) years shall
be reduced by any payments  received by M.J. Estrin under the Disability  Income
Policy.

         5.4 M.J.  Estrin's  rights under  Sections 5.2 and 5.3 are absolute and
shall survive any  termination of this  Employment  Agreement,  and M.J.  Estrin
shall have no duty to seek  substitute  employment  or otherwise to mitigate any
loss, and all amounts and benefits  payable under such Sections shall be paid to
M.J.  Estrin  without  offset or  reduction  (regardless  of any claims that the
Corporation may possess) and even if M.J. Estrin obtains substitute  employment.
The Corporation shall not garnish,  offset or otherwise withhold for the benefit
of  any  third  party  (other  than  withholding  imposed  by  any  governmental
authority)  any  amounts  payable to M.J.  Estrin  under this  Agreement  unless
compelled to do so by judicial order;  provided,  however,  that the Corporation
may withhold from any payment under Section  5.2(a) above an amount equal to the
then outstanding  balance (plus accrued interest thereon) under any loan(s) made
to M.J. Estrin pursuant to Section 4.1.1, above, but only if the Corporation has
actually  paid to M.J.  Estrin  any  remaining  balance of such  Section  5.2(a)
payment.

6. Tax Adjustment Payments. If all or any portion of the amounts payable to M.J.
Estrin under this Employment  Agreement (together with all other compensation or
payments of cash or property,  whether pursuant to this Employment  Agreement or
otherwise,  including,  without  limitation,  the  issuance of Options or Option
Shares or the granting, exercise or termination of options therefor) constitutes
"excess parachute  payments" within the meaning of Section 280G of the Code that
are  subject  to the excise  tax  imposed  by  Section  4999 of the Code (or any
similar tax or assessment),  the amounts payable hereunder shall be increased to
the extent  necessary to place M.J. Estrin in the same after-tax  position as he
would have been in had no such tax  assessment  been imposed on any such payment
paid or payable to M.J.  Estrin  under this  Employment  Agreement  or any other
payment that M.J.  Estrin may receive in connection with his employment with the
Corporation..  The determination of the amount of any such tax or assessment and
the incremental  payment  required hereby in connection  therewith shall be made
jointly by an accounting  firm employed by M.J. Estrin and by an accounting firm
employed by the Corporation within thirty (30) calendar days after such payment;
provided,  however,  if the respective  accounting firms employed by M.J. Estrin
and the  Corporation  cannot agree upon the  applicable  amount with such thirty
(30)-day  calendar  period,   then  both  firms  shall,  within  ten  (10)  days
thereafter,  mutually select a nationally recognized accounting firm which shall
make the  aforesaid  determination  within  thirty (30)  calendar days after its
selection,  and  such  determination  shall be  binding  and  conclusive  on the
parties.  Upon such determination by the accountants or accountant,  as the case
may be, the  aforesaid  incremental  payment  shall be made  within  thirty (30)
business days thereafter.  The Corporation  shall bear all costs and expenses of
the  aforesaid  accounting  firms,  and to the extent that any of such costs and
expenses are  includable in the taxable income of M.J.  Estrin,  then such costs
and expenses shall be part of the after-tax  computation  described  above.  If,
after the date upon which the payment  required by this Section 6 has been made,
it is  determined  (pursuant to final  regulations  or published  rulings of the
Internal Revenue Service,  final judgment of a court of competent  jurisdiction,
Internal Revenue Service,  state or local audit  assessment,  or otherwise) that
the  amount of excise or other  similar  taxes or  assessments  payable  by M.J.
Estrin is greater than the amount initially so determined,  then the Corporation
shall pay M.J. Estrin an amount equal to the sum of: (i) such additional  excise
or other taxes, plus (ii) any interest,  fines and penalties resulting from such
underpayment,  plus (iii) professional fees incurred with respect to determining
and/or  defending  the same,  plus (iv) an amount  necessary to  reimburse  M.J.
Estrin for any  income,  excise or other tax  assessment  or  professional  fees
payable by M.J.  Estrin with respect to the amounts  specified in (i),  (ii) and
(iii) above, and the  reimbursement  provided by this clause (iv), in the manner
described  above in this  Section 6 with  respect to the  after-tax  position of
Estrin.  Payment  thereof  shall be made within ten (10) business days after the
date upon which such subsequent determination is made.

7.       Miscellaneous.

         7.1 The  provisions of this  Employment  Agreement are severable and if
any  one  or  more  provisions  may  be  determined  by  a  court  of  competent
jurisdiction to be illegal or otherwise unenforceable,  in whole or in part, the
remaining  provisions  and any partially  unenforceable  provision to the extent
enforceable in any jurisdiction nevertheless shall be binding and enforceable.

         7.2  During  the  Term,  the  Corporation   shall  maintain   customary
directors' and officers'  liability  insurance if such insurance is available to
the Corporation at reasonable costs.

         7.3 This Agreement, together with the Stock Option Plan and the Initial
Stock Option Agreement,  embody the entire agreement of the parties with respect
to M.J.  Estrin's  employment  and  supersedes  any other  prior oral or written
agreements,   arrangements  or  understandings   between  M.J.  Estrin  and  the
Corporation.  This Agreement may not be changed or terminated orally but only by
an agreement in writing signed by the parties hereto.

         7.4 All notices and other  communications  required or permitted  under
this  Employment  Agreement  shall be in writing,  and shall be deemed  properly
given if delivered  personally,  mailed by registered  or certified  mail in the
United  States  mail,  postage  prepaid,  return  receipt  requested,   sent  by
facsimile, or sent by overnight Express delivery service, as follows:

         If to the Corporation or the Board:
                  Phar-Mor, Inc.
                  20 Federal Plaza West
                  Youngstown, Ohio 44501
                  Attn: Chief Financial officer

         With a duplicate notice to the same address, attention General Counsel.
                  If to M.J. Estrin:

                  Melvyn J. Estrin
                  7200 Wisconsin Ave., Suite 600
                  Bethesda, MD  20814

                  With a copy to:

                  Tucker, Flyer & Lewis
                      a professional corporation
                  1615 L Street, N.W.
                  Suite 400
                  Washington, D.C. 20036
                  Attn:  Paul T. Kaplun, Esquire

Notice given by hand or overnight  express  delivery  service shall be effective
upon actual  receipt.  Notice given by  registered  or  certified  mail shall be
effective  three (3)  business  days after the date of mailing.  Notice given by
facsimile transmission shall be effective upon actual receipt if received during
the  recipient's  normal  business hours, or at the beginning of the recipient's
next business day after receipt if not received  during the  recipient's  normal
business  hours.  All  notices  by  facsimile  transmission  shall be  confirmed
promptly after  transmission in writing by certified mail or personal  delivery.
Any party may change any address to which  notice is to be given to it by giving
notice as provided above of such change of address.

         7.5 The parties  acknowledge and agree that they are each familiar with
and  desire  their  relationship  to be  governed  by the  laws of the  State of
Delaware.  Accordingly,  this Employment  Agreement shall be construed under and
governed by the laws of the State of Delaware,  without  reference to its choice
of law provisions or principles, and the parties hereto irrevocably consent (and
waive any  objection)  to the  jurisdiction  and venue of the State of  Delaware
courts and/or the United States  District Court for the District of Delaware for
any action arising under this Employment Agreement.

         7.6 The  Employment  Agreement  is  personal in nature and shall not be
assignable in whole or in part by either party without the consent of the other.

         7.7 This  Employment  Agreement shall inure to the benefit and bind the
successors  and  (subject  to Section  7.6 above)  assigns  of the  parties.  In
particular,  the provisions of Section 3 applicable to M.J. Estrin, or any trust
established  by M.J.  Estrin,  shall inure to the benefit and bind any  assignee
(including donee and legatee) of the policy or policies from M.J. Estrin.

         7.8 Captions to the paragraphs  and  subparagraphs  of this  Employment
Agreement are solely for the convenience of the parties,  are not a part of this
Employment Agreement, and shall not be used for the interpretation of any of the
provisions of this Employment Agreement.

         IN  WITNESS  WHEREOF,   the  undersigned  parties  have  executed  this
Employment Agreement as of the date first above written.
                                                     PHAR-MOR, INC.



                                       By:__________________________________
                                       Name: Sankar Krishnan
                                       Title: Sr. V.P. CFO


                                       Attest:____________________________
                                       Name: John R Ficarro
                                       Title:   Secretary           



         ---------------------         -------------------------------------
         Witness                       Melvyn J. Estrin



<PAGE>

                                 SCHEDULE 2.2.2
         Commencing  with the three (3)-year  period ending  September 30, 2000,
and for each three (3)-year period  thereafter  during the Term, the Corporation
will pay to M.J. Estrin an amount relating to each such three (3)-year period in
accordance with the following formula (the "Long-Term Performance Payment"):
                  The  Long-Term  Performance  Payment (if any) shall be (x) one
                  and fifty one  hundredths  percent (1.5%) of any excess of (i)
                  the    aggregate    market   value   of   the    Corporation's
                  publicly-traded  common  stock  based on the  average  closing
                  price for the thirty (30)-day period ending on the last day of
                  the subject  period (less the sum of (a) the proceeds from the
                  exercise  during such  period of any options or warrants  plus
                  (b) any cash or property  consideration  actually  received by
                  the  Corporation  during such period from the  issuance of any
                  shares of its common  stock)  over (ii) the  aggregate  market
                  value of the Corporation's  publicly-traded common stock based
                  on the average  closing price for the thirty  (30)-day  period
                  ending on the last day of the immediately prior subject period
                  (provided,  that,  for the  three  (3)-year  period  ending on
                  September 30, 2000 such average  closing price shall be deemed
                  to be $6.84375 per share for the thirty (30)-day period ending
                  on September 30, 1997),  less (y) one-half of the Annual Bonus
                  paid or payable to M.J. Estrin,  if any, for each of the three
                  years  comprising  such period (but not in any event less than
                  zero).

         The  Long-Term  Performance  Payment  shall be paid to M.J.  Estrin  as
expeditiously  as possible  after the close of each such third year,  but in any
event not later than  ninety  (90) days  following  the close of each such third
year.