$100,000,000
                           LOAN AND SECURITY AGREEMENT
                         Dated as of September 10, 1998
                                      Among
                     THE FINANCIAL INSTITUTIONS NAMED HEREIN
                                 as the Lenders
                                       and
                        BANKAMERICA BUSINESS CREDIT, INC.
                                  as the Agent
                                       and
                                 PHAR-MOR, INC.
                               PHAR-MOR, INC., LLC
                           PHAR-MOR OF DELAWARE, INC.
                            PHAR-MOR OF FLORIDA, INC.
                             PHAR-MOR OF OHIO, INC.
                           PHAR-MOR OF VIRGINIA, INC.
                           PHAR-MOR OF WISCONSIN, INC.
                                as the Borrowers






<PAGE>  i




                                TABLE OF CONTENTS
Section                                                                     Page
                   ARTICLE 1 INTERPRETATION OF THIS AGREEMENT
1.1  Definitions...............................................................2
1.2  Accounting Terms.........................................................21
1.3  Interpretive Provisions..................................................22
                      ARTICLE 2 LOANS AND LETTERS OF CREDIT
2.1  Total Facility...........................................................23
2.2  Revolving Loans..........................................................23
2.3  Letters of Credit........................................................28
                           ARTICLE 3 INTEREST AND FEES
3.1  Interest.................................................................33
3.2  Conversion and Continuation Elections....................................33
3.3  Maximum Interest Rate....................................................34
3.4  Closing Fee..............................................................35
3.5  Unused Line Fee..........................................................35
3.6  Letter of Credit Fee.....................................................35
3.7  Collateral Management Fee................................................36
                       ARTICLE 4 PAYMENTS AND PREPAYMENTS
4.1  Revolving Loans..........................................................36
4.2  Termination of Facility..................................................36
4.3  Payments by the Borrowers................................................36
4.4  Payments as Revolving Loans..............................................37
4.5  Apportionment, Application and Reversal of Payments......................37
4.6  Indemnity for Returned Payments..........................................38
4.7  Agent's and Lenders' Books and Records; Monthly Statements...............38
                ARTICLE 5 TAXES, YIELD PROTECTION AND ILLEGALITY
5.1  Taxes ...................................................................39
5.2  Illegality...............................................................40
5.3  Increased Costs and Reduction of Return..................................40
5.4  Funding Losses...........................................................40
5.5  Inability to Determine Rates.............................................41
5.6  Certificates of Lenders..................................................41
5.7  Survival.................................................................41
                              ARTICLE 6 COLLATERAL
6.1  Grant of Security Interest...............................................41

         

<PAGE>  ii





6.2  Perfection and Protection of Security Interest...........................42
6.3  Location of Collateral...................................................43
6.4  Title to, Liens on, and Sale and Use of Collateral.......................43
6.5  Appraisals...............................................................43
6.6  Access and Examination; Confidentiality..................................44
6.7  Collateral Reporting.....................................................45
6.8  Accounts.................................................................46
6.9  Collection of Accounts; Payments.........................................47
6.10  Inventory; Perpetual Inventory; Point-of-Sale Inventory.................48
6.11  Assigned Contracts......................................................48
6.12  Documents, Instruments, and Chattel Paper...............................49
6.13  Right to Cure...........................................................49
6.14  Power of Attorney.......................................................49
6.15  The Agent's and Lenders' Rights, Duties and Liabilities.................50
           ARTICLE 7 BOOKS AND RECORDS, FINANCIAL INFORMATION, NOTICES
7.1  Books and Records........................................................51
7.2  Financial Information....................................................51
7.3  Notices to the Lenders...................................................53
                ARTICLE 8 GENERAL WARRANTIES AND REPRESENTATIONS
8.1  Authorization, Validity, and Enforceability
      of this Agreement and the Loan Documents................................55
8.2  Validity and Priority of Security Interest...............................55
8.3  Organization and Qualification...........................................55
8.4  Corporate Name; Prior Transactions.......................................56
8.5  Subsidiaries and Affiliates..............................................56
8.6  Financial Statements and Projections.....................................56
8.7  Capitalization...........................................................56
8.8  Solvency.................................................................57
8.9  Debt; ...................................................................57
8.10  Distributions...........................................................57
8.11  Title to Property.......................................................57
8.12  Leases; Premises........................................................57
8.13  Proprietary Rights......................................................57
8.14  Trade Names.............................................................58
8.15  Litigation..............................................................58
8.16  Restrictive Agreements..................................................58
8.17  Labor Disputes..........................................................58
8.18  Environmental Laws......................................................58
8.19  No Violation of Law.....................................................59
8.20  No Default..............................................................59
8.21  ERISA Compliance........................................................59
8.22  Taxes...................................................................59
8.23  Regulated Entities......................................................59


          

<PAGE>  iii





8.24  Use of Proceeds; Margin Regulations.....................................60
8.25  No Material Adverse Change..............................................60
8.26  Full Disclosure.........................................................60
8.27  Material Agreements.....................................................60
8.28  Bank Accounts...........................................................60
8.29  Governmental Authorization..............................................60
8.31  Investment Banking and Finders' Fees....................................60
8.32  Year 2000. . . . . . . . . . . . . . . . . . . . . . . . .60
                  ARTICLE 9 AFFIRMATIVE AND NEGATIVE COVENANTS
9.1  Taxes and Other Obligations..............................................61
9.2  Corporate Existence and Good Standing....................................61
9.3  Compliance with Law and Agreements; Maintenance of Licenses..............61
9.4  Maintenance of Property..................................................61
9.5  Insurance................................................................62
9.6  Environmental Laws.......................................................62
9.7  Compliance with ERISA....................................................63
9.8  Mergers, Consolidations or Sales.........................................63
9.9  Distributions; Capital Change; Restricted Investments....................63
9.10  Guaranties..............................................................64
9.11  Debt ...................................................................64
9.12  Prepayment..............................................................64
9.13  Transactions with Affiliates............................................65
9.14  Investment Banking and Finder's Fees....................................65
9.15  Business Conducted......................................................65
9.16  Liens...................................................................65
9.17  Sale and Leaseback Transactions.........................................65
9.18  New Subsidiaries........................................................65
9.19  Fiscal Year.............................................................66
9.20  Minimum Availability. . . .  ...........................................66
9.21  [Intentionally Omitted].................................................66
9.22  [Intentionally Omitted].................................................66
9.23  Use of Proceeds.........................................................66
9.24  Plan of Reorganization..................................................66
9.25  Further Assurances......................................................67

                         ARTICLE 10 CONDITIONS PRECEDENT
10.1  Conditions Precedent to Effectiveness...................................67
10.2  Conditions Precedent to Each Loan.......................................68
                          ARTICLE 11 DEFAULT, REMEDIES
11.1  Events of Default.......................................................69
11.2  Remedies................................................................72


           

<PAGE>  iv





                         ARTICLE 12 TERM AND TERMINATION
12.1  Term and Termination....................................................73
           ARTICLE 13 AMENDMENTS, WAIVER, ASSIGNMENTS, PARTICIPATIONS
13.1  No Waivers; Cumulative Remedies.........................................74
13.2  Amendments and Waivers..................................................74
13.3  Assignments; Participations.............................................75
                              ARTICLE 14 THE AGENT
14.1  Appointment and Authorization...........................................77
14.2  Delegation of Duties....................................................77
14.3  Liability of Agent......................................................77
14.4  Reliance by Agent.......................................................77
14.5  Notice of Default.......................................................78
14.6  Credit Decision.........................................................78
14.7  Indemnification.........................................................79
14.8  Agent in Individual Capacity............................................79
14.9  Successor Agent.........................................................79
14.10  Withholding Tax........................................................80
14.11  Collateral Matters.....................................................81
14.12  Restrictions on Actions by Lenders; Sharing of Payments................82
14.13  Agency for Perfection..................................................82
14.14  Concerning the Collateral and the Related Loan Documents...............82
14.15  Field Audit and Examination Reports; Disclaimer by Lenders.............83
                            ARTICLE 15 MISCELLANEOUS
15.1  Cumulative Remedies; No Prior Recourse to Collateral....................83
15.2  Severability............................................................83
15.3  Governing Law; Choice of Forum; Service of Process......................84
15.4  Waiver of Jury Trial....................................................84
15.5  Survival of Representations and Warranties..............................85
15.6  Other Security and Guaranties...........................................85
15.7  Fees and Expenses.......................................................85
15.8  Notices.................................................................86
15.9  Waiver of Notices.......................................................88
15.10  Binding Effect.........................................................88
15.11  Indemnity of the Agent and the Lenders by the Borrowers................88
15.12  Final Agreement........................................................88
15.13  Counterparts...........................................................88
15.14  Captions...............................................................88
15.15  Right of Setoff........................................................89
15.16  Joint and Several Liability............................................89


          

<PAGE>  v





                                    EXHIBITS
Exhibit 1.1(B)    Form of Short-Form Trademark Security Agreement
Exhibit 1.1(D)    Form of Supplemental Trademark Security Agreement
Exhibit 1.1(E)    Form of Trademark Assignment
Exhibit 2.2(b)    Form of Notice of Borrowing
Exhibit 3.2(b)    Form of Notice of Conversion/Continuation
Exhibit 6.2(b)    Form of Landlord's Lien Waiver
Exhibit 6.7(c)    Form of Availability Certificate
Exhibit 6.9(a)    Form of Payment Account Agreement
Exhibit 13.3      Form of Assignment and Acceptance


         
<PAGE>  vi





                                    SCHEDULES
Schedule 1.1(A)            Financial Statements
Schedule 1.1(B)            Permitted Liens under Plan of Reorganization
Schedule 1.1(D)            Premises
Schedule 6.3               Location of Collateral
Schedule 6.4               Permitted Liens on Collateral
Schedule 8.5               Subsidiaries and Affiliates
Schedule 8.6               Plan of Reorganization Debt
Schedule 8.7               Capitalization
Schedule 8.11              Title to Property
Schedule 8.13              Proprietary Rights
Schedule 8.17              Labor Disputes
Schedule 8.18              Environmental Laws
Schedule 8.21              ERISA Compliance
Schedule 8.27              Material Agreements
Schedule 8.28              Bank Accounts
Schedule 9.5               Insurance
Schedule 9.9(a)            Management Agreements
Schedule 10.1(c)           Unfunded Consolidated Pension Liabilities



<PAGE>   1



                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                  Amended and Restated Loan and Security Agreement,  dated as of
September 10, 1998, by and among (i) the  financial  institutions  listed on the
signature pages hereof,  (ii),  BankAmerica  Business  Credit,  Inc., a Delaware
corporation  ("BABC"),  as agent for the  Lenders  (as  defined  below)  (in its
capacity as agent,  the  "Agent"),  and (iii)  Phar-Mor,  Inc.,  a  Pennsylvania
corporation,   ("Phar-Mor"),   Phar-Mor  of  Florida,   Inc.,   a   Pennsylvania
corporation,  Phar-Mor of Ohio, Inc., an Ohio corporation, Phar-Mor of Virginia,
Inc.,  a  Virginia  corporation,   Phar-Mor  of  Wisconsin,  Inc.,  a  Wisconsin
corporation,  Phar-Mor of Delaware,  Inc., a Delaware  corporation and Phar-Mor,
Inc.,  LLC,  a  Pennsylvania   limited  liability  company  (each  individually,
including Phar-Mor, a "Borrower" and collectively the "Borrowers").

                               W I T N E S S E T H
                  WHEREAS, Phar-Mor and its debtor subsidiaries including all of
the other  Borrowers  (other than Phar-Mor of Delaware,  Inc. and Phar-Mor Inc.,
LLC) filed petitions for relief under chapter 11 of the United States Bankruptcy
Code on  August  17,  1992,  with the  United  States  Bankruptcy  Court for the
Northern  District  of Ohio (the  "Bankruptcy  Court"),  case  numbers  92-41599
through 92-41614; and

                  WHEREAS,  on August 29, 1995, the Bankruptcy  Court entered an
order confirming the Debtors' Third Amended Joint Plan of Reorganization,  dated
May 25, 1995 (the "Plan of Reorganization"); and

                  WHEREAS,  the Borrowers  required a credit facility to provide
working capital for their  operations and for general  corporate  purposes after
confirmation of the Plan of Reorganization; and

                  WHEREAS,  the Borrowers  requested the Lenders and the Lenders
agreed to make  available to the Borrowers a revolving  line of credit for loans
and letters of credit in an amount not to exceed in the  aggregate  $100,000,000
pursuant to a Loan and Security  Agreement  dated as of September  11, 1995 (the
"Existing Agreement"); and

                  WHEREAS,  the  Borrowers  and the Lenders  desire to amend the
Existing  Agreement  to, among other  things,  extend the  termination  date and
eliminate certain covenants, and for the purpose of convenience only, restate in
its entirety the Existing Agreement; and




<PAGE>   2



                  WHEREAS,  the parties hereto have acknowledged and agreed that
this Agreement and the transactions contemplated hereby are not intended to be a
novation of the  indebtedness  under the Existing  Agreement  outstanding on the
date hereof (the "Existing Debt");

                  NOW, THEREFORE, in consideration of the premises, the Existing
Agreement is, effective as of the date hereof and subject to the satisfaction of
the  conditions  precedent set forth in Section 10.1 hereof,  hereby amended and
restated in its entirety to read as follows:

                                    ARTICLE 1
                        INTERPRETATION OF THIS AGREEMENT

                  1.1      Definitions.  As used herein:

                  "Accounts"  means all of the Borrowers' now owned or hereafter
acquired or arising  accounts,  and any other  rights to payment for the sale or
lease of goods or rendition of services, whether or not they have been earned by
performance.

                  "Account  Debtor" means each Person obligated in any way on or
in connection with an Account.
                
                  "Acquire" means,  with respect to any Borrower,  to become the
owner of any Proprietary Right not owned by such Borrower as of the date hereof,
whether  through (i) the purchase,  assignment,  conveyance or other transfer of
such  right,  title and  interest  from a third  party or (ii)  Borrower's  use,
creation, invention, discovery or other development of trademarks, copyrights or
other items included in the Proprietary Rights.

                  "Affiliate"  means, as to any Person,  any other Person which,
directly or  indirectly,  is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person,  whether
through the ownership of voting securities, by contract, or otherwise.

                  "Agent"  means BABC,  solely in its  capacity as agent for the
Lenders, and shall include any successor agent.

                  "Agent  Account"  means the  Agent's  account  into  which (i)
collections  of Accounts  and other  proceeds  of  Collateral  deposited  in the
Payment Account may be transferred  pursuant to the terms of the Payment Account
Agreement or as otherwise  described in Section 6.9 and (ii) any payments may be
made by any Borrower pursuant to Section 4.4(b) or Section 6.9(c).

                  "Agent Advances" has the meaning specified in Section 2.2(i).

                  "Agent's  Liens" means the Liens  granted to the Agent for the
benefit of the Agent and the  ratable  benefit of the  Lenders  pursuant to this
Agreement and the other Loan Documents.

                  "Agent-Related  Persons"  means the  Agent  and any  successor
agent, together with their respective Affiliates,  and the officers,  directors,
employees, agents and attorneys-in-fact



<PAGE>   3



of such Persons and Affiliates.

                  "Aggregate  Availability" means, at any time of determination,
(a) the  lesser  of (i)  the  Maximum  Revolver  Amount  or (ii)  the sum of (A)
eighty-five  percent (85%) of the Net Amount of Eligible  Accounts of all of the
Borrowers; plus (B) fifty-eight percent (58%) of the value of Eligible Inventory
of all of the  Borrowers;  minus (b) the sum of (i) the unpaid  balance of Loans
outstanding at such time to any Borrower,  (ii) the aggregate  amount of Pending
Revolving  Loans  requested at such time by any  Borrower,  (iii) the  aggregate
undrawn  amount of all  outstanding  Letters  of Credit  issued on behalf of any
Borrower,  (iv) the aggregate amount of all unpaid reimbursement  obligations in
respect  of the  Letters  of Credit  issued on behalf of any  Borrower,  (v) all
Environmental Compliance Reserves established with respect to any Borrower, (vi)
all Landlord's  Lien Waiver Reserves  established  with respect to any Borrower,
and (vii) all other reserves which the Agent deems  necessary in the exercise of
its Permitted  Discretion to maintain  with respect to any  Borrower's  account,
including  reserves  for any  amounts  which  the  Agent  or any  Lender  may be
obligated to pay in the future for the account of any Borrower.

                  "Agreement"  means this Amended and Restated Loan and Security
Agreement, including all Exhibits and Schedules attached hereto.

                  "Anniversary Date" means each anniversary of the Closing Date.

                  "Applicable Margin" means

                        (a) with respect to Reference Rate Loans, 0.50%; and

                        (b) with respect to LIBOR Loans, 2.0%;  provided that if
the most recent Financial  Statements of Phar-Mor  delivered pursuant to Section
7.2(b)  with  respect to any period  ending on or after June 30, 1998 shows that
Net Worth is less than $50,000,000,  then the applicable margin from the date of
delivery of such  Financial  Statements to the date of delivery of the next such
Financial  Statements for all Reference  Rate Loans and Libor Loans  outstanding
between such delivery  dates shall be 1% for  Reference  Rate Loans and 2.5% for
Libor Loans.

                  "Assigned  Contracts" means,  collectively,  all of the rights
and remedies of any Borrower  under,  and all moneys and claims for money due or
to become due to any Borrower  under (a) all insurance  agreements  and policies
under  which such  Borrower is an insured,  beneficiary  or loss payee,  (b) all
agreements,  if any,  between any  Borrower  and the issuers of credit  cards or
processors/servicers  of credit  card  receipts  and(c) any and all  amendments,
supplements,  extensions and renewals of the foregoing  agreements,  and any and
all  financing  statements  filed by any Borrower on  collateral  securing  such
rights,  remedies,  moneys and claims for money due or to become due thereunder,
including all rights and claims of any Borrower now or hereafter  existing:  (i)
under any insurance, indemnities,  warranties, liens and guarantees provided for
or arising out of or in connection  with any of the foregoing  agreements;  (ii)
for any damages  arising out of or for breach or default  under or in connection
with any of the  foregoing  agreements;  (iii) to all other amounts from time to
time  paid  or  payable  under  or in  connection  with  any  of  the  foregoing
agreements;  or (iv) to  exercise or enforce  any and all  covenants,  remedies,
powers and privileges thereunder.

                  "Assignee" has the meaning specified in Section 13.3(a).



<PAGE>    4



                  "Assignment  and  Acceptance"  has the  meaning  specified  in
Section 13.3(a).

                  "Attorney  Costs"  means and  includes  all  reasonable  fees,
expenses and  disbursements of any law firm or other external counsel engaged by
the Agent,  the allocated  cost of internal  legal services of the Agent and all
expenses and disbursements of internal counsel of the Agent.

                  "Availability"  means, at any time of  determination,  for any
Borrower,  (a) the lesser of (i) the Maximum  Revolver Amount or (ii) the sum of
(A)  eighty-five  percent  (85%) of the Net Amount of Eligible  Accounts of such
Borrower;  plus (B) fifty-eight percent (58%) of the value of Eligible Inventory
of  such  Borrower;  minus  (b)  the  sum of (i) the  unpaid  balance  of  Loans
outstanding at such time to such Borrower,  (ii) the aggregate amount of Pending
Revolving  Loans  requested at such time by such  Borrower,  (iii) the aggregate
undrawn  amount of all  outstanding  Letters of Credit  issued on behalf of such
Borrower,  (iv) the aggregate amount of all unpaid reimbursement  obligations in
respect of the  Letters  of Credit  issued on behalf of such  Borrower,  (v) all
Environmental  Compliance  Reserves  established  with respect to such Borrower,
(vi) all  Landlord's  Lien  Waiver  Reserves  established  with  respect to such
Borrower,  and (vii) all other reserves  which the Agent deems  necessary in the
exercise of its Permitted Discretion to maintain with respect to such Borrower's
account, including reserves for any amounts which the Agent or any Lender may be
obligated to pay in the future for the account of such Borrower.

                  "Availability   Certificate"  has  the  meaning  specified  in
Section 6.7(c).

                  "Avatex  Corporation"  means  Avatex  Corporation,  a Delaware
Corporation.

                  "BABC Loan" and "BABC  Loans" have the  meanings  specified in
Section 2.2(h).
       
                  "Bank of  America"  means Bank of America  National  Trust and
Savings  Association,  a national banking  association,  or any successor entity
thereto.

                  "Bankruptcy Code" means Title 11 of the United States Code (11
U.S.C. ss. 101 et seq.), as amended.

                  "Bankruptcy Court" has the meaning specified in the Recitals.

                  "Borrowing"   means  a  borrowing   hereunder   consisting  of
Revolving  Loans made on the same day by the Lenders to any Borrower (or by BABC
in the case of a Borrowing funded by BABC Loans or by the Agent in the case of a
Borrowing consisting of an Agent Advance).

                  "Business  Day"  means  (a)  any day  that is not a  Saturday,
Sunday,  or a day on  which  banks  in New  York,  New  York  or San  Francisco,
California,  are required or permitted to be closed, and (b) with respect to all
notices, determinations, fundings and



<PAGE>    5



payments in  connection  with the LIBOR Rate or LIBOR  Loans,  any day that is a
Business  Day  pursuant  to  clause  (a)  above  and that is also a day on which
trading is carried on by and between banks in the London interbank market.

                  "Capital Adequacy Regulation" means any guideline,  request or
directive of any central bank or other Governmental Authority, or any other law,
rule or  regulation,  whether  or not  having  the force of law,  in each  case,
regarding capital adequacy of any bank or of any corporation controlling a bank.

                  "Capital  Expenditures" means all payments due (whether or not
paid)  during  a  Fiscal  Year in  respect  of the  cost of any  fixed  asset or
improvement,  or replacement,  substitution,  or addition  thereto,  which has a
useful life of more than one year,  including  those costs arising in connection
with the  direct  or  indirect  acquisition  of such  asset by way of  increased
product  or  service  charges or offset  items or in  connection  with a Capital
Lease. For the purposes hereof, payments due for the acquisition by any Borrower
of rental video cassette tapes shall not constitute Capital Expenditures.

                  "Capital Lease" means any lease of property by Phar-Mor or any
of its Subsidiaries  which, in accordance with GAAP, is or should be capitalized
on the  consolidated  balance  sheet of  Phar-Mor or for which the amount of the
asset and liability thereunder,  as if so capitalized,  should be disclosed in a
footnote to such balance sheet.

                  "Change of Control"  means (i) the  occurrence  of one or more
sales,  transfers  or other  dispositions  of the common  stock or other  voting
securities  ("Capital  Stock") of Phar-Mor,  or securities  convertible  into or
exchangeable for such Capital Stock, or rights to acquire such Capital Stock, to
one or more  purchasers,  or (ii) the  occurrence of any other event,  such that
after, or as a direct result of, such sale, transfer,  disposition, or event (A)
any  "person"  or related  "group" of persons  (within  the  meaning of Sections
13(d)(3) and 14(d)(2) of the Exchange  Act),  other than the Avatex  Corporation
and its Affiliates, initially becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange  Act) of more than 50% of the total voting power of the
then outstanding Capital Stock of Phar-Mor  (calculated on a fully diluted basis
in  accordance  with GAAP (the  "Voting  Stock") or (B) any  "person" or related
"group" of persons (within the meaning of Sections  13(d)(3) and 14(d)(2) of the
Exchange  Act),  other than  Avatex  Corporation  and its  Affiliates,  acquires
directly or indirectly  the power to elect a majority of the directors  onto the
board of directors of Phar-Mor; provided that a Change of Control will be deemed
not to have  occurred if a "group"  becomes the ultimate  "beneficial  owner" of
more than 50% of the total voting power of the then outstanding Voting Stock, so
long  as a  majority  of  the  voting  power  of  the  Voting  Stock  ultimately
"beneficially  owned" by such "group" is ultimately  "beneficially owned" by the
Avatex Corporation and its Affiliates.

                  "Closing Date" means September 11, 1995.

                  "Closing Fee" has the meaning specified in Section 3.4.

                  "Code"  means the Internal  Revenue  Code of 1986,  as amended
from  time to time,  and any  successor  statute,  and  regulations  promulgated
thereunder.

                  "Collateral" has the meaning specified in Section 6.1.

                  "Collateral  Management  Fee"  has the  meaning  specified  in
Section 3.7.



<PAGE>    6



                  "Commitment"  means, at any time with respect to a Lender, the
principal  amount  set  forth  beside  such  Lender's  name  under  the  heading
"Commitment"  on the signature  pages of this Agreement or on the signature page
of the Assignment  and Acceptance  pursuant to which such Lender became a Lender
hereunder in accordance  with the provisions of Section 13.3, as such Commitment
may be adjusted from time to time in accordance  with the  provisions of Section
13.3,  and  "Commitments"  means,  collectively,  the  aggregate  amount  of the
commitments  of  all of the  Lenders,  which  as of  the  Closing  Date,  equals
$100,000,000.

                  "Confirmation  Order" means the Final Order of the  Bankruptcy
Court confirming the Plan of Reorganization.

                  "Contaminant" means any waste, pollutant, hazardous substance,
toxic substance,  hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.

                  "Continuation/Conversion  Date" has the meaning  specified  in
Section 3.2.

                  "Debt" means all liabilities,  obligations and indebtedness of
any Person,  of any kind or nature,  now or  hereafter  owing,  arising,  due or
payable,  howsoever  evidenced,  created,  incurred,  acquired or owing, whether
primary, secondary,  direct, contingent,  fixed or otherwise, and including: (a)
all obligations of such Person for borrowed  money,  (b) all obligations of such
Person evidenced by bonds,  debentures,  notes or similar instruments,  (c) such
Person's  trade  payables and  contractual  liabilities  and  obligations to its
suppliers,  vendors and customers;  (d) all  obligations  and liabilities of any
Person  secured by any Lien on such Person's  property,  even though such Person
shall not have  assumed or become  liable  for the  payment  thereof;  provided,
however, that all such obligations and liabilities which are limited in recourse
to such property  shall be included in Debt only to the extent of the book value
of such property as would be shown on a balance sheet of such Person prepared in
accordance  with GAAP; (e) all  obligations  or  liabilities  created or arising
under any Capital Lease or conditional  sale or other title retention  agreement
with respect to property used or acquired by such Person, even if the rights and
remedies of the lessor,  seller or lender thereunder are limited to repossession
of such property;  (f) all obligations and liabilities  under Guaranties made by
such Person;  and (g) all  obligations  and  liabilities  under any swap, cap or
other financial arrangement.

                  "Default"  means any  event or  circumstance  which,  with the
giving of notice,  the lapse of time, or both,  would (if not cured or otherwise
remedied during such time) constitute an Event of Default.

                  "Default Rate" means a fluctuating  per annum interest rate at
all  times  equal  to the  sum of (a) the  otherwise  applicable  Interest  Rate
(calculated,  in the case of LIBOR Loans, as if the Applicable  Margin in effect
was at all times equal to two  percent  (2%)) plus (b) two  percent  (2%).  Each
Default Rate shall be adjusted  simultaneously with any change in the applicable
Interest  Rate.  In  addition,  with  respect  to  Letters  of  Credit  not cash
collateralized  pursuant  to  Section  2.3(i),  the  Default  Rate shall mean an
increase in the Letter of Credit Fee by two percent (2%).

                  "Distribution" means, in respect of any corporation or limited
liability  company:  (a)  the  payment  or  making  of  any  dividend  or  other
distribution of property in respect of capital stock or other capital  interests
(or any options or warrants for such stock or other



<PAGE>    7



capital interests) of such corporation or limited liability company,  other than
distributions  in capital  stock or other  capital  interests (or any options or
warrants for such stock or other capital  interests)  of the same class;  or (b)
the redemption, purchase, retirement or other acquisition of, or any defeasance,
sinking fund payment or other  setting aside of funds in respect of, any capital
stock or other  capital  interests (or any options or warrants for such stock or
units or other capital stock) of such corporation or limited liability company.

                  "DOL"  means  the  United  States  Department  of Labor or any
successor department or agency.

                  "Dollar" and "$" means  dollars in the lawful  currency of the
United States.

                  "Effective  Date"  has the  meaning  given to that term in the
Plan of Reorganization.  The Effective Date shall occur on or not later than the
Closing Date.

                  "Eligible  Accounts"  means all Accounts of any Borrower which
the Agent in the exercise of its Permitted Discretion  determines to be Eligible
Accounts.  Without  limiting  the  discretion  of the Agent to  establish  other
criteria of ineligibility, Eligible Accounts shall not include any Account:

                  (a) with respect to which more than 90 days have elapsed since
the date of the original invoice therefor or it is more than 60 days past due;

                  (b)  with  respect  to  which  any  of  the   representations,
warranties,  covenants,  and agreements contained in Section 6.8 are not or have
ceased to be complete and correct or have been breached;

                  (c) with  respect  to  which,  in  whole or in part,  a check,
promissory note, draft,  trade acceptance or other instrument for the payment of
money has been received,  presented for payment and returned uncollected for any
reason;

                  (d) as to which any one or more of the  following  events  has
occurred with respect to the Account  Debtor on such Account:  death or judicial
declaration  of  incompetency  of an Account  Debtor who is an  individual;  the
filing  by  or  against  the  Account  Debtor  of  a  request  or  petition  for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt,  winding-up,  or other relief  under the  bankruptcy,  insolvency,  or
similar  laws of the  United  States,  any state or  territory  thereof,  or any
foreign  jurisdiction,  now or  hereafter  in effect;  the making of any general
assignment by the Account Debtor for the benefit of creditors;  the  appointment
of a receiver or trustee for the Account  Debtor or for any of the assets of the
Account  Debtor,  including  the  appointment  of  or  taking  possession  by  a
"custodian,"  as defined in the Bankruptcy  Code; the  institution by or against
the  Account  Debtor of any  other  type of  insolvency  proceeding  (under  the
bankruptcy  laws of the United States or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of,  settlement of claims against,
or winding up of  affairs  of, the  Account  Debtor;  the sale,  assignment,  or
transfer of all or any material  part of the assets of the Account  Debtor;  the
nonpayment  generally by the Account  Debtor of its debts as they become due; or
the cessation of the business of the Account Debtor as a going concern;

                  (e) if fifty  percent  (50%) or more of the  aggregate  dollar
amount of



<PAGE>    8



outstanding  Accounts  owed  at such  time  by the  Account  Debtor  thereon  is
classified as ineligible  under the other criteria set forth herein or otherwise
established by the Agent;

                  (f) owed by an Account Debtor which: (i) does not maintain its
chief  executive  office in the United States;  (ii) is not organized  under the
laws of the United States or any state  thereof;  or (iii) is the  government of
any foreign country or sovereign state, or of any state, province, municipality,
or other political  subdivision  thereof, or of any department,  agency,  public
corporation,  or other instrumentality  thereof;  except to the extent that such
Account is secured or payable by a letter of credit satisfactory to the Agent in
its discretion;

                  (g)  owed  by an  Account  Debtor  which  is an  Affiliate  or
employee of the Borrower;

                  (h) as to which  either  the  perfection,  enforceability,  or
validity of the Agent's Lien in such Account, or the Agent's right or ability to
obtain direct payment to the Agent of the proceeds of such Account,  is governed
by any federal,  state, or local statutory  requirements other than those of the
UCC;

                  (i) which is owed by an Account  Debtor to which such Borrower
is indebted in any way, or which is subject to any right of setoff or recoupment
by the Account  Debtor,  unless the Account Debtor has entered into an agreement
acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon
has disputed  liability or made any claim with respect to any other  Account due
from such  Account  Debtor;  but in each  such  case only to the  extent of such
indebtedness, setoff, recoupment, dispute, or claim;

                  (j) which is owed by the  government  of the United  States of
America, or any department, agency, public corporation, or other instrumentality
thereof;

                  (k)  which  is  owed  by any  state,  municipality,  or  other
political  subdivision  of the  United  States of  America,  or any  department,
agency, public corporation, or other instrumentality thereof;

                  (l) which  represents  a sale on a  bill-and-hold,  guaranteed
sale, sale and return,  sale on approval,  consignment,  or other  repurchase or
return basis;

                  (m)  which  is  evidenced  by  a  promissory   note  or  other
instrument or by chattel paper;

                  (n) if the Agent  believes,  in the exercise of its reasonable
judgment,  that the prospect of  collection  of such Account is impaired or that
the  Account  may  not be paid  by  reason  of the  Account  Debtor's  financial
inability to pay;

                  (o) with respect to which the Account Debtor is located in the
states of New Jersey,  Minnesota,  Indiana,  West  Virginia,  or any other state
requiring  the filing of a  "Business  Activity  Report" or similar  document in
order to bring suit or  otherwise  enforce a  Borrower's  remedies  against such
Account  Debtor in the courts or through  any  judicial  process of such  state,
unless such  Borrower  has  qualified  to do business in New Jersey,  Minnesota,
Indiana, West Virginia, or such other states, or has filed a "Notice of Business
Activities Report" with the applicable  division of taxation,  the department of
revenue, or with such other state offices, as appropriate,  for the then-current
year, or is exempt from such filing requirement;



<PAGE>    9



                  (p) which arises out of a sale not made in the ordinary course
of such Borrower's business;

                  (q) as to which the goods giving rise to such Account have not
been shipped and delivered to and accepted by the Account Debtor or the services
giving rise to such Account have not been  performed  by such  Borrower  and, if
applicable,  accepted by the Account  Debtor,  or the Account Debtor revokes its
acceptance of such goods or services;

                  (r) which  arises out of a  contract  or order  which,  by its
terms, forbids,  restricts or makes void or unenforceable the granting of a Lien
by such Borrower to the Agent with respect to such Account;

                  (s)  which is owed by an  Account  Debtor  that is a vendor or
supplier to such Borrower or any of its Subsidiaries or Affiliates; or

                  (t) which is not  subject to a first  priority  and  perfected
security interest in favor of the Agent for the benefit of the Lenders.

                  If any Account at any time ceases to be an Eligible Account by
reason  of any of the  foregoing  exclusions  or any  failure  to meet any other
eligibility  criteria  established by the Agent in the exercise of its Permitted
Discretion  then such Account shall promptly be excluded from the calculation of
Eligible Accounts.

                  "Eligible  Inventory" means Inventory of any Borrower,  valued
at the lower of cost (determined on a first-in, first-out basis) or market, that
constitutes  undamaged first quality  finished goods and that: (a) is located at
the  Premises  or on  premises  otherwise  reasonably  acceptable  to the Agent,
provided,  however,  that Inventory  located on premises leased to such Borrower
shall not be Eligible Inventory unless such Borrower shall have delivered to the
Agent (i) a copy  certified  by a  Responsible  Officer of a current and legally
valid,  binding  and  enforceable  lease  agreement  relating  to such  premises
containing  a landlord's  lien waiver in form and  substance  acceptable  to the
Agent or (ii) an executed  landlord's lien waiver  substantially  in the form of
Exhibit 6.2(b) or otherwise in form and substance  acceptable to the Agent;  and
(b) is owned legally and  beneficially by such Borrower and upon which the Agent
for the benefit of the Lenders has a first priority perfected security interest.
Without  limiting  in any  way  the  Agent  in  the  exercise  of its  Permitted
Discretion to establish  other  criteria of  eligibility,  none of the following
shall constitute Eligible  Inventory:  Inventory in the possession of any Person
other than such Borrower;  work-in-process;  spare parts; packaging and shipping
materials;  supplies;  bill-and-hold  Inventory;  pre-paid,  returned,  held for
return or in- transit  Inventory (other than Inventory in transit between any of
the Premises); defective Inventory; perishable Inventory in excess of $5,000,000
or which is subject to a Lien;  out-of-  season  seasonal  Inventory;  Inventory
delivered  to  such  Borrower  on   consignment;   Inventory   subject  to  gift
certificates or merchandise credits; and any other Inventory which Agent, in the
exercise of its  Permitted  Discretion,  deems  ineligible  as the basis for any
Loan.  If any  Inventory  at any time  ceases  to be  Eligible  Inventory,  such
Inventory shall promptly be excluded from the calculation of Eligible Inventory.

                  "Environmental  Claims" means all claims, however asserted, by
any  Governmental  Authority or other  Person  alleging  potential  liability or
responsibility  for violation of any Environmental Law, or for release or injury
to the environment.



<PAGE>   10



                  "Environmental  Compliance  Reserve"  means any reserves which
the Agent,  after the Closing  Date,  establishes  from time to time for amounts
that are  reasonably  likely to be  expended  by any  Borrower in order for such
Borrower  and its  operations  and property (a) to comply with any notice from a
Governmental Authority asserting material non-compliance with Environmental Laws
or (b) to  correct  any  such  material  non-compliance  identified  in a report
delivered to the Agent and the Lenders pursuant to Section 9.6.

                  "Environmental  Laws" means all federal,  state or local laws,
statutes, common law duties, rules, regulations,  ordinances and codes, together
with  all   administrative   orders,   directed  duties,   requests,   licenses,
authorizations and permits of, and agreements with, any Governmental  Authority,
in each case relating to environmental, health, safety and land use matters.

                  "Environmental Lien" means a Lien in favor of any Governmental
Authority  for (a) any  liability  under any  Environmental  Laws or (b) damages
arising from, or costs incurred by such Governmental Authority in response to, a
Release or threatened Release of a Contaminant into the environment.

                  "Environmental  Property  Transfer  Act" means any  applicable
requirement  of law  that  conditions,  restricts,  prohibits  or  requires  any
notification  or  disclosure  triggered  by the  closure of any  property or the
transfer,  sale or lease of any  property or deed or title for any  property for
environmental   reasons,   including,   but  not  limited   to,  any   so-called
"Environmental  Cleanup  Responsibility Acts" or "Responsible  Property Transfer
Acts."

                  "Equipment"  means, with respect to any Borrower,  all of such
Borrower's now owned and hereafter  acquired  machinery,  equipment,  furniture,
furnishings,  fixtures,  leasehold  improvements  and  other  tangible  personal
property  (except  Inventory),   including  shelving,   displays,   units,  data
processing  hardware  and  systems,  motor  vehicles  with  respect  to  which a
certificate of title has been issued,  aircraft,  dies, tools,  jigs, and office
equipment,  as well as all of such types of property leased by such Borrower and
all of such  Borrower's  rights and  interests  with respect  thereto under such
leases  (including  options to  purchase);  together with all present and future
additions and accessions thereto, replacements therefor, component and auxiliary
parts  and  supplies  used  or to be  used  in  connection  therewith,  and  all
substitutes for any of the foregoing, and all manuals,  drawings,  instructions,
warranties  and rights with respect  thereto;  wherever any of the  foregoing is
located.

                  "ERISA" means the Employee  Retirement  Income Security Act of
1974, as amended, and regulations promulgated thereunder.

                  "ERISA  Affiliate" means any trade or business (whether or not
incorporated)  under  common  control  with any  Borrower  within the meaning of
Section  414(b) or (c) of the Code (and Sections  414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).

                  "ERISA  Event" means (a) a Reportable  Event with respect to a
Pension  Plan;  (b) a withdrawal by any Borrower or any ERISA  Affiliate  from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a  substantial  employer  (as  defined  in  Section  4001(a)(2)  of  ERISA) or a
cessation  of  operations  which is treated as such a withdrawal  under  Section
4062(e) of ERISA;  (c) a complete or partial  withdrawal  by any Borrower or any
ERISA Affiliate from a Multi-employer Plan or notification that a Multi-



<PAGE>   11



employer  Plan is in  reorganization;  (d) the  filing  of a notice of intent to
terminate, the treatment of a Plan amendment as a termination under Section 4041
or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Pension  Plan or  Multi-employer  Plan;  (e) an event or  condition  which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,  any Pension Plan
or Multi-employer Plan; or (f) the imposition of any liability under Title IV of
ERISA,  other than PBGC  premiums due but not  delinquent  under Section 4007 of
ERISA, upon any Borrower or any ERISA Affiliate.

                  "Event of Default" has the meaning specified in Section 11.1.

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended, and regulations promulgated thereunder.

                  "FDIC" means the Federal Deposit  Insurance  Corporation,  and
any Governmental Authority succeeding to any of its principal functions.

                  "Federal Funds Rate" means, for any day, the rate set forth in
the  weekly  statistical  release  designated  as  H.15(519),  or any  successor
publication,  published by the Federal Reserve Bank of New York for the Business
Day preceding such day opposite the caption "Federal Funds (Effective)";  or, if
for any  relevant  day such  rate is not so  published  for any  such  preceding
Business Day, the rate for such day will be the arithmetic mean as determined by
the Agent of the rates  for the last  transaction  in  overnight  Federal  funds
arranged  prior to 9:00 a.m.  (New York City  time) on that day by each of three
leading  brokers of Federal funds  transactions in New York City selected by the
Agent.

                  "Federal  Reserve  Board"  means the Board of Governors of the
Federal Reserve System or any successor thereto.

                  "Final  Order"  means an order or judgment,  the  operation or
effect of which has not been  stayed,  and as to which order or judgment (or any
revision,  modification or amendment thereof), the time to appeal or seek review
or  rehearing  has expired  and as to which,  in the  reasonable  opinion of the
Lenders,  no material  appeal or petition for review or rehearing has been taken
or is pending.

                  "Financial  Statements"  means,  according  to the  context in
which it is used, the consolidated financial statements for Phar-Mor dated as of
June 27, 1998 and for the period then ended, attached hereto as Schedule 1.1(A),
or any financial statements required to be given to the Lenders pursuant to this
Agreement.

                  "Fiscal Year" means each Borrower's  fiscal year for financial
accounting purposes.  The current Fiscal Year of each Borrower began on June 28,
1998, and will end on July 3, 1999.

                  "Funding  Date" means the date on which a Borrowing  occurs or
the date any Letter of Credit is issued hereunder.

                  "GAAP" means  generally  accepted  accounting  principles  set
forth from time to time in the opinions  and  pronouncements  of the  Accounting
Principles Board and the American  Institute of Certified Public Accountants and
statements and  pronouncements of the Financial  Accounting  Standards Board (or
agencies with similar functions of comparable stature



<PAGE>   12



and authority within the U.S.  accounting  profession),  which are applicable to
the circumstances as of the date of determination.

                  "General Intangibles" means all of the Borrowers' now owned or
hereafter  acquired general  intangibles,  choses in action and causes of action
and all other  intangible  personal  property of the Borrowers of every kind and
nature (other than Accounts), including all contract rights, Proprietary Rights,
corporate or other  business  records,  goodwill,  computer  software,  customer
lists,  registrations,  tax refund claims, any funds which may become due to any
Borrower  in  connection  with the  termination  of any  Plan or other  employee
benefit plan or any rights thereto and any other amounts payable to any Borrower
from any Plan or other employee benefit plan, rights and claims against carriers
and shippers,  rights to indemnification,  business  interruption  insurance and
proceeds  thereof,  property,  casualty or any similar type of insurance and any
proceeds  thereof,  including all  insurance  covering any  Collateral,  and any
letter of credit, guarantee,  claim, security interest or other security held by
or granted to any Borrower to secure payment by an Account Debtor of any of the
Accounts.

                  "Governmental  Authority" means any nation or government,  any
state or other  political  subdivision  thereof,  any  central  bank (or similar
monetary or regulatory  authority)  thereof,  any entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled,  through
stock or capital ownership or otherwise, by any of the foregoing.

                  "Guaranty" means, with respect to any Person,  all obligations
of such Person which in any manner  directly or indirectly  guarantee or assure,
or  in  effect   guarantee  or  assure,   the  payment  or  performance  of  any
indebtedness,  dividend or other obligation of any other Person (the "guaranteed
obligations"),  or assure  or in  effect  assure  the  holder of the  guaranteed
obligations  against loss in respect  thereof,  including  any such  obligations
incurred  through an agreement,  contingent  or  otherwise:  (a) to purchase the
guaranteed  obligations or any property constituting  security therefor;  (b) to
advance  or  supply  funds  for  the  purchase  or  payment  of  the  guaranteed
obligations or to maintain a working  capital or other balance sheet  condition;
or (c) to lease  property or to purchase any debt or equity  securities or other
property or services.

                  "Indemnified Liabilities" has the meaning specified in Section
15.11.

                  "Interest  Period"  means,  as to any LIBOR  Loan,  the period
commencing  on the Funding  Date of such Loan or on the  Conversion/Continuation
Date on which the Loan is  converted  into or  continued  as a LIBOR  Loan,  and
ending on the date one,  two,  or three  months  thereafter  as  selected by the
Borrower  in its  Notice of  Borrowing  or  Notice  of  Conversion/Continuation;
provided that:

                  (i) if any Interest  Period would  otherwise end on a day that
is not a Business Day,  that Interest  Period shall be extended to the following
Business Day unless the result of such extension would be to carry such Interest
Period into another  calendar  month,  in which event such Interest Period shall
end on the preceding Business Day; and

                  (ii) any Interest  Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month



<PAGE>   13



at the end of such  Interest  Period)  shall end on the last Business Day of the
calendar month at the end of such Interest Period; and

                  (iii) no Interest  Period shall extend beyond the  Termination
Date.

                  "Interest  Rate"  means  each  or any of the  interest  rates,
including the Default Rate, set forth in Section 3.1.

                  "Inventory"   means  all  of  the  Borrowers'  now  owned  and
hereafter acquired inventory,  goods, merchandise,  and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all returned goods, raw materials, other materials and supplies of any
kind,  nature or  description  which are or might be consumed in the  Borrowers'
businesses  or used in  connection  with  the  packing,  shipping,  advertising,
selling  or  finishing  of such  goods,  merchandise  and  such  other  personal
property, and all documents of title or other documents representing them.

                  "IRS" means the Internal  Revenue Service and any Governmental
Authority succeeding to any of its principal functions under the Code.

                  "Joint  and  Several  Guaranty"  means the  Joint and  Several
Guaranty,  dated as of  September  11, 1995,  and executed and  delivered by the
parties  thereto to the Agent and the Lenders under the Existing  Agreement,  as
amended under the Reaffirmation of Guaranty and Stock Pledge Agreement.

                  "Landlord's  Lien Waiver Reserve" means all reserves which the
Agent from time to time establishes in the good faith exercise of its reasonable
judgment at any time after the Closing  Date,  in an  aggregate  amount equal to
three (3) months  rental  payments  in respect  of any  leased  premises  of any
Borrower  unless the Agent and the Lenders  shall have received (a) with respect
to those Premises as to which no separate express  landlord's lien waiver exists
(which  Premises  are  indicated  on Schedule  1.1 (D)),  within one hundred and
eighty  (180) days from the Closing  Date,  a copy  certified  by a  Responsible
Officer of a current and legally valid,  binding and enforceable lease agreement
relating  to such  premises  containing  a  landlord's  lien  waiver in form and
substance  acceptable to the Agent or (b) a landlord's lien waiver substantially
in the form of Exhibit  6.2(b) or otherwise in form and substance  acceptable to
the Agent in respect of such leased premises.

                  "Latest  Projections"  means:  (a) on  the  Closing  Date  and
thereafter until the Agent receives new projections  pursuant to Section 7.2(e),
the  projections  of Phar-Mor's  balance  sheets,  and  statements of income and
expenses,  cash flow and stockholders'  equity, on a consolidated  basis for the
period  commencing on July 2, 1995 and ending on June 29, 1996, and delivered to
the Agent prior to the Closing Date; and (b) thereafter,  the  projections  most
recently received by the Agent pursuant to Section 7.2(e).

                  "L/C  Issuer"  means Bank of  America  or any other  issuer of
Letters of Credit acceptable to the Agent and Phar-Mor.

                  "Lender" and "Lenders" mean the financial  institutions listed
on the signatory  pages hereof,  together with their  respective  successors and
assigns,  and  shall  include  the  Agent to the  extent  of any  Agent  Advance
outstanding and BABC to the extent of any BABC Loan  outstanding;  provided that
no such Agent Advance or BABC Loan shall be taken into



<PAGE>   14



account in determining the Majority Lenders or any Lender's Pro Rata Share.

                  "Letter  of  Credit"  has the  meaning  specified  in  Section
2.3(a).

                  "Letter of Credit  Fee" has the meaning  specified  in Section
3.6.

                  "LIBOR Interest  Payment Date" means,  with respect to a LIBOR
Loan, the last day of each Interest  Period  applicable to such Loan, and in the
case of a two-month LIBOR Loan, the last Business Day of the first month of such
loan, and in the case of a three-month LIBOR Loan, the last Business Day of each
of the first and second month of such loan.

                  "LIBOR Loan" means a Revolving Loan during any period in which
it bears interest at the LIBOR Rate.

                  "LIBOR Rate" means, for any Interest  Period,  with respect to
LIBOR Loans  comprising  part of the same  Borrowing,  the rate of interest  per
annum  (rounded  upward to the next 1/16th of 1.0%)  determined  by the Agent as
follows:

                  LIBOR Rate =               LIBOR 
                               ------------------------------------
                               1.00 - Eurodollar Reserve Percentage

                  Where,

                        "Eurodollar  Reserve  Percentage"  means for any day for
                  any Interest Period the maximum reserve percentage  (expressed
                  as a decimal,  rounded  upward to the next 1/100th of 1.0%) in
                  effect on such day (whether or not  applicable  to any Lender)
                  under  regulations  issued  from  time to time by the  Federal
                  Reserve Board for determining the maximum reserve  requirement
                  (including  any  emergency,  supplemental  or  other  marginal
                  reserve  requirement)  with  respect to  Eurocurrency  funding
                  (currently referred to as "Eurocurrency liabilities"); and

                        "LIBOR"  means the rate of interest  per annum  (rounded
                  upward to the next 1/16 of 1%)  notified  to the Agent by Bank
                  of America as the rate of interest at which dollar deposits in
                  the  approximate  amount  of  the  Borrowing  to  be  made  or
                  continued as, or converted  into, a LIBOR Borrowing and having
                  a maturity comparable to such Interest Period would be offered
                  by Bank of America's  applicable lending office to major banks
                  in the London  eurodollar  market at approximately  11:00 a.m.
                  (London time) two Business Days prior to the  commencement  of
                  such Interest Period.

                  "Lien"  means:  (a)  any  interest  in  property  securing  an
obligation  owed  to,  or a claim  by,  a Person  other  than  the  owner of the
property,  whether  such  interest  is  based on the  common  law,  statute,  or
contract, and including a security interest, charge, claim, or lien arising from
a  mortgage,  deed of trust,  encumbrance,  pledge,  hypothecation,  assignment,
deposit arrangement,  agreement,  security agreement,  conditional sale or trust
receipt  or a lease,  consignment  or  bailment  for  security  purposes  or any
nonterminated  or  unreleased  financing  statement;  and (b) to the  extent not
included under clause (a), any reservation,  exception, encroachment,  easement,
right-of-way,  covenant, condition,  restriction, lease or other title exception
or encumbrance affecting property.



<PAGE>   15



                  "Loan Account"  means any loan account for any Borrower,  each
of which shall be maintained with the Agent.

                  "Loan Documents"  means this Agreement,  the Joint and Several
Guaranty,   the  Payment  Account  Agreement,   Short-Form   Trademark  Security
Agreement,  the Stock Pledge  Agreement,  each Supplemental  Trademark  Security
Agreement,  the Trademark  Assignment,  the  Reaffirmation of Guaranty and Stock
Pledge Agreement and any other agreements, instruments and documents heretofore,
now or hereafter evidencing, securing, guaranteeing or otherwise relating to the
Obligations,   the  Collateral,   or  any  other  aspect  of  the   transactions
contemplated by this Agreement.

                  "Loans" means, collectively, all loans and advances, including
BABC Loans and Agent Advances, provided for in Article 2.

                  "Majority  Lenders"  means,  at any time (a) the Lenders whose
Pro Rata Shares  aggregate at least 66 2/3% of the  Commitments or (b) if BABC's
Pro Rata Share is less than 50% of the Commitments,  the Lenders, which shall in
no event be less than two (2), whose Pro Rata Shares  aggregate more than 50% of
the Commitments.

                  "Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Federal Reserve Board.

                  "Material  Adverse Change" means (a) a material adverse change
in the operations, business, properties or condition (financial or otherwise) of
Phar-Mor  and its  Subsidiaries  taken  as a whole  or the  Collateral  or (b) a
material  adverse  change upon (i) the  legality,  validity,  binding  effect or
enforceability  against  any  Borrower  of any  material  provision  of any Loan
Document or (ii) the ability of the Agent or the Majority Lenders to enforce any
of their rights under any Loan Document against any Borrower.

                  "Maximum Rate" has the meaning specified in Section 3.3.

                  "Maximum Revolver Amount" means $100,000,000.

                  "Merchandise  Letter of Credit" means a documentary  Letter of
Credit  issued for the account of any Borrower to provide the intended  means of
making  payment when due by such  Borrower  for the  purchase of  Inventory  and
available for drawing against presentation of, inter alia,  negotiable documents
of title covering such Inventory.

                  "Multi-employer Plan" means a "multi-employer plan" as defined
in Section  4001(a)(3)  of ERISA  which is or was at any time during the current
year or the immediately  preceding six (6) years  contributed to by any Borrower
or any ERISA Affiliate.

                  "Net  Amount of Eligible  Accounts"  means,  at any time,  the
gross amount of Eligible Accounts less sales,  excise or similar taxes, and less
returns,  discounts,  claims,  credits and  allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.

                  "Net  Worth"  means,  at any date:  (a) the book value  (after
deducting related depreciation, obsolescence, amortization, valuation, and other
proper  reserves as determined  in accordance  with GAAP) at which the assets of
Phar-Mor and its Subsidiaries would be shown on a consolidated  balance sheet of
Phar-Mor and its Subsidiaries at such date prepared in



<PAGE>   16



accordance  with GAAP  (excluding  any  write up in the book  value of any fixed
assets  resulting from a revaluation  effective after April 30, 1996);  less (b)
the amount at which Phar-Mor and its Subsidiaries' liabilities would be shown on
such balance sheet,  including as liabilities  which,  in accordance  with GAAP,
would be shown on such balance sheet.

                  "Notice of  Borrowing"  has the meaning  specified  in Section
2.2(b).

                  "Notice of Continuation/Conversion"  has the meaning specified
in Section 3.2(b).

                  "Obligations"  means all present and future  loans,  advances,
liabilities, obligations, covenants, duties, and debts, owing by any Borrower to
the Agent  and/or  any  Lender,  arising  under or  pursuant  to any of the Loan
Documents,  whether  or not  evidenced  by any  note,  or  other  instrument  or
document,  whether  arising from an extension of credit,  opening of a letter of
credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct
or  indirect  (including  those  acquired by  assignment  from  others,  and any
participation  by the Agent and/or any Lender in any  Borrower's  debts owing to
others), absolute or contingent,  due or to become due, primary or secondary, as
principal  or  guarantor,  and  including  all  principal,   interest,  charges,
expenses,  fees,  attorneys' fees,  filing fees and any other sums chargeable to
any of the Borrowers under any of the Loan Documents.

                  "Other Taxes" means any present or future stamp or documentary
taxes or any other  excise or property  taxes,  charges or similar  levies which
arise  from any  payment  made  hereunder  or from the  execution,  delivery  or
registration of, or otherwise with respect to, any of the Loan Documents.

                  "Participating  Lender"  means any  Person who shall have been
granted the right by any Lender to participate in the financing provided by such
Lender under this  Agreement,  and who shall have  entered into a  participation
agreement in form and substance satisfactory to such Lender.

                  "Payment  Account"  means an account  in the name of  Phar-Mor
maintained on behalf of all the Borrowers at PNC Bank National  Association or a
bank  acceptable  to the Agent which has  executed a Payment  Account  Agreement
acceptable to the Agent,  into which  collections of Accounts and other proceeds
of Inventory and other Collateral are deposited as described in Section 6.9.

                  "Payment  Account  Agreement"  has the  meaning  specified  in
Section 6.9.

                  "PBGC" means the Pension Benefit  Guaranty  Corporation or any
Governmental Authority succeeding to the functions thereof.

                  "Pending Revolving Loans" means, at any time, for any Borrower
the aggregate principal amount of all Revolving Loans requested by such Borrower
in any  Notice(s)  of  Borrowing  received  by the Agent which have not yet been
advanced.

                  "Pension Plan" means, with respect to any Borrower,  a pension
plan (as  defined in Section  3(2) of ERISA)  subject to Title IV of ERISA which
such  Borrower  sponsors,  maintains,  or to which it makes,  is  making,  or is
obligated to make  contributions,  or in the case of a  Multi-employer  Plan has
made  contributions  at any time during the  immediately  preceding six (6) plan
years.



<PAGE>   17



                  "Permitted  Acquisitions" has the meaning specified in Section
9.20.

                  "Permitted  Discretion" means the Agent's  reasonable and good
faith judgment  based upon any factor which it believes in good faith:  (a) will
or could adversely  affect the value of any Collateral,  the  enforceability  or
priority of the Agent's Liens and security interests with respect thereto or the
amount which the Agent would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the collection or liquidation of,
or realization upon, such Collateral; (b) suggests that any collateral report or
financial  information  delivered  to the  Agent by any  Person on behalf of any
Borrower is incomplete,  inaccurate or misleading in any material  respect;  (c)
materially  increases the  likelihood of a bankruptcy,  reorganization  or other
insolvency proceeding involving any Borrower or any Subsidiary thereof or any of
the  Collateral;  or (d)  creates or  reasonably  could be expected to create or
result  in an Event of  Default.  In  exercising  such  judgment,  the Agent may
consider  such  factors  already  included  in or tested by the  definitions  of
Eligible Accounts or Eligible  Inventory,  as well as any of the following:  (i)
changes in any  concentration  of risk with respect to Accounts or Inventory and
(ii) any other factors that change the credit risk of lending to any Borrower on
the security of the Collateral. The burden of establishing lack of good faith or
the lack of the Agent's  reasonableness  shall be on the applicable  Borrower or
Lender, as the case may be.

                  "Permitted Liens" means:

                  (a) the Agent's Liens;

                  (b)  Liens  for  taxes  not  delinquent  or  for  taxes  being
contested in good faith by appropriate  proceedings diligently pursued and as to
which  adequate  financial  reserves  have been  established  on the  applicable
Borrower's  books and records and a stay of  enforcement  of any such Lien is in
effect.

                  (c)  deposits   under  worker's   compensation,   unemployment
insurance,  social security and other similar laws, or to secure the performance
of bids,  tenders or contracts  (other than for the repayment of borrowed money)
or to secure  indemnity,  performance or other similar bonds for the performance
of bids,  tenders or contracts  (other than for the repayment of borrowed money)
or to secure  statutory  obligations  (other than liens  arising  under ERISA or
Environmental  Liens)  or  surety  or  appeal  bonds,  or to  secure  indemnity,
performance or other similar bonds in the ordinary course of business;

                  (d) Liens  securing  the  claims or  demands  of  materialmen,
mechanics,  carriers,  warehousemen,  landlords and other like Persons, provided
that the payment thereof is not at the time required by Section 9.1;

                  (e) Reservations, exceptions, encroachments, easements, rights
of way,  covenants  running with the land, and other similar title exceptions or
encumbrances  affecting  any  Real  Estate;  provided  that  they  do not in the
aggregate  materially  detract  from the value of the Real Estate or  materially
interfere with its use in the ordinary conduct of the business of any Borrower;

                  (f) Judgment and other  similar  Liens  arising in  connection
with court  proceedings;  provided that (i) the existence of such Liens is being
contested in good faith and by appropriate  proceedings diligently pursued, (ii)
adequate financial reserves have been



<PAGE>   18



established  on the  applicable  Borrower's  books and records,  (iii) a stay of
enforcement of any such Liens is in effect,  (iv) the priority of any such Liens
is  subordinate  to that of the  Agent's  Liens,  and (v) the  existence  of any
judgment or court proceedings upon which such Liens are based does not otherwise
constitute an Event of Default under this Agreement;
           
                  (g) Liens in effect on the  Effective  Date,  including  Liens
granted or assumed by any Borrower  pursuant to and in accordance  with the Plan
of  Reorganization,  in each case as set forth on Schedule 1.1 (B) and the Liens
set forth on Schedule 6.4;

                  (h) [Intentionally Omitted];

                  (i) Liens upon assets  granted or assumed in  connection  with
the acquisition of such assets by any Borrower after the Closing Date;  provided
that (i) the Debt  incurred to finance  each such  acquisition  is  permitted by
Section  9.11 and (ii) each such Lien  attaches  (A)  within  180 days after the
acquisition  of such  assets and (B) only to the assets  acquired  with the Debt
secured thereby.

                  "Person"   means   any   individual,    sole   proprietorship,
partnership,  joint venture,  trust,  limited liability company,  unincorporated
organization,  association,  corporation,  Governmental  Authority, or any other
entity.

                  "Plan"  means an employee  benefit plan (as defined in Section
3(3) of  ERISA)  which any  Borrower  sponsors  or  maintains  or to which  such
Borrower makes, is making,  or is obligated to make  contributions  and includes
any Pension Plan.

                  "Plan of  Reorganization"  has the  meaning  specified  in the
Recitals.

                  "Premises" means the stores, warehouses and land identified by
addresses on Schedule  1.1(D),  together with all buildings,  improvements,  and
fixtures thereon and all tenements,  hereditaments,  and appurtenances belonging
or in any way  appertaining  thereto,  and  which  constitutes  all of the  real
property  in which any  Borrower  or any  Subsidiary  has any  interests  on the
Closing Date.

                  "Property"  means, as to any Person,  any interest in any kind
of property or asset  owned,  leased or operated by such Person,  whether  real,
personal or mixed, or tangible or intangible.

                  "Proprietary Rights" means all of the Borrowers' now owned and
hereafter   Acquired:   trademarks   (including   service  marks,  brand  names,
certification  marks,  collective  marks,  trade dress and trade  names;  to the
extent that security  interests  under  applicable law may be granted,  licenses
(including  licenses and alcoholic beverage  licenses),  franchises and permits;
all extensions,  renewals and reissues of each of the foregoing; all goodwill of
the Borrowers' businesses related to each of the foregoing; with respect to each
of the foregoing,  all proceeds  (including all income,  royalties,  damages and
payments) now or hereafter due and/or payable, and the right to receive any such
proceeds,  including  damages  and  payments  for any  past,  present  or future
infringements  or  misappropriations  thereof;  and all  rights to sue for past,
present and future infringements or misappropriations of each of the foregoing.

                  "Pro Rata Share" means,  with respect to a Lender,  a fraction
(expressed



<PAGE>   19



as a  percentage),  the  numerator  of  which  is the  amount  of such  Lender's
Commitment and the  denominator of which is the sum of the amounts of all of the
Lenders' Commitments.

                  "Reaffirmation  of Guaranty and Stock Pledge  Agreement" means
the Reaffirmation of Guaranty and Stock Pledge  Agreement,  dated as of the date
of this Agreement,  and delivered by the Borrowers party thereto to Agent on the
effective date of this Agreement.

                  "Real Estate" means all of the present and future interests of
any Borrower, as owner, lessee,  sublessee or otherwise, in any of the Premises,
including any interest  arising from an option to purchase or lease the Premises
or any portion thereof.

                  "Reference  Rate" means,  for any day, the rate of interest in
effect for such day as publicly  announced  from time to time by Bank of America
in San Francisco,  California,  as its "reference  rate" (the  "reference  rate"
being a rate set by Bank of America based upon various factors including Bank of
America's  costs and  desired  return,  general  economic  conditions  and other
factors,  and is used as a reference point for pricing some loans,  which may be
priced at, above,  or below such  announced  rate).  Any change in the reference
rate  announced by Bank of America  shall take effect at the opening of business
on the day specified in the public  announcement  of such change.  Each Interest
Rate based upon the  Reference  Rate shall be adjusted  simultaneously  with any
change in the Reference Rate.

                  "Reference Rate Loan" means a Revolving Loan during any period
in which it bears interest at the Reference Rate.

                  "Release" means a release, spill, emission,  leaking, pumping,
injection, deposit, disposal,  discharge,  dispersal, leaching or migration of a
Contaminant  into the indoor or outdoor  environment  or into or out of any Real
Estate or other property,  including the movement of Contaminants  through or in
the air, soil, surface water, groundwater or Real Estate or other property.

                  "Reportable  Event"  means,  any of the  events  set  forth in
Section  4043(c)  of ERISA or the  regulations  thereunder,  other than any such
event for which the 30-day  notice  requirement  under  ERISA has been waived in
regulations issued by the PBGC.

                  "Reports" has the meaning specified in Section 14.15.

                  "Requirement  of  Law"  means,  as  to  any  Person,  any  law
(statutory  or  common),  treaty,  rule or  regulation  or  determination  of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the  Person or any of its  property  or to which  the  Person or any of its
property is subject.

                  "Responsible  Officer" means the chief executive officer,  the
chief  financial  officer,  the president or the  treasurer of Phar-Mor,  or any
other officer having  substantially the same authority and  responsibility;  or,
with respect to compliance with financial covenants, the chief financial officer
or the treasurer of Phar-Mor, or any other officer having substantially the same
authority and responsibility.

                  "Restricted  Investment"  means any acquisition of property by
any Borrower in exchange for cash or other  property,  whether in the form of an
acquisition of stock, debt, or other indebtedness or obligation, or the purchase
or acquisition of any other property, or a loan, advance,  capital contribution,
or subscription, except acquisitions of the following:



<PAGE>   20



(a)  assets  to be  used  in the  business  of  such  Borrower  so  long  as the
acquisition  costs  thereof   constitute   Permitted   Acquisitions  or  Capital
Expenditures permitted hereunder; (b) goods held for sale or lease or to be used
by such Borrower in the ordinary course of business;  (c) current assets arising
from the sale or lease of goods or the  rendition  of services  in the  ordinary
course of  business  of such  Borrower;  and (d) (i) direct  obligations  of the
United States of America,  or any agency thereof,  or obligations  guaranteed by
the United States of America,  provided that such obligations  mature within one
year from the date of acquisition thereof, (ii) repurchase agreements secured by
the obligations  described in the preceeding  clause (i), (iii) securities of an
open-ended management investment company registered under the Investment Company
Act of  1940,  as  amended,  of which  75% of its  assets  comprise  obligations
described in clauses (i) and (ii) above,  (iv)  certificates of deposit maturing
within one year from the date of acquisition,  bankers' acceptances,  Eurodollar
bank deposits,  or overnight bank deposits,  in each case issued by, created by,
or with a bank or trust company organized under the laws of the United States or
any state  thereof and the  unsecured  debt  securities of which are rated A+ or
better by  Standard & Poor's  Corporation  or A1 or better by Moody's  Investors
Service,  Inc.,  and (v)  commercial  paper  given a rating of "A2" or better by
Standard & Poor's  Corporation or "P2" or better by Moody's  Investors  Service,
Inc. and maturing not more than 90 days from the date of creation thereof.

                  "Revolving Loans" has the meaning specified in Section 2.2(a).

                  "Settlement" has the meaning specified in Section 2.2(j).

                  "Settlement Date" has the meaning specified in Section 2.2(j).

                  "Short-Form Trademark Security Agreement" means the Short-Form
Trademark Security  Agreement,  dated as of September 11, 1995, and executed and
delivered  by the  Borrowers  party  thereto  to the Agent  under  the  Existing
Agreement, and any Short-Form Trademark Security Agreement, substantially in the
form of Exhibit  1.1.(B),  executed and delivered by the Borrowers party thereto
to the Agent on or after the date of this Agreement.

                  "Solvent"  means when used with respect to any Person that (a)
the fair value of all its  assets is in excess of the total  amount of its debts
(including  contingent  liabilities);  (b) it is able to pay its  debts  as they
mature;  (c) it does not have  unreasonably  small  capital for the  business in
which it is engaged or for any business or  transaction  in which it is about to
engage; and (d) it is not "insolvent" as such term is defined in Section 101(32)
of the Bankruptcy Code.

                  "Standby  Letter of Credit"  means any Letter of Credit  other
than a Merchandise Letter of Credit.

                  "Stated Termination Date" means September 10, 2001.

                  "Stock  Pledge  Agreement"  means the Stock Pledge  Agreement,
dated as of September  11, 1995,  and executed and  delivered by Phar-Mor to the
Agent under the Existing Agreement,  as amended by the Reaffirmation of Guaranty
and Stock Pledge Agreement dated as of the date of this Agreement.

                  "Subsidiary"   means  any  corporation  or  limited  liability
company of which more than fifty percent (50%) of the outstanding  securities of
any class or classes, the holders



<PAGE>   21



of which are ordinarily,  in the absence of  contingencies,  entitled to elect a
majority of the corporate  directors (or Persons performing similar  functions),
is at the time, directly or indirectly through one or more intermediaries, owned
by any Borrower and/or one or more of its Subsidiaries.

                  "Supplemental   Trademark   Security   Agreement"   means  any
Supplemental Trademark Security Agreement,  substantially in the form of Exhibit
1.1(D), executed and delivered from time to time by any Borrower to the Agent.

                  "Taxes"  means any and all  present or future  taxes,  levies,
imposts, deductions,  charges or withholdings,  and all liabilities with respect
thereto,  excluding,  in the  case of each  Lender  and the  Agent,  such  taxes
(including  income  taxes or  franchise  taxes) as are imposed on or measured by
each  Lender's  net income by the  jurisdiction  (or any  political  subdivision
thereof)  under the laws of which such Lender or the Agent,  as the case may be,
is organized or maintains a lending office.

                  "Termination  Date"  means  the  earliest  to occur of (i) the
Stated  Termination  Date,  (ii) the date the Agreement is terminated  either by
Phar-Mor  pursuant to Section 4.2 or by the Majority Lenders pursuant to Section
12.1, and (iii) the date this  Agreement is otherwise  terminated for any reason
whatsoever.

                  "Trademark   Assignment"   means  the   Trademark   Assignment
Agreement,  dated as of September  11, 1995,  and executed and  delivered by the
Borrowers  party  thereto to the Agent  under the  Existing  Agreement,  and any
Trademark  Assignment  Agreement,  substantially in the form of Exhibit 1.1.(E),
executed and delivered by the  Borrowers  party thereto to the Agent on or after
the date of this Agreement.

                  "UCC"  means the  Uniform  Commercial  Code (or any  successor
statute)  of the State of New York or of any  other  state the laws of which are
required by Section 9-103 thereof to be applied in connection  with the issue of
perfection of security interests.

                  "Unfunded  Pension  Liability"  means  the  excess of a Plan's
benefit  liabilities  under Section  4001(a)(16) of ERISA,  over the fair market
value of that Plan's assets,  determined or estimated by the Plan's  independent
actuary  as of  the  most  recent  valuation  date  using  reasonable  actuarial
assumptions used in the preparation of the Plan's most recent valuation.

                  "Unused Letter of Credit Subfacility" means an amount equal to
$50,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit plus (b) the aggregate unpaid  reimbursement  obligations with
respect to all Letters of Credit.

                  "Unused Line Fee" has the meaning specified in Section 3.5.

                  1.2  Accounting  Terms.  Any  accounting  term  used  in  this
Agreement shall have, unless otherwise specifically provided herein, the meaning
customarily  given in  accordance  with  GAAP,  and all  financial  computations
hereunder shall be computed,  unless otherwise  specifically provided herein, in
accordance  with GAAP as  consistently  applied  and using the same  method  for
inventory valuation as used in the preparation of the Financial Statements.



<PAGE>   22



                  1.3 Interpretive Provisions. (a) The meanings of defined terms
are equally applicable to the singular and plural forms of the defined terms.

                  (b) The words  "hereof,"  "herein,"  "hereunder"  and  similar
words refer to this Agreement as a whole and not to any particular  provision of
this Agreement; and Subsection,  Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.

                  (c) (i) The term "documents" includes any and all instruments,
documents,  agreements,  certificates,  indentures,  notices and other writings,
however  evidenced;  (ii)  the  term  "including"  is  not  limiting  and  means
"including without limitation";  and (iii) in the computation of periods of time
from a specified date to a later specified date, the word "from" means "from and
including", the words "to" and "until" each mean "to but excluding" and the word
"through" means "to and including."

                  (d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent  amendments and other modifications  thereto
and restatements, but only to the extent such amendments and other modifications
and restatements are not prohibited by the terms of any Loan Document,  and (ii)
references  to any statute or  regulation  are to be construed as including  all
statutory  and  regulatory  provisions   consolidating,   amending,   replacing,
supplementing or interpreting the statute or regulation.

                  (e)  The  captions  and  headings  of this  Agreement  are for
convenience  of reference only and shall not affect the  interpretation  of this
Agreement.

                  (f) This  Agreement  and other Loan  Documents may use several
different  limitations,  tests or  measurements  to regulate the same or similar
matters.  All such limitations,  tests and measurements are cumulative and shall
each be performed in accordance with their terms.

                  (g) This Agreement and the other Loan Documents are the result
of  negotiations  among and have been reviewed by counsel to the Agent,  each of
the  Borrowers  and the other  parties,  and are the  products  of all  parties.
Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agent's or Lender's involvement in their preparation.

                  (h) All other  undefined  terms  contained  in this  Agreement
shall, unless the context indicates otherwise, have the meanings provided for by
the UCC to the extent the same are used or defined therein.

                  (i)  Wherever  appropriate  in the  context,  each  masculine,
feminine, or



<PAGE>   23



neuter pronoun shall also include the other genders.


                                    ARTICLE 2
                           LOANS AND LETTERS OF CREDIT

                  2.1 Total Facility. Subject to all of the terms and conditions
of this Agreement,  the Lenders severally agree to make available a total credit
facility of up to the Maximum  Revolver  Amount for the Borrowers' use from time
to time during the term of this  Agreement.  The total credit  facility shall be
comprised  of a  revolving  line of credit  consisting  of  revolving  loans and
letters of credit as described in Sections 2.2 and 2.3.

                  2.2 Revolving Loans. (a) Amounts.  Subject to the satisfaction
of the  conditions  precedent  set forth in Article 10,  each  Lender  severally
agrees,  upon the  request by  Phar-Mor  from time to time on any  Business  Day
during  the  period  from the  Closing  Date to the  Termination  Date,  to make
revolving  loans (the  "Revolving  Loans") to any  Borrower,  in amounts  not to
exceed  (except with respect to BABC Loans) such  Lender's Pro Rata Share of the
lesser  of such  Borrower's  Availability  or the  Aggregate  Availability.  The
Lenders,  however,  in their discretion  (subject to Section 13.2), may elect to
make Revolving  Loans or participate  (as provided for in Section 2.3(f)) in the
credit  support or enhancement  provided  through the Agent to the L/C Issuer in
excess of any Borrower's  Availability  or the Aggregate  Availability on one or
more  occasions,  but if they do so,  neither the Agent nor the Lenders shall be
deemed thereby to have changed the limits of the Maximum Revolver  Amount,  such
Borrower's  Availability  or the  Aggregate  Availability  or to be obligated to
exceed such limits on any other occasion.

                  (b) Procedure for Borrowing.  (i) Each Borrowing shall be made
upon the  delivery by Phar-Mor of (A) an  Availability  Certificate  pursuant to
Section 6.7(c) and (B) an irrevocable written notice to the Agent in the form of
a Notice of Borrowing, substantially in the form of Exhibit 2.2(b) (which notice
must be received by the Agent prior to 12:00 noon (New York City time) (x) three
Business Days prior to the  requested  Funding Date, in the case of LIBOR Loans,
and (y) on the requested  Funding Date, in the case of Reference Rate Loans,  in
each case specifying:

                        (1) the Borrower;

                        (2) the amount of the Borrowing;

                        (3)  the  requested  Funding  Date,  which  shall  be  a
Business Day;

                        (4)  whether the  Revolving  Loans  requested  are to be
Reference Rate Loans or LIBOR Loans; and
                              
                        (5) the duration of the Interest Period if the requested
Revolving  Loans are to be LIBOR  Loans.  If the  Notice of  Borrowing  fails to
specify the duration of the Interest Period for any Borrowing comprised of LIBOR
Loans,  such Interest Period shall be one month;  provided,  however,  that with
respect to any Borrowings to be made on the Closing Date,  such  Borrowings will
consist of Reference Rate Loans only.

                  (ii) After giving  effect to any  Borrowing,  there may not be
more than six



<PAGE>   24



(6) different Interest Periods in effect.

                  (iii) Each LIBOR Borrowing shall be in an aggregate  principal
amount of not less than  $2,500,000  or any  greater  amount that is an integral
multiple of $500,000.

                  (iv) With respect to any request for Reference Rate Loans,  in
lieu of delivering the above-described Notice of Borrowing Phar-Mor may give the
Agent  telephonic  notice  of  such  request  by the  required  time  with  such
telephonic  notice to be confirmed  in writing  within 24 hours of the giving of
such notice but the Agent shall be entitled to rely on the telephonic  notice in
making Revolving Loans.

                  (c) Reliance upon  Authority.  On or prior to the Closing Date
and  thereafter  prior to any  change  with  respect  to any of the  information
contained in the following  clauses (i) and (ii),  Phar-Mor shall deliver to the
Agent a writing  setting  forth (i) the  account of each  Borrower  to which the
Agent is authorized to transfer the proceeds of the  Revolving  Loans  requested
pursuant to this Section 2.2 (which account shall be reasonably  satisfactory to
the Agent), and (ii) the names of the Responsible Officers authorized to request
Revolving Loans,  and shall provide the Agent with a specimen  signature of each
such officer. The Agent shall be entitled to rely conclusively on such officer's
authority to request Revolving Loans on behalf of any Borrower,  the proceeds of
which  are  to be  transferred  to any of the  accounts  specified  by  Phar-Mor
pursuant to the immediately preceding sentence, until the Agent receives written
notice to the  contrary.  The Agent shall have no duty to verify the identity of
any  individual   representing  himself  as  one  of  the  Responsible  Officers
authorized to make such requests on its behalf.

                  (d) No  Liability.  The Agent shall not incur any liability to
any  Borrower  as a result of acting  upon any notice  referred  to in  Sections
2.2(b) and (c), which notice the Agent believes in good faith to have been given
by an officer duly  authorized by Phar-Mor to request  Revolving Loans on behalf
of any  Borrower or for  otherwise  acting in good faith under this Section 2.2,
and the  crediting  of  Revolving  Loans to the  applicable  Borrower's  deposit
account,  or  transmittal  to  such  Person  as  Phar-Mor  shall  direct,  shall
conclusively  establish the  obligation of such Borrower to repay such Revolving
Loans as provided herein.

                  (e) Notice Irrevocable. Any Notice of Borrowing (or telephonic
notice in lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable and
the applicable  Borrower shall be bound to borrow the funds requested therein in
accordance therewith.

                  (f) Agent's  Election.  Promptly  after receipt of a Notice of
Borrowing (or telephonic notice in lieu thereof) pursuant to Section 2.2(b), the
Agent shall elect,  in its  discretion,  (i) to have the terms of Section 2.2(g)
apply to such requested  Borrowing,  or (ii) to request BABC to make a BABC Loan
pursuant  to the  terms  of  Section  2.2(h)  in  the  amount  of the  requested
Borrowing;  provided,  however,  that if BABC declines in its sole discretion to
make a BABC Loan pursuant to Section  2.2(h),  the Agent shall elect to have the
terms of Section 2.2(g) apply to such requested Borrowing.

                  (g) Making of Revolving Loans.

                  (i) In the event that the Agent  shall elect to have the terms
of this Section  2.2(g)  apply to a requested  Borrowing as described in Section
2.2(f),  then  promptly  after  receipt of a Notice of Borrowing  or  telephonic
notice pursuant to Section 2.2(b), the Agent shall notify



<PAGE>   25



the Lenders by telecopy, telephone or other similar form of transmission, of the
requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata
Share of the requested  Borrowing  available to the Agent in same day funds,  to
such account of the Agent as the Agent may  designate,  not later than 3:00 p.m.
(New York City time) on the Funding Date applicable  thereto.  After the Agent's
receipt of the  proceeds  of such  Revolving  Loans,  upon  satisfaction  of the
applicable  conditions  precedent  set forth in Article 10, the Agent shall make
the proceeds of such Revolving Loans available to the applicable Borrower on the
applicable  Funding Date by transferring same day funds equal to the proceeds of
such  Revolving  Loans  received  by the Agent to the  account of such  Borrower
designated  in  writing  by  Phar-Mor;  provided,  however,  that the  amount of
Revolving  Loans so made on any date shall in no event  exceed the lesser of the
Aggregate Availability or the Availability of such Borrower on such date.

                  (ii)  Unless  the Agent  receives  notice  from a Lender on or
prior to the Closing  Date or, with respect to any  Borrowing  after the Closing
Date, at least one Business Day prior to the date of such  Borrowing,  that such
Lender will not make  available as and when required  hereunder to the Agent for
the  account of a Borrower  the  amount of that  Lender's  Pro Rata Share of the
Borrowing,  the Agent may assume that each Lender has made such amount available
to the Agent in  immediately  available  funds on the Funding Date and the Agent
may (but shall not be so  required),  in  reliance  upon such  assumption,  make
available to the applicable Borrower on such date a corresponding amount. If and
to the extent any Lender  shall not have made its full amount  available  to the
Agent in immediately  available  funds and the Agent in such  circumstances  has
made available to the applicable  Borrower such amount, that Lender shall on the
Business  Day  following  such  Funding  Date make such amount  available to the
Agent, together with interest at the Federal Funds Rate for each day during such
period.  A notice of the Agent  submitted  to any Lender with respect to amounts
owing under this subsection shall be conclusive,  absent manifest error. If such
amount is so made  available,  such payment to the Agent shall  constitute  such
Lender's  Loan on the date of Borrowing for all purposes of this  Agreement.  If
such amount is not made available to the Agent on the Business Day following the
Funding Date,  the Agent will notify  Phar-Mor of such failure to fund and, upon
demand by the Agent,  the  applicable  Borrower to whom such  Borrowing was made
shall  pay such  amount  to the Agent for the  Agent's  account,  together  with
interest  thereon for each day elapsed  since the date of such  Borrowing,  at a
rate per annum equal to the interest  rate  applicable  at the time to the Loans
comprising  such  Borrowing.  The  failure of any Lender to make any Loan on any
Funding Date shall not relieve any other Lender of any  obligation  hereunder to
make a Loan on such Funding  Date,  but no Lender shall be  responsible  for the
failure of any other  Lender to make the Loan to be made by such other Lender on
any Funding Date.
                 
                  (h) Making of BABC Loans.  In the event the Agent shall elect,
with the consent of BABC,  to have the terms of this  Section  2.2(h) apply to a
requested  Borrowing  as  described  in Section  2.2(f),  BABC may,  in its sole
discretion,  make a  Revolving  Loan in the amount of such  Borrowing  (any such
Revolving  Loan made  solely  by BABC  pursuant  to this  Section  2.2(h)  being
referred  to as a "BABC  Loan"  and  such  Revolving  Loans  being  referred  to
collectively  as "BABC  Loans")  available  to the  applicable  Borrower  on the
Funding Date applicable  thereto by transferring same day funds to an account of
such Borrower,  designated in writing by Phar-Mor. Each BABC Loan is a Revolving
Loan  hereunder  and shall be secured by the  Collateral  and subject to all the
terms  and  conditions  applicable  to other  Revolving  Loans  except  that all
payments  thereon  shall be payable to BABC solely for its own account  (and for
the account of the holder of any  participation  interest  with  respect to such
Revolving Loan). The



<PAGE>  26



Agent shall not  request  BABC to make any BABC Loan if (i) the Agent shall have
received written notice from any Lender, or otherwise has actual knowledge, that
one or more of the applicable  conditions precedent set forth in Article 10 will
not be satisfied on the requested Funding Date for the applicable Borrowing,  or
(ii)  the  requested   Borrowing  would  exceed  the  lesser  of  the  Aggregate
Availability  or the  Availability  of the  applicable  Borrower on such Funding
Date.  BABC shall not otherwise be required to determine  whether the applicable
conditions  precedent  set  forth  in  Article  10 have  been  satisfied  or the
requested Borrowing would exceed the lesser of the Aggregate Availability or the
Availability of the applicable  Borrower on the Funding Date applicable  thereto
prior to making, in its sole discretion, any BABC Loan.

                  (i) Agent  Advances.  (i) Subject to the limitations set forth
in the provisos contained in this Section 2.2(i), the Agent is hereby authorized
by the  Borrowers  and the  Lenders,  from  time to  time  in the  Agent's  sole
discretion,  (1) after the occurrence of a Default or an Event of Default or (2)
at any time that any of the other applicable  conditions  precedent set forth in
Article 10 have not been  satisfied,  to make Revolving Loans to any Borrower on
behalf of the Lenders  which the Agent,  in its  reasonable  business  judgment,
deems necessary or desirable (A) to preserve or protect the  Collateral,  or any
portion  thereof,  (B) to enhance the  likelihood of, or maximize the amount of,
repayment  of the Loans and other  Obligations,  or (C) to pay any other  amount
chargeable to any Borrower  pursuant to the terms of this  Agreement,  including
costs,  fees and  expenses as  described  in Section  15.7 (any of the  advances
described  in this  Section  2.2(i)  being  hereinafter  referred  to as  "Agent
Advances");  provided,  that the Agent  shall not make any Agent  Advance to any
Borrower  if the  amount  thereof  would  exceed  the  lesser  of the  Aggregate
Availability or the Availability of the applicable  Borrower on the Funding Date
applicable thereto; and provided,  further, that the Majority Lenders may at any
time  thereafter  revoke the Agent's  authorization  contained  in this  Section
2.2(i) to make Agent  Advances,  any such  revocation  to be in  writing  and to
become effective upon the Agent's receipt thereof.

                  (ii) The Agent  Advances  shall be  repayable  on  demand  and
secured by the  Collateral,  shall  constitute  Revolving  Loans and Obligations
hereunder,  and shall bear interest at the rate applicable to the Reference Rate
Loans from time to time.  The Agent shall  notify each Lender in writing of each
such Agent Advance.

                  (j) Settlement. It is agreed that each Lender's funded portion
of each  Revolving  Loan is  intended by the Lenders to be equal at all times to
such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding
such agreement,  the Agent,  BABC, and the other Lenders agree (which  agreement
shall not be for the benefit of or enforceable by any Borrower) that in order to
facilitate the  administration  of this Agreement and the other Loan  Documents,
settlement  among them as to the Revolving  Loans,  the BABC Loans and the Agent
Advances shall take place on a periodic  basis in accordance  with the following
provisions:

                  (i) The Agent shall request settlement ("Settlement") with the
Lenders on a weekly basis,  or on a more frequent  basis if so determined by the
Agent,  (1) on behalf of BABC, with respect to each  outstanding  BABC Loan, (2)
for itself, with respect to each outstanding Agent Advance, and (3) with respect
to collections received by notifying the Lenders by telecopy, telephone or other
similar form of transmission,  of such requested Settlement, no later than 12:00
noon  (New  York  City  time)  on the  date of such  requested  Settlement  (the
"Settlement  Date").  Each Lender (other than BABC in the case of BABC Loans and
the  Agent in the case of an  Agent  Advance)  shall  make  the  amount  of such
Lender's Pro Rata Share of the  outstanding  principal  amount of the BABC Loans
and Agent Advances with respect to which



<PAGE>   27



Settlement is requested available to the Agent, for itself or for the account of
BABC,  in same  day  funds,  to such  account  of the  Agent  as the  Agent  may
designate, not later than 3:00 p.m. (New York City time), on the Settlement Date
applicable thereto,  regardless of whether the applicable  conditions  precedent
set forth in Article 10 have then been satisfied. Such amounts made available to
the Agent shall be applied  against the amounts of the  applicable  BABC Loan or
Agent  Advance  and,  together  with the portion of such BABC Loan  representing
BABC's Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders.
If any such  amount  is not made  available  to the  Agent by any  Lender on the
Settlement Date applicable thereto,  the Agent shall be entitled to recover such
amount on demand from such Lender together with interest  thereon at the Federal
Funds Rate for the first three (3) days from and after the  Settlement  Date and
thereafter at the highest Interest Rate then applicable to the Revolving Loans.

                  (ii)  Notwithstanding  the  foregoing,  not more  than one (1)
Business  Day after  demand is made by the  Agent  (whether  before or after the
occurrence  of a Default or an Event of Default  and  regardless  of whether the
Agent has requested a Settlement  with respect to a BABC Loan or Agent Advance),
each other Lender shall  irrevocably  and  unconditionally  purchase and receive
from  BABC or the  Agent,  as  applicable,  without  recourse  or  warranty,  an
undivided  interest and  participation in such BABC Loan or Agent Advance to the
extent of such Lender's Pro Rata Share  thereof by paying to the Agent,  in same
day funds,  an amount equal to such Lender's Pro Rata Share of such BABC Loan or
Agent Advance.  If such amount is not in fact made available to the Agent by any
Lender,  the Agent shall be entitled to recover  such amount on demand from such
Lender  together with  interest  thereon at the Federal Funds Rate for the first
three (3) days from and after such demand and thereafter at the highest Interest
Rate then applicable to the Revolving Loans.

                  (iii)  From and after the date,  if any,  on which any  Lender
purchases an  undivided  interest  and  participation  in any BABC Loan or Agent
Advance pursuant to subsection (ii) above,  the Agent shall promptly  distribute
to such  Lender at such  address as such  Lender may  request in  writing,  such
Lender's  Pro Rata Share of all  payments  of  principal  and  interest  and all
proceeds  of  Collateral  received  by the Agent in respect of such BABC Loan or
Agent Advance.

                  (iv) Between  Settlement  Dates,  the Agent,  to the extent no
Agent Advances or BABC Loans are outstanding,  may pay over to BABC any payments
received by Agent,  which in accordance with the terms of the Agreement would be
applied to the reduction of the Revolving  Loans,  for application to BABC's Pro
Rata Share of the Revolving Loans.  If, as of any Settlement  Date,  collections
received since the then immediately  preceding Settlement Date have been applied
to BABC's  Pro Rata  Share of the  Revolving  Loans  other than to BABC Loans or
Agent Advances, as provided for in the previous sentence,  BABC shall pay to the
Agent  for  the  accounts  of the  Lenders,  to be  applied  to the  outstanding
Revolving  Loans of such Lenders,  an amount such that each Lender  shall,  upon
receipt of such amount,  have, as of such Settlement Date, its Pro Rata Share of
the Revolving  Loans.  During the period  between  Settlement  Dates,  BABC with
respect to BABC Loans, the Agent with respect to Agent Advances, and each Lender
with respect to the  Revolving  Loans other than BABC Loans and Agent  Advances,
shall be entitled to interest at the applicable  rate or rates payable under the
Agreement  on the actual  average  daily amount of funds  employed by BABC,  the
Agent and the other Lenders.

                  (k)  Notation.  The  Agent  shall  record  on  its  books  the
principal amount



<PAGE>   28



of the Revolving  Loans owing to each Lender,  including the BABC Loans owing to
BABC, and the Agent Advances owing to the Agent, from time to time. In addition,
each Lender is authorized,  at such Lender's option, to note the date and amount
of each payment or prepayment of principal of such Lender's  Revolving  Loans in
its books and  records,  including  computer  records,  such  books and  records
constituting  rebuttably  presumptive  evidence,  absent  manifest error, of the
accuracy of the information contained therein.

                  (l)  Lenders'  Failure to Perform.  All Loans (other than BABC
Loans and Agent  Advances)  shall be made by the Lenders  simultaneously  and in
accordance with their Pro Rata Shares. It is understood that (a) no Lender shall
be responsible  for any failure by any other Lender to perform its obligation to
make any Loans hereunder, nor shall any Commitment of any Lender be increased or
decreased  as a result  of any  failure  by any  other  Lender  to  perform  its
obligation  to make any Loans  hereunder,  and (b) no  failure  by any Lender to
perform its obligation to make any Loans hereunder shall excuse any other Lender
from its obligation to make any Loans hereunder.

                  2.3 Letters of Credit.

                  (a)  Agreement  to Cause  Issuance.  Subject  to the terms and
conditions  of this  Agreement,  and in reliance  upon the  representations  and
warranties  of the Borrowers  herein set forth,  the Agent agrees to cause to be
issued by the L/C Issuer for the account of any Borrower,  and to provide credit
support  or  other  enhancement  in  connection  with  one or more  stand-by  or
documentary  letters of credit (each such letter of credit, a "Letter of Credit"
and such letters of credit, collectively, the "Letters of Credit") in accordance
with this Section 2.3 from time to time during the term of this Agreement.

                  (b) Amounts; Outside Expiration Date. The Agent shall not have
any  obligation  to take steps to cause to be issued any Letter of Credit at any
time:  (i) if the maximum  undrawn  amount of the requested  Letter of Credit is
greater than the Unused Letter of Credit  Subfacility at such time;  (ii) if the
maximum  undrawn amount of the requested  Letter of Credit and all  commissions,
fees,  and  charges due from the  applicable  Borrower  in  connection  with the
opening  thereof  exceed  the  lesser  of  the  Aggregate  Availability  or  the
Availability  of such  Borrower at such time;  or (iii) which has an  expiration
date later than the Stated  Termination  Date or more than twelve (12) months in
the case of Standby  Letters of Credit  (other  than  Standby  Letters of Credit
which are  automatically  renewable  for one or more  successive  periods not to
exceed one year or the Stated Termination Date) or one hundred eighty (180) days
in the case of  Merchandise  Letters  of  Credit,  in each case from the date of
issuance.

                  (c) Other  Conditions.  In  addition  to being  subject to the
satisfaction of the applicable conditions precedent contained in Article 10, the
obligation of the Agent to cause to be issued any Letter of Credit is subject to
the  following   conditions   precedent   having  been  satisfied  in  a  manner
satisfactory to the Agent:

             (i) L/C Application. Phar-Mor, on behalf of the Borrower requesting
the Letter of Credit,  shall have delivered to the L/C Issuer, at such times and
in such  manner as the L/C  Issuer may  prescribe,  an  application  in form and
substance  satisfactory  to the L/C  Issuer  for the  issuance  of the Letter of
Credit  and such  other  documents  as may be  required  pursuant  to the  terms
thereof,  and the form and  terms of the  proposed  Letter  of  Credit  shall be
satisfactory to the Agent and the L/C Issuer; and



<PAGE>   29



             (ii) No  Prohibition.  As of the date of issuance,  no order of any
court, arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain money center banks  generally from issuing  letters of credit of the
type and in the amount of the  proposed  Letter of Credit,  and no law,  rule or
regulation  applicable  to  money  center  banks  generally  and no  request  or
directive  (whether  or not  having  the  force of law)  from  any  Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request  that the L/C Issuer  refrain  from,  the  issuance of letters of credit
generally or the issuance of such Letters of Credit.

                  (d) Issuance of Letters of Credit.

             (i) Request for  Issuance.  Phar-Mor  shall give the Agent not less
than two (2)  Business  Days' prior  written  notice,  containing  the  original
signature of a Responsible Officer, of a request for the issuance of a Letter of
Credit  accompanied by an Availability  Certificate  pursuant to Section 6.7(c).
Such  notice  shall be  irrevocable  and shall  specify the  Borrower  for whose
account such Letter of Credit is to be issued,  the original  face amount of the
Letter of Credit  requested,  the effective date (which date shall be a Business
Day) of  issuance of such  requested  Letter of Credit,  whether  such Letter of
Credit  may be drawn in a single or in  partial  draws,  the date on which  such
requested  Letter of Credit is to expire  (which date shall be a Business  Day),
the purpose  for which such  Letter of Credit is to be issued and  whether  such
Letter  of Credit is a  Standby  Letter  of  Credit or a  Merchandise  Letter of
Credit,  and the beneficiary of the requested  Letter of Credit.  Phar-Mor shall
attach to such notice the  proposed  form of the Letter of Credit that the Agent
is requested to cause to be issued.

             (ii) Issuance.  If (A) the amount of the requested Letter of Credit
is not greater than the Unused Letter of Credit Subfacility and (B) the issuance
of such requested  Letter of Credit and all  commissions,  fees, and charges due
from the  Borrower  on whose  behalf  the  Letter  of  Credit is to be issued in
connection with the opening thereof would not exceed the lesser of the Aggregate
Availability or the Availability of such Borrower, the Agent shall cause the L/C
Issuer to issue the requested Letter of Credit on such requested  effective date
of issuance.

             (iii) Notice of Issuance. Promptly after the issuance of any Letter
of Credit,  the Agent shall give  notice to each Lender of the  issuance of such
Letter of Credit.

             (iv) No Extensions  or Amendment.  The Agent shall not be obligated
to cause any Letter of Credit to be extended or amended unless the  requirements
of  Sections  2.3(b) and  2.3(d)  are met as though a new Letter of Credit  were
being requested and issued.  With respect to any Letter of Credit which contains
any "evergreen" or automatic renewal  provision,  each Lender shall be deemed to
have  consented to any such  extension  or renewal  unless any such Lender shall
have  provided  to the Agent,  not less than  thirty (30) days prior to the last
date on which the L/C Issuer can in accordance  with the terms of the applicable
Letter of Credit  decline  to extend or renew  such  Letter of  Credit,  written
notice that it declines to consent to any such  extension or renewal;  provided,
that if all of the  requirements  of this  Section 2.3 are met and no Default or
Event of  Default  exists,  no  Lender  shall  decline  to  consent  to any such
extension or renewal.



<PAGE>   30


                  (e)  Payments Pursuant to Letters of Credit.

             (i) Payment of Letter of Credit Obligations. The Borrower for whose
account a Letter of Credit was issued agrees to reimburse the L/C Issuer for any
draw under such Letter of Credit  immediately  upon  demand,  and to pay the L/C
Issuer the amount of all other  obligations and other amounts payable to the L/C
Issuer under or in connection with such Letter of Credit  immediately  when due,
irrespective of any claim, counterclaim,  setoff, recoupment, defense, deduction
or other right which any  Borrower  may have at any time  against such issuer or
any other Person.

             (ii) Revolving Loans to Satisfy Reimbursement  Obligations.  In the
event  that the L/C  Issuer  honors a draw  under any  Letter of Credit  and the
Borrower  for whose  account  such  Letter of Credit was  issued  shall not have
repaid such amount to the L/C Issuer  pursuant to Section  2.3(e)(i),  the Agent
shall,  upon  receiving  notice  of such  failure,  notify  each  Lender of such
failure, and each Lender shall unconditionally pay to the Agent, for the account
of the L/C Issuer,  as and when provided  herein below,  an amount equal to such
Lender's Pro Rata Share of the amount of such payment in Dollars and in same day
funds.  If the Agent so notifies the Lenders  prior to 12:00 noon (New York City
time) on any Business  Day,  each Lender  shall make  available to the Agent the
amount of such payment, as provided in the immediately  preceding  sentence,  on
such  Business  Day.  Such  amounts  paid  by the  Lenders  to the  Agent  shall
constitute  Revolving  Loans  which  shall be deemed to have been  requested  by
Phar-Mor on behalf of the Borrower  for whose  account such Letter of Credit was
issued, pursuant to Section 4.4.

                  (f)  Participations.

             (i) Purchase of  Participations.  Immediately  upon issuance of any
Letter of Credit in accordance with Section 2.3(d),  each Lender shall be deemed
to have irrevocably and unconditionally  purchased and received without recourse
or warranty,  an undivided  interest and  participation in the credit support or
enhancement  provided  through the Agent to such issuer in  connection  with the
issuance of such Letter of Credit,  equal to such Lender's Pro Rata Share of the
face amount of such Letter of Credit  (including all obligations of the Borrower
for whose account such Letter of Credit was issued with respect thereto, and any
security therefor or guaranty pertaining thereto).

             (ii) Sharing of  Reimbursement  Obligation  Payments.  Whenever the
Agent receives a payment from a Borrower on account of reimbursement obligations
in respect of a Letter of Credit as to which the Agent has  previously  received
for the  account of the L/C Issuer  thereof  payment  from a Lender  pursuant to
Section  2.3(e)(ii),  the Agent shall  promptly pay to such Lender such Lender's
Pro Rata Share of such payment from such Borrower in Dollars.  Each such payment
shall be made by the  Agent on the  Business  Day on which  the  Agent  receives
immediately  available  funds paid to such Person  pursuant  to the  immediately
preceding sentence, if received prior to 12:00 noon (New York City time) on such
Business Day and otherwise on the next succeeding Business Day.

             (iii)  Documentation.  Upon the  request of any  Lender,  the Agent
shall  furnish to such  Lender  copies of any  Letter of  Credit,  reimbursement
agreements  executed  in  connection  therewith,  application  for any Letter of
Credit  and  credit  support  or  enhancement  provided  through  the  Agent  in
connection  with  the  issuance  of  any  Letter  of  Credit,   and  such  other
documentation as may reasonably by requested by such Lender.



<PAGE>   31



             (iv)  Obligations  Irrevocable.  The  obligations of each Lender to
make  payments to the Agent with respect to any Letter of Credit or with respect
to any credit support or enhancement  provided through the Agent with respect to
a Letter of Credit, and the obligations of each Borrower to make payments to the
Agent, for the account of the Lenders, shall be irrevocable,  not subject to any
qualification   or  exception   whatsoever,   including  any  of  the  following
circumstances:

             (A) any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;

             (B) the  existence  of any claim,  setoff,  defense or other  right
which any Borrower may have at any time against a beneficiary  named in a Letter
of Credit or any  transferee of any Letter of Credit (or any Person for whom any
such transferee may be acting),  any Lender,  the Agent, the L/C Issuer,  or any
other Person,  whether in connection with this Agreement,  any Letter of Credit,
the transactions  contemplated herein or any unrelated  transactions  (including
any  underlying  transactions  between any  Borrower or any other Person and the
beneficiary named in any Letter of Credit);

             (C) any draft,  certificate or any other document  presented  under
the Letter of Credit proving to be forged,  fraudulent,  invalid or insufficient
in any  respect or any  statement  therein  being  untrue or  inaccurate  in any
respect;

             (D) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents; or

             (E) the occurrence of any Default or Event of Default.

                  (g)  Recovery  or  Avoidance  of  Payments.  In the  event any
payment by or on behalf of any  Borrower  received by the Agent with  respect to
any  Letter  of  Credit  (or  any  guaranty  by any  Borrower  or  reimbursement
obligation of any Borrower relating thereto) and distributed by the Agent to the
Lenders on account of their respective  participations therein is thereafter set
aside,  avoided or recovered from the Agent in connection with any receivership,
liquidation  or bankruptcy  proceeding,  the Lenders  shall,  upon demand by the
Agent,  pay to the Agent  their  respective  Pro Rata  Shares of such amount set
aside,  avoided or recovered,  together with interest at the rate required to be
paid by the Agent upon the amount required to be repaid by it.

                  (h)  Compensation for Letters of Credit.

             (i) Letter of Credit Fee. Each Borrower  agrees to pay to the Agent
with respect to each Letter of Credit  issued on its behalf,  for the account of
the Lenders,  the Letter of Credit Fee specified in, and in accordance  with the
terms of, Section 3.6.

             (ii) Issuer Fees and Charges.  Each  Borrower  agrees to pay to the
L/C Issuer, or to the Agent, solely for the L/C Issuer's account,  such fees and
other  charges as are charged by the L/C Issuer for letters of credit  issued by
it  on  such  Borrower's  behalf,  including  its  standard  fees  for  issuing,
administering,  amending,  renewing,  paying and canceling letters of credit and
all other fees  associated with issuing or servicing  letters of credit,  as and
when assessed.



<PAGE>   32



             (iii)            Indemnification; Exoneration.

                 (A)   Indemnification.   In  addition  to  amounts  payable  as
elsewhere  provided  in this  Section  2.3,  each  Borrower  agrees to  protect,
indemnify,  pay and save the Lenders and the Agent harmless from and against any
and all  claims,  demands,  liabilities,  damages,  losses,  costs,  charges and
expenses  (including  reasonable  attorneys' fees) which any Lender or the Agent
may incur or be subject to as a consequence, direct or indirect, of the issuance
of any Letter of Credit on its behalf or the provision of any credit  support or
enhancement in connection therewith.

                 (B)  Assumption  of  Risk  by  the  Borrowers.   As  among  the
Borrowers,  the Lenders,  and the Agent,  each Borrower assumes all risks of the
acts and  omissions  of, or  misuse of any of the  Letters  of  Credit  by,  the
respective  beneficiaries  of such Letters of Credit.  In furtherance and not in
limitation of the foregoing,  the Lenders and the Agent shall not be responsible
for: (1) the form, validity, sufficiency,  accuracy, genuineness or legal effect
of any document  submitted by any Person in connection  with the application for
and issuance of and presentation of drafts with respect to any of the Letters of
Credit,  even  if it  should  prove  to be  in  any  or  all  respects  invalid,
insufficient,  inaccurate, fraudulent or forged; (2) the validity or sufficiency
of any instrument  transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits  thereunder or proceeds  thereof,
in whole or in part,  which  may  prove to be  invalid  or  ineffective  for any
reason;  (3) the  failure of the  beneficiary  of any Letter of Credit to comply
duly with conditions  required in order to draw upon such Letter of Credit;  (4)
errors, omissions,  interruptions,  or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,  whether or not they be
in cipher;  (5) errors in  interpretation  of technical  terms;  (6) any loss or
delay in the transmission or otherwise of any document  required in order make a
drawing  under  any  Letter  of  Credit  or of the  proceeds  thereof;  (7)  the
misapplication by the beneficiary of any Letter of Credit of the proceeds of any
drawing under such Letter of Credit; or (8) any consequences arising from causes
beyond the control of the Lenders or the Agent,  including  any act or omission,
whether  rightful  or  wrongful,  of any  present  or future de jure or de facto
Governmental  Authority.  None of the foregoing shall affect,  impair or prevent
the  vesting  of any  rights or powers of the  Agent or any  Lender  under  this
Section 2.3.

                 (C)  Exoneration.  In  furtherance  and  extension,  and not in
limitation,  of the specific  provisions  set forth  above,  any action taken or
omitted  by the  Agent  or any  Lender  under or in  connection  with any of the
Letters  of Credit  or any  related  certificates,  if taken or  omitted  in the
absence of gross  negligence or willful  misconduct,  shall not put the Agent or
any Lender under any resulting liability to any Borrower or relieve any Borrower
of any of its obligations hereunder to any such Person.

             (i) Cash  Collateral.  If any Letter of Credit is outstanding  upon
the  occurrence  of an Event of Default or,  notwithstanding  the  provisions of
Section 2.3(b), upon the termination of this Agreement,  then upon such Event of
Default or  termination  each  Borrower  shall  deposit with the Agent,  for the
benefit of the Agent and the ratable  benefit of the  Lenders,  with  respect to
each Letter of Credit then outstanding on its behalf,  cash in amounts necessary
to  reimburse  the Agent and the Lenders for (i) the  greatest  amount for which
each  Standby  Letter of Credit may be drawn and one  hundred  and five per cent
(105%) of the greatest amount for which each Merchandise Letter of Credit may be
drawn,  (ii) payments made by the Agent or the Lenders under each such Letter of
Credit or under any credit  support or  enhancement  provided  through the Agent
with respect thereto and (iii) all commissions, fees and charges due



<PAGE>   33



from such Borrower for each such Letter of Credit. Such deposit of cash shall be
held by the Agent, for the ratable benefit of the Lenders,  as security for, and
to provide for the payment of, the aggregate  undrawn  amount of such Letters of
Credit remaining outstanding.

                                    ARTICLE 3
                                INTEREST AND FEES

                  3.1  Interest.

                  (a) Interest Rates. All outstanding monetary Obligations shall
bear interest on the unpaid principal amount thereof  (including,  to the extent
permitted  by law,  on  interest  thereon  not paid when due) from the date made
until paid in full in cash at a rate  determined  by reference to the  Reference
Rate or the LIBOR Rate and Sections 3.1(a)(i) or (ii), as applicable, but not to
exceed the Maximum  Rate.  Subject to the  provisions of Section 3.2, any of the
Loans may be converted  into,  or continued  as,  Reference  Rate Loans or LIBOR
Loans  in the  manner  provided  in  Section  3.2.  If at  any  time  Loans  are
outstanding  with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for determining
the interest rate applicable  thereto,  then those Loans shall be Reference Rate
Loans and shall bear interest at a rate determined by reference to the Reference
Rate until  notice to the  contrary  has been given to the Agent and such notice
has become  effective.  Except as otherwise  provided  herein,  the  outstanding
monetary Obligations shall bear interest as follows:

                  (i) For all Reference Rate Loans,  at a fluctuating  per annum
rate equal to the Reference Rate plus the Applicable Margin; and

                  (ii) For all LIBOR  Loans,  at a per annum  rate  equal to the
LIBOR Rate plus the Applicable Margin.

                  Each change in the  Reference  Rate shall be  reflected in the
interest rate  described in (i) above as of the  effective  date of such change.
All  interest  charges  shall be computed on the basis of a year of 360 days and
actual days elapsed  (which results in more interest being paid than if computed
on the basis of a 365-day  year).  Interest  accrued on all (A)  Reference  Rate
Loans will be payable  in arrears on the first day of each month  hereafter  and
(B) LIBOR Loans will be payable on the applicable LIBOR Interest Payment Dates.

                  (b) Default  Rate.  If any Default or Event of Default  occurs
and is continuing and the Majority Lenders in their  discretion so elect,  then,
while  any  such  Default  or  Event  of  Default  is  outstanding,  all  of the
Obligations shall bear interest at the Default Rate applicable thereto.

                  3.2 Conversion and Continuation Elections. (a) A Borrower may,
upon  delivery  by  Phar-Mor of an  irrevocable  written  notice to the Agent in
accordance with Subsection 3.2(b):

                  (i) elect,  as of any  Business  Day, in the case of Reference
Rate Loans to convert  (a  "Notice of  Conversion")  any such Loans (or any part
thereof  in an  amount  not  less  than  $2,500,000,  or that is in an  integral
multiple of $500,000 in excess thereof) into LIBOR Loans; or

                  (ii)  elect,  as of the  last day of the  applicable  Interest
Period,  to continue (a "Notice of  Continuation"  and together with a Notice of
Conversion,  a  "Notice  of  Continuation/Conversion")  any LIBOR  Loans  having
Interest Periods expiring on such day (or



<PAGE>   34



any part  thereof  in an  amount  not  less  than  $2,500,000,  or that is in an
integral multiple of $500,000 in excess thereof);

provided,  that if at any time the aggregate amount of LIBOR Loans in respect of
any  Borrowing is reduced,  by payment or  prepayment of part thereof to be less
than  $2,500,000,  such LIBOR Loans shall  automatically  convert into Reference
Rate Loans,  and on and after such date the right to continue such Loans as, and
convert such Loans into, LIBOR Loans, as the case may be, shall terminate.

                  (b)     Phar-Mor     shall     deliver     a     Notice     of
Continuation/Conversion,  substantially  in the form of  Exhibit  3.2(b),  to be
received  by the Agent not later  than  12:00 noon (New York City time) at least
three (3)  Business  Days in  advance of the date on which the  continuation  or
conversion is to be effected (the  "Continuation/Conversion  Date") if the Loans
are to be continued as or converted into or LIBOR Loans and specifying:

                  (i)    the Borrower;

                  (ii)   the proposed Continuation/Conversion Date;

                  (iii)  the  aggregate  amount of  Reference  Rate  Loans to be
                         converted or LIBOR Loans to be continued; and

                  (iv)   the duration of the requested Interest Period.

                  (c) If upon the expiration of any Interest  Period  applicable
to LIBOR  Loans,  the  applicable  Borrower  has  failed to select  timely a new
Interest  Period to be  applicable  to LIBOR Loans or if any Default or Event of
Default then exists,  such  Borrower  shall be deemed to have elected to convert
such LIBOR Loans into Reference Rate Loans  effective as of the expiration  date
of such Interest Period.

                  (d) The Agent will promptly  notify each Lender of its receipt
of a Notice of Continuation/Conversion.  All continuations and conversions shall
be made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Lender.

                  (e) During the existence of a Default or Event of Default,  no
Borrower may elect to have a Loan converted into or continued as a LIBOR Loan.

                  (f) After giving effect to any  continuation  or conversion of
Loans, there may not be more than six (6) different Interest Periods in effect.

                  3.3 Maximum Interest Rate. In no event shall any interest rate
provided  for  hereunder  exceed the  maximum  rate  permissible  for  corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate").  If, in any month,  any interest rate,  absent such limitation,
would have  exceeded the Maximum  Rate,  then the  interest  rate for that month
shall be the Maximum Rate and, if in future  months,  that  interest  rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the  amount  of  interest  which  would  have been paid if the same had not been
limited by the  Maximum  Rate.  In the event that,  upon  payment in full of the
Obligations,  the total  amount of interest  paid or accrued  under the terms of
this  Agreement is less than the total amount of interest  which would,  but for
this



<PAGE>   35



Section 3.3, have been paid or accrued if the interest rates otherwise set forth
in this Agreement had at all times been in effect, then any Borrower of any Loan
in  respect  of which the  interest  rate but for this  Section  3.3 would  have
exceeded the Maximum Rate shall, to the extent  permitted by applicable law, pay
the Agent,  for the account of the Lenders,  an amount  equal to the  difference
with  respect to such Loan  between (a) the lesser of (i) the amount of interest
which  would have been  charged if the Maximum  Rate had, at all times,  been in
effect or (ii) the amount of interest  which would have accrued had the interest
rates  otherwise set forth in this Agreement,  at all times,  been in effect and
(b) the amount of interest actually paid or accrued under this Agreement. In the
event that a court determines that the Agent and/or any Lender has received with
respect  to such Loan  interest  and other  charges  hereunder  in excess of the
Maximum  Rate,  such  excess  shall be deemed  received on account of, and shall
automatically be applied to reduce, the Obligations other than interest,  in the
inverse  order of maturity,  and if there are no  Obligations  outstanding,  the
Agent and/or such Lender shall refund to such Borrower such excess.

                  3.4  Closing  Fee.  The  Borrowers  agree  to pay the  Agent a
closing  fee (the  "Closing  Fee") in the  amount of  $150,000  for the  ratable
account of the Lenders.  The Closing Fee shall be fully  earned on payment.  The
Agent,  the Lenders and the  Borrowers  agree that the Closing Fee shall be paid
pursuant to Section 4.4.

                  3.5 Unused Line Fee. The Borrowers  agree to pay, on the first
day of each month and on the  Termination  Date,  to the Agent,  for the ratable
account of the Lenders,  an unused line fee (the "Unused Line Fee") at the rates
per annum set forth below corresponding to the applicable level of average daily
outstanding  amounts.  The average  daily amount shall be an amount by which the
amount of $100,000,000  exceeds the sum of the average daily outstanding  amount
of all Loans and the undrawn amount of all outstanding Letters of Credit, during
the  immediately  preceding  month  or  shorter  period  if  calculated  on  the
Termination  Date.  The  Unused  Line Fee  shall be  computed  on the basis of a
360-day year for the actual number of days elapsed. All payments received by the
Agent on account of Accounts or as proceeds of other  Collateral shall be deemed
to be credited to the  applicable  Loan  Accounts  immediately  upon receipt for
purposes of calculating the Unused Line Fee pursuant to this Section 3.5.

<TABLE>
<CAPTION>

         Average Daily
         Outstanding Amount                                Applicable Rate

         <S>                                                    <C> 
         >=$25,000,000                                          .25%
         <$25,000,000 but > $15,000,000                         .30%
         <=$15,000,000                                          .35%
</TABLE>


                  3.6 Letter of Credit Fee. Each  Borrower  agrees to pay to the
Agent, for the ratable account of the Lenders,  for each Letter of Credit issued
on its  behalf  (a) a fee  (the  "Letter  of  Credit  Fee")  equal  to  one  and
one-quarter  percent  (1.25%) per annum of the undrawn  amount of each Letter of
Credit issued for such Borrower's account and (b) all out-of-pocket  costs, fees
and  expenses  incurred by the Agent in  connection  with the  application  for,
issuance of, time of, or amendment to such Letter of Credit,  which costs,  fees
and expenses have been previously disclosed by the Agent to Phar-Mor, and as the
same may be changed or supplemented from time to time; provided that in the case
of any Standby  Letter of Credit,  the "standby  fee" shall not exceed an amount
equal to the greater of  one-half  of one percent  (0.5%) per annum and $250 per
annum,  and in the case of any Merchandise  Letter of Credit,  the  "negotiation
fee"  shall not  exceed an amount  equal to the  greater  of  one-eighth  of one
percent



<PAGE>   36



(0.125%) of the  negotiated  amount and $85. The accrued amount of any Letter of
Credit  Fee shall be  payable  monthly in arrears on the first day of each month
immediately following any month or part thereof during which each such Letter of
Credit remains outstanding and on the Termination Date. The Letter of Credit Fee
shall be computed on the basis of a 360-day  year for the actual  number of days
elapsed.

                  3.7 Collateral  Management  Fee. The Borrowers agree to pay to
the Agent,  solely for its own account,  on the effective date of this Agreement
and each  anniversary  thereafter,  a  collateral  management  fee  ("Collateral
Management  Fee") in the amount of  $100,000.  The Agent,  the  Lenders  and the
Borrowers  agree  that the  Collateral  Management  Fee  shall be paid  from the
proceeds of Revolving  Loans deemed to have been requested by Phar-Mor  pursuant
to Section 4.4.


                                    ARTICLE 4
                            PAYMENTS AND PREPAYMENTS

                  4.1 Revolving  Loans.  (a) Each  Borrower  agrees to repay the
outstanding  principal  balance of its  Revolving  Loans,  plus all  accrued but
unpaid interest  thereon,  on the Termination Date. Each Borrower may prepay its
Revolving  Loans  at any  time,  and  reborrow  subject  to the  terms  of  this
Agreement;  provided,  however,  that with respect to any LIBOR Loans prepaid by
such Borrower prior to the  expiration  date of the Interest  Period  applicable
thereto,  such  Borrower  agrees to pay to the Lenders the amounts  described in
Section 5.4.

                  (b) In  addition,  and without  limiting the  foregoing,  each
Borrower  agrees to pay immediately  without notice or demand by the Agent,  for
the  account  of the  Lenders,  the  amount  which  on any  date is equal to the
positive  difference  of  (i)  the  sum of  (A)  the  unpaid  balance  of  Loans
outstanding on such date to such Borrower,  (B) the aggregate  amount of Pending
Revolving  Loans on request  on such date by such  Borrower,  (C) the  aggregate
undrawn  amount of all  Letters  of Credit  outstanding  on such date  issued on
behalf  of  such  Borrower,  (D)  the  aggregate  amount  of  all  reimbursement
obligations  unpaid on such date in respect of the  Letters of Credit  issued on
behalf of such Borrower, (E) all Environmental Compliance Reserves maintained on
such date with respect to such Borrower, (F) all Landlord's Lien Waiver Reserves
maintained  on such  date  with  respect  to such  Borrower,  and (G) all  other
reserves  which  the  Agent  in the  exercise  of its  Permitted  Discretion  is
maintaining  on such date with  respect to such  Borrower's  account,  including
reserves  for any amounts  which the Agent or any Lender may be obligated to pay
in the  future  for the  account  of such  Borrower  minus  (ii)  the sum of (A)
eighty-five percent (85%) of the Net Amount of Eligible Accounts on such date of
such  Borrower  plus (B)  fifty-eight  percent  (58%) of the  value of  Eligible
Inventory on such date of such Borrower.

                  4.2 Termination of Facility.  The Borrowers may terminate this
Agreement  upon at least thirty (30) Business  Days' notice from Phar-Mor to the
Agent and the Lenders, upon (a) the payment in full of all outstanding Revolving
Loans,  together with accrued  interest  thereon,  and the  cancellation or cash
collateralization  of all  outstanding  Letters  of  Credit in  accordance  with
Section  2.3(i),  (b) the  payment  in full  in  cash of all  other  Obligations
together with accrued interest thereon,  and (c) with respect to any LIBOR Loans
prepaid in connection with such termination  prior to the expiration date of the
Interest  Period  applicable  thereto,  the payment of the amounts  described in
Section 5.4.

                  4.3 Payments by the Borrowers.  (a) All payments to be made by
the Borrowers shall be made  irrespective of any claim,  counterclaim,  set-off,
recoupment, defense, deduction or other right which any Borrower may have at any
time  against the Agent,  any Lender or any other  Person.  Except as  otherwise
expressly provided herein, all payments by the Borrowers



<PAGE>   37



shall be made to the Agent for the account of the Lenders at the Agent's address
set forth in  Section  15.8,  and shall be made in  Dollars  and in  immediately
available  funds,  no later  than  2:00 p.m.  (New  York City  time) on the date
specified  herein.  Any payment  received by the Agent later than 2:00 p.m. (New
York City time) shall be deemed to have been received on the following  Business
Day and any applicable interest or fee shall continue to accrue.

                  (b) Subject to the  provisions  set forth in the definition of
"Interest  Period"  herein,  whenever  any  payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the  computation of interest
or fees, as the case may be.

                  (c) Unless the Agent  receives  notice from Phar-Mor  prior to
the date on which any  payment is due to the  Lenders  that a Borrower  will not
make such payment in full as and when  required,  the Agent may assume that each
applicable  Borrower  has made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required), in
reliance  upon such  assumption,  distribute  to each Lender on such due date an
amount  equal to the amount  then due such  Lender.  If and to the  extent  such
Borrower has not made such payment in full to the Agent, each Lender shall repay
to the Agent on demand such amount  distributed  to such Lender,  together  with
interest  thereon  at the  Federal  Funds  Rate for each day from the date  such
amount is distributed to such Lender until the date repaid.

                  4.4  Payments  as  Revolving   Loans.   (a)  All  payments  of
principal,  interest,  reimbursement  obligations in connection  with Letters of
Credit, fees, premiums and other sums payable under any Loan Document, including
all  reimbursement  for expenses pursuant to Section 15.7, may, at the option of
the Agent,  in its sole  discretion,  subject  only to the terms of this Section
4.4, be paid from the proceeds of Revolving Loans made  hereunder,  whether made
following a request by Phar-Mor  pursuant to Section 2.2 or a deemed  request as
provided in this Section 4.4(a).  Subject to subsection (b) below, each Borrower
hereby  irrevocably  authorizes  the Agent to charge  its Loan  Account  for the
purpose of paying principal,  interest,  reimbursement obligations in connection
with  Letters of  Credit,  fees,  premiums  and other  sums  payable  hereunder,
including  reimbursing  expenses  pursuant to Section 15.7,  and agrees that all
such amounts charged shall constitute  Revolving Loans (including BABC Loans and
Agent  Advances)  and that all such  Revolving  Loans so made shall be deemed to
have been  requested by Phar-Mor on behalf of such Borrower  pursuant to Section
2.2.

                  (b)   Notwithstanding   Section   4.4(a),   if  no  Loans  are
outstanding  as of the close of business  on the date that any (i) fees  payable
hereunder,  including the Closing Fee, the Unused Line Fee, the Letter of Credit
Fee and the  Collateral  Management  Fee, (ii) amounts  payable under Article 5,
(iii) indemnity  payments  pursuant to Section 15.11 and (iv)  reimbursement for
expenses  pursuant to Section 15.7,  are due from any Borrower,  the Agent shall
notify Phar-Mor of the aggregate amount of such sums then owing by such Borrower
and provided  that such  Borrower  pays such amount into the Agent's  Account by
automated  clearing  house or federal  wire  transfer by the next  Business  Day
following  delivery of such notice,  then such  payment  shall be deemed to have
been  paid on the date of such  notice  and no  interest  on such  amount  shall
accrue.

                  4.5  Apportionment,  Application  and  Reversal  of  Payments.
Aggregate principal and interest payments shall be apportioned ratably among the
Lenders  (according to the unpaid  principal  balance of the Loans to which such
payments relate held by each Lender) and payments



<PAGE>   38



of the fees shall, as applicable,  be apportioned ratably among the Lenders. All
payments  shall be remitted to the Agent and all such  payments  not relating to
principal or interest of specific Loans, or not constituting payment of specific
fees,  and all proceeds of Accounts or other  Collateral  received by the Agent,
shall be applied,  ratably, subject to the provisions of this Agreement,  first,
to pay any  fees,  or  expense  reimbursements  then due to the  Agent  from any
Borrower;  second,  to pay any fees or  expense  reimbursements  then due to the
Lenders  from  any  Borrower;  third,  to pay  interest  due in  respect  of all
Revolving  Loans,  including BABC Loans and Agent  Advances;  fourth,  to pay or
prepay  principal of the BABC Loans and Agent Advances;  fifth, to pay or prepay
principal of the Revolving  Loans (other than BABC Loans and Agent Advances) and
unpaid  reimbursement  obligations in respect of Letters of Credit; or sixth, to
the  payment  of any  other  Obligation  due to the  Agent or any  Lender by any
Borrower.  Notwithstanding anything to the contrary contained in this Agreement,
unless so directed by  Phar-Mor,  or unless an Event of Default is  outstanding,
neither the Agent nor any Lender shall apply any  payments  which it receives to
any  LIBOR  Loan,  except  (a) on the  expiration  date of the  Interest  Period
applicable to any such LIBOR Loan, or (b) in the event,  and only to the extent,
that there are no  outstanding  Reference  Rate Loans.  The Agent shall promptly
distribute to each Lender, pursuant to the applicable wire transfer instructions
received  from each  Lender in  writing,  such  funds as it may be  entitled  to
receive,  subject to a Settlement  delay as provided for in Section 2.2(j).  The
Agent and the Lenders shall have the continuing and exclusive right to apply and
reverse and reapply any and all such proceeds and payments to any portion of the
Obligations.

                  4.6 Indemnity for Returned Payments.  If, after receipt of any
payment  of, or  proceeds  applied  to the  payment  of,  all or any part of the
Obligations,  the Agent or any Lender is for any reason  compelled  to surrender
such payment or proceeds to any Person,  because such payment or  application of
proceeds is invalidated,  declared fraudulent,  set aside, determined to be void
or voidable  as a  preference,  impermissible  setoff,  or a diversion  of trust
funds, or for any other reason, then the Obligations or part thereof intended to
be satisfied  shall be revived and continue and this Agreement shall continue in
full force as if such payment or proceeds had not been  received by the Agent or
such Lender,  and each Borrower shall be liable to pay to the Agent,  and hereby
does  indemnify  the Agent and the  Lenders  and hold the Agent and the  Lenders
harmless for, the amount of such payment or proceeds surrendered. The provisions
of this Section 4.6 shall be and remain effective  notwithstanding  any contrary
action  which may have been  taken by the Agent or any Lender in  reliance  upon
such payment or application of proceeds,  and any such contrary  action so taken
shall be without  prejudice  to the Agent's and the  Lenders'  rights under this
Agreement  and shall be deemed to have been  conditioned  upon such  payment  or
application of proceeds having become final and  irrevocable.  The provisions of
this Section 4.6 shall survive the termination of this Agreement.

                  4.7  Agent's  and   Lenders'   Books  and   Records;   Monthly
Statements.  Each Borrower  agrees that the Agent's and each Lender's  books and
records showing the Obligations and the transactions  pursuant to this Agreement
and the other Loan  Documents  shall be  admissible  in any action or proceeding
arising therefrom,  and shall constitute  rebuttably  presumptive proof thereof,
irrespective of whether any Obligation is also evidenced by a promissory note or
other  instrument.  The Agent will  provide to Phar-Mor a monthly  statement  of
Loans,  payments,  and  other  transactions  pursuant  to this  Agreement.  Such
statement shall be deemed correct, accurate, and binding on the Borrowers and an
account  stated  (except for  reversals and  reapplications  of payments made as
provided in Section 4.5, corrections of errors discovered by the Agent, manifest
errors or errors resulting from the Agent's bad faith or willful



<PAGE>   39



misconduct),  unless  Phar-Mor  notifies  the Agent in writing  to the  contrary
within one hundred  eighty (180) days after such  statement is rendered.  In the
event a timely written notice of objections is given by Phar-Mor, only the items
to which  exception is expressly  made will be  considered to be disputed by the
Borrowers.

                                    ARTICLE 5
                     TAXES, YIELD PROTECTION AND ILLEGALITY

    5.1 Taxes. (a) Any and all payments by any Borrower to each Lender or the
Agent under this  Agreement and any other Loan  Document  shall be made free and
clear of, and without deduction or withholding for, any Taxes. In addition,  the
Borrowers jointly and severally agree to pay all Other Taxes.

                  (b) Each  Borrower  agrees to indemnify and hold harmless each
Lender and the Agent for the full amount of Taxes or Other Taxes  (including any
Taxes or Other Taxes imposed by any  jurisdiction  on amounts payable under this
Section) paid by the Lender or the Agent and any liability (including penalties,
interest,  additions  to tax and  expenses)  arising  therefrom  or with respect
thereto,  whether or not such Taxes or Other  Taxes  were  correctly  or legally
asserted.  Payment under this  indemnification  shall be made within thirty (30)
days after the date the Lender or the Agent makes written demand therefor.

                  (c) If any  Borrower  shall be  required  by law to  deduct or
withhold  any  Taxes  or  Other  Taxes  from or in  respect  of any sum  payable
hereunder to any Lender or the Agent, then:

                  (i) the sum payable  shall be  increased  as necessary so that
after making all required deductions and withholdings  (including deductions and
withholdings  applicable  to  additional  sums payable  under this Section) such
Lender or the Agent,  as the case may be, receives an amount equal to the sum it
would have received had no such deductions or withholdings been made;

                  (ii)   such   Borrower   shall   make  such   deductions   and
withholdings;

                  (iii) such Borrower  agrees to pay the full amount deducted or
withheld to the relevant taxing  authority or other authority in accordance with
applicable law; and

                  (iv) such  Borrower  agrees  also to pay to each Lender or the
Agent  for the  account  of such  Lender,  at the time  interest  is  paid,  all
additional  amounts  which the  respective  Lender  specifies  as  necessary  to
preserve the  after-tax  yield the Lender  would have  received if such Taxes or
Other Taxes had not been imposed.

                  (d) Within  thirty  (30) days after the date of any payment by
any Borrower of Taxes or Other Taxes,  such Borrower shall furnish the Agent the
original or a certified copy of a receipt evidencing  payment thereof,  or other
evidence of payment satisfactory to the Agent.

                  (e) If any Borrower is required to pay  additional  amounts to
any Lender or the Agent  pursuant to subsection  (c) of this Section,  then such
Lender  shall use  reasonable  efforts  (consistent  with  legal and  regulatory
restrictions)  to change  the  jurisdiction  of any office it  specifies  as its
"lending office" so as to eliminate any such additional payment by such Borrower
which may  thereafter  accrue,  if such change in the judgment of such Lender is
not otherwise disadvantageous to such Lender.



<PAGE>   40



                  5.2  Illegality.   (a)  If  any  Lender  determines  that  the
introduction of any Requirement of Law, or any change in any Requirement of Law,
or in the  interpretation  or administration of any Requirement of Law, has made
it  unlawful,  or that any  central  bank or other  Governmental  Authority  has
asserted that it is unlawful, for any Lender or its applicable lending office to
make LIBOR Loans, then, on notice thereof by such Lender to Phar-Mor through the
Agent,  any  obligation  of such Lender to make LIBOR  Loans shall be  suspended
until such Lender  notifies  Phar-Mor  through the Agent that the  circumstances
giving rise to such determination no longer exist.

                  (b) If a Lender determines that it is unlawful to maintain any
LIBOR Loan, each Borrower agrees, upon Phar-Mor's receipt of notice of such fact
and demand  from such Lender  (with a copy to the Agent),  to prepay in full its
LIBOR Loans of that Lender then  outstanding,  together  with  interest  accrued
thereon and amounts  required  under Section 5.4,  either on the last day of the
Interest  Period thereof,  if the Lender may lawfully  continue to maintain such
LIBOR Loans to such day, or immediately, if the Lender may not lawfully continue
to maintain  such LIBOR Loan. If any Borrower is required to so prepay any LIBOR
Loan, then  concurrently  with such prepayment,  such Borrower shall borrow from
the affected Lender, in the amount of such repayment, a Reference Rate Loan.

                  5.3 Increased Costs and Reduction of Return. (a) If any Lender
determines  that,  due to either  (i) the  introduction  of or any change in the
interpretation  of any law or  regulation  after  the  Closing  Date or (ii) the
compliance by such Lender with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law) introduced
after the Closing  Date,  there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining any LIBOR Loans, then each
Borrower  of such LIBOR Loans  agrees to be liable  for,  and shall from time to
time,  upon demand (with a copy of such demand to be sent to the Agent),  to pay
to the  Agent  for  the  account  of  such  Lender,  additional  amounts  as are
sufficient to compensate such Lender for such increased costs.

                  (b)  If  any  Lender  shall  have   determined  that  (i)  the
introduction of any Capital Adequacy Regulation,  (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any  Capital  Adequacy  Regulation  by any  central  bank or other  Governmental
Authority charged with the  interpretation or  administration  thereof,  or (iv)
compliance by such Lender or any  corporation  controlling  such Lender with any
Capital Adequacy Regulation  introduced after the Closing Date, affects or would
affect the amount of capital  required  or  expected  to be  maintained  by such
Lender or any corporation controlling such Lender and determines that the amount
of such capital is increased as a consequence of its Commitments, loans, credits
or  obligations  under  this  Agreement,  then,  upon  demand of such  Lender to
Phar-Mor through the Agent, each Borrower agrees to pay to the Lender, from time
to time as specified by the Lender,  additional amounts sufficient to compensate
the Lender for such increase.

                  5.4 Funding  Losses.  Each Borrower  agrees to reimburse  each
Lender and hold each Lender  harmless  from any loss or expense which the Lender
may sustain or incur as a consequence of:

                  (a) the failure of such Borrower to make on a timely basis any
payment of principal of any LIBOR Loan;

                  (b) the  failure  of such  Borrower  to  borrow,  continue  or
convert a Loan after



<PAGE>   41



Phar-Mor,  on behalf of such Borrower,  has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Continuation/Conversion;

                  (c)  the   prepayment  or  other  payment   (including   after
acceleration  thereof) of an LIBOR Loan on a day that is not the last day of the
relevant  Interest  Period;  including any such loss or expense arising from the
liquidation or  reemployment of funds obtained by it to maintain its LIBOR Loans
or from fees  payable  to  terminate  the  deposits  from  which such funds were
obtained.

                  5.5 Inability to Determine Rates. If the Agent determines that
for any reason  adequate and reasonable  means do not exist for  determining the
LIBOR Rate for any requested  Interest  Period with respect to a proposed  LIBOR
Loan, or that the LIBOR Rate for any requested Interest Period with respect to a
proposed  LIBOR  Loan does not  adequately  and fairly  reflect  the cost to the
Lenders of funding  such Loan,  the Agent will  promptly so notify  Phar-Mor and
each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR
Loans  hereunder  shall be  suspended  until the Agent  revokes  such  notice in
writing.  Upon  receipt  of such  notice,  Phar-Mor  may  revoke  any  Notice of
Borrowing or Notice of Continuation/Conversion then submitted by it. If Phar-Mor
does not revoke such  Notice,  the Lenders  shall make,  convert or continue the
Loans, as proposed by such Borrower,  in the amount  specified in the applicable
notice  submitted  by  Phar-Mor,  but such  Loans  shall be made,  converted  or
continued as Reference Rate Loans instead of LIBOR Loans.

                  5.6 Certificates of Lenders. Any Lender claiming reimbursement
or  compensation  under this Article 5 shall deliver to Phar-Mor (with a copy to
the Agent) a certificate  setting forth in reasonable  detail the amount payable
to the Lender hereunder and such certificate  shall be conclusive and binding on
the applicable Borrower in the absence of manifest error.

                  5.7 Survival.  The agreements and obligations of the Borrowers
in this Article 5 shall survive the payment of all other Obligations.

                                    ARTICLE 6
                                   COLLATERAL

                  6.1  Grant  of  Security  Interest.  (a) As  security  for all
Obligations,  each Borrower  hereby grants to the Agent,  for the benefit of the
Agent and the ratable benefit of the Lenders, a continuing security interest in,
lien on, and right of set-off  against,  all of the  following  property of such
Borrower,  whether  now owned or  existing  or  hereafter  acquired  or arising,
regardless of where located:

                  (i)      all Accounts;

                  (ii)     all Inventory;

                  (iii)  all  contract  rights,  letters  of  credit,   Assigned
Contracts, chattel paper, instruments, notes, documents, and documents of title;

                  (iv)     all General Intangibles;

                  (v) all money,  securities  and other  property of any kind of
such Borrower in the possession or under the control of the Agent or any Lender,
any assignee of or participant



<PAGE>   42



in the Obligations, or a bailee of any such party or such party's affiliates;

                  (vi) all deposit accounts, credits and balances with and other
claims  against  the Agent or any Lender or any of its  affiliates  or any other
financial institution in which such Borrower maintains deposits;

                  (vii) all  books,  records  and other  property  related to or
referring to any of the foregoing,  including books,  records,  account ledgers,
data  processing  records,  computer  software  and other  property  and General
Intangibles at any time evidencing or relating to any of the foregoing; and

                  (viii) all accessions to,  substitutions for and replacements,
products and proceeds of any of the  foregoing,  including,  but not limited to,
proceeds  of  any  insurance  policies,   claims  against  third  parties,   and
condemnation  or  requisition  payments  with  respect  to  all  or  any  of the
foregoing.

                  All of the foregoing and all other property of any Borrower in
which the Agent or any Lender may at any time be granted a Lien,  including  the
shares of capital stock of the Borrowers other than Phar-Mor pledged by Phar-Mor
pursuant to the Stock Pledge Agreement,  is herein  collectively  referred to as
the "Collateral."

                  (b) All of the  Obligations  shall  be  secured  by all of the
Collateral.  The Agent may,  subject to the provisions of Articles 13 and 14, in
its sole discretion, (i) exchange, waive, or release any of the Collateral, (ii)
apply Collateral and direct the order or manner of sale thereof as the Agent may
determine,  and (iii) settle,  compromise,  collect,  or otherwise liquidate any
Collateral in any manner,  all without  affecting the Obligations or the Agent's
or any  Lender's  right to take any  other  action  with  respect  to any  other
Collateral.

                  6.2 Perfection and Protection of Security  Interest.  (a) Each
Borrower shall, at its expense,  perform all steps requested by the Agent at any
time to perfect,  maintain,  protect, and enforce the Agent's Liens,  including:
(i) (x)  executing  and filing UCC financing  and  continuation  statements  and
amendments  thereto  in form and  substance  satisfactory  to the  Agent and (y)
executing  and  delivering  to the  Agent  and  recording  with the  appropriate
Governmental   Authority  the  Supplemental   Trademark  Security  Agreement  in
accordance with the provisions of Section  6.7(b);  (ii) delivering to the Agent
the originals of all  instruments,  documents,  and chattel paper, and all other
Collateral of which the Agent  determines it should have physical  possession in
order to perfect  and  protect  the  Agent's  security  interest  therein,  duly
pledged, endorsed or assigned to the Agent without restriction; (iii) delivering
to  the  Agent  negotiable  warehouse  receipts  covering  any  portion  of  the
Collateral located in warehouses and for which negotiable warehouse receipts are
issued by third  parties;  (iv) when an Event of  Default  exists,  transferring
Inventory to warehouses  designated by the Agent;  (v) placing  notations on its
books of account to disclose the Agent's security interest;  (vii) delivering to
the Agent all letters of credit on which such Borrower is named beneficiary; and
(viii) taking such other steps as are deemed necessary or desirable by the Agent
to maintain and protect the Agent's Liens. To the extent permitted by applicable
law,  the  Agent  may  file,  without  such  Borrower's  signature,  one or more
financing  statements  disclosing the Agent's Liens. Each Borrower agrees that a
carbon, photographic, photostatic, or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement.

                  (b) If any Inventory  aggregating  in excess of $250,000 is in
the possession or



<PAGE>   43



control of any warehouseman, bailee or any of a Borrower's agents or processors,
then Phar-Mor shall notify the Agent thereof and shall notify such Person of the
Agent's  security  interest in such  Collateral  and, upon the Agent's  request,
instruct such Person to hold all such Collateral for the Agent's account subject
to the Agent's  instructions.  If at any time any  Collateral  is located on any
premises of any  Borrower  which is not owned by such  Borrower,  then  Phar-Mor
shall so inform the Agent,  and with  respect to those  Premises  as to which no
express  landlord's lien waiver exists (which Premises are indicated on Schedule
1.1(D)),  within one hundred and eighty (180) days from the Closing  Date,  such
Borrower  shall deliver a copy  certified by a Responsible  Officer of a current
and  legally  valid,  binding  and  enforceable  lease  agreement  containing  a
landlord's  lien waiver in form and substance  acceptable to the Agent or obtain
written lien waivers,  substantially  in the form of Exhibit 6.2(b)  hereof,  or
otherwise  in form and  substance  acceptable  to the Agent,  of all present and
future  Liens to which the owner or lessor of such  premises  may be entitled to
assert against the Collateral.

                  (c) From time to time, each Borrower  shall,  upon the Agent's
reasonable  request,   execute  and  deliver  confirmatory  written  instruments
pledging to the Agent,  for the benefit of the Agent and the ratable  benefit of
the Lenders,  the Collateral with respect to such Borrower,  but such Borrower's
failure to do so shall not affect or limit the Agent's security  interest or the
Agent's other rights in and to the Collateral with respect to such Borrower.  So
long as this  Agreement is in effect and until all  Obligations  have been fully
satisfied,  the  Agent's  Liens  shall  continue in full force and effect in all
Collateral  (whether or not deemed  eligible for the purpose of calculating  the
Availability  or as the basis for any advance,  loan,  extension  of credit,  or
other financial accommodation).

                  6.3  Location of  Collateral.  Each  Borrower  represents  and
warrants to the Agent and the Lenders  that:  (a)  Schedule 6.3 is a correct and
complete  list of its chief  executive  office,  the  location  of its books and
records, the locations of its Collateral,  and the locations of all of its other
places of business,  in each case by legal entity and (b) Schedule 6.3 correctly
identifies  any of such  facilities  and locations  that are not owned by it and
sets forth the names of the owners and lessors or sublessors of and, to the best
of its  knowledge,  the  holders  of  any  mortgages  on,  such  facilities  and
locations.  Each Borrower covenants and agrees that it will not (i) maintain any
Collateral at any location other than those locations  listed for it on Schedule
6.3, (ii) otherwise change or add to any of such locations,  or (iii) change the
location of its chief executive office from the location  identified in Schedule
6.3,  unless  Phar-Mor  gives the Agent at least thirty (30) days' prior written
notice thereof and executes any and all financing statements and other documents
that the Agent requests in connection therewith. Without limiting the foregoing,
each Borrower  represents that,  except for Inventory in transit in the ordinary
course of  business,  all of its  Inventory  is, and  covenants  that all of its
Inventory  will be,  located either (A) on premises owned by it, (B) on premises
leased by it;  provided that the  requirements of Section 6.2(b) with respect to
such lease are complied  with, or (C) in a public  warehouse;  provided that the
Agent  has  received  an  executed  bailee  letter  from the  applicable  public
warehouseman in form and substance satisfactory to the Agent.

                  6.4 Title to, Liens on, and Sale and Use of  Collateral.  Each
Borrower  represents  and  warrants to the Agent and the Lenders and agrees with
the Agent and the Lenders that: (a) all of its Collateral  with respect to it is
and will  continue  to be owned by it free and  clear of all  Liens  whatsoever,
except for the Liens  described  in  clauses  (a) and (h) of the  definition  of
Permitted  Liens or any other  Permitted Lien  expressly  identified on Schedule
6.4; (b) it will use,  store,  and maintain its  Collateral  with all reasonable
care and will use such Collateral for lawful purposes only; and (c) it will not,
without the Agent's prior written approval, sell, or



<PAGE>   44



dispose of or permit the sale or disposition of any of the Collateral except for
sales of Inventory in the ordinary course of business. The inclusion of proceeds
in the Collateral  shall not be deemed to constitute the Agent's or any Lender's
consent to any sale or other  disposition of the Collateral  except as expressly
permitted herein.

                  6.5  Appraisals.  Whenever  (i) a Default  or Event of Default
exists, (ii) a Material Adverse Change occurs, (iii) a substantial change occurs
in the  composition  of  Inventory  held  for  sale by any  Borrower,  or (iv) a
regulatory requirement so mandates, then each Borrower shall, at its expense and
upon the Agent's  request,  provide the Agent with appraisals or updates thereof
of any or all of the  Collateral  from an  appraiser,  and  prepared on a basis,
satisfactory to the Agent,  such  appraisals and updates to include  information
required by applicable law and  regulation  and by the internal  policies of the
Lenders.

                  6.6 Access and  Examination;  Confidentiality.  (a) The Agent,
accompanied by any Lender which so elects,  may at all reasonable  times (and at
any time when a Default or Event of Default  exists)  have  access to,  examine,
audit,  make extracts from or copies of and inspect any or all of any Borrower's
records,  files,  and books of  account  and the  Collateral,  and  discuss  any
Borrower's  affairs with any Borrower's  officers and management.  Each Borrower
will  deliver  to the Agent  any  instrument  necessary  for the Agent to obtain
records from any service bureau maintaining records for such Borrower. The Agent
may,  and at the  direction of the Majority  Lenders  shall,  at any time when a
Default or Event of Default exists,  and at the applicable  Borrower's  expense,
make copies of any or all of any  Borrower's  books and records,  or require any
Borrower to deliver such copies to the Agent, and use any Borrower's  respective
personnel, supplies, and premises as may be reasonably necessary for maintaining
or enforcing the Agent's Liens.  The Agent shall have the right, at any time, in
the  Agent's  name or in the name of a  nominee  of the  Agent,  to  verify  the
validity,  amount or any other matter  relating to the Accounts,  Inventory,  or
other Collateral, by mail, telephone, or otherwise.

                  (b) The Borrowers agree that,  subject to the prior consent of
Phar-Mor for uses other than in a traditional tombstone, which consent shall not
be unreasonably withheld or delayed, the Agent and each Lender may use the names
of any Borrower in  advertising  and  promotional  material  and in  conjunction
therewith  disclose  the  general  terms of this  Agreement.  The Agent and each
Lender agrees to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information  identified as "confidential" or
"secret"  by  Phar-Mor  and  provided  to the Agent or such  Lender  under  this
Agreement or any other Loan Document, and neither the Agent, nor such Lender nor
any of their respective  Affiliates shall use any such information other than in
connection  with  or in  enforcement  of  this  Agreement  and  the  other  Loan
Documents,  except  to the  extent  that  such  information  (i) was or  becomes
generally  available to the public other than as a result of  disclosure  by the
Agent or such  Lender,  or (ii) was or becomes  available  on a  nonconfidential
basis from a source  other than a  Borrower,  provided  that such  source is not
bound by a  confidentiality  agreement  with any Borrower  known to the Agent or
such Lender; provided,  further, that the Agent and any Lender may disclose such
information   (1)  at  the  request  or  pursuant  to  any  requirement  of  any
Governmental  Authority  to which the  Agent or such  Lender  is  subject  or in
connection  with  an  examination  of the  Agent  or  such  Lender  by any  such
Governmental  Authority;  (2) pursuant to subpoena or other court  process;  (3)
when  required to do so in  accordance  with the  provisions  of any  applicable
requirement of law; (4) to the extent reasonably required in connection with any
litigation  or  proceeding  (including,  but  not  limited  to,  any  bankruptcy
proceeding) to which the Agent, any Lender or their respective Affiliates may be
party; (5) to the extent reasonably  required in connection with the exercise of
any remedy hereunder or under any other Loan



<PAGE>   45



Document; (6) to the Agent's or such Lender's independent auditors, accountants,
attorneys and other professional  advisors; (7) to any Affiliate of the Agent or
such Lender, or to any Participating Lender or assignee under any Assignment and
Acceptance,  actual or potential,  provided that such  affiliate,  Participating
Lender or  assignee  agrees to keep such  information  confidential  to the same
extent  required of the Agent and the Lenders  hereunder;  and (8) as  expressly
permitted  under  the  terms  of  any  other  document  or  agreement  regarding
confidentiality to which any Borrower is party or is deemed party with the Agent
or such Lender.

                  6.7 Collateral Reporting. (a) Phar-Mor shall provide the Agent
with the following  documents at the following times in form satisfactory to the
Agent:  (i) on a monthly  basis within  thirty (30) days of the end of the month
or, if Aggregate Availability on any date falls below $25,000,000, then for each
week following such date until the Agent notifies Phar-Mor to the contrary, on a
weekly basis within six (6) Business  Days  following  the Saturday of any week,
(A) Inventory  reports by Borrower and  categories of  merchandise,  identifying
therein  Inventory  acquired  on  consignment  and (B) an  aging  of  Phar-Mor's
consolidated Accounts by creditor,  together with a reconciliation,  as the case
may be, to the  previous  month's  or week's  aging of  Phar-Mor's  consolidated
Accounts  and to  Phar-Mor's  general  ledger;  (ii) on a monthly  basis  within
forty-five  (45)  days  of  the  end  of  the  month,  an  aging  of  Phar-Mor's
consolidated  accounts  payable;  (iii)  upon  request,  copies of  invoices  in
connection with Phar-Mor's  consolidated Accounts,  customer statements,  credit
memos, remittance advices and reports,  deposit slips, and shipping and delivery
documents in connection with Phar-Mor's  consolidated Accounts and for Inventory
acquired by any Borrower,  purchase orders and invoices; (iv) such other reports
as to the Collateral of any Borrower as the Agent shall reasonably  request from
time to time; (v) within forty-five (45) days of the end of each fiscal quarter,
copies of all reports of cycle counts of each Borrower's  Inventory  prepared in
such fiscal quarter, showing variances,  reconciliations and adjustments between
such cycle counts and such  Borrower's  store Inventory  records,  conducted and
prepared  in each  case in a manner  consistent  with such  Borrower's  historic
practice  (subject  to normal,  in the  ordinary  course of  business  month-end
adjustments with respect to information  provided pursuant to clause (A) above);
and  (vi)  with  the  delivery  of each of the  foregoing,  a  certificate  of a
Responsible  Officer  certifying  as to the  accuracy  and  completeness  of the
foregoing as of the date of delivery of such certificate  (subject to normal, in
the  ordinary  course  of  business   month-end   adjustments  with  respect  to
information  provided  pursuant  to  clause  (A)  and  (B)  above).  If any of a
Borrower's  records or reports of the  Collateral  are prepared by an accounting
service or other agent, such Borrower hereby authorizes such service or agent to
deliver  such  records,  reports,  and  related  documents  to  the  Agent,  for
distribution to the Lenders.

                  (b) (i) Within  fifteen (15)  Business Days after any Borrower
Acquires a trademark  included in the Proprietary  Rights,  or a registration or
application related thereto, or applies in any jurisdiction for the registration
of a trademark  included in the Proprietary  Rights,  Phar-Mor shall provide the
Agent  with (i)  notice of such  Acquisition  or  application,  as  appropriate,
identifying  the Acquired  Proprietary  Right,  each  Acquired  registration  or
pending  application  therefor  (including for each, the name of the registrant,
the filing number,  filing date and date of issuance,  as  applicable),  and the
date of first use, and (ii) if such  Acquired  Proprietary  Right is a trademark
registered in the United States,  or if such application is for the registration
in the United States of a trademark, an executed original Supplemental Trademark
Security  Agreement  (effective  as of the date on  which  such  Borrower  first
Acquired such  trademark,  which date shall not be earlier than the date of this
Agreement). At the Agent's



<PAGE>   46



request,  such  Borrower  shall  promptly,  but in no  event  more  than one (1)
Business  Day after  such  request,  duly  record  such  Supplemental  Trademark
Security Agreement in the U.S. Patent and Trademark Office.

                  (ii) Within  fifteen  (15)  Business  Days after any  Borrower
Acquires a copyright,  license, patent or other similar intangible (other than a
trademark) that is material in the conduct of such Borrower's business, Phar-Mor
shall notify the Agent thereof and upon the Agent's request, such Borrower shall
take such action as the Agent may  reasonably  request to grant and perfect such
security interest therein.

                  (c)  Phar-Mor  shall  provide to the Agent (i) on the  Closing
Date,  (ii) within three (3) days  following the Agent's  written  request,  and
(iii)  on the  day  Phar-Mor  delivers  pursuant  to  Section  2.2(b)  a  notice
requesting the making of a Revolving Loan or pursuant to Section 2.3(d) a notice
requesting the issuance of a Letter of Credit,  in each case a certificate  from
Phar-Mor  showing (A) as of the date of the most recent report  delivered  under
Section 6.7(a)(i), for each Borrower such Borrower's Eligible Accounts, Eligible
Inventory,  the information for each Borrower  reported under Section  6.7(a)(i)
and any other  information  reasonably  required  by the Agent and (B) as of the
date of the  certificate,  the respective  amounts of each enumerated item under
clauses (b) of the definitions of "Aggregate  Availability" and  "Availability",
in each case for each Borrower,  which certificate shall be substantially in the
form of Exhibit 6.7(c) and shall be certified as complete and accurate as of the
date of delivery by the chief  financial  officer of Phar-Mor (an  "Availability
Certificate").  Each  Borrower  agrees  that the Agent shall not be bound by any
Availability  Certificate  and that the Agent shall have the right to  determine
the Aggregate  Availability  and the Availability of any Borrower as provided in
the definitions of "Aggregate Availability" and "Availability" in Section 1.1.

                  6.8 Accounts. (a) Each Borrower hereby represents and warrants
to the Agent and the Lenders,  with respect to such Borrower's  Accounts,  that:
(i) each existing Account represents,  and each future Account will represent, a
bona fide sale or lease and delivery of goods by such Borrower,  or rendition of
services by such Borrower,  in the ordinary course of such Borrower's  business;
(ii) each existing Account is, and each future Account will be, for a liquidated
amount  payable  by the  Account  Debtor  thereon  on the terms set forth in the
invoice therefor or in the schedule thereof delivered to the Agent,  without any
claim, counterclaim, setoff, recoupment, defense, deduction or other right which
the  Accounts  Debtor may have at any time against  such  Borrower  except those
known to such  Borrower and  disclosed to the Agent and the Lenders  pursuant to
this  Agreement;  (iii) no payment will be received with respect to any Account,
and no credit,  discount, or extension, or agreement therefor will be granted on
any Account,  except as reported to the Agent and the Lenders in accordance with
this  Agreement;  (iv) each copy of an  invoice  delivered  to the Agent by such
Borrower  will be a genuine  copy of the  original  invoice  sent to the Account
Debtor named therein; and (v) all goods described in each invoice will have been
delivered to the Account Debtor and all services to be rendered by such Borrower
described in each invoice will have been performed.

                  (b) Each  Borrower  agrees it shall not re-date any invoice or
sale or make sales on extended  dating beyond that customary in such  Borrower's
business or extend or modify any Account.  If such Borrower becomes aware of any
matter  adversely  affecting either the  collectability  of any Eligible Account
involving  an amount  greater  than  $250,000 or any Account  Debtor of Eligible
Accounts, including information regarding the Account Debtor's creditworthiness,
such Borrower will promptly so advise the Agent.



<PAGE>   47



                  (c) Each Borrower agrees it shall not accept any note or other
instrument  (except a check or other  instrument  for the  immediate  payment of
money) with respect to any Account without the Agent's written  consent.  If the
Agent consents to the acceptance of any such instrument,  it shall be considered
as  evidence of the Account  and not  payment  thereof  and such  Borrower  will
promptly deliver such instrument to the Agent,  endorsed by such Borrower to the
Agent in a manner satisfactory in form and substance to the Agent. Regardless of
the form of presentment,  demand,  notice of protest with respect thereto,  such
Borrower shall remain liable thereon until such instrument is paid in full.

                  (d) Each  Borrower  shall  notify  the Agent  promptly  of all
disputes and claims in excess of $250,000  with any Account  Debtor with respect
to an Eligible Account, and agrees to settle, contest, or adjust such dispute or
claim at no expense to the Agent or any Lender. No discount, credit or allowance
shall be granted to any such Account  Debtor  without the Agent's  prior written
consent,  except for  discounts,  credits  and  allowances  made or given in the
ordinary  course of such  Borrower's  business  when no Event of Default  exists
hereunder. The Agent may, and at the direction of the Majority Lenders shall, at
all times when an Event of Default exists  hereunder,  settle or adjust disputes
and claims  directly  with Account  Debtors for amounts and upon terms which the
Agent or the Majority Lenders,  as applicable,  shall consider advisable and, in
all cases,  the Agent will credit such Borrower's Loan Account with only the net
amounts received by the Agent in payment of any Accounts.

                  6.9  Collection  of  Accounts;  Payments.  (a) Until the Agent
notifies  Phar-Mor on behalf of the  Borrowers to the  contrary,  each  Borrower
shall make  collection of all Accounts and other  proceeds of Inventory or other
Collateral for the Agent, shall receive all payments as the Agent's trustee, and
shall  immediately  deposit all payments in their original form duly endorsed in
blank into the Payment Account (either directly or following  deposit thereof in
a  deposit  account  maintained  or  established  by  each  Borrower  at a  bank
acceptable to the Agent).  Each Borrower shall direct each of the banks at which
deposit  accounts are  established  by such  Borrower to  transfer,  by same-day
depositary,  automated clearing house or federal wire transfer, on a daily basis
into the  Payment  Account  all  amounts  on deposit  in such  deposit  account.
Notwithstanding  the  foregoing  sentence,  each  Borrower  shall be entitled to
retain cash at each store  operated by such Borrower in amounts as are necessary
for the day-to-day  operation of each such store  consistent with past practices
in respect of each such store but not to exceed  $20,000 per store.  The Payment
Account  shall be  maintained  pursuant to an agreement  (the  "Payment  Account
Agreement")  among  the  Borrowers,   the  Agent  and  the  relevant   financial
institution  substantially  in the form of Exhibit  6.9(a)  hereto,  which shall
provide,  among other things, that amounts on deposit in the Payment Account may
be  withdrawn  by  Phar-Mor  on behalf of any  Borrower  until such time as such
financial  institution shall have received written notice from the Agent,  which
notice  may only be given upon the  occurrence  of an Event of Default or at any
time that the Aggregate  Availability is less than $20,000,000.  Upon receipt of
such notice by such  financial  institution,  all funds in the  Payment  Account
shall become subject to the sole dominion and control of the Agent and the Agent
shall have the right, upon written notice to the relevant financial institution,
to  instruct  the  financial  institution  to remit all  amounts  on  deposit or
thereafter  deposited  in the  Payment  Account to the Agent  Account on a daily
basis.  On or before the Closing Date,  Phar-Mor  shall deliver to the Agent the
Payment Account Agreement relating to the Payment Account.  Each Borrower agrees
to indemnify  each Lender and the Agent  against,  and reimburse  each on demand
for,  all costs  (without  duplication)  incurred  by the Agent or any Lender in
connection with the Payment Account Agreement.  Notwithstanding  the termination
of this Agreement, until all of the Obligations shall have been



<PAGE>   48



fully paid and satisfied,  the Borrowers shall continue to deposit,  or cause to
be deposited,  into the Payment  Account all  collections  of Accounts and other
proceeds of Inventory or other Collateral.

                  (b)  All  payments,   including  immediately  available  funds
received  by the  Agent at a bank  designated  by it,  received  by the Agent on
account of Accounts or as proceeds of other  Collateral will be the Agent's sole
property  for the benefit of the Lenders and will be credited to the  applicable
Borrower's Loan Account  (conditional upon final collection) upon receipt by the
Agent if received  at its  account in New York City by 2:00 p.m.  (New York City
time).

                  (c) In the event the  Borrowers  repay all of the  Obligations
upon the termination of this Agreement or upon  acceleration of the Obligations,
other than through the Agent's receipt of payments on account of the Accounts or
proceeds of the other  Collateral,  such payment  will be credited  (conditional
upon final  collection)  to the  applicable  Borrower's  Loan  Account  upon the
Agent's  receipt of such funds in the Agent  Account in New York City if payment
is received by 11:00 a.m. (New York City time).

                  6.10 Inventory; Perpetual Inventory;  Point-of-Sale Inventory.
Each  Borrower  represents  and warrants to the Agent and the Lenders and agrees
that all of the Inventory owned by such Borrower is and will be held for sale or
lease,  or is to be furnished in connection  with the rendition of services,  in
the ordinary course of such Borrower's business, and is and will be fit for such
purposes.  Each  Borrower  will  keep  its  Inventory  in  good  and  marketable
condition,  at its own expense.  Each Borrower will conduct a physical  count of
the Inventory at least once per Fiscal Year,  after and during the  continuation
of an Event of  Default,  and at such  other  times as the Agent  requests,  and
provide the Agent and Lenders with the results of such counts. At all times each
Borrower will maintain a perpetual  inventory  reporting  system with respect to
inventory located at each warehouse listed on Schedule 6.3 and a "point-of-sale"
inventory  reporting  system  with  respect to  Inventory  located at each store
listed on Schedule 6.3. Each  Borrower  agrees it will not,  without the Agent's
written consent,  sell any Inventory on a bill- and-hold,  guaranteed sale, sale
and return, sale on approval, consignment, or other repurchase or return basis.

                  6.11 Assigned Contracts. Each Borrower shall fully perform all
of its obligations under each of such Borrower's Assigned  Contracts,  and shall
enforce all of its rights and remedies thereunder as it deems appropriate in its
business  judgment;  provided,  however,  that such Borrower  shall not take any
action or fail to take any action with respect to its Assigned  Contracts  which
would result in a waiver or other loss of any  material  right or remedy of such
Borrower  thereunder.  Without  limiting the generality of the  foregoing,  each
Borrower shall take all action necessary or appropriate to permit, and shall not
take any action which would have any  materially  adverse  effect upon, the full
enforcement of all  indemnification  rights under its Assigned  Contracts.  Each
Borrower  agrees it shall not,  without the Agent's  and the  Majority  Lender's
prior written consent, modify, amend, supplement,  compromise, satisfy, release,
or discharge any of its Assigned  Contracts,  any collateral  securing the same,
any Person liable directly or indirectly with respect thereto,  or any agreement
relating to any of its  Assigned  Contracts  or the  collateral  therefor.  Each
Borrower  shall  cause  Phar-Mor to notify the Agent and the Lenders in writing,
promptly after such Borrower  becomes aware thereof,  of any event or fact which
could give rise to a claim by it for  indemnification  under any of its Assigned
Contracts, and shall diligently pursue such right and report to the Agent on all
further developments with respect thereto. Each Borrower shall remit directly to
the Agent for  application  to the  Obligations  in such  order as the  Majority
Lenders shall determine, all amounts



<PAGE>   49



received  by such  Borrower  as  indemnification  or  otherwise  pursuant to its
Assigned  Contracts.  If any  Borrower  shall fail after the  Agent's  demand to
pursue  diligently  any right under its  Assigned  Contracts,  or if an Event of
Default then exists, the Agent may, and at the direction of the Majority Lenders
shall,  directly  enforce such right in its own or such  Borrower's name and may
enter into such  settlements  or other  agreements  with respect  thereto as the
Agent or the Majority  Lenders,  as applicable,  shall  determine.  In any suit,
proceeding  or action  brought by the Agent for the benefit of the Lenders under
any Assigned  Contract for any sum owing  thereunder or to enforce any provision
thereof,  each Borrower shall indemnify and hold the Agent and Lenders  harmless
from and against all expense,  loss or damage suffered by reason of any defense,
setoff,  counterclaims,  recoupment, or reduction of liability whatsoever of the
obligor  thereunder  arising out of a breach by such Borrower of any  obligation
thereunder or arising out of any other  agreement,  indebtedness or liability at
any  time  owing  from  such  Borrower  to or in favor  of such  obligor  or its
successors.   All  such  obligations  of  such  Borrower  shall  be  and  remain
enforceable only against such Borrower and shall not be enforceable  against the
Agent. Notwithstanding any provision hereof to the contrary, each Borrower shall
at all  times  remain  liable to  observe  and  perform  all of its  duties  and
obligations  under its  Assigned  Contracts,  and the  Agent's  or any  Lender's
exercise of any of their respective  rights with respect to the Collateral shall
not release each such Borrower from any of such duties and obligations.  Neither
the Agent nor any Lender shall be obligated to perform or fulfill any Borrower's
duties  or  obligations  under its  Assigned  Contracts  or to make any  payment
thereunder,  or to make any  inquiry  as to the  nature  or  sufficiency  of any
payment or property  received by it thereunder or the sufficiency of performance
by any party thereunder,  or to present or file any claim, or to take any action
to  collect or enforce  any  performance,  any  payment of any  amounts,  or any
delivery of any property.

                  6.12 Documents,  Instruments, and Chattel Paper. Each Borrower
represents  and  warrants to the Agent and the Lenders  that (a) all  documents,
instruments,  and chattel paper  describing,  evidencing,  or  constituting  its
Collateral,  and all  signatures  and  endorsements  thereon,  are  and  will be
complete,  valid,  and genuine,  and (b) all goods  evidenced by such documents,
instruments,  and chattel paper are and will be owned by such Borrower, free and
clear of all Liens other than the Liens  described in clauses (a) and (h) of the
definition of Permitted Liens.

                  6.13 Right to Cure.  The Agent  may,  in its  discretion,  and
shall,  at the direction of the Majority  Lenders,  pay any amount or do any act
required of any Borrower  hereunder or under any other Loan Document in order to
preserve,  protect,  maintain or enforce the Obligations,  the Collateral or the
Agent's  Liens  therein,  and which any Borrower  fails to pay or do,  including
payment of any  judgment  against  any  Borrower,  any  insurance  premium,  any
warehouse charge, any finishing or processing charge, any landlord's lien claim,
and any other Lien upon or with respect to the Collateral. All payments that the
Agent makes under this  Section  6.13 and all  out-of-pocket  costs and expenses
that  the  Agent  pays or  incurs  in  connection  with any  action  taken by it
hereunder shall be an Obligation  secured by the Collateral and shall be charged
to the  applicable  Borrower's  Loan Account as a Revolving  Loan deemed to have
been requested in accordance  with Section 4.4. Any payment made or other action
taken by the Agent under this  Section  6.13 shall be without  prejudice  to any
right to assert an Event of  Default  hereunder  and to  proceed  thereafter  as
herein provided.

                  6.14 Power of  Attorney.  Each  Borrower  hereby  appoints the
Agent and the Agent's designee as such Borrower's attorney, with power: (a) when
an Event of Default  exists,  (i) to endorse such Borrower's name on any checks,
notes, acceptances, money orders, or other



<PAGE>   50



forms of  payment  or  security  that  come  into the  Agent's  or any  Lender's
possession,  (ii) to sign the  Borrower's  name on any invoice,  bill of lading,
warehouse  receipt or other  document of title  relating to any  Collateral,  on
drafts against customers,  on assignments of Accounts, on notices of assignment,
and on other  public  records,  (iii) to notify the post office  authorities  to
change the address for delivery of such Borrower's mail to an address designated
by the Agent and to  receive,  open and  dispose of all mail  addressed  to such
Borrower, (iv) to file, prosecute, defend, issue, maintain, enforce or otherwise
take  action  in  respect  to the  Proprietary  Rights,  (v) to  grant  or issue
licenses,  or, to the extent  permitted by an applicable  license,  sublicenses,
whether  general,   special  or  otherwise,  and  whether  on  an  exclusive  or
nonexclusive  basis,  to  the  Proprietary  Rights  to  any  party  or  parties,
throughout  the world for such term or terms,  on such  conditions,  and in such
manner, as the Agent shall in its sole discretion  determine,  and (vi) to carry
out  any  other  obligation  or  duty of such  Borrower  under  this  Agreement,
including the right, to assign, pledge, convey or otherwise transfer title in or
dispose of the Proprietary  Rights to any party;  (b) to do all things necessary
to carry out this Agreement; (c) to sign the Borrower's name on any financing or
continuation  statement;  (d) to send requests for  verification  of Accounts to
customers or Account Debtors; and (e) to clear Inventory,  the purchase of which
was financed with Letters of Credit,  through customs in such  Borrower's  name,
the Agent's name or the name of the Agent's designee, and to sign and deliver to
customs  officials  powers of attorney in such Borrower's name for such purpose.
Each  Borrower  ratifies  and approves  all acts of such  attorney.  None of the
Lenders or the Agent nor their attorneys,  in the absence of gross negligence or
willful misconduct, will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law. This power,  being coupled with an interest,
is irrevocable until this Agreement has been terminated and the Obligations have
been fully satisfied.

                  6.15 The Agent's and Lenders' Rights,  Duties and Liabilities.
Each Borrower assumes all  responsibility and liability arising from or relating
to the use, sale or other disposition of the Collateral.  Neither the Agent, nor
any  Lender,  nor any of their  respective  officers,  directors,  employees  or
agents,  in the  absence of gross  negligence  or willful  misconduct,  shall be
liable or responsible in any way for the  safekeeping of any of the  Collateral,
or for any loss or damage  thereto,  or for any diminution in the value thereof,
or for any act of default of any  warehouseman,  carrier,  forwarding  agency or
other person whomsoever,  all of which shall be at the Borrowers' sole risk. The
Obligations  shall not be  affected by any failure of the Agent or any Lender to
take or omit to take any  other  action  with  respect  to the  Collateral,  any
security  therefor,  any agreement  relating thereto,  any insurance  applicable
thereto,  or any Person liable  directly or indirectly in connection with any of
the foregoing, or to perfect the Agent's Liens or to collect or realize upon the
Collateral,  nor shall loss of or damage to the Collateral  release any Borrower
from any of the Obligations.  If an Event of Default exists,  the Agent may (but
shall not be required to), and at the direction of the Majority  Lenders  shall,
without notice to or consent from any Borrower,  sue upon or otherwise  collect,
extend the time for  payment  of,  modify or amend the terms of,  compromise  or
settle for cash,  credit, or otherwise upon any terms,  grant other indulgences,
extensions,   renewals,   compositions,  or  releases,  without  discharging  or
otherwise  affecting the liability of any Borrower for the  Obligations or under
this  Agreement or any other  agreement  now or hereafter  existing  between the
Agent and/or any Lender and any Borrower.



<PAGE>   51



                                    ARTICLE 7
                BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES

                  7.1 Books and Records.  Phar-Mor shall maintain, at all times,
correct and complete books, records and accounts in which complete,  correct and
timely  entries are made of its  transactions  in  accordance  with GAAP applied
consistently  with the audited  Financial  Statements  required to be  delivered
pursuant to Section 7.2(a).  Phar-Mor  shall,  by means of appropriate  entries,
reflect in such accounts and in all Financial  Statements  accurate  liabilities
and  reserves  for  all  taxes  and  accurate  provision  for  depreciation  and
amortization  of  property  and bad debts,  all in  accordance  with GAAP.  Each
Borrower  shall  maintain  at all times  books  and  records  pertaining  to its
Collateral  in such  detail,  form and  scope as the Agent or any  Lender  shall
reasonably  require,  including  records of (a) all  payments  received  and all
credits and  extensions  granted with respect to the  Accounts;  (b) the return,
rejections,  repossession,  stoppage in transit, loss, damage, or destruction of
any Inventory; and (c) all other dealings affecting the Collateral.

                  7.2 Financial Information.  Phar-Mor shall promptly furnish to
the Agent,  in sufficient  copies for  distribution by the Agent to each Lender,
all such financial  information with respect to Phar-Mor and its subsidiaries as
the Agent or any Lender shall  reasonably  request,  and notify its auditors and
accountants  that the Agent,  on behalf of the Lenders,  is authorized to obtain
such information  directly from them.  Without limiting the foregoing,  Phar-Mor
will furnish to the Agent, in sufficient copies for distribution by the Agent to
each  Lender,  in such detail as the Agent or the  Lenders  shall  request,  the
following:

                  (a) As soon as available,  but in any event not later than one
hundred and twenty  (120) days after the close of the Fiscal Year in the case of
the Fiscal Year ended immediately  preceding the Closing Date and not later than
ninety  (90) days  after  the  close of each  subsequent  Fiscal  Year,  audited
consolidated balance sheets, and statements of income and expense, cash flow and
stockholders'  equity for Phar-Mor for such Fiscal  Year,  and the  accompanying
notes thereto,  setting forth in each case in  comparative  form figures for the
previous  Fiscal  Year,  all  in  reasonable   detail,   fairly  presenting  the
consolidated  financial position and the results of operations of Phar-Mor as at
the date thereof and for the Fiscal Year then ended,  and prepared in accordance
with GAAP.  Such  statements  shall be examined  in  accordance  with  generally
accepted auditing  standards and accompanied by a report thereon  unqualified as
to scope by  Deloitte & Touche  LLP or any other  independent  certified  public
accountants  selected  by Phar-Mor  and  reasonably  satisfactory  to the Agent.
Phar-Mor,  simultaneously  with retaining such independent public accountants to
conduct such annual audit, shall send a letter to such accountants,  with a copy
to the  Agent  and the  Lenders,  notifying  such  accountants  that  one of the
purposes for retaining such  accountants'  services and having audited financial
statements prepared by them is for use by the Agent and the Lenders.

                  (b) As soon as  available,  but in any event  not  later  than
thirty  (30) days after the end of each  fiscal  month,  unaudited  consolidated
balance  sheets  of  Phar-Mor  as at  the  end  of  such  month,  and  unaudited
consolidated  statements  of income  and  expense,  cash flow and  stockholders'
equity for Phar-Mor for such month and for the period from the  beginning of the
Fiscal Year to the end of such month,  except that such statements  covering the
last month of the Fiscal Year shall be furnished  not later than sixty (60) days
after  the  end of such  fiscal  month  and  shall  not  include  statements  of
stockholders'   equity,  all  in  reasonable   detail,   fairly  presenting  the
consolidated  financial position and results of operations of Phar-Mor as at the
date thereof and for such periods,  and prepared in accordance with GAAP applied
consistently with the



<PAGE>   52



audited  Financial  Statements  required  to be  delivered  pursuant  to Section
7.2(a),  together with a schedule of Phar-Mor's sales, gross margin (in dollars)
and gross profit determined in such case on a consolidated  basis by category of
merchandise  for such month and  comparative  figures  for the same month of the
prior year.  Phar-Mor  shall  certify by a  certificate  signed by its the chief
financial officer that all such statements have been prepared in accordance with
GAAP and present  fairly,  subject to normal  year-end  adjustments,  Phar-Mor's
consolidated  financial  position as at the dates  thereof and its  consolidated
results of operations for the periods then ended.

                  (c) [Intentionally Omitted]

                  (d)  With  each of the  annual  audited  Financial  Statements
delivered  pursuant to Section 7.2(a), and within forty-five (45) days after the
end of each fiscal  quarter,  a certificate  of the chief  financial  officer of
Phar-Mor  stating  that,  except  as  explained  in  reasonable  detail  in such
certificate,  (A) all of the  representations  and  warranties  of each Borrower
contained  in this  Agreement  and the other  Loan  Documents  are  correct  and
complete in all material  respects as at the date of such certificate as if made
at such  time,  (B)  each  Borrower  is,  at the  date of such  certificate,  in
compliance  in all material  respects with all of its  respective  covenants and
agreements in this Agreement and the other Loan Documents, and (C) no Default or
Event of  Default  then  exists or existed  during  the  period  covered by such
Financial  Statements.  If such certificate  discloses that a representation  or
warranty is not correct or complete,  or that a covenant  has not been  complied
with, or that a Default or Event of Default existed or exists,  such certificate
shall set forth  what  action the  Borrowers  have taken or propose to take with
respect thereto.

                  (e) No sooner  than sixty (60) days prior to and not more than
thirty (30) days after the beginning of each Fiscal Year,  annual business plans
(to include  forecasted  consolidated  balance sheets,  statements of income and
expenses and  statements of cash flow) for Phar-Mor and its  Subsidiaries  as at
the end of and for each month of such Fiscal Year.

                  (f) Upon  request of the Agent after the filing  thereof  with
the PBGC and the IRS, a copy of each annual  report or other  filing  filed with
respect to each Plan of any Borrower.

                  (g) Promptly upon the filing  thereof,  copies of all reports,
if any, to or other documents  filed by any Borrower or any of its  Subsidiaries
with the  Securities  and Exchange  Commission  under the Exchange  Act, and all
reports,  notices,  or statements sent or received by any Borrower or any of its
Subsidiaries  to or from the  holders of any equity  interests  of the  Borrower
(other than non-material  correspondence sent by shareholders of the Borrower to
the Borrower) or any of its  Subsidiaries  or of any Debt for borrowed  money of
any Borrower or any of its  Subsidiaries  registered under the Securities Act of
1933, as amended,  or to or from the trustee under any indenture under which the
same is issued.

                  (h) As soon as  available,  but in any event  not  later  than
fifteen  (15)  days  after  Phar-Mor's  receipt  thereof,  a copy  of all  final
management  reports and management  letters  prepared for Phar-Mor by Deloitte &
Touche LLP or any other independent certified public accountants of Phar-Mor.

                  (i) Promptly upon the distribution thereof,  copies of any and
all proxy  statements,  financial  statements,  and reports which Phar-Mor makes
available to its stockholders.

                  (j) Upon  request,  make  available for review by the Agent or
any Lender at the



<PAGE>   53



offices of each  Borrower at which its books of accounts and general  ledger are
maintained,  a copy of each tax return  filed by each  Borrower or by any of its
Subsidiaries.

                  (k) Such additional information as the Agent and/or any Lender
may from time to time  reasonably  request  regarding the financial and business
affairs of each Borrower or any of its Subsidiaries.

                  7.3 Notices to the Lenders. Each Borrower shall cause Phar-Mor
to notify the Agent, in writing of the following matters at the following times:

                  (a) Within three (3) Business Days after becoming aware of any
Default or Event of Default.

                  (b) Within three (3) Business Days after becoming aware of the
assertion by the holder of any capital  stock or other  capital  interest of any
Borrower  or its  Subsidiaries  thereof or of any Debt,  individually  or in the
aggregate,  in an outstanding  principal amount in excess of $3,000,000,  that a
default exists with respect  thereto or that the  applicable  Borrower is not in
compliance with the terms thereof,  or the threat or commencement by such holder
of any enforcement action because of such asserted default or non-compliance.

                  (c) Within three (3) Business Days after becoming aware of any
material  adverse  change  in  any  Borrower's  or  any  Subsidiary's  property,
business, operations, or condition (financial or otherwise).

                  (d) Within three (3) Business Days after becoming aware of any
pending or threatened action, suit,  proceeding,  or counterclaim by any Person,
or any pending or threatened  investigation by a Governmental  Authority,  which
action, suit, proceeding,  counterclaim or investigation seeks damages in excess
of $5,000,000 in the case of any claim for personal injury and $1,000,000 in the
case of any other claim (in each case which  amounts  shall not be fully covered
by  insurance),  or which may  otherwise  materially  and  adversely  affect the
Collateral, the repayment of the Obligations, the Agent's or any Lender's rights
under  the Loan  Documents,  or any  Borrower's  or any  Subsidiary's  property,
business, operations, or condition (financial or otherwise).

                  (e) Within three (3) Business Days after becoming aware of any
pending or threatened  strike,  work stoppage,  unfair labor practice  claim, or
other labor  dispute  affecting  any  Borrower or any of its  Subsidiaries  in a
manner which could reasonably be expected to have a Material Adverse Change.

                  (f) Within three (3) Business Days after becoming aware of any
violation  of any law,  statute,  regulation,  or  ordinance  of a  Governmental
Authority  affecting  any  Borrower  or  any  of its  Subsidiaries  which  could
reasonably be expected to have a Material Adverse Change.

                  (g) Within three (3) Business Days after receipt of any notice
of any violation by any Borrower or any of its Subsidiaries of any Environmental
Law which could reasonably be expected to have a Material Adverse Change or that
any  Governmental  Authority  has  asserted  that  any  Borrower  or  any of its
Subsidiaries is not in compliance with any Environmental Law or is investigating
any Borrower's or any Subsidiary's compliance therewith.

                  (h)  Within  three (3)  Business  Days  after  receipt  of any
written notice that any Borrower or any of its  Subsidiaries is or may be liable
to any Person as a result of the Release



<PAGE>   54



or  threatened  Release of any  Contaminant  or that any  Borrower or any of its
Subsidiaries  is  subject  to  investigation   by  any  Governmental   Authority
evaluating  whether any  remedial  action is needed to respond to the Release or
threatened  Release of any  Contaminant  which,  in either case,  is  reasonably
likely to give rise to liability in excess of $1,000,000.

                  (i)  Within  three (3)  Business  Days  after  receipt  of any
written notice of the imposition of any Environmental  Lien against any property
of any Borrower or any of its Subsidiaries.

                  (j) Any change in any Borrower's name, state of incorporation,
or form of  organization,  trade names or trade  dress under which any  Borrower
will sell Inventory or create  Accounts,  or to which  instruments in payment of
Accounts  may be made  payable,  in each case at least  thirty  (30) days  prior
thereto.

                  (k) Within ten (10)  Business  Days after any  Borrower or any
ERISA Affiliate knows or has reason to know, that an ERISA Event or a prohibited
transaction  (as  defined in  Sections  406 of ERISA and 4975 of the Code) which
could  reasonably be expected to have a material adverse economic effect on such
Borrower has occurred,  and,  when known,  any action taken or threatened by the
IRS, the DOL or the PBGC with respect thereto.

                  (l) Upon request, or, in the event that such filing reflects a
significant  change with  respect to the  matters  covered  thereby  which could
reaonably  be  expected  to  have a  material  adverse  economic  effect  on any
Borrower,  within ten (10) Business Days after the filing thereof with the PBGC,
the DOL or the IRS,  as  applicable,  copies of the  following:  (i) each annual
report (form 5500 series)  prepared or received by such Borrower and,  including
Schedule B thereto, filed with the PBGC, the DOL or the IRS with respect to each
Plan,  (ii) a copy of each funding waiver  request  prepared or received by such
Borrower  and filed with the PBGC,  the DOL or the IRS with  respect to any Plan
and all communications received by such Borrower or any ERISA Affiliate from the
PBGC, the DOL or the IRS with respect to such request,  and (iii) a copy of each
other filing or notice  prepared or received by such Borrower and filed with the
PBGC,  the DOL or the IRS,  with  respect to each Plan of such  Borrower  or any
ERISA Affiliate.

                  (m) Upon request, copies of each actuarial report for any Plan
or Multi-employer Plan and annual report for any Multi-employer Plan; and within
ten (10)  Business  Days  after  receipt  thereof by any  Borrower  or any ERISA
Affiliate,  copies of the following:  (i) any notices of the PBGC's intention to
terminate a Plan or to have a trustee  appointed to administer  such Plan;  (ii)
any  favorable or  unfavorable  determination  letter from the IRS regarding the
qualification  of a Plan under  Section  401(a) of the Code; or (iii) any notice
from a Multi- employer Plan regarding the imposition of withdrawal liability.

                  (n)  Within  ten  (10)  Business  Days  after  the  occurrence
thereof:  (i) any  amendment  adopted or agreed to by any  Borrower or any ERISA
Affiliate,  or knowledge of an amendment otherwise adopted, to any existing Plan
which increases any Borrower's annual costs with respect thereto by an amount in
excess of $5,000,000,  or the  establishment of any new Plan or the commencement
of  contributions  to any Plan by any  Borrower or ERISA  Affiliate  to which no
Borrower or ERISA  Affiliate was previously  contributing or (ii) any failure by
any Borrower or any ERISA Affiliate to make a required  installment or any other
required  payment  under  Section  412 of the Code on or before the due date for
such installment or payment.



<PAGE>   55



                  (o) Within ten (10)  Business  Days after any  Borrower or any
ERISA Affiliate knows or has reason to know that any of the following events has
or will occur:  (i) a Multi- employer Plan has been or will be terminated;  (ii)
the administrator or plan sponsor of a Multi- employer Plan intends to terminate
a  Multi-employer  Plan;  or (iii)  the PBGC has  instituted  or will  institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.

                  Each  notice  given  under this  Section  shall  describe  the
subject matter thereof in reasonable detail, and shall set forth the action that
the  Borrowers,  their  Subsidiaries,  or  any of  their  ERISA  Affiliates,  as
applicable, have taken or propose to take with respect thereto.

                                    ARTICLE 8
                     GENERAL WARRANTIES AND REPRESENTATIONS

                  Each  Borrower  warrants and  represents  to the Agent and the
Lenders as follows:

                  8.1  Authorization,   Validity,  and  Enforceability  of  this
Agreement  and the Loan  Documents.  Each  Borrower has the power  (corporate or
otherwise) and authority to execute,  deliver and perform this Agreement and the
other Loan Documents, to incur the Obligations,  and to grant to the Agent Liens
upon and  security  interests  in its  Collateral.  Each  Borrower has taken all
necessary  corporate  or  other  action  (including  obtaining  approval  of its
stockholders or members if necessary) to authorize its execution,  delivery, and
performance  of this  Agreement  and  the  other  Loan  Documents.  No  consent,
approval,  or authorization  of, or declaration or filing with, any Governmental
Authority,  and no consent of any other Person,  is required in connection  with
any  Borrower's  execution,  delivery and  performance of this Agreement and the
other Loan  Documents,  except for those  already duly  obtained and UCC filings
duly made.  This  Agreement and the other Loan Documents have been duly executed
and delivered by each  Borrower,  and  constitute  the legal,  valid and binding
obligation of each Borrower, enforceable against it in accordance with its terms
without defense,  setoff or counterclaim.  Each Borrower's execution,  delivery,
and  performance  of this Agreement and the other Loan Documents do not and will
not conflict  with,  or  constitute  a violation  or breach of, or  constitute a
default  under,  or result in the  creation or  imposition  of any Lien upon the
property of any  Borrower or any of its  Subsidiaries  by reason of the terms of
(a) any contract, mortgage, Lien, lease, agreement,  indenture, or instrument to
which any  Borrower  or any of its  Subsidiaries  is a party or which is binding
upon it, (b) any  Requirement  of Law  applicable  to any Borrower or any of its
Subsidiaries,  or (c) the certificate or articles of incorporation or by-laws or
certificate of  organization  of any Borrower as each has been amended under the
Plan of Reorganization.

                  8.2 Validity and Priority of Security Interest. The provisions
of this Agreement,  and the other Loan Documents create legal and valid Liens on
all the  Collateral in favor of the Agent,  for the benefit of the Agent and the
ratable  benefit  of the  Lenders,  and  such  Liens  constitute  perfected  and
continuing Liens on all the Collateral,  having priority over all other Liens on
the Collateral.

                  8.3 Organization and Qualification.  Each Borrower (a) is duly
incorporated or formed and organized and validly existing in good standing under
the laws of the state of its incorporation or formation,  (b) is qualified to do
business as a foreign  corporation or limited  liability  company and is in good
standing in each  jurisdiction  in which the failure to so qualify or be in good
standing could reasonably be expected to cause a material adverse change in such



<PAGE>   56



Borrower's business, operations, prospects, property, or condition (financial or
otherwise),  and (c) has all  requisite  power  and  authority  to  conduct  its
business and to own its property.

                  8.4 Corporate Name; Prior Transactions. Each Borrower has not,
during the period commencing on August 17, 1992 and ending on the effective date
of this Agreement been known by or used any other corporate or fictitious  name,
or been a party to any merger or consolidation, or acquired all or substantially
all of the assets of any Person,  or acquired any of its property outside of the
ordinary course of business.

                  8.5 Subsidiaries and Affiliates. (a) Schedule 8.5 is a correct
and complete list of the name and  relationship to each Borrower of each and all
of such Borrower's  Subsidiaries  and other  Affiliates.  Each Subsidiary (i) is
duly  incorporated or formed and organized and validly existing in good standing
under the laws of its state of  incorporation or formation set forth on Schedule
8.5,  (ii) is  qualified  to do  business  as a foreign  corporation  or limited
liability company and in good standing in each jurisdiction in which the failure
to so qualify or be in good  standing  could  reasonably  be expected to cause a
material  adverse  change  in  any  such  Subsidiary's   business,   operations,
prospects,  property,  or condition  (financial or otherwise)  and (iii) has all
requisite power and authority to conduct its business and own its property.

                  (b)  (i)  No  Subsidiary  of  any  Borrower,  except  for  the
Subsidiaries  of Phar-Mor  that are Borrowers  hereunder,  (A) owns any material
assets or has any interest in any of the Inventory, Collateral, Property or Real
Estate or other assets used in the business or operations  of any Borrower,  (B)
engages in any business  activity of any kind whatsoever or (C) has any material
liability,  and (ii)  Phar-Mor  owns all of the issued and  outstanding  capital
stock or other equity interests of all of the other Borrowers.

                  8.6 Financial  Statements  and  Projections.  (a) Phar-Mor has
delivered  to the Agent and the  Lenders (i) the  audited  consolidated  balance
sheet and related statements of income and expense,  cash flow and stockholders'
equity for  Phar-Mor  as of June 28,  1997,  and for the Fiscal Year then ended,
accompanied  by  the  report  thereon  of  its  independent   certified   public
accountants,  Deloitte & Touche LLP and (ii) the unaudited  consolidated balance
sheet and related statements of income and expense,  cash flow and stockholders'
equity  for  Phar-Mor  as of June  27,  1998 and for  period  then  ended.  Such
financial  statements are attached hereto as Schedule 1.1(A). All such financial
statements have been prepared in accordance with GAAP and present accurately and
fairly the consolidated  financial  position of Phar-Mor as at the dates thereof
and the results of operations for the periods then ended.

                  (b) The Latest  Projections  when  submitted to the Lenders as
required  herein  represent  Phar-Mor's  best  estimate of the future  financial
performance of Phar-Mor and its  consolidated  Subsidiaries  for the periods set
forth  therein.  The Latest  Projections  have been prepared on the basis of the
assumptions set forth therein,  which Phar-Mor  believes are fair and reasonable
in light of current and reasonably  foreseeable  business conditions at the time
submitted to the Lender.

                  8.7  Capitalization.  The authorized and  outstanding  capital
stock or othe equity interests of each Borrower is set forth on Schedule 8.7 and
all such  outstanding  stock  or other  capital  interests  is duly  authorized,
validly  issued,   fully  paid  and  non-assessable,   and  the  Persons  owning
beneficially  and of record more than ten percent (10%) of any class of stock or
other capital interests,  and the percentage amounts of their holdings,  are set
forth on



<PAGE>   57



such Schedule.

                  8.8  Solvency.  Each  Borrower  is Solvent  prior to and after
giving effect to the making of any  Revolving  Loans on the Closing Date and the
issuance of any Letters of Credit on the Closing Date,  and shall remain Solvent
during the term of this Agreement.

                  8.9 Debt;  Cash  Collateral.  (a) As at the effective  date of
this Agreement and after giving effect to the making of Revolving Loans, if any,
on the effective date of this Agreement,  no Borrower or any of its Subsidiaries
has any Debt, except (i) the Obligations, (ii) Debt set forth on the most recent
Financial  Statements  delivered  to the Agent,  (iii) trade  payables and other
contractual  obligations  arising in the ordinary  course of business,  and (iv)
Debt to be paid in  accordance  with the Plan of  Reorganization,  and  which is
described in Schedule 8.6.

                  8.10  Distributions.  Since July 2, 1994 no  Distribution  has
been  declared,  paid,  or made upon or in respect of any capital stock or other
securities of any Borrower or any Subsidiary  other than pursuant to the Plan of
Reorganization.

                  8.11 Title to Property.  Except as disclosed on Schedule 8.11,
(a) no Borrower  owns in fee simple any real  property and (b) each Borrower has
good, indefeasible, and merchantable title to all of its Property (including the
assets reflected on the most recent Financial  Statements delivered to the Agent
and the Lenders,  except for  Inventory  disposed of in the  ordinary  course of
business since the date thereof), free of all Liens except Permitted Liens.

                  8.12 Leases;  Premises.  Schedule  1.1(D) sets forth a correct
and  complete  list,  identified  by  Borrower,  of all real  estate  leased  or
subleased by any Borrower in its operations and business and each of such leases
and subleases is valid and  enforceable  in accordance  with its terms and is in
full force and change, and no default by any party to any such lease or sublease
exists.  Except  as set forth on  Schedule  1.1(D),  no  Borrower  conducts  any
operations  or business and,  except for  Inventory in transit,  no Inventory is
held at any location other than at the Premises set forth on Schedule 1.1(D).

                  8.13  Proprietary  Rights.  Schedule 8.13 sets forth a correct
and complete list of the following items included in the Proprietary Rights: all
the  trademarks  of  each  Borrower   (including  service  marks,  brand  names,
certification  marks,  collective  marks,  trade dress and trade names,  whether
registered or at common law), and all  registrations  and  applications  related
thereto.  None of the Proprietary Rights is subject to any threatened or pending
claim or litigation or any licensing  agreement or similar arrangement except as
set forth on Schedule  8.13.  Each Borrower owns or is licensed or otherwise has
the right to use all of the Proprietary Rights that are reasonably necessary for
the  operation of its business  and, to the best of each  Borrower's  knowledge,
none of the Proprietary Rights infringes on or conflicts with any other Person's
property or rights,  and no other  Person's  property  infringes on or conflicts
with the Proprietary  Rights.  The Proprietary Rights described on Schedule 8.13
constitute  all of the  property  of such  type  necessary  to the  current  and
anticipated  future conduct of any  Borrower's  business.  No (i) patents,  (ii)
material copyrights or (iii) material licenses, agreements,  franchises, permits
or other rights to use the proprietary  rights of a third party, are used by any
Borrower in the conduct of its business.  Except as set forth on Schedule  8.13,
the  trademarks  listed  thereon  and the  registrations  relating  to  material
trademarks are valid, subsisting, unexpired, enforceable and have not



<PAGE>   58



been abandoned.  Each  application for the registration in any jurisdiction of a
trademark included in the Proprietary Rights (including,  where applicable, each
application  for  a  renewal)  has  been  duly  and  properly  filed,  and  each
registration thereof has been duly and properly issued.

                  8.14 Trade  Names.  All trade names or trade dress under which
any Borrower or any of its Subsidiaries  will sell Inventory or create Accounts,
or to which  instruments in payment of Accounts may be made payable,  are listed
on Schedule 8.13.

                  8.15  Litigation.  There is no pending or (to the best of each
Borrower's knowledge) threatened,  action, suit, proceeding,  or counterclaim by
any Person, or investigation by any Governmental Authority, or any basis for any
of the foregoing, which could reasonably be expected to cause a Material Adverse
Change.

                  8.16  Restrictive  Agreements.  No  Borrower  nor  any  of its
Subsidiaries is a party to any contract or agreement,  or subject to any charter
or other  corporate  restriction,  which  affects the ability of any Borrower to
execute,  deliver,  and perform the Loan Documents and repay the  Obligations or
which  materially  and  adversely  affects  or,  insofar  as  any  Borrower  can
reasonably  foresee,  could  materially  and  adversely  affect,  the  property,
business,  operations,  or condition (financial or otherwise) of any Borrower or
any of its  Subsidiaries,  or  would in any  respect  cause a  Material  Adverse
Change.

                  8.17 Labor Disputes. Except as set forth on Schedule 8.17, (a)
there is no collective  bargaining  agreement or other labor  contract  covering
employees of any  Borrower or any of its  Subsidiaries,  (b) no such  collective
bargaining  agreement or other labor  contract is scheduled to expire during the
term of this Agreement,  (c) no union or other labor  organization is seeking to
organize,  or to be recognized as, a collective  bargaining unit of employees of
any  Borrower or any of its  Subsidiaries  or for any similar  purpose,  and (d)
there is no pending or (to the best of each  Borrower's  knowledge)  threatened,
strike,  work  stoppage,  unfair labor  practice  claim,  or other labor dispute
against or affecting any Borrower or any of its Subsidiaries or their respective
employees the occurrence of which would cause a Material Adverse Change.

                  8.18 Environmental  Laws. Except as set forth on Schedule 8.18
or to the extent not creating or resulting in a Material Adverse Change,  (a) no
Borrower nor any of its Subsidiaries has generated,  handled,  used,  stored, or
disposed of any  hazardous or toxic waste or substance,  as defined  pursuant to
Environmental  Laws, on or off its Premises,  except in  substantial  compliance
with Environmental  Laws, (b) each Borrower and its Subsidiaries has complied in
all  material  respects  with all  Environmental  Laws  applicable  to transfer,
construction  on, and operation of its  Premises,  Property and business and has
all necessary  permits for its current  operations  and such permits are in good
standing,  (c) no  Borrower  nor  any  of  its  Subsidiaries  has  any  material
contingent  liability with respect to non-compliance  with Environmental Laws or
the generation, handling, use, storage, or disposal of hazardous or toxic wastes
or substances,  and (d) no Borrower nor any of its Subsidiaries has (i) received
any  summons,  claim,  complaint,  order or  similar  notice  that (A) it is not
currently in compliance  with, (B) any  Governmental  Authority is investigating
its compliance with, or (C) it has or, as a potentially  responsible  person may
have any liability as a result of any violation of, or  non-compliance  with, in
each case any Environmental  Laws or (ii) filed any notice under any requirement
of Environmental Laws reporting a possible non-compliance with such laws.



<PAGE>   59



                  8.19  No  Violation  of  Law.  No  Borrower  nor  any  of  its
Subsidiaries  is in  violation  of  any  law,  statute,  regulation,  ordinance,
judgment,  order, or decree applicable to it which violation could reasonably be
expected to cause a Material Adverse Change.

                  8.20 No Default. No Borrower nor any of its Subsidiaries is in
default with respect to any note, indenture,  loan agreement,  mortgage,  lease,
deed, or other  agreement to which any such Borrower or any of its  Subsidiaries
is a party or by which it is bound,  which default could  reasonably be expected
to cause a Material Adverse Change.

                  8.21  ERISA Compliance.  Except as set forth on Schedule 8.21:

                  (a) Each Plan which any Borrower sponsors or maintains and, to
the best  knowledge of any  Borrower,  each other Plan is in  compliance  in all
material  respects with the applicable  provisions of ERISA,  the Code and other
federal or state law. Each Plan which any Borrower sponsors or maintains and, to
the best knowledge of any Borrower, each other Plan which is intended to qualify
under Section 401(a) of the Code is so qualified  except where the failure to so
qualify such Plan could  reasonably  be expected not to have a material  adverse
economic  effect on such  Borrower.  Each Borrower and each ERISA  Affiliate has
made all required  material  contributions to any Plan subject to Section 412 of
the Code,  and no  application  for a  funding  waiver  or an  extension  of any
amortization  period  pursuant  to  Section  412 of the Code has been  made with
respect to any Plan.

                  (b) There are no  pending  or, to the best  knowledge  of each
Borrower,  threatened claims, actions or lawsuits, or action by any Governmental
Authority,  with respect to any Plan which has resulted or could  reasonably  be
expected to result in a Material  Adverse  Change.  There has been no prohibited
transaction or violation of the fiduciary  responsibility  rules with respect to
any Plan which has  resulted  or could  reasonably  be  expected  to result in a
Material Adverse Change.

                  (c) (i) No ERISA Event has occurred  which is continuing or in
respect  of which  there is or may be any  liability  of any  Borrower  or ERISA
affiliate  which is not reflected in the  Financial  Statements of such Borrower
for the period ended June 3, 1995 nor is any ERISA Event reasonably  expected to
occur;  (ii) no Pension Plan other than a Multi-  employer Plan has any Unfunded
Pension  Liability;  (iii) no Borrower nor any ERISA Affiliate has incurred,  or
reasonably  expects to incur, any liability under Title IV of ERISA with respect
to any Pension Plan (other than  premiums due and not  delinquent  under Section
4007 of ERISA);  (iv) no  Borrower  nor any ERISA  Affiliate  has  incurred,  or
reasonably  expects to incur, any material  liability (and no event has occurred
which,  with the giving of notice under  Section 4219 of ERISA,  would result in
such  liability)  under  Section  4201  or  4243  of  ERISA  with  respect  to a
Multi-employer  Plan; and (v) no Borrower nor any ERISA Affiliate has engaged in
a  transaction  that  reasonably  could be subject to Section 4069 or 4212(c) of
ERISA.

                  8.22 Taxes.  Each Borrower and its Subsidiaries have filed all
federal and other tax returns  and reports  required to be filed,  and have paid
all federal and other taxes,  assessments,  fees and other governmental  charges
levied or imposed upon them or their properties,  income or assets otherwise due
and payable.

                  8.23 Regulated Entities.  No Borrower,  any Person controlling
any Borrower, or any of its Subsidiaries,  is an "Investment Company" within the
meaning of the Investment



<PAGE>   60



Company Act of 1940, as amended.  No Borrower is subject to regulation under the
Public  Utility  Holding  Company  Act of  1935,  the  Federal  Power  Act,  the
Interstate  Commerce Act, any state public  utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Debt.

                  8.24 Use of Proceeds; Margin Regulations.  The proceeds of the
Loans are to be used solely for working capital and general corporate  purposes.
No Borrower  nor any  Subsidiary  is engaged in the  business of  purchasing  or
selling  Margin  Stock or  extending  credit for the  purpose of  purchasing  or
carrying Margin Stock.

                  8.25 No Material  Adverse Change.  No Material  Adverse Change
has occurred since June 3, 1995.

                  8.26  Full  Disclosure.   None  of  the   representations   or
warranties made by any Borrower or any of its Subsidiaries in the Loan Documents
as of the date such  representations and warranties are made or deemed made, and
none of the statements contained in any schedule,  exhibit, report, statement or
certificate  furnished  by or on behalf of any Borrower in  connection  with the
Loan Documents  (including the offering and disclosure materials delivered by or
on behalf of any Borrower or any of its Subsidiaries to the Lenders prior to the
Closing  Date),  contains any untrue  statement of a material  fact or omits any
material fact required to be stated  therein or necessary to make the statements
made  therein,  in light of the  circumstances  under  which they are made,  not
misleading as of the time when made or delivered.

                  8.27  Material  Agreements.  Schedule 8.27 contains a complete
and accurate list of all material agreements to which any Borrower or any of its
Subsidiaries is a party or is bound as of the date hereof.

                  8.28 Bank  Accounts.  Schedule  8.28  contains a complete  and
accurate list of all bank  accounts  maintained by any Borrower with any bank or
other financial institution.

                  8.29  Governmental   Authorization.   No  approval,   consent,
exemption,  authorization, or other action by, or notice to, or filing with, any
Governmental   Authority  is  necessary  or  required  in  connection  with  the
execution,  delivery or performance by, or enforcement  against, any Borrower or
any of its Subsidiaries of this Agreement or any other Loan Document, except for
UCC filings already made.

                  8.30  [Intentionally Omitted].

                  8.31 Investment Banking and Finders' Fees. No Borrower nor any
of its Subsidiaries has paid or agreed to pay, or reimburse any other party with
respect to, any investment banking or similar or related fee, underwriter's fee,
finder's fee, or broker's fee to any Person in connection with this Agreement.

                  8.32  YEAR  2000.  On  the  basis  of  Borrowers'  review  and
assessment of their  systems and  equipment and inquiry made of such  Borrowers'
material suppliers,  vendors and customers,  Borrowers'  reasonably believe that
the "Year  2000  problem"  (that is,  the  inability  of  computers,  as well as
embedded microchips in non-computing devices, to perform properly date-sensitive
functions  with respect to certain dates prior to and after  December 31, 1999),
including costs of remediation, will not result in a material adverse



<PAGE>   61



change  in  the  operations,   business,  properties,   condition  or  prospects
(financial  or  otherwise)  of  Borrowers.  Borrowers  have  developed  feasible
contingency  plans to adequately ensure  uninterrupted  and unimpaired  business
operation  in the event of  failure  of its own or a third  party's  systems  or
equipment due to the Year 2000 problem, including those vendors,  customers, and
suppliers, as well as a general failure of or interruption in its communications
and delivery infrastructure.

                                    ARTICLE 9
                       AFFIRMATIVE AND NEGATIVE COVENANTS

                  Each Borrower  covenants to the Agent and each Lender that, so
long  as any of the  Obligations  remain  outstanding  or this  Agreement  is in
effect:

                  9.1 Taxes and Other  Obligations.  Such  Borrower  shall,  and
shall cause each of its  Subsidiaries  to, (a) file when due all tax returns and
other reports which it is required to file; (b) pay, or provide for the payment,
when due, of all taxes, fees, assessments and other governmental charges against
it or upon its property,  income and franchises,  make all required  withholding
and other tax  deposits,  and  establish  adequate  financial  reserves  for the
payment  of all such  items,  and  provide  to the Agent and the  Lenders,  upon
request,  satisfactory evidence of its timely compliance with the foregoing; and
(c) pay when due all Debt owed by it and all claims of  materialmen,  mechanics,
carriers,  warehousemen,  landlords  and  other  like  Persons,  and  all  other
indebtedness  owed by it and perform and  discharge in a timely manner all other
obligations  undertaken by it;  provided,  that neither such Borrower nor any of
its Subsidiaries need pay any tax, fee, assessment, or governmental charge, that
(i) it is  contesting  in  good  faith  by  appropriate  proceedings  diligently
pursued,  (ii)  such  Borrower  or its  Subsidiaries,  as the case  may be,  has
established  accurate  reserves  therefor as  provided  in GAAP,  (iii) does not
result in the  imposition  of a Lien (other than a Permitted  Lien  described in
clause (b) of the definition  thereof)  because of such  non-payment;  provided,
further,  that if the amount  thereof  exceeds  $1,000,000,  such Borrower shall
cause Phar-Mor promptly to notify in writing the Agent of such non-payment.

                  9.2 Corporate Existence and Good Standing. Such Borrower shall
have, and shall cause each of its  Subsidiaries to have, all requisite power and
authority  to conduct its  business  and to maintain  its  corporate  or limited
liability  company  existence  and its  qualification  and good  standing in all
jurisdictions  in which the  failure  to  maintain  such  qualification  or good
standing could  reasonably be expected to have a material adverse change on such
Borrower's or such Subsidiary's property,  business,  operations,  prospects, or
condition  (financial  or  otherwise),  other  than  for any of such  Borrower's
Subsidiary  which is merged or consolidated  pursuant,  in each case, to Section
9.8.

                  9.3  Compliance  with  Law  and  Agreements;   Maintenance  of
Licenses.  Such Borrower shall comply,  and shall cause each of its Subsidiaries
to  comply,  in  all  material  respects  with  all  Requirements  of Law of any
Governmental  Authority  having  jurisdiction  over  it or  its  business.  Such
Borrower shall, and shall cause each of its Subsidiaries to, obtain and maintain
all licenses, permits,  franchises, and governmental authorizations necessary to
own its property and to conduct its business as conducted on the Closing Date.

                  9.4 Maintenance of Property.  Such Borrower  shall,  and shall
cause each of its  Subsidiaries  to, maintain all of its property  necessary and
useful in the conduct of its business,  in good operating  condition and repair,
ordinary wear and tear excepted.



<PAGE>   62



                  9.5 Insurance.  (a) Such Borrower, as of the Closing Date, has
insured the  Collateral  with  insurers,  under policies and in amounts that are
acceptable  to the Agent and the Lenders and which are set forth on Schedule 9.5
and which are hereby  acknowledged  as acceptable.  Such Borrower shall maintain
such insurance  throughout the term of this Agreement (including flood insurance
and  shall  comply  with the  additional  requirements  of the  "National  Flood
Insurance  Program",  in the  event of a  designation  of the area in which  any
Collateral is located as "flood prone" or a "flood risk area," as such terms are
defined in the Flood Disaster Protection Act of 1973) (i) with insurers that are
as  financially  sound and rated as highly by Best's Rating Guide as its insurer
as of the  Closing  Date  and  (ii)  under  policies  and in  amounts  that  are
substantially  equivalent  to the  policies  and amounts as of the Closing  Date
taking into account business and/or asset growth, the availability of additional
coverage or changes in  standards of insurance  and what is then  customary  for
Persons  engaged in the same or  similar  business,  subject  to the  reasonable
request  of the Agent for  changes  due to  changes  in the  Agent's  reasonable
internal  policy   requirements   (applied   uniformly  to  similarly   situated
borrowers),  or the Agent's  regulatory  requirements.  The Borrowers shall pay,
upon the Lenders' requests,  all reasonable fees to determine whether any of the
Collateral  is located in a "flood  prone" or a "flood  risk" area to the extent
the  Borrowers   have  not  provided   information   upon  which  to  base  such
determination.

                  (b) Such  Borrower  shall cause the Agent,  for the benefit of
the Agent  and the  ratable  benefit  of the  Lenders,  to be named in each such
policy, other than policies that do not cover any of the Collateral,  as secured
party and loss payee and/or  additional  insured,  in a manner acceptable to the
Agent. Each policy of insurance shall contain a clause or endorsement  requiring
the insurer to give not less than thirty (30) days' prior written  notice to the
Agent in the event of cancellation of the policy for any reason whatsoever and a
clause or  endorsement  stating  that the  interest  of the  Agent  shall not be
impaired  or  invalidated  by any act or neglect of such  Borrower or any of its
Subsidiaries  or the owner of any premises for purposes more  hazardous than are
permitted by such policy.  All premiums for such insurance shall be paid by such
Borrower when due, and  certificates of insurance and, if requested by the Agent
or any Lender,  photocopies of the policies, shall be delivered to the Agent, in
each case in  sufficient  copies  for  distribution  by the Agent to each of the
Lenders. If such Borrower fails to procure such insurance or to pay the premiums
therefor when due, the Agent may, and at the  direction of the Majority  Lenders
shall, do so from the proceeds of Revolving Loans.

                  (c) Phar-Mor shall  promptly  notify the Agent and the Lenders
of any loss, damage, or destruction to any Collateral, whether or not covered by
insurance.  The Agent is hereby  authorized  to collect all  insurance  proceeds
relating to  Collateral  directly,  and after  deducting  from such proceeds the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof,  the Agent shall apply such proceeds,  ratably, to the reduction of the
Obligations in the order provided for in Section 4.5.

                  9.6  Environmental  Laws. (a) Such Borrower  shall,  and shall
cause each of its  Subsidiaries  to, conduct its business in compliance with all
Environmental Laws applicable to it, including those relating to the generation,
handling,  use, storage,  and disposal of any Contaminant.  Such Borrower shall,
and shall cause each of its Subsidiaries to, take prompt and appropriate  action
to respond to any  non-compliance  with  Environmental  Laws and shall regularly
report to the Agent and the Lenders on such response.

                  (b) Without  limiting the  generality of the  foregoing,  such
Borrower shall submit to the Agent and the Lenders  annually,  commencing on the
first Anniversary Date, and on each



<PAGE>   63



Anniversary  Date  thereafter,  an  update of the  status of each  environmental
compliance  or liability  issue.  The Agent or any Lender may request  copies of
technical  reports  prepared by such  Borrower and its  communications  with any
Governmental  Authority  to  determine  whether  such  Borrower  or  any  of its
Subsidiaries is proceeding  reasonably to correct, cure or contest in good faith
any alleged non-compliance or environmental  liability.  Such Borrower shall, at
the Agent's or the Majority Lenders' request and at such Borrower's expense, (a)
retain an independent environmental engineer acceptable to the Agent to evaluate
the site,  including tests if appropriate,  where the  non-compliance or alleged
non-compliance  with  Environmental Laws has occurred and prepare and deliver to
the Agent, in sufficient  quantity for distribution by the Agent to the Lenders,
a report  setting  forth the  results of such  evaluation,  a proposed  plan for
responding to any environmental  problems described therein,  and an estimate of
the costs  thereof and (b)  provide to the Agent and the Lenders a  supplemental
report of such engineer whenever the scope of the environmental problems, or the
response  thereto or the estimated  costs thereof,  shall change in any material
respect.

                  9.7  Compliance  with ERISA.  Such Borrower  shall,  and shall
cause each of its ERISA  Affiliates  to: (a) maintain each Plan in compliance in
all material  respects with the  applicable  provisions  of ERISA,  the Code and
other  federal or state law;  (b) cause each Plan which it sponsors or maintains
which  is  qualified   under  Section  401(a)  of  the  Code  to  maintain  such
qualification;  (c) make all  required  contributions  to any  Plan  subject  to
Section 412 of the Code; (d) not engage in a prohibited transaction or violation
of the  fiduciary  responsibility  rules with  respect to any Plan;  and (e) not
engage in a  transaction  that  reasonably  could be subject to Section  4069 or
4212(c) of ERISA.

                  9.8 Mergers,  Consolidations  or Sales.  Except in  accordance
with the Plan of Reorganization, such Borrower shall not transfer, sell, assign,
pledge or otherwise  dispose of any of the issued and outstanding  capital stock
or  other  securities  held by it of any of its  Subsidiaries,  nor  shall  such
Borrower  or any of its  Subsidiaries  enter  into any  transaction  of  merger,
reorganization,  or consolidation, or transfer, sell, assign, lease, abandon, or
otherwise  dispose  of  all  or any  part  of  its  or any of its  Subsidiaries'
property,  or  wind  up,  liquidate  or  dissolve,  or  agree  to do  any of the
foregoing,  except  for (a) sales of  Inventory  in the  ordinary  course of its
business, (b) sales or other dispositions of Equipment in the ordinary course of
business  that  are  obsolete  or no  longer  useable  by such  Borrower  in its
business,   and  (c)  mergers  or  consolidations  of  any  of  such  Borrower's
Subsidiaries  into such Borrower  occurring after thirty (30) days prior written
notice thereof to the Agent;  provided that in any such merger or consolidation,
such Borrower shall be the surviving corporation.

                  9.9  Distributions;  Capital Change;  Restricted  Investments.
Such  Borrower  shall  not,  and shall not permit  any of its  Subsidiaries  (a)
directly or indirectly  to declare or make, or incur any liability to make,  any
Distribution, except Distributions (i) to such Borrower by its Subsidiaries, and
(ii) by such Borrower to any other Borrower or, in the case of a Distribution by
Phar-Mor to members of Phar-Mor's  management,  in accordance with any agreement
between  Phar-Mor and  management,  which  agreements  are set forth in Schedule
9.9(a),  (b) to make any  change in its  capital  structure  which  could have a
Material  Adverse Change,  or (c) to make any Restricted  Investment  except (i)
capital contributions or loans made by such Borrower



<PAGE>   64



to any other Borrower,  (ii) the making of loans by such Borrower so long as the
aggregate amount of all loans by any Borrowers shall not exceed in the aggregate
$5,000,000 at any time  outstanding and (iii)  acquisitions of stock of publicly
traded or privately held companies, the cost of which at the time of acquisition
shall not exceed (when combined with loans under clause (ii) above)  $20,000,000
in the aggregate, provided that at the time of making any such stock acquisition
no Event of Default is continuing.

                  9.10 Guaranties. Such Borrower shall not, and shall not permit
any of its Subsidiaries to make, issue, or become liable on any Guaranty, except
(i)  Guaranties  in  favor  of the  Agent  and  (ii)  Guaranties  of  any  lease
obligations  for  Equipment  or real  estate  leases  entered  into by any other
Borrower.

                  9.11 Debt.  (a) Such Borrower  shall not, and shall not suffer
or permit any of its Subsidiaries to incur or maintain any Debt, other than: (i)
the Obligations,  (ii) trade payables and contractual  obligations to suppliers,
vendors and customers  incurred in the ordinary  course of business,  (iii) Debt
incurred to finance the purchase of Equipment constituting Capital Expenditures,
so long as, with respect to all such Capital Expenditures,  the principal amount
of Debt for any such purchase of Equipment does not exceed the purchase price of
such  Equipment,  (iv) Debt existing on the effective date of this Agreement and
reflected in the  consolidated  balance  sheet of Phar-Mor as of August 1, 1998,
(v) Debt of any Borrower owing to any other Borrower,  (vi) Guaranties permitted
pursuant to Section 9.10,  (vii) Debt incurred as a result of the refinancing of
any Debt otherwise permitted  hereunder;  provided that such Debt shall (A) bear
interest at a rate that cannot exceed the interest rate that is then accruing on
the  obligations  being  refinanced,  (B) provide for principal  amortization in
amounts  the same as or less than that  required  under  the  obligations  being
refinanced,  (C) not mature prior to the maturity date of the obligations  being
refinanced,  and (D) remain unsecured and subordinated to the Obligations  after
such  refinancing  to the same extent such Debt  refinanced  was  unsecured  and
subordinated,  (viii)  unsecured Debt on terms and conditions  acceptable to the
Agent and the Majority  Lenders and not  contemplated  under clauses (i) through
(viii)  above,  so  long as such  Debt  shall  not  exceed  $100,000,000  in the
aggregate  for all of the Borrowers  and all of their  Subsidiaries  at any time
outstanding,  and (ix) interest rate hedging obligations entered into to provide
interest rate protection and which are reasonably acceptable to the Agent.

                  9.12 Prepayment. Such Borrower shall not, and shall not permit
any of its  Subsidiaries,  to prepay  voluntarily  any Debt,  except for (i) the
Obligations  in  accordance  with  the  terms of this  Agreement,  (ii) any Debt
permitted  hereunder up to an amount equal to the average daily amount of excess
cash and cash  equivalents of all Borrowers during the three month period ending
on the date immediately  preceding the date of each prepayment  (excess cash and
cash  equivalents  during such  period  being  defined as (A) the average  daily
amount of cash and cash equivalents of all Borrowers during such period less (B)
the sum of (1) the aggregate  average daily balance of cash and cash equivalents
held by all stores of all Borrowers during such period, (2) the aggregate amount
of the average of one day's store  deposits  during such period  represented  by
checks  payable  to any  Borrower  for each store of each  Borrower  and (3) the
amount of cash and cash  equivalents  included  in item (A) above that is deemed
"restricted" by the Agent in the exercise of its Permitted  Discretion) less the
sum of (A) the average amount of Loans outstanding to all Borrowers for the same
period,  (B) the  amount of any  prepayments  made by all  Borrowers  under this
Section  9.12 during such  period,  and (C) the amount  that was  available  for
Permitted Acquisitions for all Borrowers at the beginning of such



<PAGE>   65



period;  provided that no Loans are  outstanding at the time of such  prepayment
and that no Event of  Default  has  occurred  and is  continuing,  and (iii) the
prepayment of Debt secured by Equipment  sold pursuant to Section  9.8(b) to the
extent of the net proceeds of such sales.

                  9.13 Transactions with Affiliates.  Except as set forth below,
such Borrower shall not, and shall not permit any of its  Subsidiaries  to sell,
lease, transfer, distribute, or pay any money or property, including any fees or
expenses of any nature (including any fees or expenses for management services),
to any  Affiliate,  or lend or advance  money or property to any  Affiliate,  or
invest in (by capital  contribution  or otherwise) or purchase or repurchase any
stock or other  securities  interest or  indebtedness,  or any property,  of any
Affiliate,  or become liable on any Guaranty of the indebtedness,  dividends, or
other  obligations of any  Affiliate.  Notwithstanding  the foregoing,  (i) such
Borrower and its Subsidiaries may engage in transactions  with Affiliates (other
than Subsidiaries who are not Borrowers) in the ordinary course of business,  in
amounts and upon terms fully disclosed to the Agent and the Lenders, and no less
favorable  to such  Borrower  or such  Subsidiary  than would be  obtained  in a
comparable arm's- length  transaction with a third party who is not an Affiliate
and (ii) an investment of  approximately  $5,000,000  in Avatex  Corporation  by
Phar-Mor, Inc. as of August 29, 1998 may be maintained.

                  9.14 Investment Banking and Finder's Fees. Each Borrower shall
defend and  indemnify  the Agent and the Lenders  against and hold them harmless
from all  claims of any  Person  for any  investment  banking  or  related  fee,
underwriter's  fee,  finder's  fee,  or  broker's  fee claimed by such Person in
connection with the Agreement,  and all costs and expenses (including attorneys'
fees) incurred by the Agent and/or any Lender in connection therewith.

                  9.15 Business  Conducted.  Such Borrower  shall not (i) engage
directly or  indirectly,  in any line of business  other than the  businesses in
which the Borrower is engaged on the Closing Date, (ii) transfer,  sell, assign,
lease,  pledge,  abandon or otherwise  dispose of any of its interests in any of
its  Inventory,  Collateral,  Property or Real Estate or any of its other assets
used in its business or operations to any of its  non-Borrower  Subsidiaries  or
(iii) permit any of its  non-Borrower  Subsidiaries to engage in any business of
any kind whatsoever or to own any material asset or have any material liability.
Phar-Mor shall own at all times all of the issued and outstanding  capital stock
and other capital interests of all of the other Borrowers.

                  9.16 Liens.  Such Borrower shall not, and shall not permit any
of its Subsidiaries to create, incur, assume, or permit to exist any Lien on any
Property now owned or hereafter acquired by any of them, except Permitted Liens.

                  9.17 Sale and Leaseback Transactions. Such Borrower shall not,
and shall not permit any of its Subsidiaries,  directly or indirectly,  to enter
into any  arrangement  with any  Person  providing  for  such  Borrower  or such
Subsidiary to lease or rent property that such Borrower or such  Subsidiary  has
sold or will sell or otherwise transfer to such Person.

                  9.18 New  Subsidiaries.  Such Borrower shall not,  directly or
indirectly,  organize,  create,  acquire or permit to exist any Subsidiary other
than (a) those listed on Schedule 8.5 and (b) any Subsidiary organized,  created
or acquired  with ten (10)  Business  Days  written  prior  notice to the Agent;
provided that with respect to any such Subsidiary, (i) such Subsidiary shall not
engage  directly or indirectly,  in any line of business other than the business
in which the Borrowers  were engaged on the Closing Date,  (ii) such  Subsidiary
shall  execute and deliver a  supplement  to this  Agreement  and the other Loan
Documents pursuant to which it shall become



<PAGE>   66



a party to, shall assume all rights,  duties and  obligations  under,  and shall
grant  continuing  security  interests to the Agent for the benefit of the Agent
and the  ratable  benefit  of the  Lenders  in all of its  Property  that  would
constitute Collateral under this Agreement and the other Loan Documents as if it
had been an original signatory hereto and thereto on the Closing Date, and (iii)
all  Persons  holding  the  capital  stock  or  other  equity  interest  of such
Subsidiary shall have pledged such stock or other equity interest to and for the
benefit of the Agent and the Lenders.

                  9.19 Fiscal  Year.  If the  Borrowers  desire to change  their
Fiscal Year,  then prior to the effective  date  thereof,  the Borrowers and the
Lenders  shall have entered into a written  agreement  amending or modifying the
financial covenants and any other provisions of this Agreement affected thereby,
in form and substance reasonably satisfactory to the Lenders.

                  9.20   Permitted   Acquisitions.   Such   Borrower   and   its
Subsidiaries  may spend,  for the sole  purpose  of  acquiring  existing  retail
operations  (within the contiguous  United  States),  including real property on
which any such operations are situated and any personal property located therein
other than  Inventory,  provided that such operations are to be used in the same
or similar  line of business  currently  operated by such  Borrower  ("Permitted
Acquisitions"),  an amount (which may be permanently  reduced at the election of
the Borrowers by written notice thereof to the Agent) which in the aggregate for
Phar-Mor on a consolidated basis does not exceed  $30,000,000;  provided further
that  such  Borrower  shall not  acquire  any  Inventory  in  connection  with a
Permitted  Acquisition unless (i) written notice thereof is given by Phar-Mor to
the  Agent,  (ii) ten (10)  Business  Days  prior  to the  closing  date of such
acquisition,  Borrower gives the Agent evidence  reasonably  satisfactory to the
Agent that such  Inventory is free and clear of all Liens,  (iii) such  Borrower
acquires good and marketable  title to such  Inventory,  and (iv) on the closing
date of such  acquisition,  such Borrower grants to the Agent for the benefit of
the Agent and the  ratable  benefit of the  Lenders a first  priority  perfected
security  interest  in such  Inventory  and  delivers to the Agent an opinion of
counsel with respect  thereto in form and substance  reasonably  satisfactory to
the Agent.

                  9.21 Minimum Availability. Aggregate Availability shall at all
times be at least $20,000,000.

                  9.22  [Intentionally Omitted].

                  9.23 Use of Proceeds.  Such Borrower  shall not, and shall not
permit any Subsidiary to (a) use any portion of the Loan  proceeds,  directly or
indirectly  (i) to purchase or carry  Margin  Stock,  (ii) to repay or otherwise
refinance  indebtedness of such Borrower or others incurred to purchase or carry
Margin  Stock,  (iii) to extend credit for the purpose of purchasing or carrying
any Margin  Stock,  or (iv) to acquire any security in any  transaction  that is
subject  to  Section  13 or 14 of  the  Exchange  Act  or  (b)  make  any of the
investments  described  in  clause  (d)(iv)  of  the  definition  of  Restricted
Investments if at such time any Loans are outstanding.

                  9.24 Plan of Reorganization. Without the prior written consent
of the Agent and the Majority  Lenders,  such Borrower  shall not, and shall not
permit any of its Subsidiaries to, cause or permit the Plan of Reorganization to
be amended or modified  after the Closing Date, or to waive without prior notice
to the Agent any of the conditions  contained  therein in any material  respect.
Phar-Mor   shall   promptly   furnish  copies  to  the  Agent  of  all  motions,
applications,  pleadings,  notices  and  other  documents  filed by any party in
interest with the Bankruptcy Court, and all orders, judgments, opinions, rulings
and other  notices  entered by the  Bankruptcy  Court,  in  connection  with the
chapter 11 cases of Phar-Mor and its debtor affiliates,



<PAGE>   67



in each case after the Effective Date.

             9.25 Further  Assurances.  Such Borrower shall execute and deliver,
or cause to be executed  and  delivered,  to the Agent  and/or the Lenders  such
documents and agreements,  and shall take or cause to be taken such actions,  as
the Agent or any Lender may,  from time to time,  request to carry out the terms
and conditions of this Agreement and the other Loan Documents.

                                   ARTICLE 10
                              CONDITIONS OF LENDING

                        10.1  Conditions   Precedent  to   Effectiveness.   This
Agreement shall become  effective when, and only when, the following  conditions
precedent have been satisfied in a manner satisfactory to the Lender.

                        (a) Delivery of Documents;  Compliance.  This  Agreement
and the other Loan  Documents  have been executed by each party thereto and each
Borrower shall have  performed and complied with all  covenants,  agreements and
conditions  contained  herein and the other Loan Documents which are required to
be performed or complied with by such Borrower  before or on the effective  date
of  this  Agreement.  The  Agent  shall  have  received  copies  certified  by a
Responsible   Officer  of  the  certificate  or  articles  of  incorporation  or
certificate of organization and by-laws,  and certificates of qualification  and
good  standing  for each  jurisdiction  referred  to in  clauses  (a) and (b) of
Section 8.3, for Phar-Mor of Delaware, Inc. and Phar-Mor, Inc., LLC.

                        (b) Minimum  Availability.  Upon the making of any Loans
and  the  issuance  of any  Letters  of  Credit  on the  effective  date of this
Agreement and with all its obligations current, the Aggregate Availability would
not be less than $20,000,000.

                        (c) Material Adverse Change. There shall have occured no
material  adverse  change in the assets,  operations or  consolidated  financial
condition of Phar-Mor or in the  Collateral  since  delivery to the Agent of the
most  recent  Financial  Statements,   and  the  Agent  shall  have  received  a
certificate of a Responsible Officer to that effect.

                        (d) Representations and Warranties.  All representations
and warranties  made hereunder and in the other Loan Documents shall be true and
correct in all material respects.

                        (e) No  Default.  No Default  or Event of Default  shall
exist on the  effective  date of this  Agreement,  or would exist  after  giving
effect to any Loans to be made on



<PAGE>   68



such date.

                        (f)  Opinions.  The Agent  and the  Lenders  shall  have
received such opinions of counsel for the  Borrowers and their  Subsidiaries  as
the Agent or any Lender shall reasonably  request,  each such opinion to be in a
form,  scope, and substance  satisfactory to the Agent,  the Lenders,  and their
respective counsel.

                        (g) Financing Statements.  The Agent shall have received
duly executed UCC-1 financing statements,  duly filed on or before the effective
date of this  Agreement  under the UCC of all  jurisdictions  that the Agent may
deem necessary or desirable in order to perfect the Agent's Lien.

                        (h) Fees.  The  Borrowers  shall  have paid all fees and
expenses of the Agent and the Attorney Costs incurred in connection  with any of
the Loan Documents and the transactions contemplated thereby.

                        (i) Insurance.  The Agent shall have received  evidence,
in form, scope, and substance,  reasonably  satisfactory to it, of all insurance
coverage as required by the Agreement.

                        (j)  Examination.  The Agent and the Lenders  shall have
had an opportunity, if they so choose, to examine the books of account and other
records and files of the Borrowers and to make copies thereof,  and to conduct a
pre-closing  audit which shall  include  verification  of  Inventory,  Accounts,
Aggregate Availability and the Availability of each Borrower, and the results of
such  examination  and audit shall have been  satisfactory  to the Agent and the
Lenders in all respects.

                  (k)  Proceedings.  All  proceedings  to be taken in connection
with the transactions contemplated by this Agreement, the Loan Documents and all
documents,  instruments,  guaranties and other  assignments  incident  hereto or
thereto or  contemplated  in connection  herewith or  therewith,  whether or not
forms thereof are annexed hereto as Exhibits,  shall be satisfactory in form and
substance to the Lenders, the Agent and their counsel.

                  Except as provided in a  certificate  signed by a  Responsible
Officer and delivered to the Agent on the effective  date of this  Agreement the
execution  and delivery of the Loan  Documents by each Borrower on the effective
date of this Agreement shall be deemed to be a representation  and warranty made
by such  Borrower  to the effect  that all of the  conditions  precedent  to the
making of the availability of the total credit facility  provided in Section 2.1
have  been  satisfied,  with the same  effect as  delivery  to the Agent and the
Lenders of a certificate  signed by a Responsible  Officer,  dated the effective
date of this Agreement to such effect.

                  Execution  and  delivery  to  the  Agent  by  a  Lender  of  a
counterpart to this Agreement  shall be deemed  confirmation by such Lender that
(i) all  conditions  precedent in this  Section 10.1 have been  fulfilled to the
satisfaction  of such Lender and (ii) the decision of such Lender to execute and
deliver to the Agent an executed  counterpart to this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition precedent set forth in this Section 10.1.

                  10.2 Conditions  Precedent to Each Loan. The obligation of the
Lenders to make Revolving  Loans, and the obligation of the Agent to cause to be
issued  Letters of Credit and the  obligation of the Lenders to  participate  in
Letters of Credit,  shall be subject to the further conditions precedent that on
and as of the date of any such extension of credit:



<PAGE>   69



                  (a) The following statements shall be true, and the acceptance
by any Borrower of any  extension of credit shall be deemed to be a statement to
the  effect  set  forth in  clauses  (i) and (ii),  with the same  effect as the
delivery to the Agent and the Lenders of a  certificate  signed by a Responsible
Officer, dated the date of such extension of credit, stating that:

             (i) The representations and warranties  contained in this Agreement
and the other Loan  Documents are correct in all material  respects on and as of
the date of such  extension  of credit as  though  made on and as of such  date,
except to the extent that (i) any  representation  or warranty  made pursuant to
Sections 8.5(a), 8.7, 8.12, 8.13, 8.14, 8.27 or 8.28 has been amended by written
notice  thereof by Phar-Mor to the Agent and (ii) any other  representation  and
warranty not referred to in clause (i) above has been amended or waived, in each
case in writing by the Agent and the Majority Lenders; and

             (ii) No event has occurred and is continuing,  or would result from
such extension of credit, which constitutes a Default or an Event of Default.

                  (b)  Without  limiting  Section  10.1 (b),  the  amount of the
Aggregate  Availability  shall be sufficient to make such Revolving Loans and to
cause  such  Letters  of Credit to be issued  without  exceeding  the  Aggregate
Availability,  and the Availability of each Borrower shall be sufficient to make
such  Revolving  Loans and to cause such Letters of Credit to be issued  without
exceeding  the  Availability  of such  Borrower,  provided,  however,  that  the
foregoing  conditions  precedent are not conditions to each Lender participating
in or reimbursing BABC or the Agent for such Lenders' Pro Rata Share of any BABC
Loan or Agent Advance as provided in Sections 2.2(h) and (i).

                                   ARTICLE 11
                                DEFAULT; REMEDIES

                  11.1  Events  of  Default.  It  shall  constitute  an event of
default ("Event of Default") if any one or more of the following shall occur for
any reason:

                  (a) any failure to pay the  principal of or interest on any of
the Obligations when due, whether upon demand or otherwise;

                  (b) any  representation  or warranty  made by any  Borrower in
this Agreement or by any Borrower or any of its Subsidiaries in any of the other
Loan Documents,  any Financial  Statement,  or any certificate  furnished by any
Borrower or any of its Subsidiaries at any time to the Agent or any Lender shall
prove to be  untrue  in any  material  respect  as of the date on which  made or
furnished;

                  (c) any  Borrower  shall  (i) fail to  comply  with any of the
covenants set forth in Article 9 (other than Sections 9.1, 9.2, 9.3, 9.4. 9.5(a)
and  (c),  9.6 or 9.7) or  Article  7 or (ii)  fail to  comply  with  any of the
covenants set forth in Sections 9.1, 9.2, 9.3, 9.4, 9.5(a) or (c), 9.6 or 9.7 if
such  failure  shall have  existed for more than thirty (30) days (ten (10) days
for  Section  9.5(a) and (c))  after the date that such  Borrower  discovers  or
reasonably should have discovered,  such failure; provided, however, that to the
extent that any covenant in Article 7 specifies  the number of days within which
any Borrower must comply with any reporting  requirement  therein,  such failure
shall have  existed  for the number of days  specified  in such  covenant,  plus
fifteen (15) days with respect to the  covenants  set forth in Sections  7.2(a),
7.2(b),  7.2(d) and 7.2(e) and five (5) days with respect to all other covenants
set forth in Article 7.



<PAGE>   70



                  (d) except as provided in Section  11.1(c),  any default shall
occur in the  observance or  performance  of any of the covenants and agreements
contained in this Agreement,  any other Loan  Documents,  or any other agreement
entered  into at any time to which any Borrower or any of its  Subsidiaries  and
the Agent or any Lender are party,  or if any such  agreement or document  shall
terminate  (other than in accordance  with its terms or the terms hereof or with
the  written  consent of the Agent and the  Majority  Lenders) or become void or
unenforceable,  without  the  written  consent  of the  Agent  and the  Majority
Lenders;

                  (e) default  shall occur with respect to any Debt for borrowed
money (other than the  Obligations)  in an  outstanding  principal  amount which
exceeds,  in the aggregate for all such Debt with respect to which default shall
have  occurred,  $3,000,000,  or under  any  agreement  or  instrument  under or
pursuant to which any such Debt or indebtedness  may have been issued,  created,
assumed,  or  guaranteed  by any Borrower or any of its  Subsidiaries,  and such
default  shall  continue  for more than the  period of  grace,  if any,  therein
specified,  if the  effect  thereof  (with or  without  the  giving of notice or
further lapse of time or both) is to accelerate, or to permit the holders of any
such Debt or indebtedness  to accelerate,  the maturity of any such Debt; or any
such Debt or indebtedness shall be declared due and payable or be required to be
prepaid (other than by a regularly  scheduled required  prepayment) prior to the
stated maturity thereof;

                  (f) any Borrower or any of its  Subsidiaries  shall (i) file a
voluntary  petition in bankruptcy  or file a voluntary  petition or an answer or
otherwise commence any action or proceeding seeking reorganization,  arrangement
or  readjustment  of its debts or for any other relief under the Bankruptcy Code
or under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter  existing,  or  consent  to,  approve  of, or  acquiesce  in, any such
petition,  action or proceeding;  (ii) apply for or acquiesce in the appointment
of a receiver, assignee, liquidator, sequestrator, custodian, trustee or similar
officer for it or for all or any part of its property;  (iii) make an assignment
for the benefit of  creditors;  or (iv) be unable  generally to pay its debts as
they become due;

                  (g) an  involuntary  petition  shall be filed or an  action or
proceeding   otherwise   commenced   seeking   reorganization,   arrangement  or
readjustment of the debts of any Borrower or any of its  Subsidiaries or for any
other  relief  under  the  Bankruptcy  Code or under  any  other  bankruptcy  or
insolvency  act or law, state or federal,  now or hereafter  existing and either
(i) such petition,  action or proceeding  shall not have been dismissed within a
period of sixty  (60) days  after its  commencement  or (ii) an order for relief
against  such  Borrower  or such  Subsidiary  shall  have been  entered  in such
proceeding;

                  (h) a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar  officer for any Borrower or any of its  Subsidiaries  or for
all or any part of its property  shall be appointed or a warrant of  attachment,
execution or similar process shall be issued against any part of the property of
any Borrower or any of its Subsidiaries;

                  (i)  any  Borrower  or any of its  Subsidiaries  shall  file a
certificate of dissolution  under  applicable  state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced  against it any action
or proceeding  for  dissolution,  winding-up or  liquidation,  or shall take any
corporate or limited liability company action in furtherance thereof;
 
                  (j) all or any  material  part of the property of any Borrower
or any of its  Subsidiaries  shall be  nationalized,  expropriated or condemned,
seized or otherwise appropriated,

 

<PAGE>   71



or  custody  or  control  of  such  property  or of any  Borrower  or any of its
Subsidiaries  shall be assumed  by any  Governmental  Authority  or any court of
competent  jurisdiction at the instance of any  Governmental  Authority,  except
where contested in good faith by proper  proceedings  diligently pursued where a
stay of enforcement is in effect;

                  (k) any  guaranty  of the  Obligations  shall  be  terminated,
revoked or declared void or invalid;

                  (l)  one or  more  Final  Orders  for  the  payment  of  money
aggregating in excess of $5,000,000  with respect to personal  injury claims and
$1,000,000  with  respect to any other  claim,  which  amount shall not be fully
covered  by  insurance,  shall  be  rendered  against  Borrower  or  any  of its
Subsidiaries;

                  (m) any  loss,  theft,  damage or  destruction  of any item or
items of Collateral or other property of any Borrower or any of its Subsidiaries
occurs  which (i)  materially  and  adversely  affects the  property,  business,
operation,  prospects,  or condition of any Borrower or any of its Subsidiaries;
or (ii) is material in amount and is not adequately covered by insurance;

                  (n) there occurs a material  adverse change in the operations,
business, property or condition (financial or otherwise) of the Borrowers, taken
as a whole;  provided that such material  adverse  change results from an event,
situation or  circumstance  not otherwise  encompassed  by the covenants in this
Agreement;

                  (o)  there  is  filed  against  any  Borrower  or  any  of its
Subsidiaries any civil or criminal action,  suit or proceeding under any federal
or state racketeering  statute  (including the Racketeer  Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred eighty (180) days,  and (2) could result in the  confiscation
or forfeiture of any material portion of the Collateral;

                  (p) for any reason other than the failure of the Agent to take
any action available to it to maintain perfection of the Agent's Liens, pursuant
to the Loan  Documents,  any Loan Document ceases to be in full force and effect
or any Lien with respect to any material  portion of the Collateral  intended to
be secured  thereby ceases to be, or is not,  valid,  perfected and prior to all
other  Liens  (other  than the Liens  described  in  clauses  (a) and (h) of the
definition of Permitted Liens or any other Permitted Liens expressly  identified
on Schedule 6.4) or is terminated, revoked or declared void;

                  (q) (i) an ERISA Event  shall occur with  respect to a Pension
Plan or Multi- employer Plan which has resulted or could  reasonably be expected
to result in liability  of any Borrower  under Title IV of ERISA to such Pension
Plan,  Multi-employer  Plan or the PBGC in an  aggregate  amount  in  excess  of
$3,000,000 and which must be paid prior to the Stated Termination Date; (ii) the
aggregate  amount of Unfunded  Pension  Liability  among all Pension Plans other
than Multi-employer Plans at any time exceeds $7,000,000;  or (iii) any Borrower
or any ERISA  Affiliate  shall fail to pay when due, after the expiration of any
applicable grace period, any installment  payment with respect to its withdrawal
liability  under  Section  4201  of  ERISA  under  a  Multi-employer  Plan in an
aggregate amount in excess of $2,500,000.

                  (r) there occurs a Change of Control.



<PAGE>   72




                  11.2 Remedies. (a) If a Default or an Event of Default exists,
the Agent may, in its  discretion,  and shall,  at the direction of the Majority
Lenders,  do one or more of the following at any time or times and in any order,
without  notice to or demand on any  Borrower:  (i) reduce the Maximum  Revolver
Amount, or the advance rates against Eligible Accounts and/or Eligible Inventory
used  in  computing  the  Aggregate  Availability  or  the  Availability  of any
Borrower,  or reduce one or more of the other  elements  used in  computing  the
Aggregate  Availability  and/or the Availability of any Borrower;  (ii) restrict
the amount of or refuse to make Revolving Loans; and (iii) restrict or refuse to
arrange for Letters of Credit.  If an Event of Default exists,  the Agent shall,
at the direction of the Majority  Lenders,  do one or more of the following,  in
addition to the actions  described  in the  preceding  sentence,  at any time or
times  and in any  order,  without  notice to or  demand  on any  Borrower:  (a)
terminate the Commitments and this Agreement; (b) declare any or all Obligations
to be immediately due and payable;  provided,  however, that upon the occurrence
of any Event of Default described in Sections 11.1(c), 11.1(f), 11.1(g), 11.1(h)
or 11.1(i),  the Commitments shall  automatically and immediately expire and all
Obligations  shall  automatically  become  immediately  due and payable  without
notice or demand of any kind; and (c) pursue its other rights and remedies under
the Loan Documents and applicable law.

                  (b) If an Event of Default  exists:  (i) the Agent  shall have
for the benefit of itself and the ratable benefit of the Lenders, in addition to
all other  rights of the Agent and the  Lenders,  the rights and  remedies  of a
secured party under the UCC; (ii) the Agent may, at any time, take possession of
the Collateral and keep it on any Borrower's  premises,  at no cost to the Agent
or any  Lender,  or remove any part of it to such  other  place or places as the
Agent may desire,  or each  Borrower  shall,  upon the Agent's  demand,  at such
Borrower's cost, assemble the Collateral and make it available to the Agent at a
place reasonably  convenient to the Agent;  (iii) the Agent may sell and deliver
any Collateral at public or private sales,  for cash,  upon credit or otherwise,
at such  prices and upon such terms as the Agent  deems  advisable,  in its sole
discretion,  and may, if the Agent deems it reasonable,  postpone or adjourn any
sale of the  Collateral by an  announcement  at the time and place of sale or of
such postponed or adjourned  sale without giving a new notice of sale;  (iv) the
Agent (without assuming any obligations or liability  thereunder),  at any time,
shall have the exclusive  right to enforce  against any licensee or  sublicensee
all rights and remedies of any Borrower in, to and under any one or more license
agreements with respect to the  Collateral,  and take or refrain from taking any
action  under any  license  or  sublicense  thereof,  and each  Borrower  hereby
releases the Agent and each Lender  from,  and agrees to hold the Agent and each
Lender free and harmless from and against, any claims arising out of, any action
taken or omitted to be taken with  respect to any such license  agreement  other
than with respect to any claims as a result of any acts or  omissions  occurring
after the date that the duties and  obligations of the Borrowers with respect to
such license  agreements may have been terminated by reason of a sale,  transfer
or other disposition of such license  agreements as provided for herein; and (v)
in addition to the  foregoing,  in order to implement  the  assignment,  sale or
other disposal of any of the Collateral  pursuant to Section 11.2(a) hereof, the
Agent may, at any time,  pursuant to the power of attorney granted under Section
6.14, execute and deliver on behalf of any Borrower,  one or more instruments of
assignment of the trademarks (or any  application or registration  thereof),  in
form suitable for filing,  recording or registration in any country.  Without in
any way  requiring  notice to be given in the  following  manner,  each Borrower
agrees  that any  notice by the  Agent of sale,  disposition  or other  intended
action hereunder or in connection herewith, whether required by the UCC or



<PAGE>   73



otherwise,  shall  constitute  reasonable  notice to each such  Borrower if such
notice is mailed by  registered or certified  mail,  return  receipt  requested,
postage prepaid,  or is delivered  personally against receipt, at least five (5)
Business  Days  prior to such  action  to  Phar-Mor's  address  specified  in or
pursuant to Section 15.8. If any  Collateral is sold on terms other than payment
in full at the time of sale,  no credit shall be given  against the  Obligations
until the Agent or the Lenders  receive  payment,  and if the buyer  defaults in
payment,  the Agent may  resell the  Collateral  without  further  notice to any
Borrower.  In the event the Agent seeks to take possession of all or any portion
of the Collateral by judicial process, each Borrower irrevocably waives: (a) the
posting  of any bond,  surety or  security  with  respect  thereto  which  might
otherwise be required;  (b) any demand for possession  prior to the commencement
of any suit or action to recover the Collateral;  and (c) any  requirement  that
the Agent retain  possession and not dispose of any Collateral until after trial
or final  judgment.  Each  Borrower  agrees that the Agent has no  obligation to
preserve  rights to the  Collateral or marshal any Collateral for the benefit of
any Person. The Agent is hereby granted a license or other right to use, without
charge, each Borrower's labels,  copyrights,  name, trade secrets,  trade names,
trade dress,  trademarks,  and advertising  matter, or any similar property,  in
completing  production  of,  advertising  or selling  any  Collateral,  and each
Borrower's rights under all licenses and all franchise agreements shall inure to
the Agent's benefit. In the event of any such license, assignment, sale or other
disposition of the Collateral,  or any of it, after the occurrence or during the
continuation as hereinabove provided of an Event of Default, each Borrower shall
supply its know-how and expertise  relating to the  manufacture  and sale of the
products  bearing  or in  connection  with  any  trademark,  copyright  or other
Proprietary  Right,  and its customer  lists and other  records  relating to any
trademark, copyright or other Proprietary Right, and to the distribution of said
products, to the Agent or its designee.  The Borrowers agree to pay when due all
reasonable  costs and  expenses  incurred  in any  transfer  of a  trademark  or
copyright or other Proprietary  Right,  including any taxes, fees and reasonable
attorneys'  fees  (including  the  allocated  costs  and  expenses  of  in-house
counsel), and all such costs shall be added to the Obligations.  The proceeds of
sale shall be applied first to all expenses of sale,  including attorneys' fees,
and then to the  Obligations in whatever order the Agent elects.  The Agent will
return any excess to Phar-Mor  and each  Borrower  shall  remain  liable for any
deficiency.

                  (c) If an Event of Default occurs, each Borrower hereby waives
all  rights to notice  and  hearing  prior to the  exercise  by the Agent of the
Agent's  rights to  repossess  the  Collateral  without  judicial  process or to
replevy, attach or levy upon the Collateral without notice or hearing.

                                   ARTICLE 12
                              TERM AND TERMINATION

                  12.1 Term and  Termination.  The term of this Agreement  shall
end on the Stated  Termination  Date. The Agent upon direction from the Majority
Lenders may terminate  this  Agreement  without notice upon the occurrence of an
Event of Default.  Upon the effective  date of termination of this Agreement for
any reason  whatsoever,  all Obligations  (including all unpaid principal of and
accrued  interest  on the  Loans)  shall  become  immediately  due and  payable.
Notwithstanding  the  termination of this  Agreement,  until all Obligations are
indefeasibly  paid and  performed in full in cash,  each  Borrower  shall remain
bound by the terms of this  Agreement and those of the other Loan  Documents and
shall not be relieved of any of its Obligations hereunder, and the Agent and the
Lenders shall retain all their rights and remedies hereunder and under the other
Loan Documents (including the security interest of the Agent, for the benefit of
the Agent and the ratable benefit of the Lenders, in and all rights and remedies
with respect



<PAGE>   74



to all then existing and after-arising Collateral).

                                   ARTICLE 13
                 AMENDMENTS; WAIVER; ASSIGNMENTS; PARTICIPATIONS

                  13.1 No Waivers;  Cumulative Remedies. No failure by the Agent
or any Lender to exercise any right,  remedy,  or option under this Agreement or
any present or future supplement  thereto,  or in any other Loan Document or any
other  agreement  between or among any Borrower and the Agent and/or any Lender,
or delay by the Agent or any Lender in  exercising  the same,  will operate as a
waiver thereof. No waiver by the Agent or any Lender will be effective unless it
is in writing, and then only to the extent specifically stated. No waiver by the
Agent or the Lenders on any  occasion  shall  affect or diminish the Agent's and
each Lender's rights thereafter to require strict performance by any Borrower of
any provision of this Agreement. The Agent's and each Lender's rights under this
Agreement  will be  cumulative  and not  exclusive  of any other right or remedy
which the Agent or any Lender may have.

                  13.2  Amendments  and  Waivers.  No amendment or waiver of any
provision  of this  Agreement  or any other Loan  Document,  and no consent with
respect to any departure by any Borrower  therefrom,  shall be effective  unless
the same shall be in writing and signed by the Majority Lenders (or by the Agent
at the written  request of the Majority  Lenders) and all of the  Borrowers  and
then any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given;  provided,  however,  that no such
waiver,  amendment,  or consent  shall,  unless in writing and signed by all the
Lenders and all of the Borrowers and  acknowledged  by the Agent,  do any of the
following:

                  (a) increase or extend the Commitment of any Lender;

                  (b) postpone or delay any date fixed by this  Agreement or any
other Loan  Document  for any  payment  of  principal,  interest,  fees or other
amounts due to the Lenders  (or any of them)  hereunder  or under any other Loan
Document;

                  (c) reduce the principal of, or the rate of interest specified
herein on any Loan, or any fees or other amounts payable  hereunder or under any
other Loan Document;

                  (d)  change  the  percentage  of  the  Commitments  or of  the
aggregate  unpaid principal amount of the Loans which is required for the Lender
or any of them to take any action hereunder;

                  (e) increase the advance rate with respect to Revolving Loans;

                  (f) amend  this  Section  or any  provision  of the  Agreement
providing for consent or other action by all Lenders;

                  (g)  release  Collateral  other than as  permitted  by Section
14.11;

                  (h) change the definition of "Majority Lenders";

                  and,  provided further,  that no amendment,  waiver or consent
shall, unless in writing and signed by the Agent, affect the rights or duties of
the Agent under this Agreement or any other Loan Document.



<PAGE>   75



                  13.3  Assignments; Participations.

                  (a) (i) Any Lender may, with prior written notice to the Agent
and  Phar-Mor  and the prior  written  consent of the Agent  (which shall not be
unreasonably  withheld),  assign and delegate to one or more assignees (provided
that no written  consent of the Agent shall be required in  connection  with any
assignment  and  delegation by a Lender to an Affiliate of such Lender) (each an
"Assignee")  all, or any ratable part of all, of the Loans,  the Commitments and
the other rights and obligations of such Lender  hereunder,  in a minimum amount
of  $10,000,000;  provided  that after  giving  effect to such  assignment,  the
aggregate amount of the Loans, Commitments and other rights and obligations held
by such  Lender  is not  less  than  $10,000,000;  provided,  further,  that the
Borrowers  and the Agent may  continue  to deal  solely and  directly  with such
Lender in  connection  with the  interest so  assigned to an Assignee  until (A)
written  notice of such  assignment  shall have been given to  Phar-Mor  and the
Agent  by  such  Lender,  and  payment   instructions,   addresses  and  related
information  with respect to the Assignee  shall have been given to the Agent by
the Assignee, (B) such Lender and its Assignee shall have executed and delivered
to Phar-Mor and the Agent an  Assignment  and  Acceptance in the form of Exhibit
13.3 (the "Assignment and Acceptance"),  and (C) the assignor Lender or Assignee
has paid to the Agent a processing fee in the amount of $2,500.

                  (ii)  BABC  agrees  that it shall not  assign  any part of any
Loans,  Commitments  and other rights and  obligations  of BABC if, after giving
effect to such  assignment,  the aggregate  amount of the then remaining  Loans,
Commitments  and other  obligations  of BABC  would be less  than the  aggregate
amount of the Loans,  Commitments  and other  obligations of the Lender which at
such time has the  highest  aggregate  amount of  Loans,  Commitments  and other
obligations of any of the Lenders other than BABC.

                  (b) From and  after  the date  that  the  Agent  notifies  the
assignor  Lender  that the  conditions  in clauses  (A)  through  (C) of Section
13.3(a)(i)  have been  satisfied  (i) the Assignee  thereunder  shall be a party
hereto  and,  to the extent  that  rights and  obligations,  including,  but not
limited to, the obligation to participate in credit support or other enhancement
for  Letters of Credit  hereunder  have been  assigned  to it  pursuant  to such
Assignment  and  Acceptance,  shall have the rights and  obligations of a Lender
under the Loan Documents and (ii) the assignor  Lender shall, to the extent that
rights and  obligations  hereunder and under the other Loan  Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement (and in the case of an
Assignment and Acceptance  covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).

                  (c) By executing and delivering an Assignment and  Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each  other and the other  parties  hereto as  follows:  (i) other  than as
provided in such  Assignment  and  Acceptance,  such  assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement or the execution,  legality,  validity,  enforceability,  genuineness,
sufficiency  or value of this  Agreement  or any other Loan  Document  furnished
pursuant hereto;  (ii) such assigning Lender makes no representation or warranty
and assumes no  responsibility  with respect to the  financial  condition of any
Borrower  or  the  performance  or  observance  by  any  Borrower  of any of its
obligations under this Agreement or any other Loan Document  furnished  pursuant
hereto;  (iii)  such  Assignee  confirms  that  it has  received  a copy of this
Agreement,  together with such other  documents and information as it has deemed
appropriate to make its own credit analysis



<PAGE>   76



and decision to enter into such  Assignment and  Acceptance;  (iv) such Assignee
will,  independently  and without reliance upon the Agent, such assigning Lender
or any other Lender,  and based on such  documents and  information  as it shall
deem  appropriate  at the time,  continue  to make its own credit  decisions  in
taking or not taking action under this Agreement; (v) such Assignee appoints and
authorizes  the Agent to take such action as agent on its behalf and to exercise
such powers  under this  Agreement  as are  delegated  to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and (vi)
such Assignee  agrees that it will perform in accordance with their terms all of
the  obligations  which  by the  terms  of this  Agreement  are  required  to be
performed by it as a Lender.

                  (d) Immediately upon each Assignee's making its processing fee
payment under the Assignment and  Acceptance,  this Agreement shall be deemed to
be amended to the  extent,  but only to the  extent,  necessary  to reflect  the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom.   The  Commitment  allocated  to  each  Assignee  shall  reduce  such
Commitments of the assigning Lender pro tanto.

                  (e) Any Lender may at any time sell to one or more  commercial
banks, financial  institutions,  or other Persons not Affiliates of any Borrower
(a "Participant")  participating  interests in any Loans, the Commitment of that
Lender  and the  other  interests  of that  Lender  (the  "originating  Lender")
hereunder and under the other Loan Documents;  provided,  however,  that (i) the
originating  Lender's  obligations  under this Agreement shall remain unchanged,
(ii) the originating  Lender shall remain solely responsible for the performance
of such  obligations,  (iii) each Borrower and the Agent shall  continue to deal
solely  and  directly  with  the  originating  Lender  in  connection  with  the
originating  Lender's rights and obligations  under this Agreement and the other
Loan  Documents,  and (iv) no Lender shall  transfer or grant any  participating
interest under which the  Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan Document
(other than in respect of the matters set forth in Sections  13.2(a) through (h)
inclusive),  and  all  amounts  payable  by  any  Borrower  hereunder  shall  be
determined  as if such Lender had not sold such  participation;  except that, if
amounts  outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default,  each  Participant  shall be  deemed to have the  right of  set-off  in
respect of its  participating  interest in amounts owing under this Agreement to
the same  extent  as if the  amount of its  participating  interest  were  owing
directly to it as a Lender under this Agreement.

                  (f) Notwithstanding any other provision in this Agreement, any
Lender may at any time  create a  security  interest  in, or pledge,  all or any
portion of its  rights  under and  interest  in this  Agreement  in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation  31 CFR ss.  203.14,  and such Federal  Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.



<PAGE>   77



                                   ARTICLE 14
                                    THE AGENT

                  14.1  Appointment  and   Authorization.   Each  Lender  hereby
designates  and appoints  BABC as its Agent under this  Agreement  and the other
Loan Documents and each Lender hereby  irrevocably  authorizes the Agent to take
such action on its behalf under the  provisions of this Agreement and each other
Loan  Document  and to  exercise  such  powers and  perform  such  duties as are
expressly  delegated  to it by the terms of this  Agreement  or any  other  Loan
Document,  together with such powers as are reasonably  incidental thereto.  The
Agent agrees to act as such on the express conditions  contained in this Article
14. The  provisions  of this  Article 14 are solely for the benefit of the Agent
and the  Lenders  and no  Borrower  shall  have  any  rights  as a  third  party
beneficiary  of any of the  provisions  contained  herein.  Notwithstanding  any
provision to the contrary contained  elsewhere in this Agreement or in any other
Loan Document,  the Agent shall not have any duties or responsibilities,  except
those expressly set forth herein,  nor shall the Agent have or be deemed to have
any fiduciary relationship with any Lender and no implied covenants,  functions,
responsibilities,  duties,  obligations or  liabilities  shall be read into this
Agreement  or any other Loan  Document  or  otherwise  exist  against the Agent.
Except as expressly  otherwise provided in this Agreement,  the Agent shall have
and may use its sole  discretion  with respect to exercising or refraining  from
exercising  any  discretionary  rights or taking or  refraining  from taking any
actions  which the Agent is  expressly  entitled  to take or assert  under  this
Agreement and the other Loan Documents,  including (a) the  determination of the
applicability of  ineligibility  criteria with respect to the calculation of the
Aggregate  Availability or the  Availability of any Borrower,  (b) the making of
Agent  Advances  pursuant to Section  2.2(i),  and (c) the  exercise of remedies
pursuant to Section  11.2,  and any action so taken or not taken shall be deemed
consented to by the Lenders.

                  14.2  Delegation  of Duties.  The Agent may execute any of its
duties  under this  Agreement or any other Loan  Document by or through  agents,
employees  or  attorneys-in-fact  and shall be  entitled  to  advice of  counsel
concerning  all  matters  pertaining  to such  duties.  The  Agent  shall not be
responsible  for the  negligence or misconduct of any agent or  attorney-in-fact
that it selects as long as such  selection was made without gross  negligence or
willful misconduct.

                  14.3  Liability of Agent.  None of the  Agent-Related  Persons
shall (i) be liable for any  action  taken or omitted to be taken by any of them
under or in  connection  with this  Agreement or any other Loan  Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct)  or (ii) be  responsible in any manner to any of the Lenders for any
recital,  statement,  representation  or  warranty  made by any  Borrower or any
Subsidiary or any Affiliate of any Borrower,  or any officer thereof,  contained
in this Agreement or in any other Loan Document, or in any certificate,  report,
statement or other  document  referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness,  genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document,  or for any failure of any Borrower or any
other  party to any Loan  Document  to  perform  its  obligations  hereunder  or
thereunder.  No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the  observance  or  performance  of any of the
agreements  contained  in, or  conditions  of, this  Agreement or any other Loan
Document, or to inspect the properties,  books or records of any Borrower or any
Subsidiary or any Affiliate of any Borrower.

                  14.4  Reliance  by Agent.  (a) The Agent  shall be entitled to
rely, and shall be



<PAGE>   78



fully  protected in relying,  upon any  writing,  resolution,  notice,  consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement  or other  document or  conversation  believed by it to be genuine and
correct and to have been signed,  sent or made by the proper  Person or Persons,
and upon  advice  and  statements  of legal  counsel  (including  counsel to any
Borrower),  independent accountants and other experts selected by the Agent. The
Agent shall be fully  justified  in failing or refusing to take any action under
this  Agreement or any other Loan  Document  unless it shall first  receive such
advice or concurrence of the Majority Lenders as it deems appropriate and, if it
so requests,  it shall first be indemnified to its  satisfaction  by the Lenders
against any and all  liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance  with a request or consent of the Majority
Lenders or all Lenders, as applicable,  and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the Lenders.

                  (b) For purposes of determining compliance with the conditions
specified in Section 10.1, each Lender that has executed this Agreement shall be
deemed to have consented to,  approved or accepted or to be satisfied with, each
document or other  matter  either sent by the Agent to such Lender for  consent,
approval,  acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Lender.

                  14.5 Notice of Default.  The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the  Lenders,  unless the Agent shall
have received  written  notice from a Lender or from Phar-Mor  referring to this
Agreement,  describing  such  Default or Event of Default and stating  that such
notice is a "notice of default".  The Agent will promptly  notify the Lenders of
its receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Lenders, or
all Lenders,  as applicable in accordance  with Section 11;  provided,  however,
that unless and until the Agent has  received  any such  request,  the Agent may
(but shall not be obligated  to) take such  action,  or refrain from taking such
action,  with  respect  to such  Default  or Event of  Default  as it shall deem
advisable.

                  14.6 Credit Decision.  Each Lender  acknowledges  that none of
the  Agent-Related  Persons has made any  representation  or warranty to it, and
that no act by the Agent hereinafter taken,  including any review of the affairs
of any Borrower or any of its  Subsidiaries,  shall be deemed to constitute  any
representation  or warranty  by any  Agent-Related  Person to any  Lender.  Each
Lender  represents to the Agent that it has,  independently and without reliance
upon any Agent-Related  Person and based on such documents and information as it
has deemed  appropriate,  made its own appraisal of and  investigation  into the
business,  prospects,  operations,  property,  financial and other condition and
creditworthiness of each Borrower and its Subsidiaries,  and all applicable bank
regulatory laws relating to the transactions  contemplated  hereby, and made its
own decision to enter into this Agreement and to extend credit to each Borrower.
Each Lender also represents  that it will,  independently  and without  reliance
upon any Agent-Related  Person and based on such documents and information as it
shall deem  appropriate at the time,  continue to make its own credit  analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents,  and to make such investigations as it deems necessary
to inform itself as to the business, prospects,  operations, property, financial
and other condition and  creditworthiness of each Borrower and its Subsidiaries.
Except for notices, reports and other documents expressly herein required to be



<PAGE>   79



furnished  to the  Lenders  by the Agent,  the Agent  shall not have any duty or
responsibility  to  provide  any  Lender  with any  credit or other  information
concerning the business,  prospects,  operations,  property, financial and other
condition or  creditworthiness  of any Borrower or any of its Subsidiaries which
may come into the  possession  of any of the  Agent-Related  Persons,  provided,
however,  that the Agent  shall  provide  any Lender  with copies of any notice,
report  or other  document  provided  to the Agent by any of the  Borrowers  and
requested by such Lender pursuant to this Loan Agreement.

                  14.7   Indemnification.   Whether  or  not  the   transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related  Persons  (to the  extent not  reimbursed  by or on behalf of each
Borrower  and without  limiting  the  obligation  of any Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities;  provided,  however,
that no Lender  shall be liable for the payment to any  Agent-Related  Person of
any portion of such Indemnified  Liabilities resulting solely from such Person's
gross  negligence or willful  misconduct.  Each Lender shall reimburse the Agent
upon  demand  for its  ratable  share  of any  costs or  out-of-pocket  expenses
(including  Attorney  Costs)  incurred  by the  Agent  in  connection  with  the
preparation,  execution, delivery,  administration,  modification,  amendment or
enforcement (whether through  negotiations,  legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities  under, this Agreement,
any other Loan Document,  or any document contemplated by or referred to herein,
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of any Borrower.  The  undertaking  in this Section shall survive the payment of
all Obligations hereunder and the resignation or replacement of the Agent.

         14.8 Agent in Individual  Capacity.  BABC and its Affiliates shall have
the same rights as any other  Lender to make loans to,  issue  letters of credit
for the account of,  accept  deposits  from,  acquire  equity  interests  in and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with any Borrower or any of its Subsidiaries and Affiliates of
any Borrower as though BABC were not the Agent  hereunder and without  notice to
or consent of the  Lenders.  The  Lenders  acknowledge  that,  pursuant  to such
activities,  BABC or its Affiliates may receive information regarding a Borrower
or  any of  its  Subsidiaries  or any  Affiliates  of  any  Borrower  (including
information that may be subject to confidentiality  obligations in favor of such
Borrower, Subsidiary or Affiliate) and acknowledge that the Agent shall be under
no obligation to provide such  information  to them.  With respect to its Loans,
BABC shall have the same  rights and powers  under this  Agreement  as any other
Lender and may exercise the same as though it were not the Agent,  and the terms
"Lender" and "Lenders" include BABC in its individual capacity.

                  14.9 Successor  Agent.  The Agent (i) if BABC, shall resign if
the principal amount of its Commitments as a Lender at any time is less than $25
million and as a result thereof  Phar-Mor  requests BABC's  resignation as Agent
and (ii) may resign as Agent upon thirty (30) days'  notice to the  Lenders.  If
the Agent resigns under this Agreement,  the Majority Lenders shall appoint from
among the Lenders a successor  agent for the Lenders.  If no successor  agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint,  after consulting with the Lenders and Phar-Mor,  a successor agent
from among the Lenders.  Upon the  acceptance  of its  appointment  as successor
agent  hereunder,  such successor agent shall succeed to all the rights,  powers
and duties of the retiring  Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment,  powers and duties as Agent shall be
terminated.  After any retiring  Agent's  resignation  hereunder  as Agent,  the
provisions of this Section 14 shall inure to its benefit as to any actions taken
or omitted to



<PAGE>   80



be taken by it while it was Agent under this  Agreement.  If no successor  agent
has  accepted  appointment  as Agent  by the date  which  is  thirty  (30)  days
following  a  retiring  Agent's  notice of  resignation,  the  retiring  Agent's
resignation shall nevertheless  thereupon become effective and the Lenders shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Majority Lenders appoint a successor agent as provided for above.

                  14.10  Withholding  Tax.  (a)  If  any  Lender  is a  "foreign
corporation,  partnership  or trust"  within  the  meaning  of the Code and such
Lender claims  exemption  from, or a reduction  of, U.S.  withholding  tax under
Sections  1441 or 1442 of the Code,  such Lender agrees with and in favor of the
Agent, to deliver to the Agent:

                  (i) if such Lender  claims an exemption  from,  or a reduction
of,  withholding  tax under a United States tax treaty,  properly  completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar year
and before the payment of any interest in each third  succeeding  calendar  year
during which interest may be paid under this Agreement;

                  (ii) if such  Lender  claims  that  interest  paid  under this
Agreement is exempt from United States withholding tax because it is effectively
connected  with a United  States trade or business of such Lender,  two properly
completed  and  executed  copies  of IRS Form 4224  before  the  payment  of any
interest is due in the first taxable year of such Lender and in each  succeeding
taxable  year of such  Lender  during  which  interest  may be paid  under  this
Agreement,  and IRS Form  W-9;  and  (iii)  such  other  form or forms as may be
required  under the Code or other laws of the United  States as a  condition  to
exemption from, or reduction of, United States withholding tax.

         Such  Lender  agrees to  promptly  notify  the  Agent of any  change in
circumstances  which would  modify or render  invalid any claimed  exemption  or
reduction.

                  (b) If any Lender  claims  exemption  from,  or reduction  of,
withholding  tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells,  assigns,  grants a participation in, or otherwise  transfers
all or part of the  Obligations  of the  Borrowers to such  Lender,  such Lender
agrees to notify the Agent of the percentage amount in which it is no longer the
beneficial  owner of Obligations of the Borrowers to such Lender.  To the extent
of such percentage  amount,  the Agent will treat such Lender's IRS Form 1001 as
no longer valid.

                  (c)  If any  Lender  claiming  exemption  from  United  States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns,  grants a
participation  in, or otherwise  transfers all or part of the Obligations of the
Borrowers to such Lender,  such Lender agrees to undertake  sole  responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.

                  (d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction.  If the forms or other documentation  required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any  interest  payment  to  such  Lender  not  providing  such  forms  or  other
documentation an amount equivalent to the applicable withholding tax.

                  (e) If the  IRS or any  other  Governmental  Authority  of the
United  States  or other  jurisdiction  asserts  a claim  that the Agent did not
properly withhold tax from amounts paid to



<PAGE>   81



or for  the  account  of any  Lender  (because  the  appropriate  form  was  not
delivered,  was not properly  executed,  or because such Lender failed to notify
the Agent of a change in  circumstances  which  rendered the exemption  from, or
reduction of, withholding tax ineffective,  or for any other reason) such Lender
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise,  including penalties and interest,  and including
any taxes imposed by any  jurisdiction on the amounts payable to the Agent under
this Section,  together with all costs and expenses  (including Attorney Costs).
The obligation of the Lenders under this subsection shall survive the payment of
all Obligations and the resignation or replacement of the Agent.

                  14.11  Collateral Matters.

                  (a) The Lenders hereby irrevocably authorize the Agent, at its
option  and in its  sole  discretion,  to  release  any  Agent's  Lien  upon any
Collateral  (i)  upon  the  termination  of  the  Commitments  and  payment  and
satisfaction in full by the Borrowers of all Loans and reimbursement obligations
in respect of Letters of Credit, and the termination of all outstanding  Letters
of  Credit  (whether  or not any of such  obligations  are  due)  and all  other
Obligations;  (ii)  constituting  property  being  sold  or  disposed  of if the
applicable  Borrower certifies to the Agent that the sale or disposition is made
in compliance with Section 9.8 (and the Agent may rely  conclusively on any such
certificate,  without further inquiry);  or (iii) constituting property in which
no  Borrower  owned an  interest at the time the Lien was granted or at any time
thereafter.  Except as  provided  above,  the Agent will not  release any of the
Agent's Liens without the prior written  authorization of the Majority  Lenders;
provided that the Agent may not release the Agent's  Liens on Collateral  valued
in the aggregate in excess of $1,000,000 without the prior written authorization
of all of the Lenders.  Upon  request by the Agent or Phar-Mor at any time,  the
Lenders  will  confirm in writing the Agent's  authority  to release any Agent's
Liens upon  particular  types or items of  Collateral  pursuant to this  Section
14.11.

                  (b) Upon  receipt by the Agent of any  authorization  required
pursuant to this  Section  14.11(a)  from the  Majority  Lenders or Lenders,  as
applicable,  of  the  Agent's  authority  to  release  any  Agent's  Liens  upon
particular  types or items of  Collateral,  and upon at least five (5)  Business
Days'  prior  written  request  by  Phar-Mor,  the  Agent  shall  (and is hereby
irrevocably  authorized  by the  Lenders to) execute  such  documents  as may be
necessary  to evidence  the release of the Agent's  Liens upon such  Collateral;
provided,  however, that (i) the Agent shall not be required to execute any such
document on terms  which,  in the  Agent's  opinion,  would  expose the Agent to
liability  or create any  obligation  or entail any  consequence  other than the
release of such Liens without recourse or warranty,  and (ii) such release shall
not in any  manner  discharge,  affect or impair  the  Obligations  or any Liens
(other than those expressly being released) upon (or obligations of any Borrower
in respect  of) all  interests  retained  by any  Borrower,  including  (without
limitation)  the proceeds of any sale, all of which shall continue to constitute
part of the Collateral.

                  (c) The Agent shall have no  obligation  whatsoever  to any of
the Lenders to assure that the Collateral  exists or is owned by any Borrower or
is cared for,  protected or insured or has been encumbered,  or that the Agent's
Liens  have been  properly  or  sufficiently  or  lawfully  created,  perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any  particular  manner  or under any duty of care,  disclosure  or
fidelity, or to continue exercising,  any of the rights,  authorities and powers
granted or  available  to the Agent  pursuant to any of the Loan  Documents,  it
being  understood  and agreed  that in respect  of the  Collateral,  or any act,
omission or event related thereto, the Agent may act in any manner it may deem



<PAGE>   82



appropriate,  in its sole  discretion  given the  Agent's  own  interest  in the
Collateral  in its  capacity as one of the Lenders and that the Agent shall have
no other duty or liability  whatsoever to any Lender as to any of the foregoing,
except to the extent of its gross negligence or willful misconduct.

                  14.12 Restrictions on Actions by Lenders; Sharing of Payments.
(a) Each of the Lenders agrees that it shall not, without the express consent of
the Agent,  and that it shall,  to the extent it is lawfully  entitled to do so,
upon the  request of the Agent,  set off against  the  Obligations,  any amounts
owing by such Lender to any  Borrower or any  accounts  of any  Borrower  now or
hereafter  maintained with such Lender.  Each of the Lenders further agrees that
it shall not, unless specifically requested to do so by the Agent, take or cause
to be taken any action,  including  the  commencement  of any legal or equitable
proceedings,  to  foreclose  any Lien on,  or  otherwise  enforce  any  security
interest  in, any of the  Collateral,  the  purpose of which is, or could be, to
give such Lender any  preference  or priority  against  the other  Lenders  with
respect to the Collateral.

                  (b)  Subject  to  Section  4.5,  if,  at any time or times any
Lender  shall  receive (i) by payment,  foreclosure,  setoff or  otherwise,  any
proceeds of Collateral or any payments  with respect to the  Obligations  of any
Borrower to such Lender  arising  under,  or relating to, this  Agreement or the
other Loan Documents,  except for any such proceeds or payments received by such
Lender from the Agent pursuant to the terms of this Agreement,  or (ii) payments
from  the  Agent  in  excess  of  such  Lender's  ratable  portion  of all  such
distributions by the Agent, such Lender shall promptly (1) turn the same over to
the Agent,  in kind, and with such  endorsements as may be required to negotiate
the same to the Agent, or in same day funds,  as applicable,  for the account of
all of the Lenders and for application to the Obligations in accordance with the
applicable  provisions of this Agreement,  or (2) purchase,  without recourse or
warranty, an undivided interest and participation in the Obligations owed to the
other Lenders so that such excess payment  received shall be applied  ratably as
among the Lenders in accordance with their Pro Rata Shares;  provided,  however,
that if all or part of such excess payment  received by the purchasing  party is
thereafter  recovered  from  it,  those  purchases  of  participations  shall be
rescinded in whole or in part, as applicable,  and the applicable portion of the
purchase price paid therefor  shall be returned to such  purchasing  party,  but
without  interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.

                  14.13 Agency for Perfection.  Each Lender hereby appoints each
other  Lender as agent for the  purpose  of  perfecting  the  Lenders'  security
interest  in  assets  which,  in  accordance  with  Article  9 of the UCC can be
perfected  only by  possession.  Should any Lender (other than the Agent) obtain
possession of any such  Collateral,  such Lender shall notify the Agent thereof,
and, promptly upon the Agent's request therefor shall deliver such Collateral to
the Agent or in accordance with the Agent's instructions.

                  14.14   Concerning   the   Collateral  and  the  Related  Loan
Documents.  Each  Lender  authorizes  and  directs  the Agent to enter into this
Agreement  and the other Loan  Documents  relating  to the  Collateral,  for the
benefit of the Agent and the ratable benefit of the Lenders.  Each Lender agrees
that any action taken by the Agent or Majority  Lenders in  accordance  with the
terms of this Agreement or the other Loan Documents  relating to the Collateral,
and the exercise by the Agent or the Majority Lenders of their respective powers
set forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.



<PAGE>   83



                  14.15  Field  Audit and  Examination  Reports;  Disclaimer  by
Lenders. By signing this Agreement, each Lender:

                  (a) is deemed to have  requested  that the Agent  furnish such
Lender,  promptly  after it becomes  available,  a copy of each  field  audit or
examination report (each a "Report" and collectively, "Reports") prepared by the
Agent;

                  (b) expressly  agrees and  acknowledges  that neither BABC nor
the Agent (i) makes any  representation  or warranty  as to the  accuracy of any
Report, or (ii) shall be liable for any information contained in any Report;

                  (c) expressly agrees and acknowledges that the Reports are not
comprehensive  audits or examinations,  that the Agent or other party performing
any audit or examination  will inspect only specific  information  regarding the
Borrowers and will rely significantly upon the Borrowers' books and records,  as
well as on representations of the Borrowers' personnel;

                  (d) agrees to keep all Reports  confidential  and strictly for
its internal  use, and not to  distribute or use any Report in any other manner;
and

                  (e)   without   limiting   the   generality   of   any   other
indemnification  provision contained in this Agreement,  agrees: (i) to hold the
Agent and any such other Lender  preparing a Report harmless from any action the
indemnifying  Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that  the  indemnifying  Lender  has made or may  make to any  Borrower,  or the
indemnifying  Lender's  participation in, or the indemnifying  Lender's purchase
of, a loan or loans of any Borrower; and (ii) to pay and protect, and indemnify,
defend and hold the Agent and any such other Lender  preparing a Report harmless
from and against, the claims, actions, proceedings, damages, costs, expenses and
other amounts  (including,  without  limitation  attorney costs) incurred by the
Agent and any such other  Lender  preparing  a Report as the direct or  indirect
result of any third  parties who might obtain all or part of any Report  through
the indemnifying Lender.

                                   ARTICLE 15
                                  MISCELLANEOUS

                  15.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration  herein of the Agent's and each Lender's  rights and remedies is not
intended to be  exclusive,  and such rights and  remedies are in addition to and
not by way of  limitation of any other rights or remedies that the Agent and the
Lenders  may have  under  the UCC or other  applicable  law.  The  Agent and the
Lenders  shall have the right,  in their sole  discretion,  to  determine  which
rights and remedies are to be exercised and in which order.  The exercise of one
right or remedy shall not preclude the exercise of any other, all of which shall
be  cumulative.  The Agent and the  Lenders  may,  without  limitation,  proceed
directly  against  each or any Borrower to collect the  Obligations  without any
prior  recourse  to the  Collateral.  No  failure  to  exercise  and no delay in
exercising,  on the part of the Agent or any Lender, any right, remedy, power or
privilege hereunder,  shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further  exercise  thereof or the exercise of any other right,  remedy,
power or privilege.

                  15.2 Severability.  The illegality or  unenforceability of any
provision of this



<PAGE>   84



Agreement or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability  of the remaining  provisions of
this Agreement or any instrument or agreement required hereunder.

                  15.3  Governing Law; Choice of Forum; Service of Process.

                  (a) THIS  AGREEMENT  SHALL BE  INTERPRETED  AND THE RIGHTS AND
LIABILITIES  OF THE PARTIES  HERETO  DETERMINED IN ACCORDANCE  WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICT OF LAWS  PROVISIONS;  PROVIDED THAT  PERFECTION
ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE
OR  CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW
YORK;  PROVIDED THAT THE AGENT AND THE LENDERS  SHALL RETAIN ALL RIGHTS  ARISING
UNDER FEDERAL LAW.

                  (b) ANY  LEGAL  ACTION  OR  PROCEEDING  WITH  RESPECT  TO THIS
AGREEMENT  OR ANY OTHER LOAN  DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN  DISTRICT OF NEW YORK,  AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT,  EACH BORROWER,  THE AGENT AND EACH
LENDER CONSENTS,  FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION  OF  THOSE  COURTS.  EACH  BORROWER,  THE  AGENT  AND  EACH  LENDER
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON  CONVENIENS,  WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING:
(1) THE  AGENT AND THE  LENDERS  SHALL  HAVE THE  RIGHT TO BRING  ANY  ACTION OR
PROCEEDING  AGAINST  ANY  BORROWER  OR ITS  PROPERTY  IN THE COURTS OF ANY OTHER
JURISDICTION  AND (2) EACH OF THE PARTIES HERETO  ACKNOWLEDGES  THAT ANY APPEALS
FROM THE COURTS DESCRIBED IN THE IMMEDIATELY  PRECEDING  SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

                  (c) EACH BORROWER  HEREBY WAIVES  PERSONAL  SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED  MAIL (RETURN  RECEIPT  REQUESTED)  DIRECTED TO SUCH  BORROWER AT ITS
ADDRESS  SET FORTH IN  SECTION  15.8 AND  SERVICE  SO MADE SHALL BE DEEMED TO BE
COMPLETED  FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS.  NOTHING  CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS
TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

                  15.4 Waiver of Jury Trial. (a) EACH BORROWER,  EACH LENDER AND
THE AGENT WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS  AGREEMENT,  THE OTHER
LOAN  DOCUMENTS,  OR THE  TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY,  IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY



<PAGE>   85



OTHER PARTY OR ANY AGENT-RELATED PERSON,  PARTICIPANT OR ASSIGNEE,  WHETHER WITH
RESPECT TO CONTRACT  CLAIMS,  TORT CLAIMS,  OR OTHERWISE.  EACH  BORROWER,  EACH
LENDER AND THE AGENT AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED
BY A COURT TRIAL WITHOUT A JURY.  WITHOUT  LIMITING THE  FOREGOING,  THE PARTIES
FURTHER  AGREE  THAT  THEIR  RESPECTIVE  RIGHT TO A TRIAL BY JURY IS  WAIVED  BY
OPERATION OF THIS  SECTION AS TO ANY ACTION,  COUNTERCLAIM  OR OTHER  PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION  HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

                  (b) EACH BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST AGENT
OR ANY  LENDER ANY CLAIM FOR  CONSEQUENTIAL,  INCIDENTAL,  SPECIAL  OR  PUNITIVE
DAMAGES IN CONNECTION  WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

                  15.5  Survival  of   Representations   and  Warranties.   Each
Borrower's  representations  and warranties  contained in this  Agreement  shall
survive  the  execution,  delivery,  and  acceptance  thereof  by  the  parties,
notwithstanding  any  investigation  by  the  Agent  or  the  Lenders  or  their
respective agents.

                  15.6 Other Security and Guaranties.  The Agent,  may,  without
notice or demand and without  affecting any  Borrower's  obligations  hereunder,
from time to time: (a) take from any Person and hold collateral  (other than the
Collateral)  for the payment of all or any part of the Obligations and exchange,
enforce or release such  collateral  or any part thereof and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or  substitute  any such  endorser or  guarantor,  or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations,  or any other Person in any way obligated to pay all or
any part of the Obligations.

                  15.7 Fees and  Expenses.  Each  Borrower  agrees to pay to the
Agent,  for its benefit,  on demand,  all costs and expenses  that Agent pays or
incurs  in  connection   with  the   negotiation,   preparation,   consummation,
administration (other than overhead expenses),  enforcement,  and termination of
this Agreement and the other Loan Documents,  including: (a) Attorney Costs; (b)
costs and expenses (including  attorneys' and paralegals' fees and disbursements
which shall include the  allocated  costs of Agent's  in-house  counsel fees and
disbursements) for any amendment,  supplement,  waiver,  consent,  or subsequent
closing in connection with the Loan Documents and the transactions  contemplated
thereby; (c) costs and expenses of lien and title searches;  (d) taxes, fees and
other  charges for filing  financing  statements  and  continuations,  and other
actions to perfect, protect, and continue the Agent's Liens (including costs and
expenses paid or incurred by the Agent in connection  with the  consummation  of
Agreement  and the other Loan  Documents);  (e) sums paid or incurred to pay any
amount or take any action required of any Borrower under the Loan Documents that
any Borrower  fails to pay or take; (f) costs of  appraisals,  inspections,  and
verifications  of the  Collateral,  including  travel,  lodging,  and  meals for
inspections of the  Collateral and the Borrowers'  operations by the Agent's and
each of the  Lenders'  agents plus the Agent's then  customary  charge for field
examinations and audits and the preparation of reports thereof (such



<PAGE>   86



charge is currently $750 per day (or portion thereof) for each agent or employee
of the Agent with  respect to each field  examination  or audit plus  reasonably
incurred out of pocket expenses),  provided,  that prior to the occurrence of an
Event of Default,  the Agent shall not be entitled to reimbursement for any such
costs and fees  incurred  in  connection  with audits in excess of three (3) per
year; (g) costs and expenses of forwarding loan proceeds,  collecting checks and
other items of payment,  and  establishing  and maintaining the Payment Account;
(h) costs and expenses of preserving  and  protecting  the  Collateral;  and (i)
costs and expenses (including  attorneys' and paralegals' fees and disbursements
which shall  include the  allocated  cost of Agent's  in-house  counsel fees and
disbursements)  paid or  incurred  by the  Agent,  BABC or any  Lender to obtain
payment of the Obligations, enforce the Agent's Liens, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of the Loan Documents,
or to defend  any  claims  made or  threatened  against  the Agent or any Lender
arising out of the transactions  contemplated hereby (including preparations for
and  consultations  concerning  any such  matters).  The foregoing  shall not be
construed to limit any other  provisions of the Loan Documents  regarding  costs
and expenses to be paid by any Borrower. All of the foregoing costs and expenses
shall be charged to the applicable Borrower's Loan Account as Revolving Loans as
described in Section 4.4.

                  15.8 Notices.  (a) Except as otherwise  provided  herein,  all
notices,  demands and  requests  that any party is required or elects to give to
any other  shall be in writing,  or by a  telecommunications  device  capable of
creating a written record,  and any such notice shall become  effective (a) upon
personal delivery thereof,  including, but not limited to, delivery by overnight
mail and courier  service,  (b) four (4) days after it shall have been mailed by
United States mail, first class, certified or registered,  with postage prepaid,
or (c) in the case of notice by such a telecommunications  device, when properly
transmitted, in each case addressed to the party to be notified as follows:

                  If to the Agent or to BABC:

                           BankAmerica Business Credit, Inc.
                           40 East 52nd Street
                           New York, NY  10022
                           Attention:  Richard Levenson
                           Telephone No.:  (212) 836-5238
                           Telecopy No.:  (212) 836-5169

                           with copies to:

                           Bank of America NT & SA
                           335 Madison Avenue
                           New York, NY  10017
                           Attention:  Legal Department
                           Attention:  Jerry Saccone
                           Telephone No.:  (212) 503-7230
                           Telecopy No.:  (212) 503-7350



<PAGE>   87



                  If to any Borrower:

                           Phar-Mor, Inc.
                           20 Federal Plaza West
                           Youngstown, Ohio 44501
                           Attention:  Chief Financial Officer
                           Telephone No.:  (330) 740-5947
                           Telecopy No.:  (330) 740-2985

                  with copies to:

                           Phar-Mor, Inc.
                           20 Federal Plaza West
                           Youngstown, Ohio  44501
                           Attention:  General Counsel
                           Telephone No.:  (330) 740-8044
                           Telecopy No.:  (330) 740-2985

                  with copies to:

                           Swidler Berlin
                           Shereff Friedman, LLP
                           3000 K Street NW, Suite 300
                           Washington, D.C. 20007
                           Attention:  Morris DeFeo
                           Telephone No.:  (202) 424-7824
                           Telecopy No.:  (202) 424-7643

or to such other  address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand,  request,  consent,
approval,  declaration or other communication to the persons designated above to
receive  copies shall not  adversely  affect the  effectiveness  of such notice,
demand, request, consent, approval, declaration or other communication.

                  (b)  Phar-Mor is hereby  authorized  by each  Borrower  (i) to
execute and deliver on its behalf to the Agent Notices of Borrowing,  Notices of
Continuation/Conversion,  and notices of  requests  for Letters of Credit and to
give any other  notices,  directions  or requests  required or  permitted  to be
delivered  or made to the Agent or the Lenders by it under any  provision of any
Loan  Document  and (ii) to receive on its behalf  any  notices,  directions  or
requests  addressed  to or for the  attention  of it from the Agent  and/or  the
Lenders  delivered  under  any  provision  of any  Loan  Document.  Any  notice,
direction  or request  delivered  or made by  Phar-Mor  to the Agent  and/or the
Lenders or  received  by Phar-Mor  from the Agent  and/or the  Lenders  shall be
deemed to have been delivered,  made or received by Phar-Mor on behalf of any or
all of the other applicable Borrowers.

                  (c) Any  agreement  of the  Agent  and the  Lenders  herein to
receive  certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrowers. The Agent and the Lenders shall be entitled
to rely on the authority of any Person  purporting to be a Person  authorized by
the  Borrowers to give such notice and the Agent and the Lenders  shall not have
any  liability to any Borrower or other Person on account of any action taken or
not taken by the Agent or the  Lenders  in  reliance  upon  such  telephonic  or
facsimile notice. The



<PAGE>   88



obligation  of the Borrowers to repay the  Obligations  shall not be affected in
any way or to any extent by any  failure by the Agent and the Lenders to receive
a  confirmation  or by a  confirmation  which  is at  variance  with  the  terms
understood  by the Agent and the Lenders to be  contained in the  telephonic  or
facsimile notice.

                  15.9 Waiver of Notices.  Unless otherwise  expressly  provided
herein,  each  Borrower  waives  presentment,  protest  and  notice of demand or
dishonor and protest as to any  instrument,  notice of intent to accelerate  the
Obligations and notice of acceleration  of the  Obligations,  as well as any and
all other  notices  to which it might  otherwise  be  entitled.  No notice to or
demand on any  Borrower  which the Agent or any  Lender  may elect to give shall
entitle any Borrower to any or further notice or demand in the same,  similar or
other circumstances.

                  15.10 Binding  Effect.  The provisions of this Agreement shall
be  binding  upon and inure to the  benefit of the  respective  representatives,
successors,  and  assigns of the  parties  hereto;  provided,  however,  that no
interest herein may be assigned by any Borrower without prior written consent of
the Agent and each Lender.  The rights and benefits of the Agent and the Lenders
hereunder  shall,  if such Persons so agree,  inure to any party  acquiring  any
interest in the Obligations or any part thereof.

                  15.11 Indemnity of the Agent and the Lenders by the Borrowers.
Each Borrower agrees to indemnify and hold the Agent-Related  Persons,  and each
Lender  and each of its  respective  officers,  directors,  employees,  counsel,
agents and  attorneys-in-fact  (each, an "Indemnified Person") harmless from and
against  any and  all  liabilities,  obligations,  losses,  damages,  penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
Attorney  costs)  of any  kind  or  nature  whatsoever  which  may  at any  time
(including  at any time  following  repayment of the Loans and the  termination,
resignation or replacement of the Agent or replacement of any Lender) be imposed
on,  incurred by or asserted  against any such Person in any way  relating to or
arising out of this  Agreement  or any document  contemplated  by or referred to
herein, or the transactions  contemplated hereby, or any action taken or omitted
by any such Person under or in connection  with any of the foregoing,  including
with respect to any  investigation,  litigation  or  proceeding  (including  any
bankruptcy,  reorganization  or insolvency  proceeding or appellate  proceeding)
related  to or  arising  out of this  Agreement  or the  Loans or the use of the
proceeds thereof,  whether or not any Indemnified Person is a party thereto (all
the foregoing,  collectively, the "Indemnified Liabilities");  provided, that no
Borrower  shall have any  obligation  hereunder to any  Indemnified  Person with
respect to Indemnified Liabilities resulting solely from the gross negligence or
willful  misconduct of such Indemnified  Person.  The agreements in this Section
shall survive payment of all other Obligations.

                  15.12  Final  Agreement.  This  Agreement  and the other  Loan
Documents  are  intended by the  Borrowers,  the Agent and the Lenders to be the
final,  complete,  and exclusive  expression of the agreement between them. This
Agreement  supersedes any and all prior oral or written  agreements  relating to
the subject matter hereof.  No modification,  rescission,  waiver,  release,  or
amendment of any provision of this Agreement or any other Loan Document shall be
made,  except  by a  written  agreement  signed  by  each  Borrower  and a  duly
authorized officer of each of the Agent and the requisite Lenders.

                  15.13  Counterparts.  This  Agreement  may be  executed in any
number of  counterparts,  and by the Agent,  each  Lender and each  Borrower  in
separate counterparts,  each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same agreement.

                  15.14 Captions.  The captions  contained in this Agreement are
for  convenience of reference only, are without  substantive  meaning and should
not be construed to modify,



<PAGE>   89



enlarge, or restrict any provision.

                  15.15 Right of Setoff.  In addition to any rights and remedies
of the Lenders  provided by law, if an Event of Default exists or the Loans have
been  accelerated,  each Lender is authorized at any time and from time to time,
without  prior  notice to any  Borrower,  any such notice  being  waived by each
Borrower to the fullest  extent  permitted  by law, to set off and apply any and
all deposits (general or special,  time or demand,  provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of any Borrower against any and all Obligations  owing
to such Lender,  now or hereafter  existing,  irrespective of whether or not the
Agent or such Lender  shall have made demand  under this  Agreement  or any Loan
Document and although such  Obligations  may be  contingent  or unmatured.  Each
Lender  agrees  promptly  to notify the  Borrower  and the Agent  after any such
set-off and application made by such Lender; provided, however, that the failure
to  give  such  notice  shall  not  affect  the  validity  of such  set-off  and
application.

                  15.16 Joint and Several Liability.  (a) Each Borrower shall be
liable for all amounts due to the Agent and/or any Lender under this  Agreement,
regardless of which  Borrower  actually  receives  Loans or other  extensions of
credit hereunder or the amount of such Loans received or the manner in which the
Agent and/or such Lender  accounts for such Loans or other  extensions of credit
on its  books  and  records  and  regardless  of  any  reference  herein  to any
particular  Borrower  agreeing  to make any  payment to the Agent or any Lender.
Each  Borrower's  Obligations  with  respect  to  Loans  made  to it,  and  each
Borrower's Obligations arising as a result of the joint and several liability of
the  Borrowers  hereunder  with  respect  to Loans  made to the other  Borrowers
hereunder, shall be separate and distinct obligations,  but all such Obligations
shall be primary obligations of each Borrower.

                  (b) All representations and warranties,  all covenants and all
obligations  made or incurred by any Borrower  hereunder shall be deemed to have
been made or incurred  jointly and  severally by all of the  Borrowers.  Without
limiting the foregoing,  each Borrower's  Obligations arising as a result of the
joint and several liability of the Borrowers  hereunder with respect to Loans or
other  extensions of credit made to the other Borrowers  hereunder shall, to the
fullest  extent  permitted  by law,  be  unconditional  irrespective  of (i) the
validity or enforceability, avoidance or subordination of the Obligations of the
other  Borrowers or of any promissory  note or other document  evidencing all or
any part of the  Obligations  of the other  Borrowers,  (ii) the  absence of any
attempt to collect the Obligations  from any of the other  Borrowers,  any other
guarantor, or any other security therefor, or the absence of any other action to
enforce the same, (iii) the waiver, consent, extension,  forbearance or granting
of any  indulgence  by the Agent and/or any Lender with respect to any provision
of any instrument evidencing the Obligations of the other Borrowers, or any part
thereof, or any other agreement now or hereafter executed by the other Borrowers
and  delivered  to the Agent  and/or any  Lender,  (iv) the failure by the Agent
and/or  any  Lender to take any  steps to  perfect  and  maintain  its  security
interest in, or to preserve its rights to, any  security or  collateral  for the
Obligations  of the  other  Borrowers,  (v)  the  Agent's  and/or  any  Lender's
election,  in any  proceeding  instituted  under  the  Bankruptcy  Code,  of the
application of Section  1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or
grant of a security  interest by the other  Borrowers,  as  debtor-in-possession
under Section 364 of the Bankruptcy  Code,  (vii) the disallowance of all or any
portion of the Agent's  and/or any Lender's  claim(s)  for the  repayment of the
Obligations of the other Borrowers under Section 502 of the Bankruptcy  Code, or
(viii) any other  circumstances  which  might  constitute  a legal or  equitable
discharge  or  defense of a  guarantor  or of such or any other  Borrower.  With
respect  to each  Borrower's  Obligations  arising  as a result of the joint and
several  liability  of the  Borrowers  hereunder  with respect to Loans or other
extensions of credit made to any of the other Borrowers hereunder, each Borrower
waives, until the Obligations shall have been paid



<PAGE>   90



in full and the Loan Agreement shall have been terminated,  any right to enforce
any right of subrogation or any remedy which the Agent and/or any Lender now has
or may hereafter have against any Borrower, any endorser or any guarantor of all
or any part of the Obligations, and any benefit of, and any right to participate
in, any  security or  collateral  given to the Agent and/or any Lender to secure
payment of the  Obligations or any other  liability of any Borrower to the Agent
and/or any Lender.

                  (c) Upon any Event of Default,  the Agent may proceed directly
and at once,  without  notice,  against any  Borrower to collect and recover the
full amount, or any portion of the Obligations, without first proceeding against
any other  Borrower or any other  Person,  or against any security or collateral
for the Obligations.  Each Borrower  consents and agrees that the Agent shall be
under no  obligation  to marshal any assets in favor of such Borrower or against
or in payment of any or all of the Obligations.









                  [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]



<PAGE>   91



                  IN WITNESS WHEREOF, the parties have entered into this Amended
and Restated Loan and Security Agreement on the date first above written.

                                       PHAR-MOR, INC.
                                       By:________________________________
                                             Name:
                                             Title:


                                       PHAR-MOR OF DELAWARE, INC.
                                       By:_______________________________
                                             Name:
                                             Title:


                                       PHAR-MOR OF FLORIDA, INC.
                                       By:________________________________
                                             Name:
                                             Title:

                                       PHAR-MOR OF OHIO, INC.
                                       By:________________________________
                                            Name:
                                            Title:

                                       PHAR-MOR OF VIRGINIA, INC.
                                       By:________________________________
                                            Name:
                                            Title:

                                       PHAR-MOR OF WISCONSIN, INC.
                                       By:________________________________
                                            Name:
                                            Title:

                                       PHAR-MOR, INC., LLC
                                       By:_________________________________
                                            Name:
                                            Title:

                                       BANKAMERICA BUSINESS CREDIT, INC., as the
                                       Agent
                                       By:________________________________
                                            Name:
                                            Title:



<PAGE>   92



Commitment:                            BANKAMERICA BUSINESS CREDIT, INC.,
$50,000,000                            as a Lender
                                       By:________________________________
                                            Name:
                                            Title:

                                       HELLER FINANCIAL, INC.,
Commitment:                            as a Lender
$25,000,000                            By:________________________________
                                            Name:
                                            Title:

                                       LASALLE BUSINESS CREDIT, INC.,
Commitment:                            as a Lender
$15,000,000                            By:________________________________
                                            Name:
                                            Title:

Commitment:                            BNY FINANCIAL CORP.,
$10,000,000                            as a Lender
                                       By:________________________________
                                            Name:
                                            Title: