EMPLOYMENT AGREEMENT



         This  Employment  Agreement  (the  "Agreement")  is entered into by and
between Phar-Mor, Inc., a Pennsylvania corporation (the "Company"), and M. David
Schwartz (the "Employee") as of June 5, 1997 (the "Effective Date").

         WHEREAS,  Employee  is  currently  employed  by Company  pursuant  to a
written   employment   agreement   dated   September  11,  1995  (the  "Existing
Agreement"); 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 two
years (the "Stated Term") through June 4, 1999 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

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<PAGE>



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
$636,000.00 per year for the first year of the Stated Term which salary shall be
retroactive  to  December  9,  1996.  Said base  salary  shall be  increased  to
$675,000.00 on June 5, 1998 for the second year of the Stated Term.  Such salary
shall be earned weekly and shall be payable in arrears in periodic  installments
no less  frequently  than monthly in  accordance  with the  Company's  customary
practices.  Amounts  payable shall be reduced by standard  withholding and other
deductions authorized by Employee or required by applicable law.

         B.  Bonus.  The  Company  will pay to  Employee  annually a 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 1997, the Company
will pay the Employee a bonus equal to the greater of (i) 60% of his base salary
earned  during  such fiscal year (the  "Minimum  Bonus"),  or (ii) the amount to
which he is entitled under the incentive/bonus plan then in effect.  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,  the Employee will receive a
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. Stock  Options.  Employee has  previously  earned and is entitled to
receive, subject to the applicable vesting schedule, options to purchase 175,000
shares of the Company at $8.00 per share.  Additionally,  Employee shall also be
eligible and entitled to receive on June 5, 1997,  a  nonqualified  stock option
for 100,000  shares of Company  common stock at a per share exercise price equal
to the fair  market  value of a share of common  stock on said  grant  date (the
"Option").  The Option  shall vest as to  one-third  of the shares on said grant
date,  one-third of the shares on the first  anniversary  of said grant date and
one-third  on the second  anniversary  of said grant date.  Notwithstanding  the
foregoing,  if, at any time,  the  Employee's  employment  is  terminated by the
Company  without  Cause (as  defined in Section  IV.B.  hereof) or the  Employee
terminates  employment  with the  Company for Good Reason (as defined in Section
IV.C. hereof),  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").

         D.  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

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                                       -2-

<PAGE>



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.

         E. Welfare Benefit Plans.  Employee and/or his family,  as the case may
be, shall  (subject only to exceptions  of general  applicability  or applicable
legal requirements) be eligible to participate in and shall receive all benefits
under welfare benefit plans,  practices,  policies and programs  provided by the
Company (including, without limitation, pension, medical, prescription,  dental,
disability,  and life  insurance  plans and  programs)  to the extent  available
generally to senior officers of the Company.

         F. 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.

         G.  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.

         H. Car or Car  Allowance.  Employee  shall be  entitled to a car or car
allowance to the extent applicable generally 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  $9,500.00 for
legal fees incurred by Employee.

         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.

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.


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                                       -3-

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         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

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                                       -4-

<PAGE>



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 current  principals of the Hamilton
Morgan LLC.

         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").


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                                       -5-

<PAGE>



         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 (a) timely pay any Accrued Obligations  (including but not limited
to any  immediately  vested  stock  options in  accordance  with  Section III C.
hereof) and (b) if such termination occurs prior to June 5, 1998, pay Employee a
lump sum equal to two times (or if such  termination  occurs on or after June 5,
1998, one and one half times) the sum of (i) the annual base salary contained in
Section III.A. hereof (or any higher base salary currently in effect on the date
of  termination)  ("Base Salary") and (ii) the greater of (x) the average of the
annual bonus payable to the Employee by the Company in respect to the two fiscal
years preceding the fiscal year in which the termination  occurs,  annualized if
any of the fiscal years is shorter than twelve months (or the average of bonuses
paid by the Company for such shorter  period  preceding the fiscal year in which
the Employee was  employed) or (y) the Minimum  Bonus (the greater of (x) or (y)
being the "Bonus  Amount").  In  addition,  any  Additional  Options  granted to
Employee under any applicable  stock or equity  incentive plan shall continue to
vest (in accordance with the applicable option  agreements) during the remainder
of the Stated Term as if such  termination  had not occurred and the termination
of service for  purposes of any such plan and such  option  agreements  shall be
deemed to occur at the expiration of the Stated Term. The Company shall also pay
on behalf of Employee  the full cost of the  continuation  for two years of 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 two years of continued health benefit coverage.  Further, the
Company shall pay to Employee,  within fourteen days of presentation of receipts
or other  substantiation  reasonably required hereunder,  an amount equal to (i)
all out of pocket  expenses  for  packing and moving his  household  effects and
automobiles  by commercial  moving  service from  Youngstown,  Ohio to any other
location in the  continental  United  States and (ii) any loss he suffers on his
home in Youngstown,  Ohio equal to the excess of the purchase price of his home,
plus any capital improvements  thereto,  over the Sale Price (as defined herein)
((i) and (ii) jointly referred to as the "Moving Reimbursement"). The Sale Price
means the actual  selling  price to a third party,  less  commissions  and other
customary expenses of sale, for which Employee sells his home if the sale occurs
within 180 days after termination of employment or, if no such sale has occurred
within such period, the Appraised Value (as defined herein). The Appraised Value
means  the fair  market  value of the  home as of the date of the  appraisal  as
determined by a qualified  appraiser  mutually agreed to by the Employee and the
Company.  If the  parties  cannot  mutually  agree,  each  party  shall  pick an
appraiser who in turn shall  mutually agree on a third  qualified  appraiser who
shall  determine  the  fair  market  value  of the  home  as of the  date of the
appraisal.  Such appraisal shall be binding on the parties hereto. The appraisal
shall  be  paid  for one  half by the  Employee  and  one  half by the  Company.
Notwithstanding the

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                                       -6-

<PAGE>



foregoing,  the Moving  Reimbursement  shall not exceed the lesser of $75,000 or
the full  amount  of the  Moving  Reimbursement  reduced  by  amounts  paid by a
subsequent  employer for packing and moving expenses from  Youngstown,  Ohio and
for any loss Employee suffers on his Youngstown, Ohio home.

         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.


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                                       -7-

<PAGE>



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

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                                       -8-

<PAGE>



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.


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                                       -9-

<PAGE>



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.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.


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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 by the Company or any successor  thereto  under this  Agreement and any
other plan,  agreement  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 Sections 280G
of the Code,  it is possible  that excess  parachute  payments will be paid when
such payment would result in a lesser 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

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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.


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



PHAR-MOR, INC.


By: ___________________________            __________________________________
      Robert M. Haft                       M. David Schwartz
Its:  Chief Executive Officer






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