SUBJECT TO SETTLEMENT PRIVILEGE

                          PHAR-MOR SEVERANCE AGREEMENT


         THIS PHAR-MOR SEVERANCE  AGREEMENT  ("Agreement") is made as of the day
of , 1997,  by and between  PHAR- MOR,  INC., a  Pennsylvania  corporation  (the
"Corporation"), and ROBERT M. HAFT ("R.M. Haft").

         WHEREAS,  the  parties  hereto  previously  entered  into that  certain
Employment   Agreement   dated  as  of  September  11,  1995  (the   "Employment
Agreement");

         WHEREAS,  the parties hereto desire to terminate R.M. Haft's employment
with the  Corporation  and to treat  such  termination  as  "Without  Cause" for
purposes of the Employment Agreement; and

         WHEREAS,  the parties  hereto  desire to set forth herein the terms and
conditions of their understandings and agreements.

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

                  1. Recitals.  The foregoing  recitals are, by this  reference,
incorporated  herein  and  made a  substantive  part of this  Agreement.  Unless
otherwise defined herein, all capitalized terms shall have the meanings ascribed
to them in the Employment Agreement.

                  2.  Termination.  The  Corporation  and R.M. Haft hereby agree
that R.M. Haft's employment with the Corporation shall terminate effective as of
Closing (the "Effective  Date") under that certain Hamilton Morgan LLC Interests
Redemption  and Exchange  Agreement  dated as of , 1997.  The parties agree that
such termination shall for purposes of the Employment  Agreement be treated as a
termination "Without Cause".

                  3.       Severance.  In satisfaction of the Corporation's
obligations under Section 5.20 of the Employment Agreement, the Corporation
agrees to the following:

                           a.       On the Effective Date, the Corporation shall
make a lump-sum  cash payment to R.M.  Haft in the total  amount of  $5,000,000,
less  the  amount  of any  Annual  Bonus  actually  paid  to  R.M.  Haft  by the
Corporation prior to the Effective Date with respect to the Corporation's fiscal
year 1997. If sooner than the Effective Date, the Corporation  shall pay to R.M.
Haft his Annual  Bonus for fiscal year 1997 at the same time as the  Corporation
pays annual bonuses to any of its other senior executives for such fiscal year.


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                           b.      In addition, on or before September 28, 1998,
the  Corporation  shall  pay to R.M.  Haft  seventy-five  percent  (75%)  of any
Long-Term Performance Payment payable to R.M. Haft for the three (3) year period
ended June 30, 1998.  The Long-Term  Performance  Payment shall be calculated in
accordance with Schedule 1 attached hereto.

                           c.       On the Effective Date, the Corporation shall
also  pay to R.M.  Haft  the  deferred  compensation  payable  to him  from  his
non-qualified  management  deferral  plan  account with the  Corporation  in the
original  amount of  $325,429.21,  plus any return on such  account  through the
Effective Date.

                           d.       From the Effective Date to the third (3d)
anniversary of the Effective Date, the Corporation shall continue to provide the
medical,  hospitalization,  dental and disability benefits and reimbursements as
described  in and  previously  provided  under  Section  4.20 of the  Employment
Agreement. Thereafter, R.M. Haft shall be entitled to his statutory rights under
Cobra. The current  disability  insurance  coverages are described on Schedule 2
attached hereto.

                           e.       From the Effective Date to the third (3d)
anniversary of the Effective Date, the  Corporation  shall continue to reimburse
R.M. Haft on a net after-tax basis for the life insurance  coverage as described
in and previously provided under Section 3.00 of the Employment  Agreement.  The
applicable policies and face amounts are set forth on Schedule 2 attached
hereto.

                           f.       The Corporation acknowledges, ratifies and
confirms that (i) R.M. Haft shall, after the Effective Date,  continue to be the
legal and  beneficial  owner of options  (the  "Options")  to purchase (a) up to
256,250 shares of the Corporation's  common stock (par value $0.01 per share) at
a purchase  price of $8.00 per share (the "Original  Options"),  (b) up to 5,000
shares of the  Corporation's  common  stock  (par  value  $0.01 per  share) at a
purchase price of $7.06 per share (the "1995 Director Options"), (c) up to 5,000
shares of the  Corporation's  common  stock  (par  value  $0.01 per  share) at a
purchase price of $6.1719 per share (the "1996 Director  Options") and (d) up to
125,000 shares of the Corporation's  common stock (par value $0.01 per share) at
a  purchase  price  of  $5.4375  per  share,  provided  that  the  Corporation's
shareholders  approve an increase in the number of the  Corporation's  shares of
authorized  common  stock (the "1997  Options")  (the  shares to be issued  upon
exercise of any of the Original  Options,  the 1995 Director  Options,  the 1996
Director Options and/or the 1997 Options are collectively  referred to herein as
the "Option  Shares"),  (ii) the Options  shall be one  hundred  percent  (100%)
vested  as of the  Effective  Date  (provided,  however,  that,  as to the  1997
Options,

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one-third (1/3) may be exercised immediately and thereafter, one-third (1/3) may
be exercised on or after June 5, 1998 and one-third (1/3) may be exercised on or
after June 5, 1999),  (iii) the Original  Options shall be  exercisable  by R.M.
Haft in whole or in part until February 11, 2000, (iv) the 1995 Director Options
and the 1996 Director  Options shall be  exercisable by R.M. Haft in whole or in
part until  October 2, 2000 and  October  1,  2001,  respectively,  (v) the 1997
Options shall be exercisable by R.M. Haft in whole or in part until June 5, 2004
and (vi) the Options shall include the following:

          (1) The Corporation covenants and agrees that, unless R.M. Haft elects
          otherwise,  the Options shall,  to the fullest  extent  possible under
          applicable  Federal income tax laws and under the 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 R.M.
          Haft, the Corporation  shall accept the surrender by R.M. Haft of R.M.
          Haft's  right to exercise all or any portion of the Options and pay in
          consideration  therefor  within ten (10) days following such surrender
          an amount equal to the difference obtained by subtracting the exercise
          price of the Option  Shares which are the subject of such  surrendered
          Option(s)  from the fair market  value (as  determined  by the closing
          trading  price per  share of the  Corporation's  common  stock for the
          business day  immediately  prior to the date of such  exercise) of the
          Option Shares which are the subject of such  surrendered  Option(s) on
          the date of such  surrender  (such  amount not to be less than  zero),
          such payment to be in cash.

          (2) With respect to the Options  (and the shares of the  Corporation's
          capital stock to be received upon exercise of the Options),  R.M. Haft
          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  terms  of  payment  for the
          acquisition of

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                           Equity,   registration   rights   and   anti-dilution
                           protection  granted  with  respect  to Equity and any
                           re-pricing of Equity that is more  favorable than the
                           exercise price of the Options.

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

                           (4)  The  loan  provisions  of  Section  4.11  of the
                           Employment  Agreement  shall  terminate  and be of no
                           force or effect.

                           g.       From the Effective Date through the second
(2nd)  anniversary  of the Effective  Date,  the  Corporation  shall continue to
provide R.M.  Haft with a  Washington,  D.C.  office and  full-time  secretarial
services as previously provided under Section 2.30 of the Employment  Agreement.
For purposes of this  paragraph  3g, the  Corporation  agrees (i) to continue to
retain Gail Jacobs as an employee of the Corporation at her present salary (plus
an annual four percent (4%) increase) and benefits levels (which is reflected on
Schedule  3  attached  hereto)  and (ii) to pay the  office  rent (not to exceed
$30,000  per  year)  and  utilities  (plus  landlord  passthroughs,  if any) but
excluding  telephone  charges on office space used by R.M.  Haft in  Washington,
D.C. or another location of his choosing.

                  4.       [Intentionally left blank.]

                  5. Tax Adjustment Payments; Indemnification; Letter of Credit;
Agreed Tax Reporting.

                           a.       The Corporation and R.M. Haft shall prepare
and file  their  respective  Federal  income  tax  returns  on the basis that no
payments made or to be made by the Corporation to R.M. Haft under this Agreement
(other than  payments,  if any,  under this  paragraph 5) are "excess  parachute
payments"  within the meaning of Section  280G of the  Internal  Revenue Code of
1986,  as amended (the "Code").  If all or any portion of the amount  payable to
R.M.  Haft under this  Agreement  (together  with all other  payments of cash or
property,  whether pursuant to this Agreement or otherwise,  including,  without
limitation,  the issuance of Options or Option Shares or the granting,  exercise
or termination of options therefor,  or the payments or benefits made or granted
under paragraph 3 above) constitutes or is

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subsequently  determined to constitute  "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),  then the
Corporation  shall pay R.M.  Haft an amount equal to the sum of: (i) such excise
or other similar taxes,  plus (ii) any interest,  fines and penalties  resulting
from any underpayment of tax or estimated tax, plus (iii) an amount necessary to
pay to R.M. Haft any income,  excise or other tax  assessment  incurred or to be
incurred  by R.M.  Haft with  respect to the amounts  specified  in (i) and (ii)
above,  and the payment provided by this clause (iii). Any such payment shall be
made immediately by the Corporation upon the earliest to occur of (x) assessment
against R.M. Haft of such tax, penalties or interest,  (y) determination by R.M.
Haft and his tax advisors  that he is obligated to make an estimated tax payment
in  connection  with any of the amounts  specified  in clause (iii) above or (z)
preparation by R. M. Haft of a tax return for filing after a final determination
by a Taxing  Authority  in an  Indemnified  Tax Contest  that any portion of the
payments made to R.M. Haft under this Agreement are "parachute  payments"  under
Section 280G of the Code,  that reports any of the amounts  specified in clauses
(i), (ii) or (iii) above.  In  furtherance  of the  foregoing,  the  Corporation
hereby  agrees to indemnify  and hold  harmless  (including  advance  payment of
expenses)  R.M.  Haft  from and  against  any loss,  cost,  penalty  or  expense
(including  attorneys' and accountants' fees incurred by him) in connection with
any actual,  threatened  or potential  assertion or assessment of any excise tax
under  Section 4999 of the Code (or any similar tax or  assessment)  relating to
any benefit or payment received by R.M. Haft under this Agreement.

                           b.       On the Effective Date, the Corporation shall
do the following:

                                    (1)    The Corporation shall deliver to R.M.
Haft the  opinion of  Honigman  Miller  Schwartz  and Cohn,  in form and content
reasonably  satisfactory  to R.M.  Haft and his tax  advisors,  that  there is a
reasonable  basis to take a position  in the  preparation  and filing of Federal
income tax returns, and a realistic possibility of sustaining on the merits such
position,  that the  payments  and  benefits  received  by R.M.  Haft under this
Agreement are not "excess parachute payments" under Section 280G of the Code and
are not  subject to the excise tax  imposed by Section  4999 of the Code (or any
similar tax or  assessment).  The  Corporation  shall also deliver to R.M.  Haft
complete  copies of any analyses,  memoranda or opinions  prepared by Deloitte &
Touche, LLP in connection with this tax issue.

                                    (2) The Corporation shall deliver to R.M.
Haft an unconditional  and irrevocable  sight draft letter of credit in the face
amount of $2,933,513 issued by a federally-

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regulated money center financial  institution  satisfactory to R.M. Haft, in his
sole discretion,  that shall name R.M. Haft as beneficiary  thereunder and, upon
presentment,  shall be drawable by R.M. Haft. As between the parties hereto,  it
is agreed  that R.M.  Haft may draw upon the letter of credit  upon the first to
occur of (i) receipt by R.M. Haft of a notice of  assessment  from an applicable
governmental  tax authority in connection  with an excise tax under Section 4999
of the Code (or any similar tax or assessment),  (ii) determination by R.M. Haft
and his tax  advisors  that R.M.  Haft's  liability  for  taxes,  penalties  and
interest if the IRS successfully challenges the tax reporting position described
in paragraph 5a above would,  or is  reasonably  likely to, exceed the amount of
the letter of credit,  (iii)  failure by the  Corporation  to satisfy any of its
obligations  under paragraph 5a above, or (iv) thirty (30) days or less prior to
the  expiration  date of such letter of credit,  unless such letter of credit is
renewed or a new letter of credit  that  conforms  to the  requirements  of this
paragraph 5b(2) is substituted therefor in a face amount equal to the amount set
forth above plus such  additional  interest as may accrue through the expiration
date of such  renewed  or new letter of credit  plus the gross up  payment  that
would be due in connection with such  additional  interest under clause (iii) of
paragraph  5a  above.  The  Corporation   shall  remain  fully  liable  for  its
obligations  under this Agreement,  notwithstanding  any amounts drawn under the
letter  of  credit  (but  amounts  so  drawn  shall  be  credited  against  such
obligations),  and R.M. Haft shall retain any and all legal and equitable rights
and remedies in  connection  therewith.  R.M.  Haft may exercise such rights and
remedies at any time and from time to time in any order that he chooses, and any
failure to exercise a right or remedy in any one instance shall not preclude its
subsequent  exercise.  The  letter  of  credit  shall  be in  form  and  content
reasonably satisfactory to R.M. Haft and shall have an initial term of three (3)
years and shall  thereafter  be renewed  (or a new letter of credit  meeting the
requirements of this paragraph 5b(2) is substituted therefor) for additional one
(1) year periods until the later of (i) expiration of any applicable  statute of
limitations on assessment  (except where the  applicable  statute of limitations
remains open solely due to R.M. Haft's failure to file a tax return or fraud) or
(ii) a final  determination  in any pending  Indemnified  Tax Contest.  Upon the
reasonable  determination  of R.M.  Haft's  tax  advisors  that  all  applicable
statutes  of  limitation  have  expired  and that  R.M.  Haft has no  unresolved
obligation  for taxes,  penalties  or  interest  relating  to "excess  parachute
payments" and that all of the Corporation's obligations under paragraph 5a above
have been fully  satisfied,  R.M.  Haft shall  deliver  to the  Corporation  any
amounts  held by him that were  previously  drawn under the letter of credit and
not applied toward the  Corporation's  obligations  under paragraph 5a above. In
the event that R.M. Haft draws upon the letter of credit  pursuant to any of the
events described in paragraph

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                                                SUBJECT TO SETTLEMENT PRIVILEGE

5b(2)(i) - (iv) above,  R.M. Haft shall,  promptly after such draw on the letter
of credit is received by him,  notify the Corporation  thereof.  The Corporation
shall have fifteen (15) days following such notice to fully and completely  cure
the event that led to such draw.  If the  Corporation  (x) fully and  completely
cures such event within such period and (y) causes the letter of credit required
under this  paragraph  5b(2) to be reinstated  (on the same terms and conditions
imposed under this  paragraph  5b(2))  within such period,  then R.M. Haft shall
repay such drawn amounts to the Corporation.

                           c.      In connection with the payments made pursuant
to paragraphs 3a, c, d and e above, the Corporation  shall prepare and file with
the  Social  Security  Administration  and  any  other  applicable  governmental
authority a Form W-2 in the form of Exhibit "A" attached hereto. Payments by the
Corporation to R.M. Haft shall be subject to withholding as required by law (and
payments  under  paragraph 3e above shall be grossed-up so that R.M. Haft incurs
no net tax cost in connection  therewith).  Notwithstanding  the foregoing,  the
parties  agree that the  Corporation  shall not withhold  taxes or other payroll
deductions or otherwise  report  income to R.M.  Haft on any tax reporting  form
relating to the Corporation's satisfaction of its obligations under paragraph 3g
above.

                           d.      In the event of any determination or proposed
determination  by the Internal Revenue Service or other taxing authority (a "Tax
Authority")  affecting R.M. Haft's liability for taxes,  interest,  or penalties
subject to  indemnity  under  paragraph  5a above (an  "Indemnified  Adverse Tax
Effect"),  R.M.  Haft agrees  that the  Corporation's  representatives  shall be
authorized  to  conduct  or  participate  in   administrative   and/or  judicial
proceedings  in which  such  Indemnified  Adverse  Tax Effect is  contested  (an
"Indemnified Tax Contest") to the extent provided below:

                                    (1)  Right of Corporation to Pursue
Indemnified  Tax Contest.  Subject to the terms and conditions of this paragraph
5d, the  Corporation  may, but is not required to, conduct or participate in any
Indemnified Tax Contest at its own expense.  The  Corporation  shall have thirty
(30) days following  notice of an Indemnified Tax Contest to notify R.M. Haft of
its exercise of its right under this  paragraph  5d(1) to conduct or participate
in the Indemnified Tax Contest. Any failure by the Corporation to so notify R.M.
Haft and exercise such right, shall be conclusively deemed an irrevocable waiver
by the  Corporation  of such  rights  and  thereafter  R.M.  Haft  shall have no
obligation  to maintain  the tax  reporting  position  described in paragraph 5a
above  and R.M.  Haft  shall be free to  pursue  any  position  he,  in his sole
discretion,  deems  appropriate  or desirable,  including,  without  limitation,
filing an amended return, drawing on the

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letter of credit  and  paying  the excise  tax  liability  (plus  penalties  and
interest,  if any).  The  Corporation  shall only have such rights to conduct or
participate under this paragraph 5d so long as it maintains,  on its own behalf,
the  tax  reporting   position  set  forth  in  paragraph  5a  above.  Upon  the
Corporation's  timely  notice and  exercise of its rights  under this  paragraph
5d(1),  R.M.  Haft agrees not to  voluntarily  consent to assessment of tax with
respect to and to the extent of the  Indemnified  Adverse Tax Effect.  R.M. Haft
shall promptly  notify the Company of (i) his receipt of any notice of audit for
any of the years for which  there may be an  Indemnified  Adverse Tax Effect and
(ii) the  occurrence  of an event  which  causes an  Indemnified  Tax Contest to
exist.  The term "conduct or  participate  in" as used in this paragraph 5 shall
include (x) the right to attend,  through  representatives  of the Corporation's
choice,  all  meetings,  interviews,  and  conferences  by and between R.M. Haft
and/or his  representatives and representatives of the Internal Revenue Service,
where,  but only to the extent that, the subjects thereof include an Indemnified
Adverse  Tax  Effect  and (y) the right to submit to R.M.  Haft for  filing  any
protest,  petition,  or claim  for  refund or any  other  filing  or  submission
regarding an Indemnified Adverse Tax Effect.

                                    (2)  Execution of Documents Necessary to
Conduct of Indemnified Tax Contest. R.M. Haft will execute such documents as may
be reasonably  required to facilitate  the  Corporation's  ability to conduct or
participate in any Indemnified Tax Contest;  provided,  however, R.M. Haft shall
not be  required  in any  event  to  execute  a power  of  attorney  authorizing
representatives  of the  Corporation  to act on his behalf (other than a limited
power of attorney on IRS Form 2848-D  authorizing the Corporation's  outside tax
counsel to receive copies of all IRS notices and  correspondence  relating to an
Indemnified Adverse Tax Effect), and shall not be required to execute extensions
of the statute of  limitations  on  assessment  which are not limited  solely to
assessment of taxes causing the Indemnified Adverse Tax Effect.

                                    (3)  Separation of Proceedings by Piggy-Back
Settlement Agreement. If the asserted legal basis for an Indemnified Adverse Tax
Effect,  if  sustained,  would  necessarily  also  require  an  increase  in tax
liabilities of the Corporation (a "Related Tax Increase"), the Corporation shall
use its best efforts to cause the Related Tax Increase to be contested  directly
by the  Corporation on its own behalf,  so that R.M.  Haft's  liability for such
Indemnified  Adverse  Tax  Effect may be  resolved  pursuant  to a  "piggy-back"
settlement  agreement  under  which  R.M.  Haft  agrees  with the  relevant  Tax
Authority to be bound to tax treatment  consistent with any final  determination
with respect to the Related Tax Increase.


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                                    (4)  Corporation's Participation in Tax
Audits. If an Indemnified  Adverse Tax Effect is an issue under consideration in
an audit of the returns of R.M.  Haft,  the  Corporation  shall be authorized to
participate  in such audit only with  respect  to, and to the extent of,  issues
related to an Indemnified Adverse Tax Effect.

                                    (5)  Corporation's Right to Convert Contest
to Refund  Proceedings.  If an Indemnified  Adverse Tax Effect is an issue under
consideration  in an audit of the returns of R.M. Haft, and the  Corporation has
given  adequate   assurance  of  the  availability  of  funds  provided  by  the
Corporation to  immediately  and fully pay such  Indemnified  Adverse Tax Effect
when assessed,  R.M. Haft will, if the Corporation so requests,  file a Form 870
or amended  return  permitting  the  assessment of the  Indemnified  Adverse Tax
Effect with respect to such issue,  and after  assessment  and payment  thereof,
R.M.  Haft  will  execute  all  documents  as are  reasonably  required  for the
Corporation to then contest such Indemnified  Adverse Tax Effect through a claim
for refund,  including a judicial challenge to the administrative  denial of any
such claim for  refund.  In the event  such  Indemnified  Adverse  Tax Effect is
converted to a refund proceeding, the Corporation shall be authorized to control
the conduct of such refund  proceeding  so long as the  Indemnified  Adverse Tax
Effect is the only issue in the refund proceeding.

                                    (6)  Participation of Corporation in
Litigation  Controlled by R.M. Haft. In any  litigation  with a Tax Authority in
which the Indemnified  Adverse Tax Effect is an issue, the Corporation  shall be
permitted to participate  in such  litigation  (or, as provided in  subparagraph
5d(5)  above,  control  such  litigation),  but only with respect to, and to the
extent of, the Indemnified Adverse Tax Effect, including providing a response to
such issue in the context of such litigation.

                                    (7)  Cooperation and Information Sharing.
The  Corporation  and R.M.  Haft will provide each other with such  cooperation,
assistance and information as either of them reasonably may request of the other
to  facilitate  the  presentation  or  adjudication  of an issue  concerning  an
Indemnified  Adverse Tax Effect. At any time, upon the request of any party, the
other party will promptly and duly execute and deliver,  or cause to be promptly
and duly executed and delivered, such further instruments and documents and take
such further  action as may  reasonably be required to effectuate the provisions
of this paragraph 5d.

                                    (8)  Final Determination.  In the event that
an indemnification payment has been made to R.M. Haft pursuant to
paragraph 5a in order to permit the conduct of a refund
proceeding under subparagraph 5d(5) hereof, and a refund is

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finally determined and issued as a result of such proceeding,  the amount of the
indemnification  obligation  of the  Corporation  under  paragraph  5a  shall be
recomputed to reflect such outcome (and the collateral consequences thereof) and
any excess indemnity payment  determined to have been paid by the Corporation in
view of the  determination  in such  refund  proceeding  shall,  along  with any
statutory  interest  payments  received by R.M.  Haft (after  deduction  for any
related tax  liability) in connection  with such a refund of tax, be returned by
R.M. Haft to the Corporation (net of any then outstanding  indemnity obligations
of the  Corporation  to R.M.  Haft).  R.M. Haft agrees  promptly to execute such
documents as reasonably requested by the Corporation to recover excise or income
tax paid to taxing  authorities as a consequence  of an Indemnified  Adverse Tax
Effect.  The full amount of such refund(s),  including interest (after deduction
by R.M.  Haft for any related tax  liability),  actually  received by R.M.  Haft
shall be held in trust by R.M. Haft for the  Corporation's  benefit and shall be
promptly paid by R.M. Haft to the Corporation.

                                    (9) No Limitations or Restrictions on R.M.
Haft.  Notwithstanding  the foregoing  provisions  of this  paragraph 5, nothing
herein shall be  interpreted  to require R.M. Haft to take, or prohibit him from
taking,  any  action  that,  if taken or not taken (as  applicable),  would,  or
reasonably  could be  expected  to,  adversely  affect or impede his  ability to
conduct, contest, defend or settle any matter that is not an Indemnified Adverse
Tax Effect, including, without limitation, his ability to file a petition in the
U.S. Tax Court to contest any matters  unrelated to an  Indemnified  Adverse Tax
Effect  that are raised in a notice of  proposed  deficiency  from the  Internal
Revenue  Service.  So long as the Corporation is not in breach or default of any
of its obligations,  representations  or warranties  under this Agreement,  R.M.
Haft shall not  concede or  compromise  an  Indemnified  Adverse Tax Effect in a
manner  that  would  prevent  judicial  review  of  the   determination  of  the
Indemnified Adverse Tax Effect without the Corporation's prior written consent.

                                    (10)   R.M. Haft's Right to Terminate.  Upon
the  occurrence of (i) failure by the  Corporation  to exercise its rights under
paragraph  5d(1) above to conduct or participate in an Indemnified  Tax Contest,
(ii) any  breach or default by the  Corporation  of any of its  representations,
warranties,  covenants or indemnifications provided under this Agreement (or any
other  agreement by the  Corporation  for R.M.  Haft's  benefit) and if any such
breach or  default  is not  fully  and  completely  cured  within  ten (10) days
following  notice thereof to the  Corporation,  then, in either case,  R.M. Haft
may, in addition to all of his other legal and  equitable  rights and  remedies,
terminate the  Corporation's  rights,  and R.M. Haft's  obligations,  under this
paragraph 5d; it being understood and agreed that,  notwithstanding  R.M. Haft's
exercise of such termination right,

4163LHC1.5F                                                 Draft of 9709241449
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                                                SUBJECT TO SETTLEMENT PRIVILEGE

the  Corporation  shall remain fully  responsible for all of its obligations and
liabilities under this Agreement  (including  specifically its obligations under
paragraph 5a above) and R.M. Haft shall thereafter have no duty or obligation to
pursue or permit the Corporation to pursue an Indemnified Tax Contest.



4163LHC1.5F                                                 Draft of 9709241449
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                                                SUBJECT TO SETTLEMENT PRIVILEGE

                  6.   Corporation's   Representations   and   Warranties.   The
Corporation  represents and warrants that, as of the date hereof,  and as of the
Effective  Date,  each of the following  representations  and warranties is, and
shall be, true, complete and correct:

                           a.       The Corporation has the full power, right,
authority and legal  capacity to enter into,  execute and deliver this Agreement
and to perform all of its obligations hereunder.

                           b.       This Agreement has been duly executed and
delivered  by the  Corporation,  has  been  duly  authorized  by  all  necessary
corporate  action and is the valid and binding  obligation  of the  Corporation,
enforceable in accordance with its terms.

                           c.       The Corporation is not the debtor in any
bankruptcy  or  insolvency  proceeding,  nor  is  it  insolvent,  nor  will  the
performance of any actual or potential  obligations  under this Agreement render
the Corporation insolvent.

                  7.       Release.

                           a.       Effective as of the Effective Date, the
Corporation,  on behalf  of  itself  and its  Affiliates,  officers,  directors,
employees,  agents and representatives  (collectively,  the "Phar-Mor Parties"),
hereby  agrees to  release,  acquit  and  discharge  R.M.  Haft,  whether in his
capacity as an officer, employee,  director or shareholder (including release of
any entity  through  which R.M. Haft holds any indirect  share  ownership in the
Corporation)  of the  Corporation  or  otherwise,  and  his  heirs,  agents  and
representatives, successors and assigns (collectively, the "Haft Parties"), from
any and all claims,  actions,  causes of action,  liabilities,  obligations  and
responsibilities of any kind whatsoever, known or unknown, mature or contingent,
that the Phar-Mor  Parties have, have had or may hereafter have,  against any of
the Haft Parties,  directly or indirectly,  in connection with any act, event or
omission  occurring  or failing to occur at any time on or before the  Effective
Date. In furtherance  and not in limitation of the  Corporation's  release under
this paragraph 7a, the  Corporation  specifically  acknowledges  and agrees that
R.M. Haft is free to pursue any and all business opportunities,  investments and
employment  of any kind  whatsoever,  whether  arising  on,  before or after the
Effective  Date,  as he may  desire  without  restriction  of any kind,  and the
Corporation  hereby  expressly waives any claims against R.M. Haft or any of his
Affiliates with respect  thereto.  For purposes of this  Agreement,  "Affiliate"
shall,  with respect to any person,  mean any individual or entity,  directly or
indirectly, controlled by, controlling or in common control with such person.

4163LHC1.5F                                                 Draft of 9709241449
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                                                SUBJECT TO SETTLEMENT PRIVILEGE


                           b.       R.M. Haft, on behalf of himself and the Haft
Parties,  hereby agrees to release, acquit and discharge the Corporation and its
officers,  directors,  and employees from any and all claims, actions, causes of
action,  liabilities,  obligations and  responsibilities of any kind whatsoever,
known or unknown,  mature or contingent  that the Haft Parties have, have had or
may in the future have,  against the  Corporation,  directly or  indirectly,  in
connection with any act, event or omission occurring or failing to occur, at any
time on or before the Effective Date; provided,  however, that nothing contained
in this  paragraph 6b shall be deemed a release by R.M.  Haft of (i) his rights,
or the  Corporation's  obligations,  under this  Agreement or that certain Stock
Option  Agreement dated September 11, 1995 between the Corporation and R.M. Haft
(the "Option Agreement") or under any pension,  profit sharing,  option or other
compensation  or benefit plan of the  Corporation  in which he has  participated
prior to the  Effective  Date or with  respect  to any stock  options or related
rights (including  registration  rights) that he has previously been granted, or
(ii) Abbey Butler or Melvyn Estrin, other than in their respective capacities as
members of the  Corporation's  Board of  Directors,  or any of their  respective
Affiliates.

                  8.  Indemnification.   To  the  fullest  extent  permitted  or
required by the laws of the state of incorporation  of the  Corporation,  as may
apply form time to time,  the  Corporation  shall  indemnify  and hold  harmless
(including  advance payment of expenses) R.M. Haft, in accordance with the terms
of such laws, if R.M. Haft 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 R.M. Haft
is or was an  officer or  director  for 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. The
Corporation hereby agrees that such obligations include  indemnification of R.M.
Haft from any claims asserted  against or incurred by him in connection with any
direct or  indirect  stock  ownership  in the  Corporation.  In  addition to the
foregoing,  the Corporation shall indemnify and hold harmless R.M. Haft from and
against any loss, cost, damage, claim or expense (including  attorneys' fees and
litigation expenses) incurred by or asserted against him as the result, directly
or  indirectly,   of  the  Corporation's   breach  or  default  of  any  of  its
representations, warranties or covenants under this Agreement.

4163LHC1.5F                                                Draft of 9709241449
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                                                SUBJECT TO SETTLEMENT PRIVILEGE


                  9.  Return of  Personal  Possessions.  The  Corporation  shall
permit R.M. Haft (or his  representatives) to remove any and all of his personal
possessions,  mementos, art work, furniture, furnishings and other property that
are located in the  Corporation's  offices in Youngstown,  Ohio. The Corporation
acknowledges and agrees that all furnishings,  fixtures and equipment located in
R.M. Haft's Washington, D.C. office are the exclusive property of R.M. Haft.

                  10.  No  Duty to  Mitigate,  Etc.  R.M.  Haft's  rights  under
paragraphs  3a, b, c, d and e and paragraph 4 above are absolute,  and R.M. Haft
shall have no duty to seek  substitute  employment  or otherwise to mitigate any
loss and all amounts and benefits payable under such paragraphs shall be paid to
R.M.  Haft  without  offset or  reduction  (regardless  of any  claims  that the
Corporation  may possess) and even if R.M. Haft obtains  substitute  employment.
The Corporation shall not garnish,  offset or otherwise withhold for the benefit
of itself or any third party (other than withholding imposed by any governmental
authority)  any  amounts  payable  to R.M.  Haft  under  this  Agreement  unless
compelled  to do so by judicial  order;  it being  specifically  agreed that the
Corporation  shall not offset or withhold any payment  under  paragraphs 5a or 8
hereof, even if the Corporation believes it has defenses or claims in connection
therewith.

                  11.      Miscellaneous.

                  a. The  provisions of this  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  provisions to the extent enforceable
in any jurisdiction nevertheless shall be binding and enforceable.

                  b. During the Term, the Corporation  shall maintain  customary
directors'  and officers'  liability  insurance  with R.M. Haft as a beneficiary
thereunder,  for any acts, events or omissions  occurring or failing to occur on
or before the Effective Date.

                  c. This Agreement embodies the entire agreement of the parties
with respect to R.M.  Haft's  termination of employment  and, except as provided
herein,  supersedes any other prior oral or written agreements,  arrangements or
understandings between R.M. Haft and the Corporation.  This Agreement may not be
changed or terminated  orally but only by an agreement in writing  signed by the
parties hereto.

                  d. All notices and other communications  required or permitted
under this Agreement shall be in writing,  and shall be deemed properly given if
delivered personally, mailed by

4163LHC1.5F                                                 Draft of 9709241449
                                     - 14 -

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                                                SUBJECT TO SETTLEMENT PRIVILEGE

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:

                  Phar-Mor, Inc.
                  20 Federal Plaza West
                  Youngstown, Ohio  44501
                  Attn:  General Counsel

                  If to R.M. Haft:

                  Robert M. Haft
                  2346 Massachusetts Avenue, N.W.
                  Washington, D.C.  20008

                  With a copy to:

                  Tucker,  Flyer &  Lewis,  a  professional  corporation  1615 L
                  Street, N.W.
                  Suite 400
                  Washington, D.C.  20036
                  Attn:  Michael A. Schlesinger, Esquire

Notice  given by hand,  Express  Mail,  Federal  Express or other  such  express
delivery  service  shall be  effective  upon  actual  receipt.  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.

         e. 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 Agreement shall be construed under and governed by
the laws of the State of Delaware  and the parties  hereto  irrevocably  consent
(and  waiver  any  objection)  to the  jurisdiction  and  venue of the  State of
Delaware  courts and/or the United States  District for the District of Delaware
for any action arising under this Agreement.

         f. This  Agreement  shall inure to the benefit and bind the  successors
and assigns of the parties. In particular, the provisions of Section 3.00 of the
Employment Agreement applicable to R.M. Haft shall inure to the benefit and bind
any assignee

4163LHC1.5F                                                 Draft of 9709241449
                                     - 15 -

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                                                SUBJECT TO SETTLEMENT PRIVILEGE

(including donee and legatee) of the policy or policies from R.M.
Haft.

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

         h.  The  Corporation  shall  reimburse  R.M.  Haft  for any  legal  and
accounting fees and expenses incurred by him in connection with the preparation,
execution and delivery of this  Agreement,  such fees and expenses not to exceed
$50,000.

         i. In the event a controversy  or claim arises under or related to this
Agreement  and the  parties  to the  dispute do not settle  their  dispute,  any
unresolved  claim or  controversy  shall,  at the election of either  party,  be
submitted  to  binding  arbitration  before a single  neutral  arbitrator,  said
arbitrator  to be an  individual  with at least ten (10) years  experience  as a
senior  executive  of a Fortune  500  company (a  "Qualified  Arbitrator").  The
Qualified Arbitrator shall be selected through the following  procedure:  within
ten (10) days  following a party's  notice of its  election to  arbitrate,  each
party  shall  submit  to the  other  a  list  of at  least  five  (5)  qualified
individuals  and the parties  shall  proceed in good faith to select a Qualified
Arbitrator  from such lists. If the parties are unable to agree upon a Qualified
Arbitrator  within thirty (30) days of submission of such lists, then they shall
seek  appointment  of  a  Qualified   Arbitrator  by  the  American  Arbitration
Association.  The arbitration shall be conducted within the greater  Washington,
D.C.   metropolitan  area  in  accordance  with  the  then  current   Commercial
Arbitration Rules of the American  Arbitration  Association and commenced within
ninety (90) days after  selection of the Qualified  Arbitrator,  and judgment on
the  award  rendered  by the  arbitrator  may be  entered  in any  court  having
jurisdiction  thereof;  it being  the  intent of the  parties  hereto  that,  if
arbitration  is pursued  hereunder,  any award made  pursuant  thereto  shall be
binding upon and  enforceable  against the parties  hereto.  The parties  hereto
specifically and expressly desire that any such controversy or claim be resolved
in the most expeditious manner possible, and, accordingly,  irrevocably instruct
any such  arbitrator to issue a decision and award within thirty (30) days after
the  arbitration  hearing  is  completed  and  written  submissions,  if any are
required or permitted, have been filed with the Qualified Arbitrator, or as soon
as practicable thereafter.

                           j.       Time is of the essence for all purposes of
this Agreement.


4163LHC1.5F                                          Draft of 9709241449
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                                                SUBJECT TO SETTLEMENT PRIVILEGE

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


                         PHAR-MOR, INC., a Pennsylvania
                                   corporation


                                                     By:




                                                     Robert M. Haft

4163LHC1.5F                                                 Draft of 9709241449
                                     - 17 -

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                                                SUBJECT TO SETTLEMENT PRIVILEGE


                                    EXHIBIT A

                                    Form W-2

4163LHC1.5F                                                Draft of 9709241449
                                     - 18 -

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                                                SUBJECT TO SETTLEMENT PRIVILEGE


                                   Schedule 1

                          Long Term Performance Payment


                           The Long-Term  Performance  Payment (if any) shall be
                  (x) three  percent  (3%) 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 form 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
                  first day of the period  ending on June 30, 1998 such  average
                  closing price shall be deemed to be $8.00 per share), less (y)
                  one-half of the Annual Bonus paid or payable to R.M.  Haft, if
                  any, for each of the three fiscal years comprising such period
                  (but not in any event less than zero).



4163LHC1.5F                                                Draft of 9709241449
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                                                SUBJECT TO SETTLEMENT PRIVILEGE


                                   Schedule 2

                                 Life Insurance



       Company         Policy Number      Face Amount        Premium
       -------         -------------      -----------        -------

    Pacific Mutual        1A23092310       $3,000,000         $38,110.00




                               Disability Insurance



                    Policy             Monthly      Annual          Owner and
    Company         Number             Benefit      Premium         Loss Payee

Paul Revere       01028146490          $10,000      $ 5,664.00       R.M. Haft

Reliance          RN HLD 0445          $35,000      $19,993.00       Phar-Mor

Reliance          RN HLD 0445a         Lump Sum        - 0 -         Phar-Mor




4163LHC1.5F                                                 Draft of 9709241449
                                     - 20 -

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                                                SUBJECT TO SETTLEMENT PRIVILEGE

                                   Schedule 3

                                   Gail Jacobs


4163LHC1.5F                                                 Draft of 9709241449
                                     - 21 -

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