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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY(AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PHAR-MOR, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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PHAR-MOR, INC.
January , 1998
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Phar-Mor, Inc. (the "Company"), which will be held at the Watergate Hotel, 2650
Virginia Avenue, N.W., Washington, D.C. on Tuesday, February 17, 1998, at 9:30
a.m. (local time).
The Notice of Meeting and the Proxy Statement that follow describe the
business to be conducted at the meeting. Management will report on current
operations and there will be an opportunity for discussion concerning the
Company and its activities.
Your vote is very important. Whether or not you plan to attend the meeting,
and regardless of the number of shares you own, it is important that your shares
be represented at the meeting. Please sign and return your proxy card in the
enclosed envelope to ensure that your shares will be represented and voted at
the meeting in the event that you are unable to attend. You are urged to sign
and return the enclosed proxy card even if you plan to attend the meeting. If
you do plan to be present at the meeting and wish to vote in person, you may
withdraw your proxy at that time.
We hope you can attend and look forward to personally meeting you on
February 17.
Sincerely,
Abbey J. Butler & Melvyn J. Estrin
Co-Chairmen of the Board
and Co-Chief Executive Officers
20 Federal Plaza West
P.O. Box 400
Youngstown, Ohio
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PHAR-MOR, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held February 17, 1998
To the Shareholders of Phar-Mor, Inc.
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders (the
"Meeting") of Phar-Mor, Inc., a Pennsylvania corporation (the "Company"), will
be held at the Watergate Hotel, 2650 Virginia Avenue, N.W., Washington, D.C., on
Tuesday, February 17, 1998, at 9:30 a.m. (local time), with registration
beginning at 8:30 a.m., for the following purposes:
1. To elect six directors as set forth in the accompanying Proxy Statement
to hold office until their successors are duly elected and qualified;
2. To consider and vote on an amendment to the Company's Restated Articles
of Incorporation, as Amended providing for a classified Board of
Directors;
3. To approve the Phar-Mor, Inc. 1995 Directors Stock Plan, as amended, and
an amendment thereto increasing the number of shares available under
such plan from 250,000 to 500,000;
4. To approve the Phar-Mor, Inc. 1996 Director Retirement Plan;
5. To approve amendments to the Phar-Mor, Inc. 1995 Amended and Restated
Stock Incentive Plan increasing the number of shares available under
such plan from 913,333 to 3.5 million;
6. To approve the Phar-Mor, Inc. Employee Stock Purchase Plan;
7. To ratify the selection by the Board of Directors of Deloitte & Touche
LLP as the Company's independent public accountants; and
8. To transact such other business as may properly come before the Meeting
or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on December 2, 1997
as the record date for the purpose of determining shareholders entitled to
notice of and to vote at the Meeting or at any postponement or adjournment
thereof.
In order to assure a quorum, it is important that shareholders who do not
expect to attend the Meeting in person complete, sign, date and promptly return
the enclosed proxy card in the accompanying envelope.
By Order of the Board of Directors,
John R. Ficarro
Secretary
Youngstown, Ohio
January , 1998
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PHAR-MOR, INC.
20 FEDERAL PLAZA WEST
YOUNGSTOWN, OHIO 44501-0400
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 1998
The enclosed proxy is solicited by the Board of Directors of Phar-Mor,
Inc., a Pennsylvania corporation (the "Company"), for use at its annual meeting
of shareholders to be held at the Watergate Hotel, 2650 Virginia Avenue, N.W.,
Washington, D.C., on Tuesday, February 17, 1998, at 9:30 a.m. (local time), and
at any postponement or adjournment thereof (the "Meeting"). The enclosed proxy,
properly executed and received by the Secretary of the Company prior to the
Meeting, and not revoked, will be voted in accordance with the directions
thereon. If no directions are indicated, the persons named in the enclosed proxy
intend to vote: (i) FOR each nominee for election as a director, (ii) FOR
approval of the amendment to the Company's Restated Articles of Incorporation,
as Amended, (iii) FOR approval of the Phar-Mor, Inc. 1995 Directors Stock Plan,
as amended, and the amendment thereto, (iv) FOR approval of the Phar-Mor, Inc.
1996 Director Retirement Plan, (v) FOR approval of the amendments to the
Phar-Mor, Inc. 1995 Amended and Restated Stock Incentive Plan, (vi) FOR approval
of the Phar-Mor, Inc. Employee Stock Purchase Plan and (vii) FOR approval of the
selection of Deloitte & Touche, LLP as the Company's independent public
accountants.
The Company's management knows of no matter to be brought before the
Meeting which is not referred to in the Notice of Meeting and this Proxy
Statement. If, however, any other matter should be presented at the Meeting upon
which a vote properly may be taken, the shares represented by the proxy will be
voted with respect thereto at the discretion of the person or persons holding
such proxy. Proxies may be revoked by shareholders at any time prior to the
voting of the proxy by written notice to the Secretary of the Company, by
submitting a new proxy to the Secretary of the Company or by personal ballot at
the Meeting. Attendance at the Meeting shall not have the effect of revoking a
proxy unless the shareholder so attending shall, in writing, so notify the
Secretary of the Meeting at any time prior to the voting of the proxy. The first
date on which this proxy statement and the enclosed form of proxy are being sent
to the Company's shareholders is on or about January , 1998.
The holders of a majority of the shares of common stock, $0.01 par value
per share ("Common Stock"), entitled to vote at the Meeting, present in person
or by proxy, shall constitute a quorum. Abstentions will be considered shares of
Common Stock that are present and entitled to vote for purposes of determining
the presence of a quorum, but as not voted for purposes of determining the
approval of any matter submitted to shareholders for a vote. If a broker
indicates on a proxy that such broker does not have discretionary authority as
to certain shares of Common Stock to vote on a particular matter, such shares of
Common Stock will not be considered as present and entitled to vote with respect
to that matter.
As of the close of business on December 2, 1997, the record date for
determining shareholders entitled to vote at the Meeting, the Company had issued
and outstanding 12,159,199 shares of Common Stock, held of record by 2,749
shareholders. Only shareholders of record at the close of business on December
2, 1997 will be entitled to vote at the Meeting. Shareholders do not have
cumulative voting rights. Each share of Common Stock is entitled to one vote at
the Meeting.
The Common Stock is traded on the Nasdaq National Market ("Nasdaq-NMS")
under the symbol "PMOR."
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Each of the following persons, all of whom are currently members of the
Company's Board of Directors (the "Board"), has been nominated for election at
the Meeting as a director to hold office until the next annual
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meeting of shareholders or until their respective successors are duly elected
and qualified. It is intended that the accompanying proxy will be voted in favor
of the six nominees to serve as directors unless the shareholder indicates to
the contrary on the proxy. The Board has no reason to believe that any of the
nominees will not serve if elected, but if any of them should become unavailable
to serve as a director, and if the Board designates a substitute nominee, it is
intended that such proxy will be voted for the substitute nominee designated by
the Board.
If at the Meeting, the shareholders approve the amendment to the Company's
Restated Articles of Incorporation, as Amended to provide for a classified Board
of Directors (see "Proposal Number Two" below), directors will serve staggered
three-year terms such that, as near as possible given the number of directors,
one-third of the number of directors serving will be elected each year. At the
Meeting, directors would be elected to serve one-, two-, or three-year terms so
that approximately one-third of the number of directors serving is elected each
year, as follows: Messrs. Rosenberg and Shulman would be elected to one-year
terms (expiring at the next annual meeting of shareholders in November 1998);
Messrs. Levy and Osterman would be elected to two-year terms (expiring at the
annual meeting of shareholders to be held in November 1999); and Messrs. Butler
and Estrin would be elected to three-year terms (expiring at the annual meeting
of shareholders to be held in November 2000). If Proposal Two is not approved by
the shareholders at the Meeting, each person elected as a director shall hold
office until the next annual meeting of shareholders, or until his successor
shall be elected and qualified.
NOMINEES FOR ELECTION AS DIRECTORS
ABBEY J. BUTLER, 58, has been a director of the Company since 1995 and
Co-Chairman of the Board and Co-Chief Executive Officer of the Company since
October 1, 1997. Mr. Butler is Co-Chairman of the Board and Co-Chief Executive
Officer of Avatex Corporation ("Avatex"), formerly known as FoxMeyer Health
Corporation. Mr. Butler also serves as managing partner of Centaur Partners,
L.P., an investment partnership with ownership interests in Avatex, and as
President and a director of C.B. Equities Corp., a private investment company.
Mr. Butler presently serves as a director and a member of the Executive
Committee of GrandBanc, Inc.; and as a director of Carson, Inc., a global
manufacturer of ethnic hair care products for African-Americans and persons of
African descent, Imagyn Medical Technologies, Inc., a developer, manufacturer
and distributor for the urology, minimally invasive and general surgery, and
gynecology markets, and Cyclone, Incorporated, a distributor and installer of
chain link fence systems, highway guard rails and industrial gates and posts.
Mr. Butler is a trustee and a member of the Executive Committee of the Board of
Trustees of the American University, and a director of the Starlight Foundation,
a charitable organization. He was appointed by President George Bush to serve on
the President's Advisory Committee on the Arts, and he now serves as the
president and chief executive officer of the National Committee for the
Performing Arts, John F. Kennedy Center, Washington, D.C. On August 27, 1996,
FoxMeyer Drug Company, a subsidiary of FoxMeyer Health Corporation, filed a
petition under Chapter 11 of the United States Bankruptcy Code. At the time of
the filing Mr. Butler was an executive officer and director of FoxMeyer Drug
Company. On July 26, 1996, Ben Franklin Retail Stores, Inc. filed a petition for
protection under Chapter 11 of the United States Bankruptcy Code. At the time of
the filing, Mr. Butler was a director of Ben Franklin Retail Stores, Inc.
MELVYN J. ESTRIN, 52, has been a director of the Company since 1995 and
Co-Chairman of the Board and Co-Chief Executive Officer of the Company since
October 1, 1997. Melvyn J. Estrin is Co-Chairman of the Board and Co-Chief
Executive Officer of Avatex. Mr. Estrin also serves as managing partner of
Centaur Partners, L.P., an investment partnership, and as Chairman of the Board
and Chief Executive Officer of Human Service Group, Inc., a private management
and investment firm, and of University Research Corporation, a consulting firm.
Mr. Estrin presently serves as a director and member of the Executive Committee
of GrandBanc, Inc.; and as a director of Washington Gas Light Company, Carson,
Inc., a global manufacturer of ethnic hair care products for African-Americans
and persons of African descent, and Imagyn Medical Technologies, Inc., a
developer, manufacturer and distributor for the urology, minimally invasive and
general surgery, and gynecology markets. Mr. Estrin has served as a Trustee of
the University of Pennsylvania and was appointed by President George Bush to
serve as Commissioner of the National Capital Planning Commission. On August 27,
1996, FoxMeyer Drug Company, a subsidiary of FoxMeyer Health Corporation, filed
a petition under Chapter 11 of the United States
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Bankruptcy Code. At the time of the filing Mr. Estrin was an executive officer
and director of FoxMeyer Drug Company. On July 26, 1996, Ben Franklin Retail
Stores, Inc. filed a petition for protection under Chapter 11 of the United
States Bankruptcy Code. At the time of the filing, Mr. Estrin was a director of
Ben Franklin Retail Stores, Inc.
DANIEL H. LEVY, 55, has been a director of the Company since September 25,
1997. Mr. Levy has been working as a consultant to retailers since 1994 and is
currently serving as a director of Marks Brothers Jewelers and Donnkenny
Apparel, both of which are listed on Nasdaq. Mr. Levy served as chairman and
chief executive officer of Best Products Inc. from April 1996 to December 1996.
In September 1996, Best Products Inc. filed a petition under Chapter 11 of the
United States Bankruptcy Code. Mr. Levy served as Chairman and Chief Executive
Officer of Conrans, a 17-store operation based in New York from 1993 to 1994.
Prior to serving as Chairman and Chief Executive Officer of Conrans, Mr. Levy
served as Vice Chairman and Chief Operating Officer of Montgomery Ward in
Chicago, Illinois from 1991 to 1993. Prior to serving as Vice Chairman and Chief
Operating Officer of Montgomery Ward, Mr. Levy served in various executive
capacities with Kaufmann's, Gimbel's and Bloomingdale's.
MONROE OSTERMAN, 71, has been a director of the Company since September 25,
1997. Mr. Osterman has served as President of Gala Trading Corporation, an
investment company specializing in large purchases of diamonds from Europe,
since 1982. Prior to serving as President of Gala Trading Corporation, Mr.
Osterman served as President of Paras USA and Bermont Corporation and was also a
partner at J. Winston & Company, an importing and merchandising company.
ARTHUR G. ROSENBERG, 59, has been a director of the Company since November
23, 1997. Mr. Rosenberg has been a principal of The Associated Companies, a real
estate development firm, since 1987. Prior to serving as a principal of The
Associated Companies, Mr. Rosenberg served as General Counsel for ITT Levitt &
Sons, Inc., an international builder. Mr. Rosenberg currently serves on the
Board of Directors of Ecotyre Technologies, Inc., Mike's Original, Inc. and Wall
Street Records, Inc.
JOHN D. SHULMAN, 34, has been a director of the Company since November 23,
1997. Mr. Shulman has served as President and Chief Executive Officer of ONYX
International, L.L.C., a merchant banking and venture firm focusing primarily on
private equity placements in high growth companies, since 1994. Prior to serving
as President and Chief Executive Officer of ONYX International, L.L.C., Mr.
Shulman served as the Director of Development for Tower Companies, a diversified
group of companies including real estate development, banking and related
activities since 1986. Mr. Shulman currently serves on the Board of Directors of
Digital Evolution, Inc., Performance Distribution, Inc., Grupo Padi, S.A. de
C.V., Taiwan Mezzanine Fund I, L.P., Micro Macro Technologies, LTD, and
Consortium One, L.P.
If a quorum is present at the Meeting, the nominees for election as
directors who receive the affirmative vote of a majority of the votes cast by
the shares present in person or by proxy at the Meeting and entitled to vote
will be elected directors.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF EACH OF THE
NOMINEES NAMED ABOVE. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
REPRESENTED THEREBY WILL BE VOTED FOR EACH OF THE ABOVE-NAMED NOMINEES.
COMMITTEES OF THE BOARD; MEETINGS
The Board met seventeen times during the fiscal year ended June 28, 1997
("Fiscal Year 1997"). During Fiscal Year 1997, each director attended all Board
meetings during the time such person was a member of the Board.
The Board has a standing Audit Committee and a standing Compensation
Committee.
AUDIT COMMITTEE. The Audit Committee of the Board provides the Board with
an independent review of the Company's accounting policies, the adequacy of
financial controls and the reliability of financial information reported to the
public. The Audit Committee also conducts examinations of the affairs of the
Company as required by law or as directed by the Board, supervises the
activities of the internal audit department and reviews
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the services provided by the independent auditors. For Fiscal Year 1997, the
Audit Committee consisted of Mr. Malcom T. Hopkins (the Committee Chairman) and
Mr. Richard M. McCarthy, and met three times. For the fiscal year ending June
27, 1998 ("Fiscal Year 1998"), the Audit Committee consisted of Mr. Hopkins (the
Committee Chairman) and Mr. McCarthy until their resignations on October 7,
1997. On November 18, 1997, the Board appointed Messrs. Rosenberg (the Committee
Chairman) and Shulman to serve as members of the Audit Committee effective
November 23, 1997.
COMPENSATION COMMITTEE. The Compensation Committee of the Board determines
compensation and benefits for officers, reviews salary and benefit changes for
other senior officers, administers the Phar-Mor, Inc. 1995 Amended and Restated
Stock Incentive Plan (the "Phar-Mor Stock Incentive Plan"), the Phar-Mor, Inc.
1995 Director Stock Plan (the "Phar-Mor Director Stock Plan"), the Phar-Mor,
Inc. 1996 Director Retirement Plan, as amended (the "Phar-Mor Director
Retirement Plan"), the Phar-Mor, Inc. Employee Stock Purchase Plan (the
"Phar-Mor Employee Stock Purchase Plan"), and other employee benefits. For
Fiscal Year 1997, the Compensation Committee consisted of Ms. Linda Haft and
Messrs. Butler (the Committee Chairman), Estrin and Hopkins, and met one time.
For Fiscal Year 1998, the Compensation Committee consisted of Messrs. Butler
(the Committee Chairman), Estrin and Hopkins until September 25, 1997 when the
Board appointed Messrs. Levy (the Committee Chairman) and Osterman to serve as
members of the Compensation Committee, replacing Messrs. Butler (the Committee
Chairman), Estrin and Hopkins.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Linda Haft and Messrs. Butler (the Committee Chairman), Estrin and
Hopkins served as members of the Compensation Committee during Fiscal Year 1997.
Ms. Haft and Mr. Hopkins were independent directors during their tenure on the
Compensation Committee. Messrs. Butler and Estrin are Co-Chief Executive
Officers, Co-Chairmen of the Board, and major shareholders of Avatex. On
September 25, 1997, Messrs. Levy (the Committee Chairman) and Osterman were
appointed to serve as members of the Compensation Committee, replacing Messrs.
Butler (the Committee Chairman), Estrin and Hopkins.
COMPENSATION OF DIRECTORS
Each director of the Company receives an annual retainer fee of $25,000 and
an attendance fee of $1,000 ($2,000 in the case of a committee chairman) for
each meeting of the Board, and of each of the committees of the Board attended,
other than committee meetings occurring on a date on which a Board meeting is
scheduled. All directors are also reimbursed for travel and other out-of-pocket
expenses incurred by them in attending Board or committee meetings.
Pursuant to the Phar-Mor Director Stock Plan, directors receive an annual
grant of options to purchase shares of Common Stock. Before October 1, 1997,
directors received an annual grant of an option to purchase 5,000 shares of
Common Stock. Pursuant to an amendment to the Phar-Mor Director Stock Plan
approved by the Board on September 25, 1997, commencing with the grant on
October 1, 1997, directors now receive an annual grant of an option to purchase
10,000 shares of Common Stock. Directors may elect to receive additional shares
of Common Stock in lieu of all or a portion of their annual retainer. Directors
may elect to defer payment of all or a portion of their annual retainer under a
non-qualified, unfunded deferred compensation plan. Deferred amounts are
invested, at the election of the director, in an interest-bearing account or a
stock equivalent account. The amounts deferred, plus any appreciation thereon,
are paid in cash on the dates specified by the director. The Phar-Mor Director
Stock Plan and an amendment thereto increasing the number of shares of Common
Stock available under such plan from 250,000 to 500,000, have been approved by
the Board, but have not yet been approved by the shareholders. The Company is
seeking shareholder approval of the Phar-Mor Director Stock Plan and the
amendment thereto increasing the number of shares of Common Stock available
under such plan from 250,000 to 500,000 at the Meeting. Please see "Proposal
Number Three" below.
Pursuant to the Phar-Mor Director Retirement Plan, the Company credits each
director of the Company who is not an employee of the Company or a subsidiary of
the Company and who has served as director for at least three years (an
"Eligible Director") annually, commencing in October 1996, with that number of
shares of Common Stock whose aggregate fair market value on a date as specified
under the Phar-Mor Director Retirement
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Plan equals the amount of the then current annual retainer payable to such
Eligible Director, or such other amount as may be determined by resolution of
the Compensation Committee of the Board. The award is not in the form of actual
shares of Common Stock, and no shares of Common Stock will be set aside for the
benefit of Eligible Directors under the Phar-Mor Director Retirement Plan. The
number of shares of Common Stock in each retirement share account is subject to
adjustment for dilution or otherwise as set forth in the Phar-Mor Director
Retirement Plan. As of October 1, 1997, in accordance with the Phar-Mor Director
Retirement Plan, the retirement accounts of Messrs. Levy and Osterman were each
credited with 3,652.968 shares of Common Stock and the retirement accounts of
Messrs. Butler and Estrin were each credited with 7,703.60 shares of Common
Stock. In connection with the resignation of Messrs. Hopkins and McCarthy as
directors of the Company on October 7, 1997, the vesting of the shares of Common
Stock in each such director's retirement account was accelerated and each of
Messrs. Hopkins and McCarthy received $52,918.20 for the 7,703.60 shares of
Common Stock in each of their retirement accounts on the effective date of their
resignations. See "Certain Relationships and Related
Transactions -- Transactions with Messrs. Hopkins and McCarthy." The Phar-Mor
Director Retirement Plan has been approved by the Board, but has not yet been
approved by the shareholders. The Company is seeking shareholder approval of the
Phar-Mor Director Retirement Plan at the Meeting. Please see "Proposal Number
Four" below.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is not deemed to be "soliciting material" or deemed to be
"filed" with the Securities and Exchange Commission (the "SEC") or subject to
the SEC's proxy rules or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the report shall not
be deemed to be incorporated by reference into any prior or subsequent filing by
the Company under the Securities Act of 1933 or the Exchange Act.
EXECUTIVE COMPENSATION. The Company's executive compensation program is
intended to attract, retain and reward experienced, highly motivated executive
officers who are capable of effectively leading and continuing the growth of the
Company. Officers of the Company are paid salaries in line with their
responsibilities and generally comparable to industry standards. Executive
officers are also eligible to receive discretionary bonuses upon the achievement
of revenue and profit goals established by the Company as an incentive for
superior individual, group and corporate performance. Likewise, stock option
grants to officers (and other employees) promote success by aligning employee
financial interests with long-term shareholder value. Stock option grants are
based on various subjective factors primarily relating to the responsibilities
of the individual officers, and also to their expected future contributions and
prior option grants. Many executive officers are also significant shareholders
and/or holders of options to purchase significant amounts of Common Stock. To
the extent that the performance of such individual officers translates into an
increase in the value of the Common Stock, all shareholders, including such
officers, share the benefits.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICERS. The Compensation Committee
will annually review and approve the compensation of the Chief Executive
Officer(s) of the Company. Until September 19, 1997, Robert M. Haft was the
Chief Executive Officer of the Company. On September 25, 1997, the Board
appointed Messrs. Butler and Estrin Co-Chief Executive Officers of the Company
effective as of October 1, 1997. The Board believes that Messrs. Butler and
Estrin are, and Mr. Haft was, paid reasonable salaries based on the same
corporate financial goals as the other officers of the Company. Mr. Haft was,
and Messrs. Butler and Estrin are, also eligible to receive a discretionary
bonus awardable upon the achievement of specific revenue and profitability goals
for the Company as a whole. In addition, Messrs. Butler and Estrin are
significant shareholders in the Company through Avatex, and to the extent their
performance as Co-Chief Executive Officers translates into an increase in the
value of the Common Stock, all shareholders, including them, share the benefits.
The SEC requires that this report comment upon the Company's policy with
respect to Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), which limits the deductibility on the Company's tax return of
compensation over $1 million to any of the named executive officers of the
Company unless, in general, the compensation is paid pursuant to a plan which is
performance related, non-discretionary and has been approved by the Company's
shareholders. Because the compensation of certain executive officers will or may
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exceed $1,000,000 in any year, the provisions of Section 162(m) of the Code may
limit the deductibility of such compensation unless an exception to such
limitations is available. Because of the uncertainties surrounding the
application and interpretation of such limits, no assurance can be given that
such compensation will be deductible. In addition, on September 19, 1997, the
Company and Mr. Haft entered into a severance agreement, pursuant to which Mr.
Haft resigned as Chairman of the Board and Chief Executive Officer of the
Company. See "-- Employment Contracts and Termination of Employment and
Change-In-Control Arrangements -- Mr. Robert Haft." To the extent benefits
received by Mr. Haft pursuant to the severance agreement equal or exceed 300% of
his average annual taxable compensation (as defined in the applicable
regulations), the full amount of such excess ("parachute payments") will not be
deductible by the Company and the amount of the parachute payments will reduce
the $1,000,000 limit under Section 162(m).
Submitted by the Compensation Committee *
Abbey J. Butler (Former Chairman)
Melvyn J. Estrin
Daniel H. Levy (Chairman)
Monroe Osterman
* Messrs. Butler and Estrin served on the Compensation Committee until
September 25, 1997 when Messrs. Levy and Osterman replaced them as members of
the committee.
EXECUTIVE COMPENSATION PLANS
PHAR-MOR, INC. 1995 AMENDED AND RESTATED STOCK INCENTIVE PLAN. The
Phar-Mor Stock Incentive Plan was adopted in order to attract, reward and retain
key personnel (including officers, whether or not directors) of the Company and
its subsidiaries and certain other closely related eligible persons who provide
substantial services to such entities ("Eligible Persons") and to provide them
with long-term incentives that are linked to the Company's stock performance.
Approximately 9 officers and approximately 414 other employees of the Company
and its subsidiaries are currently eligible to participate under the Phar-Mor
Stock Incentive Plan.
The Phar-Mor Stock Incentive Plan is administered by the Compensation
Committee of the Board (the "Administrator"). Currently, a maximum of 913,333
shares of the Company's Common Stock (subject to adjustment) may be issued upon
the exercise of awards granted under the Phar-Mor Stock Incentive Plan. As of
June 28, 1997, a total of 844,150 shares of the Company's Common Stock were
subject to options granted under the Phar-Mor Stock Incentive Plan.
The Phar-Mor Stock Incentive Plan authorizes the issuance of options and
(subject to plan limitations) certain stock appreciation rights ("SARs"). As is
customary in incentive plans of this nature, the number and kind of shares
available under the Phar-Mor Stock Incentive Plan, share limits, and shares
subject to outstanding awards are subject to adjustment in the event of certain
reorganizations, recapitalization's, stock splits, stock dividends, spin-offs,
property distributions or other similar extraordinary transactions or events in
respect of the Company or the shares of the Company. Shares relating to options
or SARs that are not exercised or that expire or are canceled will again become
available for grant purposes under the Phar-Mor Stock Incentive Plan to the
extent permitted by law and the plan. Awards may be repriced or otherwise
amended after grant, provided that the amendment does not adversely affect the
holder's rights without his or her consent. A maximum of 277,778 shares of the
Company's Common Stock may be subject to options that during any twelve month
period are granted to any Eligible Person under the Phar-Mor Stock Incentive
Plan.
The exercise price of the options granted under the Phar-Mor Stock
Incentive Plan generally may not be less than the fair market value of the
Company's Common Stock on the date of grant or such greater amount as may be
determined by the Administrator. An option may either be an incentive stock
option, as defined in the Code, or a non-qualified stock option. All 844,150
options granted pursuant to the Phar-Mor Stock Incentive Plan as of June 28,
1997 are non-qualified stock options. The aggregate fair market value of the
Common Stock (determined at the time the option is granted) for which incentive
stock options may be first exercisable by an option holder
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<PAGE> 10
during any calendar year under the Phar-Mor Stock Incentive Plan or any other
plan of the Company or its subsidiaries may not exceed $100,000. A non-qualified
stock option is not subject to any of these limitations.
Subject to early termination or acceleration provisions (which are
summarized below), an option generally will be exercisable, in whole or in part,
from the date specified in the related award agreement until the expiration
date, all as determined by the Administrator. Earlier expiration may occur
following a termination of service. In no event, however, is an option under the
Phar-Mor Stock Incentive Plan exercisable more than seven years after its date
of grant.
Upon the occurrence of either (A) a Change in Control Event (as defined in
the Phar-Mor Stock Incentive Plan to include, but not be limited to, (i) the
approval by the shareholders of the Company of a dissolution or liquidation,
(ii) certain agreements of merger or consolidation resulting in the Company's
shareholders, or entities associated or affiliated with them, holding less than
50% of the voting stock of the surviving entity, (iii) the sale of substantially
all the assets of the Company as an entirety to a person that is not an
affiliated person of the Company, (iv) a person or group (other than Robert M.
Haft, Hamilton Morgan, LLC ("Hamilton Morgan") or other 25% owners as of
September 11, 1995 and certain related entities) acquiring beneficial ownership
of over 50% of the voting power, or (v) certain changes in the composition of
the Board), or (B) under other circumstances (such as a termination of service),
the Administrator, in its discretion, may provide for acceleration or extension
of the exercisability of awards, or provide for certain other limited benefits,
which may include SARs, under some or all awards and may determine the extent,
duration and other conditions of such additional rights by amendment to
outstanding awards or otherwise. The Board may terminate or amend the Phar-Mor
Stock Incentive Plan, subject to the rights of holders of outstanding options.
If an amendment would (i) materially increase the benefits accruing to Eligible
Persons under the Phar-Mor Stock Incentive Plan, (ii) materially increase the
aggregate number of shares that may be issued under the Phar-Mor Stock Incentive
Plan, or (iii) materially modify the eligibility requirements for participation
under the Phar-Mor Stock Incentive Plan, the amendment, to the extent deemed
necessary by the Board or the Administrator or then required by applicable law,
must be approved by the shareholders.
Amendments to the Phar-Mor Stock Incentive Plan increasing the number of
shares available under the Phar-Mor Stock Incentive Plan from 913,333 to 3.5
million have been approved by the Board, but have not yet been approved by the
shareholders. See "Proposal Number Five" below. Options to purchase a total of
775,000 shares have been granted to certain executive officers subject to the
approval of these amendments by the shareholders.
401(k) EMPLOYEE SAVINGS PLAN. Employees of the Company are eligible to
participate in the 401(k) Employee Savings Plan (the "401(k) Plan"). The 401(k)
Plan is a tax-qualified profit sharing plan that provides for pre-tax deferrals
by employees and employer matching and profit-sharing contributions. In
addition, warehouse employees and drivers are eligible to participate in a
separate 401(k) savings plan.
RETIREMENT PLAN. The Company maintains a noncontributory retirement plan
(the "Retirement Plan") that provides benefits, following retirement at age 65
or older with one or more years of credited service (or age 55 with five or more
years of credited service), to salaried, non-union employees, including officers
of the Company. The Retirement Plan provides a monthly pension for life to
supplement personal savings and Social Security benefits. The following table
shows as of June 28, 1997 the estimated annual benefits payable upon retirement
at age 65 under the Retirement Plan by specified compensation and years of
service classification applicable to officers:
<TABLE>
<CAPTION>
AVERAGE ANNUAL 15 YEARS 20 YEARS 25 YEARS 30 OR MORE
COMPENSATION SERVICE SERVICE SERVICE YEARS SERVICE
--------------------------------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C>
$100,000............................... $ 14,109 $ 18,182 $ 23,515 $28,218
$150,000............................... $ 21,984 $ 29,312 $ 36,640 $43,968
</TABLE>
The amounts shown in the table are based on an assumed continued
applicability of the $150,000 compensation limit for qualified plans under the
Code. Each year's accrued benefit under the Retirement Plan is 0.6% of final
average annual compensation not in excess of a rolling average of the last 35
years annual social
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<PAGE> 11
security wage base, plus 1.05% of final average annual compensation in excess of
such average wage base, multiplied by years of credited service up to a maximum
of 30 years. The estimated annual retirement benefits, for the individuals named
below, were developed based on 1995 compensation, projected covered
compensation, and the respective dates of birth and projected credited service
at normal retirement age under the Retirement Plan. The credited years of
service as of June 29, 1997 for individuals named in the Executive Summary
Compensation Table who are eligible to participate in the Retirement Plan are as
follows: Mr. Schwartz -- 4 years; Mr. Jeffrey -- 4 years; and Mr. Ficarro -- 2
years. The plan was frozen as of June 29, 1996. Assuming these individuals
remain employed until the vesting period is reached, their estimated annual
retirement benefits under the plan will be: Mr. Schwartz -- $7,516; Mr.
Jeffrey -- $5,585; and Mr. Ficarro -- $2,934.
To the extent permitted by law, the minimum eligibility and vesting
provisions under these and other retirement, health and welfare benefit plans
were waived for Messrs. Haft, Estrin and Butler under the terms of their
respective employment agreements.
OTHER PENSION PLANS. In addition to the Retirement Plan discussed above,
the Company maintains two other pension plans for various groups of employees:
(i) the Phar-Mor, Inc. Retirement Plan for Hourly Employees at Niles, Ohio Store
and (ii) Tamco Distributors Company Warehouse and Drivers Pension Plan
(collectively, the "Pension Plans"). The Pension Plans are defined benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
CORPORATE EXECUTIVE BONUS PLAN. Under the Company's Corporate Executive
Bonus Plan for Fiscal Year 1997 (the "1997 Bonus Plan"), certain executive
officers would be eligible to receive a cash bonus if the Company achieved a
pre-established level of performance for the fiscal year. The participating
executive would receive at least 60% of his or her individual targeted
percentage bonus ("target bonus") if this performance were at target, and 35% of
the target bonus (e.g., if the target bonus is 50%, 35% of 50%) if the Company's
performance were at entry level; the remaining amount (up to 40%) was subject to
the discretion of the Board. If the Company did not achieve the targeted level
of performance, but achieved an "entry level" or minimum performance threshold
for payment of bonuses established by the Board, the specific bonus amount
between minimum and target bonus levels would be extrapolated, pro rata, based
on the relationship of actual performance to the entry and target levels of
performance; 60% of such amount would be mandatory and up to 40% discretionary.
For Fiscal Year 1997, total bonuses of $3,209,000 were paid to 116 employees
under the 1997 Bonus Plan.
Mr. Haft's annual cash bonus rights under his employment agreement (which
was subject to each year's bonus plan, or otherwise provided for under separate
agreement with the Company) was fixed at a maximum of 60% of base salary, but
was not subject to the 60/40 discretionary allocation applicable to other
executives. If the Company's performance reached the target performance level,
the full 60% target bonus was payable to Mr. Haft; if the Company's performance
reached the entry level performance, a 21% minimum bonus was payable to Mr.
Haft, with the actual bonus amount between 21% and 60% to be determined by the
extrapolation methodology described above. See "-- Employment Contracts and
Termination of Employment and Change-In-Control Arrangements -- Mr. Robert
Haft."
The employment agreements between the Company and each of Messrs. Butler
and Estrin provide for an annual incentive bonus under a Company-sponsored bonus
plan (if a bonus plan is approved, or otherwise as provided under a separate
agreement between the Company and each of Messrs. Butler and Estrin), if
reasonable performance objectives approved by the Board are achieved, with a
maximum bonus of 60% and a minimum bonus of 21% of annual base salary,
commencing in Fiscal Year 1998; provided, however, that if the performance
objectives are exceeded, then such bonus will be increased to a level
commensurate with the amount of bonuses payable to senior officers of the
Company who are situated similarly to Messrs. Butler and Estrin. See "--
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements -- Messrs. Butler and Estrin."
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<PAGE> 12
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with Messrs. Haft,
Butler, Estrin Schwartz, Spear, Jeffery and Ficarro, each of which is described
below.
Mr. Robert Haft. On September 19, 1997, in connection with the
consummation of the transactions contemplated by the HM Redemption Agreement (as
defined and discussed below under "Security Ownership of Certain Beneficial
Owners and Management -- Potential Change of Control"), the Company and Mr. Haft
entered into a severance agreement (the "Severance Agreement"), pursuant to
which Mr. Haft resigned as Chairman of the Board and Chief Executive Officer of
the Company and received a lump-sum cash payment of $4,417,000. In the event a
long-term performance payment becomes payable to Mr. Haft pursuant to his
employment agreement, it will be paid at 75% of the amount provided for in the
employment agreement. The terms of the long term performance payout provided for
in Mr. Haft's employment agreement were as follows: commencing with Fiscal Year
1998 and each third year thereafter during the term of the employment agreement,
Mr. Haft would receive a long-term performance payout in an amount (subject to
the offset referred to in the last sentence of this paragraph) equal to 3% of
any excess of (i) the aggregate market value of the publicly-traded shares of
Common Stock based on the average closing price for the thirty (30)-day period
ending on the last day of the subject period, less the sum of (a) the proceeds
from the exercise during such period of any options or warrants plus (b) any
cash or property consideration actually received by the Company during such
period from the issuance of any shares of its Common Stock) over (ii) the
aggregate market value of the publicly-traded shares of Common Stock based on
the average closing price for the thirty (30)-day period ending on the last day
of the immediately prior subject period (provided that for the first day of the
period ending on June 30, 1998, such average closing price shall be deemed to be
$8.00 per share). One-half of the aggregate annual bonuses paid or payable in
respect of the applicable three-year period will be offset against the long-term
payout amount.
In addition, pursuant to the Severance Agreement, the Company agreed to
continue to provide benefits to Mr. Haft through September 19, 2000 and maintain
Mr. Haft's Washington, D.C. office and his current secretary through September
19, 1999. Mr. Haft has until February 2000, October 2000 and October 2001 to
exercise earlier granted options and 180 days from the approval by shareholders
of the increase in available shares under the Phar-Mor Stock Incentive Plan to
exercise his most recent options. The most recent grant was to purchase 125,000
shares at a price of $5.437 per share and is fully exercisable during the
180-day period. The Company also agreed to indemnify Mr. Haft and provide him
with tax reimbursement with respect to any payments that constitute excess
parachute payments under Federal income tax laws. The Company further agreed to
provide a letter of credit in the amount of approximately $2.9 million to secure
its contractual obligations under the Severance Agreement. Mr. Haft and the
Company released each other from all claims, except claims by Mr. Haft against
Messrs. Butler and Estrin other than in their capacities as members of the
Board. See "Certain Relationships and Related Transactions -- Hamilton Morgan."
The principal terms of the employment agreement between the Company and Mr.
Haft, which was in effect prior to the execution and delivery of the Severance
Agreement, are described below. The employment agreement with Mr. Haft had a
rolling three-year term commencing on September 11, 1995 that provided for Mr.
Haft to serve as Chief Executive Officer and Chairman of the Board. Mr. Haft's
initial annual base salary was $900,000 subject to annual cumulative increases
of 8%. The agreement provided for an annual incentive bonus under a
Company-sponsored bonus plan (if a bonus plan were approved, or otherwise as
provided under a separate agreement between the Company and Mr. Haft), if
reasonable performance objectives approved by the Board were achieved, with a
maximum bonus of 60% and a minimum bonus of 21% of annual base salary,
commencing in the fiscal year ended June 29, 1996 ("Fiscal Year 1996").
Mr. Haft was also granted options to purchase 256,250 shares of Common
Stock at $8.00 per share under the Phar-Mor Stock Incentive Plan. Mr. Haft's
employment agreement provided for additional benefits in the future not less
favorable than those provided under options granted or to be granted to other
executives during the term of the employment agreement.
Pursuant to his employment agreement, Mr. Haft was permitted to engage in
activities, in addition to serving as Chief Executive Officer and Chairman of
the Board, and pursue other investments (including activities that
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<PAGE> 13
were competitive with the Company's business provided that they did not
unreasonably impede the performance of his duties for the Company and did not
violate applicable legal requirements). The Board had the authority to terminate
Mr. Haft's employment without compensation under certain circumstances. The
agreement did not require Mr. Haft to provide services at the Company's
principal locations. Mr. Haft could have resigned at any time without violating
the agreement, although his resignation without cause and without the Board's
consent would otherwise have been treated like a termination for cause by the
Company.
The employment agreement with Mr. Haft further provided for various
employee benefits and perquisites, including but not limited to payment, on a
tax reimbursed, "grossed up" basis, for a $3,000,000 whole life insurance policy
on Mr. Haft's life or, at Mr. Haft's election, a term policy requiring an
equivalent premium; disability insurance adequate to pay Mr. Haft 60% of base
salary until age 70; reimbursement of all medical and dental costs for Mr. Haft
and his family; the use of a company-owned car; and business expenses at
locations other than the Company's headquarters. The agreement with Mr. Haft
provided that, if it were terminated other than for cause, he would have been
entitled to the present value of his base salary, discounted at 5%, for the
remaining contract term, annual and long-term incentive payments payable for the
remainder of the term, the accelerated vesting (and extended post-termination
exercise periods) of all outstanding stock options, continued health and other
benefits and tax reimbursement in respect of any termination payments that
constitute excess parachute payments under Federal income tax laws. A
termination for cause by the Company, under the agreement, was limited to death,
permanent disability (as defined), acts of moral turpitude concerning the
Company, voluntary resignation, or the entry of a felony conviction.
Mr. Haft's annual cash bonus rights under his employment agreement (which
were subject to each year's bonus plan, or otherwise provided for under separate
agreement with the Company) were fixed at a maximum of 60% of base salary, but
were not subject to the 60/40 discretionary allocation applicable to other
executives. If the Company's performance reached the target performance level,
the full 60% target bonus would have been payable to him; if the Company's
performance reached the entry level performance, a 21% minimum bonus would have
been payable to him, with the actual bonus amount between 21% and 60% to be
determined by the extrapolation methodology described above.
Mr. Haft's employment agreement provided for accelerated vesting and
exercisability of all options if he were terminated without cause or if he were
terminated for "good reason" because of certain unilateral material changes to
certain terms of his service or other events (as more fully defined in the
agreement). Mr. Haft's options in such circumstances were exercisable at any
time within four and one-half years after September 11, 1995.
Under the terms of Mr. Haft's employment agreement and grant of options,
the Company agreed to loan Mr. Haft an amount equal to the exercise price of the
options (upon exercise). No loans were ever made to Mr. Haft.
The employment agreement with Mr. Haft provided that upon a change in
control (as defined) Mr. Haft had the right for 90 days to terminate the
agreement without cause and realize the present value of the full (and certain
accelerated) benefits under the agreement for what would otherwise be the
remaining term, as in the case of a termination by the Company without cause. A
change in control under the agreement included (among other events) the removal
of or failure to elect Mr. Haft Chairman of the Board, his involuntary
disassociation from Hamilton Morgan under certain circumstances by reason of the
operation of the Hamilton Morgan LLC Operating Agreement buy-sell provision,
certain changes in ownership involving 50% or more of the voting stock (or
voting control) of the Company, the sale of all or substantially all of the
assets of the Company, certain fundamental changes in the nature of its business
approved by shareholders, certain changes affecting a majority of the Board, or
the acquisition by any person or group (other than existing 25% holders or
persons affiliated with Mr. Haft or FoxMeyer Corporation) of 50% or more control
of the assets or voting stock of the Company. Such a termination by Mr. Haft
would be deemed a termination without cause by the Company and entitle him to
the rights attendant thereto, in addition to certain reimbursement for any
excise taxes thereon on a "grossed-up" basis.
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<PAGE> 14
Messrs. Abbey J. Butler and Melvyn J. Estrin. The employment agreements
with Messrs. Butler and Estrin have a rolling three-year term commencing on
October 1, 1997 that provide for Messrs. Butler and Estrin to serve as Co-Chief
Executive Officers and Co-Chairmen of the Board. The initial annual base salary
of each of Messrs. Butler and Estrin is $425,000 subject to annual increases of
8%. The agreements provide for an annual incentive bonus under a
Company-sponsored bonus plan (if a bonus plan is approved, or otherwise as
provided under a separate agreement between the Company and each of Messrs.
Butler and Estrin), if reasonable performance objectives approved by the Board
are achieved, with a maximum bonus of 60% and a minimum bonus of 21% of annual
base salary, commencing in Fiscal Year 1998; provided, however, that if the
performance objectives are exceeded, then such bonus will be increased to a
level commensurate with the amount of bonuses payable to senior officers of the
Company who are situated similarly to Messrs. Butler and Estrin.
Each of Messrs. Butler and Estrin was also granted options to purchase
200,000 shares of Common Stock at an exercise price of $6.84375 per share under
the Phar-Mor Stock Incentive Plan (subject to shareholder approval of amendments
increasing the number of shares available under the plan from 933,333 to 3.5
million), which options vest with respect to 33.34% of the underlying shares on
the date of grant (October 1, 1997), and with respect to an additional 33.33% on
each of the first and second anniversaries of the date of grant. The term of the
options is seven years and unless Messrs. Butler and Estrin elect otherwise, to
the fullest extent permitted by law and under the plan, such options shall be
treated and reported as incentive stock options, and any other options granted
to Messrs. Butler and Estrin shall be treated as nonqualified stock options.
Pursuant to their respective employment agreements, Messrs. Butler and
Estrin are permitted to engage in activities (except certain activities that are
competitive with the Company's business), in addition to serving as Co-Chief
Executive Officers and Co-Chairmen of the Board, and pursue other investments
(except ownership of more than a 10% interest in an entity that derives more
than 50% of its gross revenues from the retail sale, at a discount, of
pharmaceuticals, unless Messrs. Butler and Estrin or their respective immediate
families owned or controlled, directly or indirectly, an ownership interest of
at least 1% in the entity as of October 1, 1997). The agreements do not require
Messrs. Butler and Estrin to provide services at the Company's principal
locations.
The employment agreements with Messrs. Butler and Estrin also provide for
long-term performance payouts to each of them, commencing with the three-year
period ending September 30, 2000 and each third year thereafter during the term
of the employment agreement, in an amount (subject to the offset referred to in
the last sentence of this paragraph) equal to 1.5% of any excess of (i) the
aggregate market value of the publicly traded shares of Common Stock based on
the average closing price for the thirty (30)-day period ending on the last day
of the subject period (less the sum of (a) the proceeds from the exercise during
such period of any options or warrants plus (b) any cash or property
consideration actually received by the Company during such period from the
issuance of any shares of its Common Stock) over (ii) the aggregate market value
of the publicly traded shares of Common Stock based on the average closing price
for the thirty (30)-day period ending on the last day of the immediately prior
subject period (provided that for the first day of the period ending on
September 30, 2000, such average closing price shall be deemed to be $6.84375
per share). One-half of the aggregate annual bonuses paid or payable in respect
of the applicable three-year period will be offset against the long-term payout
amount.
The employment agreements with Messrs. Butler and Estrin further provide
for various employee benefits and perquisites, including but not limited to
payment, on a tax reimbursed, "grossed up" basis, for a $1,500,000 whole life
insurance policy on Messrs. Butler and Estrin's lives or, at the election of
either of them, a term policy requiring an equivalent premium; disability
insurance adequate to pay Messrs. Butler and Estrin 60% of their respective base
salaries until age 75; reimbursement of all medical, hospitalization and dental
costs for Messrs. Butler and Estrin and their families; the use of a car owned
or leased by the Company and the provision of other transportation for Messrs.
Butler and Estrin's travel requirements such as the lease of an aircraft; and
business expenses at locations other than the Company's headquarters.
Each of the agreements with Messrs. Butler and Estrin provides that, if it
is terminated without cause (as defined), such officer will be entitled to the
present value of his base salary, discounted at 5%, for the remaining contract
term, annual and long-term incentive payments payable for the remainder of the
term, all compensation, benefits, stock options, health and disability benefits
accruing under the agreement for the remainder of the term (or at their option,
the value of such stock options determined in accordance with "Black Shoal's
Formula," tax
11
<PAGE> 15
reimbursement in respect of any termination payments that constitute excess
parachute payments under Federal income tax laws, and the accelerated vesting
(and extended post-termination exercise periods) of all stock options. Under
each agreement, termination with cause by the Company is limited to the entry of
a felony conviction, voluntary resignation, death, or permanent disability (as
defined).
Mr. M. David Schwartz. Mr. Schwartz executed a new employment agreement
with the Company on June 5, 1997. The employment agreement with Mr. Schwartz has
a term of two years and provides for Mr. Schwartz to serve as the Company's
President and Chief Operating Officer. Mr. Schwartz's annual base salary is
$636,000 for the first year of the term, which increase is retroactive to
December 9, 1996, and then increases to $675,000 for the second year of the
term. The agreement provides for an annual incentive bonus if the Company
achieves certain performance objectives approved by the Board, with a target
bonus of not less than 60% of his annual base salary and a maximum of 100% of
annual base salary, as further described below. A target bonus of 60% of his
current annual base salary was guaranteed for Fiscal Year 1997. In addition to
the options to purchase 175,000 shares of Common Stock at $8.00 per share under
the Phar-Mor Stock Incentive Plan and a confirmation bonus of $450,000 plus
6,250 shares of Common Stock which Mr. Schwartz was previously granted, Mr.
Schwartz was granted options to purchase an additional 100,000 shares of Common
Stock at $5.4375 per share under the Phar-Mor Stock Incentive Plan (subject to
shareholder approval of amendments increasing the number of shares available
under the plan from 933,333 to 3.5 million), which options vest with respect to
one-third of the underlying shares on each of the date of grant (June 5, 1997),
the first anniversary of the date of grant, and the second anniversary of the
date of grant. The term of the options is seven years.
Mr. Michael K. Spear. Mr. Spear was employed as Senior Vice President of
Merchandise and Marketing of the Company until he resigned on November 1, 1997.
See "Certain Relationships and Related Transactions -- Transactions with Michael
K. Spear." The principal terms of the employment agreement between the Company
and Mr. Spear, which was in effect prior to his resignation on November 1, 1997,
are described below. The employment agreement with Mr. Spear was at-will, and
provided for Mr. Spear to serve as Senior Vice President of Merchandise and
Marketing of the Company. Mr. Spear's annual base salary was to be $275,000 for
the first year of his employment, $325,000 for the second year of his
employment, $375,000 for the third year of his employment, and $400,000 for the
fourth year of his employment. The agreement provided for an annual incentive
bonus if the Company achieved certain performance objectives approved by the
Board, with a target bonus of 40% of his annual base salary and a maximum of
100% of annual base salary, as further described below. A bonus of $115,000 was
guaranteed for each of Fiscal Year 1997 and Fiscal Year 1998. A bonus of
$100,000 was guaranteed for the fiscal year ending June 26, 1999 ("Fiscal Year
1999") and a bonus of $60,000 was guaranteed for the fiscal year ending June 24,
2000 ("Fiscal Year 2000"). On May 14, 1996, Mr. Spear was granted an option to
purchase 50,000 shares of Common Stock at $7.625 per share under the Phar-Mor
Stock Incentive Plan. On July 8, 1997, Mr. Spear was awarded an additional
option to purchase 50,000 shares of Common Stock at $6.50 per share under the
Phar-Mor Stock Incentive Plan. Both options have a term of seven years and vest
as to one third on the grant date and vests as to an additional one third on
each of the first and second anniversaries of the grant date. Mr. Spear received
a cash bonus of $100,000 upon relocating his residence to the Youngstown, Ohio
area in late 1996.
Mr. Warren E. Jeffery. The employment agreement with Mr. Jeffrey is
at-will, and provides for Mr. Jeffery to serve as Senior Vice President-Store
and Pharmacy Operations of the Company. Mr. Jeffery's annual base salary is
$200,000. The agreement provides for an annual incentive bonus if the Company
achieves certain performance objectives approved by the Board, with a target
bonus of 40% of his annual base salary. In addition to the options that Mr.
Jeffery currently holds, he was granted an option to purchase an additional
50,000 shares of Common Stock at $5.4375 per share under the Phar-Mor Stock
Incentive Plan, which option vests with respect to one-third of the underlying
shares on each of June 5, 1997, June 5, 1998, and June 5, 1999. The term of the
options is seven years.
Mr. John R. Ficarro. The employment agreement with Mr. Ficarro has a term
of two years commencing on June 5, 1997 and terminating on June 5, 1999, and
provides for Mr. Ficarro to serve as Senior Vice President/Chief Administrative
Officer and General Counsel of the Company. Mr. Ficarro's annual base salary is
$195,000 for the first year of the term, which increase is retroactive to
December 9, 1996, and then increases to
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<PAGE> 16
$206,700 for the second year of the term. The agreement provides for an annual
incentive bonus if the Company achieves certain performance objectives approved
by the Board, with a target bonus of not less than 40% of his annual base salary
and a maximum of 100% of annual base salary, as further described below. A
target bonus of 35% of his current annual base salary was guaranteed for Fiscal
Year 1997. In addition to the options to purchase 15,000 shares of Common Stock
at $8.00 per share under the Phar-Mor Stock Incentive Plan which Mr. Ficarro was
previously granted, Mr. Ficarro was granted options to purchase an additional
75,000 shares of Common Stock at $5.4375 per share under the Phar-Mor Stock
Incentive Plan (subject to shareholder approval of amendments increasing the
number of shares available under the plan from 933,333 to 3.5 million), which
options vest with respect to one-third of the underlying shares on each of the
date of grant (June 5, 1997), the first anniversary of the date of grant, and
the second anniversary of the date of grant. The term of the options are seven
years.
The general terms of the options granted to Messrs. Haft, Butler, Estrin,
Schwartz, Spear, Jeffery and Ficarro, are summarized above. Each of the
employment agreements (except the employment agreements of Messrs. Jeffery and
Spear) provides for accelerated vesting and exercisability of all options if the
employee is terminated without cause or if he terminates for "good reason"
because of certain unilateral material changes to certain terms of his service
or other events (as more fully defined in the agreements).
Loans. The Phar-Mor Stock Incentive Plan authorizes the Administrator to
make loans to optionees to pay the exercise price of options, subject to
specified conditions. Mr. Spear's employment agreement specifically provided
that he would be entitled to receive loans from the Company to facilitate the
exercise of his options. No loans were made to Mr. Spear.
Under the terms of the employment agreements with Messrs. Butler and
Estrin, the Company has agreed to loan Messrs. Butler and Estrin an amount equal
to the exercise price of the options (upon exercise). Such loan or loans will
become due on the first to occur of (i) the fifth anniversary of the date that
the loan was made, (ii) to the extent of net proceeds of sale, after payment of
related taxes, five business days after the sale of the shares so acquired,
(iii) 30 days after a termination of their employment by the Company with cause
(other than by death or permanent disability) or his voluntary resignation
(except if his resignation is a result of certain delineated reasons), or (iv)
by way of offset, upon the payment of settlement amounts to him upon a
termination without cause by the Company. The loans will bear interest, payable
semi-annually, on the outstanding principal balance at the mid-term applicable
federal rate in effect on the date such loans were made and shall be subject to
compliance with applicable laws.
Severance Plan. The Company's current severance plan, as it applies to
officers generally, provides for payment of severance pay equal to salary at the
time of termination for a period of 26 weeks, plus one additional week for each
year of service, up to ten years. On March 27, 1997, the Company approved an
amendment to its existing severance plan, enhancing benefits to all employees,
including executive officers, whereby all such employees would receive
additional severance payments upon loss of employment due to certain "change of
control" events. Generally, executive officers would receive a minimum of 18
months of pay in such event.
The employment agreements for Messrs. Schwartz and Ficarro provide, in the
case of a termination by the Company during the first year of the agreement
without cause or by them "for good reason," for a severance payment equal to two
year's total compensation (which includes salary plus average bonus paid to them
over the previous two years), and in the case of a termination by the Company
after the first year of the agreement without cause or by them "for good
reason," for a severance payment equal to 1.5 times one year's total
compensation (which includes salary plus average bonus paid to them over the
previous two years).
The employment agreement for Mr. Jeffery provides, in the case of a
termination of the agreement by the Company within the period ending two years
from June 16, 1997 without cause, for a severance payment equal to the
continuation of Mr. Jeffery's base salary for a period of one year after the
date of termination and the continuation of all medical benefits during such
period. "Cause" is defined as a determination in good faith by the Company of
Mr. Jeffery's personal dishonesty, gross negligence, willful misconduct,
habitual use of alcoholic beverage or other substance abuse, or upon his
conviction of any offense punishable by imprisonment of one year or more.
13
<PAGE> 17
The employment agreement for Mr. Spear provided, in the case of a
termination of the agreement by the Company within the period ending two years
from his employment commencement date without cause, for a severance payment
equal to the continuation of Mr. Spear's base salary (including any guaranteed
increases) for a period of one year after the date of termination and the
continuation of all medical benefits during such period. "Cause" was defined as
a determination in good faith by the Company of Mr. Spear's personal dishonesty,
gross negligence, willful misconduct, habitual use of alcoholic beverage or
other substance abuse, or upon his conviction of any offense punishable by
imprisonment of one year or more. After two years, Mr. Spear would have been
subject to the Company's severance plan described above.
Change in Control Consequences for Messrs. Butler, Estrin, Schwartz and
Ficarro. The employment agreements with Messrs. Butler and Estrin provide that
upon a change in control (as defined) Messrs. Butler and Estrin have the right
for 90 days to terminate their agreements without cause and realize the present
value of the full (and certain accelerated) benefits under the agreements for
what would otherwise be the remaining term, as in the case of a termination by
the Company without cause. A change in control under the agreements include
(among other events) the acquisition by any person or group (other than persons
affiliated with Messrs. Butler or Estrin, respectively) of 40% or more of the
voting capital stock of the Company, the approval by the shareholders of certain
transactions resulting in a change in ownership of 40% or more control of the
voting capital stock of the Company, including a merger, consolidation, or sale
or disposal of all or substantially all of the Company's assets (including a
plan of liquidation or dissolution), or a fundamental alteration in the nature
of its business. Such a termination by Messrs. Butler or Estrin is deemed a
termination without cause by the Company and entitles them to the rights
attendant thereto.
The employment agreements with Messrs. Schwartz and Ficarro provide that
upon a change of control (as defined) each named executive will have the right
to terminate the agreement for "good reason" and receive the full benefits
thereunder as in the case of a termination by the Company without cause. A
change of control under each agreement may include (among other events) (a) the
acquisition by any individual, entity or group of beneficial ownership of 20% or
more of either (i) the then outstanding shares of Common Stock of the Company,
or (ii) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors of the
Company; or (b) individuals who, as of the date of the employment agreement,
constitute the Board of Directors of the Company, cease for any reason to
constitute at least a majority thereof; or (c) approval by the shareholders of
the Company of a reorganization, merger or consolidation which results in a
change of ownership and/or voting rights of 30% or more of (i) the then
outstanding shares of Common Stock of the Company, or (ii) the members of the
Board do not remain members of the Board of the entity resulting from such
reorganization, merger or consolidation; or (d) approval by the shareholders of
the Company of a liquidation or a dissolution of the Company, or the sale or
other disposition or substantially all of the assets of the Company. A change in
control does not include any change in ownership of the Company's Common Stock
resulting from any transaction among the principals of Hamilton Morgan.
14
<PAGE> 18
EXECUTIVE SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the other four most highly compensated executive
officers of the Company who served in those capacities as of June 28, 1997 (the
"Named Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------- ---------- ----------
NAME AND FISCAL OTHER ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL PERSON YEAR SALARY($) BONUS($)(1) COMPENSATION($)(3) OPTIONS(#) PAYOUTS($) COMPENSATION(4)
- ----------------------- ------ --------- ----------- ------------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Haft (5)..... 1997 972,000 583,200 -- 5,000 -- 203,662
Former Chairman and
CEO 1996 726,936(6) 270,000 -- 256,250 -- 66,637
M. David Schwartz...... 1997 620,076 620,076 -- -- -- 8,305
President and COO 1996 571,632 215,000 -- 175,000 -- 505,548
1995 500,000 200,000 -- -- -- 2,602
Michael K. Spear (7)... 1997 275,000 325,000(2) -- 50,000 -- 234,233
Former Senior Vice
President -- Marketing
and Merchandising
Warren E. Jeffery...... 1997 190,585 183,000 -- 50,000 -- 6,671
Senior Vice
President -- 1996 176,265 50,000 -- 50,000 -- 78,540
Store and Pharmacy 1995 168,390 80,000 -- -- 875 --
Operations
John R. Ficarro........ 1997 186,791 173,000 -- -- -- 6,440
Senior Vice
President, 1996 155,016 50,000 -- 15,000 -- 34,013
CAO and General
Counsel 1995 59,622(8) 28,000 -- -- -- --
</TABLE>
- ---------------
(1) Bonuses are shown for the fiscal year earned, but may be paid in the
following year.
(2) The $325,000 in bonus earned by Mr. Spear in Fiscal Year 1997 includes a
$100,000 "signing" bonus paid upon his acceptance of employment with the
Company and relocation of his residence to Youngstown, Ohio.
(3) No information is provided in the column labeled "Other Annual Compensation"
since the aggregate amount of perquisites and other personal benefits for
the periods indicated is less than the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each of the Named Officers.
(4) Information provided in the column labeled "All Other Compensation" for
Fiscal Year 1997 includes the following: (i) the value of insurance premiums
paid by the Company for the benefit of each of the Named Officers as
follows: Mr. Haft, $183,941; Mr. Schwartz, $2,451; Mr. Spear, $2,451; Mr.
Jeffery, $2,455; and Mr. Ficarro, $2,451; (ii) matching contributions to the
Company's 401(k) Employee Savings and Retirement Plan to each of the Named
Officers as follows: Mr. Haft, $3,450; Mr. Schwartz, $5,854; Mr. Jeffery,
$4,216; and Mr. Ficarro, $3,989; (iii) moving expenses paid by the Company
for the benefit of certain of the Named Officers as follows: Mr. Spear
$231,782; (iv) matching contributions to the Company's non-qualified
deferred compensation plan as follows: Mr. Haft, $16,271.
Information provided in the column labeled "All Other Compensation" for
Fiscal Year 1996 includes the following: (i) the value of insurance premiums
paid by the Company for the benefit of each of the Named Officers as
follows: Mr. Haft, $66,637; Mr. Schwartz, $2,040; Mr. Jeffery, $2,234; and
Mr. Ficarro, $4,376; (ii) matching contributions to the Company's 401(k)
Employee Savings and Retirement Plan to each of the Named Officers as
follows: Mr. Schwartz, $3,508; Mr. Jeffery, $1,306 and Mr. Ficarro, $653;
(iii) moving expenses paid by the Company for the benefit of certain of the
Named Officers as follows: Mr. Ficarro 28,984; and (iv) confirmation bonuses
paid by the Company to certain of the Named Officers as follows: Mr.
Schwartz, $500,000; and Mr. Jeffery, $75,000.
(5) Mr. Haft resigned as Chairman and CEO effective September 19, 1997. See
"-- Employment Contracts and Termination of Employment and Change-In-Control
Arrangements -- Mr. Robert Haft."
(6) This amount represents Mr. Haft's salary from the date of the commencement
of his employment with the Company, September 11, 1995, through the end of
the fiscal year.
(7) Mr. Spear resigned as Senior Vice President of Merchandise and Marketing
effective November 1, 1997. See "-- Employment Contracts and Termination of
Employment and Change-In-Control Arrangements -- Mr. Michael Spear."
(8) This amount represents Mr. Ficarro's salary from the date of the
commencement of his employment with the Company, February 13, 1995, through
the end of the fiscal year.
15
<PAGE> 19
OPTION GRANTS IN FISCAL YEAR 1997
Option Grants. The table below shows, for each of the Named Officers, the
number of options granted during Fiscal Year 1997. All of the options set forth
below were issued under the Phar-Mor Stock Incentive Plan, other than options to
purchase 5,000 shares granted to Mr. Haft (and each of the other directors of
the Company) under the Phar-Mor Director Stock Plan. As of June 28, 1997, no
stock appreciation rights ("SARs") were outstanding.
<TABLE>
<CAPTION>
POTENTIAL
PERCENT OF REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK
NUMBER OF GRANTED TO PRICE
SECURITIES EMPLOYEES APPRECIATION FOR
UNDERLYING IN FISCAL OPTION TERM(4)
OPTIONS YEAR EXERCISE EXPIRATION -----------------
NAME AND POSITION GRANTED(#) (%)(3) PRICE($/SH) DATE 5%($) 10%($)
- ----------------------------------- ---------- ---------- ------------ ---------- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Robert Haft(1)..................... 5,000 5.0 6.17 10/1/2001 9 19
Former Chairman and CEO
M. David Schwartz.................. -- -- -- -- -- --
President and Chief Operating
Officer
Michael K. Spear................... -- -- -- -- -- --
Former Senior Vice President --
Marketing & Merchandising
Warren E. Jeffery(2)............... 50,000 50.0 5.44 6/5/2004 111 258
Senior Vice President -- Store
and Pharmacy Operations
John R. Ficarro.................... -- -- -- -- -- --
Senior Vice President, CAO and
General Counsel
</TABLE>
- ---------------
(1) The options issued to Mr. Haft under the Phar-Mor Director Stock Plan vest
immediately upon grant and have a term of five years.
(2) Options to purchase 50,000 shares granted to Mr. Jeffery under the Phar-Mor
Stock Incentive Plan vested with respect to 33 1/3% of the underlying shares
on the date of grant (June 5, 1997) and will vest in additional increments
of 33 1/3% of the underlying shares (subject to adjustment) on each of the
succeeding two anniversaries of such date.
(3) Based on a total of 100,000 options granted to employees of Phar-Mor.
(4) Annual growth-rate assumptions are prescribed by the rules of the SEC and do
not reflect actual or projected price appreciation of the underlying Common
Stock.
Excluded from this table are stock options to purchase a total of 300,000
shares that were granted as of June 5, 1997 to Mr. Haft (125,000 shares); Mr.
Schwartz (100,000 shares); and Mr. Ficarro (75,000 shares). These option grants
were seven-year, non-qualified options at $5.4375 per share and exercisable as
to one-third on June 5, 1997 and as to one-third additionally on the first and
second anniversaries thereof. The grants of these options are subject to
shareholder approval of a proposed increase of available shares under the
Phar-Mor Stock Incentive Plan. See "-- Executive Compensation Plans -- Phar-Mor,
Inc. 1995 Amended and Restated Stock Incentive Plan."
Except as otherwise indicated in the foregoing table, the options granted
under the Phar-Mor Stock Incentive Plan vested with respect to 20% of the
underlying shares on each of September 11, 1995, September 11, 1996 and
September 11, 1997, and will vest in additional increments of 20% of the
underlying shares (subject to adjustment) on September 11, 1998 and September
11, 1999. All options under the Phar-Mor Stock Incentive Plan (except for those
held by Mr. Haft) will be subject to early termination within periods of up to
one year (depending on the cause of a termination of service) after the
effective date of a termination of service under the Phar-Mor Stock Incentive
Plan or (if applicable) the expiration date under an applicable employment
agreement. Except for Mr. Haft, (i) to the extent then not vested, the options
will terminate and (ii) to the extent then vested, they may be exercised within
one year following the death or disability of the holder of the option, and
within six months following any other termination event, except where a
termination by the Company is for cause, in which case the options then will
terminate.
16
<PAGE> 20
OPTION EXERCISES AND VALUES FOR FISCAL YEAR 1997
The following table sets forth certain information concerning the exercise
of stock options, the number of unexercised options, and the values of
unexercised options at June 28, 1997 for the Named Officers. Value is considered
to be, in the case of exercised options, the difference between the exercised
price and the market price on the date of exercise and, in the case of
unexercised options, the difference between the exercise price and the market
price on June 28, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT JUNE 28, 1997 JUNE 28, 1997($)
NAME EXERCISE(#) REALIZED($) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
- -------------------- ------------ ------------ ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Robert M. Haft...... -- -- 112,500/143,750 $391/$0
M. David Schwartz... -- -- 70,000/105,000 --
Michael Spear....... -- -- 10,000/40,000 --
Warren E. Jeffery... -- -- 36,667/63,333 $13,542/$27,083
John R. Ficarro..... -- -- 6,000/9,000 --
</TABLE>
- ---------------
(1) Options are "in the money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between $6.25 per share, the market value of the
Common Stock at June 28, 1997 issuable upon exercise of options, and the
exercise price of the option, multiplied by the applicable number of shares
underlying the options.
17
<PAGE> 21
PERFORMANCE GRAPH
The SEC requires that the Company include in this Proxy Statement a
line-graph presentation comparing its cumulative shareholder returns, on an
indexed basis, with a broad equity market index and a published industry or
line-of-business index. The following graph compares the cumulative total
shareholder return on the Common Stock against the cumulative total return of
the Center for Research in Security Prices Total Return Index for the Nasdaq
Stock Market (which includes all U.S. stocks traded on The Nasdaq National
Market ("Nasdaq -- NMS") and Nasdaq Small-Cap Market) and the Center for
Research in Security Prices Total Return Index for NASDAQ Stocks (SIC 5900-59999
U.S. Companies) Miscellaneous Retail for the period beginning with October 31,
1995 and ending on June 28, 1997, assuming the reinvestment of all dividends
throughout the period shown, and assuming the value of the investment in the
Company and in each Index was $100 on October 31, 1995. Prior to September 11,
1995, when the Company emerged from bankruptcy, there was no established trading
market for the shares of Common Stock. From September 11, 1995, through October
31, 1995, the only market activity in the Common Stock of which the Company was
aware was trading on a limited basis, primarily through inter-dealer quotations.
From October 31, 1995 through February 7, 1996, the Common Stock was trading on
the Nasdaq SmallCap Market. Since February 8, 1996, the Common Stock has been
included for quotation on the Nasdaq-NMS under the symbol "PMOR."
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR PHAR-MOR, INC.
<TABLE>
<CAPTION>
10/31/95 06/28/96 12/27/96 06/27/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Phar-Mor............................ 100.0 103.2 72.6 80.6
Nasdaq Stock Market (US Companies).. 100.0 115.2 125.4 139.6
NASDAQ Stocks (SIC 5900-5999
US Companies) Miscellaneous
retail............................ 100.0 115.2 114.1 114.9
</TABLE>
18
<PAGE> 22
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Set forth in the table below is information, as of January , 1998, with
respect to the number of shares of Common Stock beneficially owned by (i) each
person or entity known by the Company to own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Officers and (iv) all directors and executive officers of the
Company as a group. A person or entity is considered to "beneficially own" any
shares (i) over which such person or entity exercises sole or shared voting or
investment power or (ii) which such person or entity has the right to acquire at
any time within 60 days (e.g., through the exercise of options or warrants).
<TABLE>
<CAPTION>
PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF AMOUNT AND NATURE OF OF WHICH MAY BE ACQUIRED
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS WITHIN 60 DAYS(3)
- ---------------------------------- ----------------------- ------- ---------------------
<S> <C> <C> <C>
Avatex Corporation 4,795,935(4) 39.1% 91,902(5)
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Pioneering Management Corporation 1,256,200(6) 10.33% --
60 State Street
Boston MA 02109
The TCW Group, Inc. 878,300(6) 7.22% --
865 South Figueroa Street
Los Angeles, CA 90017
M. David Schwartz 111,250 * 105,000(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Michael Spear 20,000 * 20,000(7)
20 Federal Plaza West
Youngstown, Ohio 44501
John R. Ficarro 9,000 * 9,000(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Warren E. Jeffery 46,667 * 46,667(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Sankar Krishnan 15,000 * 15,000(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Abbey J. Butler 4,815,935(8) 39.2% 20,000(9)
c/o Avatex Corporation
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Melvyn J. Estrin 4,815,935(8) 39.2% 20,000(9)
c/o Avatex Corporation
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Daniel H. Levy 13,000 * 10,000(9)
20 Federal Plaza West
Youngstown, Ohio 44501
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF AMOUNT AND NATURE OF OF WHICH MAY BE ACQUIRED
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS WITHIN 60 DAYS(3)
- ---------------------------------- ----------------------- ------- ---------------------
<S> <C> <C> <C>
Monroe Osterman 10,000 * 10,000(9)
20 Federal Plaza West
Youngstown, Ohio 44501
Arthur G. Rosenberg 10,000 * 10,000(9)
20 Federal Plaza West
Youngstown, Ohio 44501
John D. Shulman 10,000 * 10,000(9)
20 Federal Plaza West
Youngstown, Ohio 44501
All Directors and Executive 5,080,852 40.6% 367,569
Officers, including those named
above, as a Group (11) persons
</TABLE>
- ---------------
* less than 1%
(1) No director or executive officer is the beneficial owner of the other equity
securities of the Company or any of its subsidiaries.
(2) Unless otherwise indicated, each person or entity has sole investment power
and sole voting power with respect to the Common Stock beneficially owned by
such person or entity.
(3) This column lists the number of shares of Common Stock which the names
person or entity has the right to acquire within 60 days after January ,
1998, through the exercise of stock options and warrants. The shares shown
in this column are included in the Amount and Nature of Beneficial Ownership
column.
(4) Includes 4,704,033 shares held directly by Avatex and 91,902 shares subject
to purchase by Avatex within 60 days upon exercise of warrants. See
"-- Potential Changes in Control."
(5) Includes 91,902 shares of Common Stock subject to purchase by Avatex within
60 days upon exercise of warrants.
(6) The information provided is based on reports on Schedule 13D and 13G filed
by the designated persons and entities with the SEC.
(7) All such shares of Common Stock are subject to purchase by the indicated
person within 60 days upon exercise of options awarded under the Phar-Mor
Stock Incentive Plan. The table excludes shares subject to options where the
grant of such options is subject to shareholder approval as set forth under
"-- Executive Compensation -- Phar-Mor, Inc. 1995 Amended and Restated Stock
Incentive Plan."
(8) Messrs. Butler and Estrin are Co-Chairmen of the Board, Co-Chief Executive
Officers and major shareholders of Avatex.
(9) All such shares are subject to purchase within 60 days by the indicated
person upon exercise of options awarded under the Phar-Mor Director Stock
Plan.
Potential Changes in Control. As of September 19, 1997, and pursuant to
the terms of the Hamilton Morgan LLC Interest Redemption and Exchange Agreement
dated August 22, 1997 (the "HM Redemption Agreement"), Hamilton Morgan
transferred ownership of all 3,750,000 shares of Common Stock it owned to
Avatex. This transaction settled the outstanding disputes between Hamilton
Morgan and Avatex that were subject to a pending arbitration between the
parties. As part of the transaction, Hamilton Morgan and Avatex terminated their
joint proxy agreement with respect to these shares.
Avatex has pledged 1,132,500 shares of its Common Stock as collateral to
Bart A. Brown, Jr., as trustee (the "Trustee") as partial collateral to secure
certain obligations of Avatex. In the event of a default, the Trustee may
acquire such shares by foreclosing on the collateral.
20
<PAGE> 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Hamilton Morgan. On August 22, 1997, Robert Haft and
Avatex entered into the HM Redemption Agreement, resolving issues stemming from
Avatex triggering a buy/sell mechanism in December 1996. In exchange for
3,750,000 shares of Common Stock and the return of a voting proxy on other
shares of Common Stock, Hamilton Morgan agreed to redeem the 69.8% Avatex
interest in Hamilton Morgan; re-pay certain indebtedness; and receive other
consideration. As a result of the consummation of the transaction, Avatex
beneficially holds 39.1% of the issued and outstanding Common Stock. On
September 19, 1997, in connection with the consummation of the transaction
contemplated by the HM Redemption Agreement, the Company and Mr. Haft entered
into the Severance Agreement. See "Executive Compensation -- Employment
Contracts and Termination of Employment and Change in Control
Arrangements -- Mr. Robert Haft."
Transactions with Robert M. Haft. On September 19, 1997, the Company and
Mr. Haft entered into the Severance Agreement whereby Mr. Haft resigned as
Chairman and Chief Executive Officer of the Company and received certain
benefits. See "Executive Compensation -- Employment Contracts and Termination of
Employment and Change in Control Arrangements -- Mr. Robert Haft."
Transactions with FoxMeyer Drug Company. Following August 17, 1992, the
Company entered into a revised, long-term supply agreement with FoxMeyer Drug
Company (the "Supply Agreement") to become the Company's primary supplier of
prescription medications until the later of August 17, 1997 or the date on which
the Company's purchases equal an aggregate net minimum of $1.4 billion of
products. The Supply Agreement established certain minimum supply requirements,
specified events of default, and limited damages recoverable in the event of a
termination. Abbey J. Butler and Melvyn J. Estrin, Co-Chairmen of the Board,
Co-Chief Executive Officers and directors of the Company, are co-chairmen of the
board, co-chief executive officers and major shareholders of Avatex. FoxMeyer
Drug Company is a wholly owned subsidiary of Avatex.
On August 29, 1996, two days after FoxMeyer Drug Company and its
subsidiaries filed their bankruptcy petition, the Company notified FoxMeyer Drug
Company that the supply of products to the Company under the Supply Agreement
was insufficient and that, consequently, FoxMeyer Drug Company had committed a
material breach thereunder. On September 27, 1996, the Company received a
response from FoxMeyer Drug Company disputing the Company's notification. The
Company did not experience any material disruption to its business or supply of
pharmaceutical products because adequate alternative sources of supply were
readily available to the Company. In connection with McKesson Corp.'s purchase
of FoxMeyer Drug Company's assets on November 8, 1996, McKesson Corp. assumed
the Supply Agreement.
Transactions with Daniel J. O'Leary. On May 12, 1997 Daniel J. O'Leary,
the Company's Chief Financial Officer since December 1995, tendered his
resignation effective June 13, 1997. In connection therewith, the Company paid
Mr. O'Leary $225,000 and transferred title to him of a Company-leased vehicle
valued at approximately $10,000.
Transactions with Michael K. Spear. On November 1, 1997 Michael K. Spear,
the Company's Senior Vice President of Merchandise and Marketing since July 8,
1996, tendered his resignation effective November 1, 1997. In connection
therewith, the Company paid Mr. Spear $100,000 and agreed to continue paying Mr.
Spear his current base salary of $325,000 (plus guaranteed increases in
accordance with his employment agreement), for a period of one year after
November 1, 1997 and the continuation of all medical benefits during such
period.
Transactions with Messrs. Hopkins and McCarthy. Each of Messrs. Hopkins
and McCarthy served as members of an ad hoc special committee formed by the
Board to negotiate the Severance Agreement with Mr. Haft. As compensation for
their services on such committee, Messrs. Hopkins and McCarthy each received
$30,000 in addition to the compensation each of Messrs. Hopkins and McCarthy was
entitled to due to their services as a director of the Company.
Effective October 7, 1997, Messrs. Hopkins and McCarthy resigned as
directors of the Company. In connection with their resignation, each of Messrs.
Hopkins and McCarthy received a severance payment in the amount of $47,000. In
addition, the vesting of the shares of Common Stock in each such director's
retirement
21
<PAGE> 25
account was accelerated and each of Messrs. Hopkins and McCarthy received
$52,918.20 for the 7,703.60 shares of Common Stock in each of their retirement
accounts on the date of resignation.
SECTION 16(a) DISCLOSURE
Pursuant to Section 16(a) of the Exchange Act, the Company is required to
identify any person who, at any time during Fiscal Year 1997, was a director of
the Company, an executive officer of the Company or its subsidiaries or
beneficial owner of more than 10% of the Company's Common Stock or any other
person who was subject to Section 16(a) of the Exchange Act with respect to the
Company that during Fiscal Year 1997 failed to file on a timely basis with the
SEC any report required by Section 16(a) of the Exchange Act, which are Form 3
(an initial report of beneficial ownership of common stock) on Form 4 and Form 5
(relating to changes in beneficial ownership of common stock). Based solely on a
review of such Forms 3, 4 and 5, and amendments thereto, furnished to the
Company by the reporting persons known to it, as required by Exchange Act Rule
16a-3(e), except as set forth below, no reporting person that was required
during Fiscal Year 1997 to comply with Section 16(a) of the Exchange Act failed
to comply with such requirements. A Form 5 report was not filed on a timely
basis by directors Ms. Haft, and Messrs. Butler, Estrin, Haft, Hopkins and
McCarthy with respect to automatic grants of stock options of 5,000 shares each
granted on October 1, 1996, and where applicable, with respect to the automatic
receipt of shares of Common Stock of the Company in lieu of all or a portion of
their annual retainer. A Form 4 report was not filed on a timely basis by Mr.
Spear with respect to options granted to him during Fiscal Year 1997 and a Form
3 initial filing report was not filed on a timely basis by Mr. Krishnan during
Fiscal Year 1997. All failures to timely file annual reports were inadvertent
and do not relate to the actual purchase or sale of shares of Common Stock.
PROPOSAL NUMBER TWO
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION, AS AMENDED
The Board has unanimously determined that an amendment to the Company's
Restated Articles of Incorporation, as Amended (the "Articles"), is advisable
and has voted to recommend such amendment to the Company's shareholders for
approval. The proposed amendment to the Articles classifies the Board of
Directors into three classes, as nearly equal in number as possible, each of
which, after an interim arrangement, will serve for three years, with one class
being elected each year.
The Board believes that the proposed amendment would, if adopted, enhance
the likelihood of continuity and stability in the composition of the Company's
Board of Directors and in the policies formulated by the Board, and, at the same
time, effectively reduce the possibility that a third party could effect a
sudden or surprise change in majority control of the Company's Board of
Directors without the support of the incumbent Board of Directors. However,
adoption of the proposed amendment may have significant effects on the ability
of shareholders of the Company to benefit from certain transactions which are
opposed by the incumbent Board of Directors. Accordingly, shareholders are urged
to read carefully the following section of this Proxy Statement, which describes
the amendment and its purpose and effect, and Appendix A hereto, which sets
forth the full text of the proposed amendment to the Articles before voting on
the proposed amendment.
The proposed amendment to the Articles is not being recommended in response
to any specific effort of which the Company is aware to accumulate the Common
Stock or to effect control of the Company and is not part of a plan by the Board
to adopt a series of amendments to the Articles. The Board does not presently
intend to proposed other anti-takeover measures in future proxy solicitations.
The Board has observed the relatively common use of certain coercive takeover
tactics in recent years, including the accumulation of substantial voting stock
positions as a prelude to a threatened takeover or corporate restructuring,
proxy fights, and partial tender offers and the related use of "two-tier"
pricing. The Board believes that the use of these tactics can place undue
pressure on a corporation's board of directors and shareholders to act hastily
and on incomplete information and, therefore, can be highly disruptive to a
corporation and result in unfair differences in treatment of shareholders who
act immediately in response to an announcement of takeover activity and those
who choose to act later, if it all.
22
<PAGE> 26
The Company's Amended and Restated By-laws (the "Bylaws") currently provide
that all directors are to be elected to the Board of Directors annually and
shall hold office until the annual meeting of shareholders next following his or
her election and until a successor has been elected and qualified or until his
or her earlier death, resignation or removal. The proposed new Article TENTH of
the Articles (as set forth in Appendix A) provides that the Board of Directors
shall be divided into three classes of directors, each class to be as nearly
equal in number as possible. If Proposal Number Two is adopted, the Company's
directors will be divided into three classes, and two directors will serve terms
expiring at the November, 1998 annual meeting of shareholders, two directors
will serve terms expiring at the 1999 annual meeting of shareholders, and two
directors will serve terms expiring at the 2000 annual meeting of shareholders
(in each case, until their respective successors are duly elected and
qualified). If the proposed amendment to the Articles is adopted, the Bylaws
will be amended to be consistent with the amendment to the Articles relating to
the classification of the Board of Directors. As currently provided in the
Articles, vacancies in the Board, including vacancies resulting from an increase
in the number of directors, may be filled by a majority vote of the remaining
members of the Board through less than a quorum, or by a sole remaining
director, and each person so elected shall be a director to serve for the
balance of the unexpired term and until a successor has been elected and
qualified or until his or her earlier death, resignation or removal.
The Articles do not permit cumulative voting in the election of directors.
Accordingly, the holders of a majority of the voting power of the outstanding
shares of the Company's voting stock could now elect all of the directors being
elected at any annual or special meeting of the Company's shareholders. However,
the classification of the Board of Directors pursuant to the proposed amendment
will apply to every election of directors, whether or not a change in control of
the Company had occurred or the holders of a majority of the voting power of the
Company desire to change the Board of Directors. The classification of the Board
of Directors will have the effect of making it more difficult to change the
composition of the Board of Directors. At least two shareholder meetings,
instead of one, will be required to effect a change in control of the Board of
Directors. The Board believes that the longer time required to elect a majority
of a classified Board of Directors will help to assure the continuity and
stability of the Company's management and policies in the future, since a
majority of the directors at any given time will have prior experience as
directors of the Company.
The affirmative vote of a majority of the votes cast by all shareholders
entitled to vote thereon is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION, AS AMENDED, SET FORTH ON APPENDIX A HERETO.
UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES REPRESENTED THEREBY WILL BE
VOTED FOR APPROVAL OF SUCH AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION,
AS AMENDED.
PROPOSAL NUMBER THREE
APPROVAL OF PHAR-MOR, INC. 1995 DIRECTOR STOCK PLAN, AS AMENDED
The Board believes that the ownership of shares of Common Stock by
directors supports the maximization of long-term shareholder value by aligning
the interests of directors with those shareholders. The Phar-Mor Director Stock
Plan is designed to facilitate the ownership of shares of Common Stock by
directors. The Phar-Mor Director Stock Plan was approved by the Board on October
3, 1995, subject to shareholder ratification and approval. An amendment to the
Phar-Mor Director Stock Plan increasing the size of annual grants of options
under such plan from 5,000 to 10,000 shares of Common Stock effective October 1,
1997, was approved by the Board on September 25, 1997. In order to implement the
grant of options heretofore granted to directors of the Company under the
Phar-Mor Director Stock Plan as well as to allow flexibility for future option
grants to directors of the Company pursuant to the Phar-Mor Director Stock Plan,
it is necessary to increase the number of shares available under the Phar-Mor
Director Stock Plan from 250,000 to 500,000 shares. An amendment to the Phar-Mor
Director Stock Plan increasing the number of shares available under such plan
from 250,000 to 500,000 shares was approved by the Board on September 25, 1997,
subject to shareholder ratification and approval.
23
<PAGE> 27
The purpose of the Phar-Mor Director Stock Plan is to promote the long-term
growth of the Company by enhancing its ability to attract and retain highly
qualified and capable directors with diverse backgrounds and experience and by
increasing the proprietary interest of directors in the Company. A description
of the material terms of the Phar-Mor Director Stock Plan follows. This
description is qualified in its entirety by reference to the complete Phar-Mor
Director Stock Plan, which is attached hereto as Appendix B and is incorporated
herein by reference.
Under the Phar-Mor Director Stock Plan, each director receives an annual
grant of an option to purchase shares of Common Stock. Before October 1, 1997,
each director received an annual grant of an option to purchase 5,000 shares of
Common Stock. Commencing with the grant on October 1, 1997, each director now
receives an annual grant of an option to purchase 10,000 shares of Common Stock.
Each director then in office was granted (i) an option to purchase 5,000 shares
of Common Stock on October 3, 1995 at an exercise price of $7.06 per share, (ii)
an option to purchase 5,000 shares of Common Stock on October 1, 1996 at an
exercise price of $6.1719 per share, and (iii) an option to purchase 10,000
shares of Common Stock on October 1, 1997 at an exercise price of $6.84375 per
share. Each director will be granted an option to purchase 10,000 shares of
Common Stock on October 1st of each succeeding year while the Phar-Mor Director
Stock Plan is in effect. If a director begins service on a date other than the
date of the annual meeting of the Company's shareholders in any year, the number
of shares subject to the option shall be prorated.
In addition, each director may elect to receive shares of Common Stock in
lieu of all or a portion of his or her annual retainer. The number of shares of
Common Stock issuable in the event of such election will be based upon the Fair
Market Value of shares of Common Stock (as defined in the Phar-Mor Director
Stock Plan) on October 1st in the year of such election, and will be determined
by dividing such fair market value into the amount of the annual retainer that
the director elected to receive in shares of Common Stock.
Assuming the amendment to the Phar-Mor Director Stock Plan is approved, a
maximum of 500,000 shares of Common Stock will be available for the award of
shares and the grant of options under the Phar-Mor Director Stock Plan, subject
to adjustment in the event of stock splits, stock dividends or changes in
corporate structure affecting shares of Common Stock. To the extent a stock
option granted under the Phar-Mor Director Stock Plan expires or terminates
unexercised, the shares of Common Stock allocable to the unexercised portion of
such option will be available for wards under the Phar-Mor Director Stock Plan.
In addition, to the extent that shares are delivered (actually or by
attestation) to pay all or a portion of an option exercise price, such shares
will become available for awards under the Phar-Mor Director Stock Plan.
The exercise price per share of all options granted under the Phar-Mor
Director Stock Plan will be 100% of the Fair Market Value of shares of Common
Stock (as defined by the Phar-Mor Director Stock Plan) on the grant date.
Options granted under the Phar-Mor Director Stock Plan vest and are exercisable
immediately, and may be exercised until the fifth anniversary of the date of the
grant. Options may be exercised either by payment of cash in the amount of the
aggregate option price or by surrendering (or attesting to ownership of) shares
of Common Stock owned by the participant for at least six months prior to the
date the option is exercised, or a combination of both, having a combined value
equal to the aggregate option price of the shares subject to the option or
portion of the option being exercised. Any option or portion thereof that is not
exercised on or before the fifth anniversary of the date of the grant shall
expire.
The Phar-Mor Director Stock Plan is administered by the Compensation
Committee of the Board. The Board may amend or terminate the Phar-Mor Director
Stock Plan at any time, but the terms of any option granted under the Phar-Mor
Director Stock Plan may not be adversely modified without the participant's
consent.
For a discussion of the tax effects of options granted under the Phar-Mor
Director Stock Plan see "Tax Effects of Participation in Option Plans" below.
The high and low sale prices of the Common Stock on the Nasdaq-NMS on
, 1997 were $ and $ , respectively.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PHAR-MOR DIRECTOR
STOCK PLAN, AS AMENDED, AND THE AMENDMENT THERETO INCREASING THE NUMBER OF
SHARES AVAILABLE UNDER SUCH PLAN FROM
24
<PAGE> 28
250,000 TO 500,000. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
REPRESENTED THEREBY WILL BE VOTED FOR APPROVAL OF THE PHAR-MOR DIRECTOR STOCK
PLAN, AS AMENDED, AND THE AMENDMENT THERETO.
PROPOSAL NUMBER FOUR
APPROVAL OF THE PHAR-MOR, INC. 1996 DIRECTOR RETIREMENT PLAN
The Board believes that the long term growth of the Company can be promoted
by offering long-term incentives to the Company's directors and by attracting
and retaining highly qualified and capable directors. The Phar-Mor Director
Retirement Plan is designed to achieve this goal. The Phar-Mor Director
Retirement Plan was approved by the Board on May 14, 1996, subject to
shareholder ratification and approval. A description of the material terms of
the Phar-Mor Director Retirement Plan follows. This description is qualified in
its entirety by reference to the complete Phar-Mor Director Retirement Plan,
which is attached hereto as Appendix C and is incorporated herein by reference.
The Phar-Mor Director Retirement Plan awards certain deferred compensation
to any Eligible Director. Under the Phar-Mor Director Retirement Plan, the
Company will establish a retirement share account for each Eligible Director
which is credited annually by that number of shares of Common Stock whose
aggregate fair market value on a date specified under the Phar-Mor Director
Retirement Plan equals the amount of the then current annual retainer payable to
such Eligible Director, or such other amount as may be determined by resolution
of the Compensation Committee of the Board. The award is not in the form of
actual shares of Common Stock, and no shares of Common Stock will be set aside
for the benefit of Eligible Directors under the Phar-Mor Director Retirement
Plan. The number of shares in each retirement account is subject to adjustment
for dilution and otherwise as set forth in the Phar-Mor Director Retirement
Plan.
Awards made under the Phar-Mor Director Retirement Plan are payable solely
in cash upon the effective date of the first to occur of: (1) the Eligible
Director's resignation from the Board; (2) the Eligible Director's failure to be
elected or re-elected to the Board; (3) the retirement of the Eligible Director
from the Board; or (4) death or permanent disability of the Eligible Director.
The amount of the payment will be calculated based upon the fair market value of
the shares of retirement stock recorded in the Eligible Director's retirement
account (including all accrued cash dividends) as of the date of distribution.
As of October 1, 1997, in accordance with the Phar-Mor Director Retirement Plan,
the retirement accounts of Messrs. Levy and Osterman were each credited with
3,652.968 shares of Common Stock and the retirement accounts of Messrs. Butler
and Estrin were each credited with 7,703.60 shares of Common Stock. In
connection with the resignation of Messrs. Hopkins and McCarthy as directors of
the Company on October 7, 1997, the vesting of the shares of Common Stock in
each such director's retirement account was accelerated and each of Messrs.
Hopkins and McCarthy received $52,918.20 for the 7,703.60 shares of Common Stock
in each of their retirement accounts on the effective date of their
resignations. See "Certain Relationships and Related
Transactions -- Transactions with Messrs. Hopkins and McCarthy."
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PHAR-MOR DIRECTOR
RETIREMENT PLAN. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES REPRESENTED
THEREBY WILL BE VOTED FOR APPROVAL OF THE PHAR-MOR DIRECTOR RETIREMENT PLAN.
PROPOSAL NUMBER FIVE
APPROVAL OF THE AMENDMENTS TO THE
PHAR-MOR, INC. 1995 AMENDED AND RESTATED STOCK INCENTIVE PLAN
The Board believes that it is desirable and in the best interest of the
Company for options to purchase the Company's Common Stock to be granted to
employees at all levels of the Company. In order to implement the grant of
options heretofore granted to the senior executives of the Company under the
Phar-Mor Stock Incentive
25
<PAGE> 29
Plan as well as to allow flexibility for future option grants to key employees
of the Company pursuant to the Phar-Mor Stock Incentive Plan, it is necessary to
increase the number of shares available under the Phar-Mor Stock Incentive Plan
from 913,333 to 3.5 million shares. Amendments to the Phar-Mor Stock Incentive
Plan increasing the number of shares available under such plan from 913,333 to
1.75 million shares, from 1.75 million shares to 2.5 million shares and from 2.5
million shares to 3.5 million shares, were approved by the Board, subject to
shareholder ratification and approval, on June 5, 1997, September 25, 1997 and
November 18, 1997, respectively.
For a discussion of the tax effects of options granted under the Phar-Mor
Stock Incentive Plan see "Tax Effects of Participation in Option Plans" below.
For a description of the material terms of the Phar-Mor Stock Incentive Plan see
"Executive Compensation Plans -- Phar-Mor, Inc. Amended and Restated Stock
Incentive Plan."
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO THE
PHAR-MOR STOCK INCENTIVE PLAN. UNLESS INDICATED OTHERWISE ON THE PROXY, THE
SHARES REPRESENTED THEREBY WILL BE VOTED FOR APPROVAL OF THE AMENDMENTS TO THE
PHAR-MOR STOCK INCENTIVE PLAN.
PROPOSAL NUMBER SIX
APPROVAL OF THE PHAR-MOR, INC. EMPLOYEE STOCK PURCHASE PLAN
The Board believes that participation in the ownership of the Company is of
benefit both to its employees and the Company. The Phar-Mor, Inc. Employee Stock
Purchase Plan (the "Phar-Mor Employee Stock Purchase Plan") is intended to
provide a convenient, low cost method whereby eligible employees of the Company
and its subsidiaries will have an opportunity to acquire a proprietary interest
in the Company through the purchase of shares of Common Stock. The Phar-Mor
Employee Stock Purchase Plan will allow up to 500,000 shares of Common Stock to
be purchased by eligible employees of the Company or any of its subsidiaries.
The Phar-Mor Employee Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Code. The Phar-Mor Employee Stock
Purchase Plan was approved by the Board on May 14, 1996, subject to shareholder
ratification and approval. A description of the material terms of the Phar-Mor
Employee Stock Purchase Plan follows. This description is qualified in its
entirety by reference to the complete Phar-Mor Employee Stock Purchase Plan,
which is attached hereto as Appendix D and is incorporated herein by reference.
Any employee of the Company or any of its subsidiaries who is not a 5%
shareholder of the Company or any of its subsidiaries and (i) is in the employ
of the Company or any of its subsidiaries on the date options are granted to
employees under the plan, (ii) has been so employed for at least 90 days prior
to such date, and (iii) is customarily employed for more than 20 hours per week
and for more that 5 months per calendar year during such employment is eligible
to participate in the Phar-Mor Employee Stock Purchase Plan. Notwithstanding the
foregoing, no one shall be granted a right to purchase any shares of Common
Stock under the plan that permits his or her rights to purchase shares of Common
Stock under all "employee stock purchase plans" of the Company and its
subsidiaries (or its parent within the meaning of 423(e) of the Code) to accrue
at a rate that exceeds $25,000 of the fair market value of such shares
(determined at the time such right to purchase is granted) for each calendar
year in which such right to purchase is outstanding at any time (as interpreted
and applied in accordance with Section 423(b) (8) of the Code).
The stock offered under the Phar-Mor Employee Stock Purchase Plan consists
of shares of the Company's Common Stock which are authorized and unissued shares
issued and held by the Company as treasury stock, or shares purchased on the
open market, as may be determined from time to time by the Board.
The Phar-Mor Employee Stock Purchase Plan grants to each eligible employee
an option, on January 1, April 1, July 1 and October 1, to purchase shares of
Common Stock on the last business day of the corresponding calendar quarter. The
price paid is 90% of the closing price of the Common Stock on the Nasdaq-NMS on
the last business day of the calendar quarter. The purchase price will be paid
by payroll deductions of fixed dollar
26
<PAGE> 30
amounts of between $10 and $100 each pay period, not to exceed 10% of the
participant's regular straight time salary or earnings.
The Board may amend the plan at any time and for any reason, provided,
however, that no such amendment shall be effective without the approval of the
shareholders of the Company if the amendment (a) increases the number of shares
of Common Stock to be offered under the plan (except pursuant to a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, offerings of rights, or any other change in the
capital structure of the Company) or (b) decreases the purchase price per share
or if such approval is required to meet the requirements of the Code or the SEC.
The Phar-Mor Employee Stock Purchase Plan is administered by the Board (or
the Compensation Committee), which may engage a qualified stock brokerage or
other financial services firm to assist in the administration of the plan. The
Board is vested with full authority and discretion to (i) administer, construe,
and interpret the plan, (ii) define the terms of the plan, (iii) prescribe,
amend and rescind rules and regulations for the plan, (iv) correct any defect,
supply any omission or reconcile any inconsistency in the plan, and (v) make all
legal and factual determinations necessary or advisable for the administration
of the plan.
The Phar-Mor Employee Stock Purchase Plan will terminate at the earliest to
occur of the following: (i) July 1, 2002; (ii) the date of the filing of a
statement of intent to dissolve by the Company or the effective date of a merger
or consolidation wherein the Company is not to be the surviving corporation,
which merger or consolidation is not between or among a corporation related to
the Company; (iii) the date the Board acts to terminate the plan; or (iv) the
date when all of the shares of Common Stock that were reserved for issuance
under the plan have been purchased.
Participation in the Phar-Mor Employee Stock Purchase Plan is voluntary and
is dependent upon each eligible employee's election to participate and such
employee's determination as to the level of payroll deductions. Accordingly,
future purchases under the Phar-Mor Employee Stock Purchase Plan are not
determinable.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PHAR-MOR EMPLOYEE
STOCK PURCHASE PLAN. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
REPRESENTED THEREBY WILL BE VOTED FOR APPROVAL OF THE PHAR-MOR EMPLOYEE STOCK
PURCHASE PLAN.
TAX EFFECTS OF PARTICIPATION IN OPTION PLANS
The Phar Mor Director Stock Plan provides for the grant of non-qualified
stock options which are not intended to meet the requirements of Section 422 of
the Code. The Phar-Mor Stock Incentive Plan permits the grant of either
non-qualified stock options or incentive stock options which are intended to
satisfy the requirements of Section 422 of the Code.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. If the optionee holds the shares
received pursuant to the exercise of the option for at least one year after the
date of exercise and for at least two years after the date the option is
granted, the optionee will recognize either mid-term capital gain or long-term
capital loss upon the disposition of the Common Stock measured by the difference
between the option exercise price (the Common Stock's basis) and the amount
received for such shares upon disposition. If the optionee holds the shares
received pursuant to the exercise of the option for at least 18 months after the
date of exercise and for at least two years after the date the option is
granted, the optionee will recognize long-term capital gain or loss upon the
disposition of the Common Stock measured by the difference between the option
exercise price (the Common Stock's basis) and the amount received for such
shares upon disposition.
In the event that the optionee disposes of the Common Stock prior to the
expiration of the required holding periods (a 'disqualifying disposition'), the
optionee generally will realize ordinary income equal to the difference between
the exercise price and the lower of the fair market value of the Common Stock at
the date of the option
27
<PAGE> 31
exercise or the sale price of the Common Stock. The basis in the Common Stock
acquired upon exercise of the option will equal the amount of income recognized
by the optionee plus the option exercise price. Upon eventual disposition of the
Common Stock, the optionee will recognize either short-term, mid-term or
long-term capital gain or short-term or long-term capital loss, depending on the
holding period of the Common Stock and the difference between the amount
realized by the optionee upon disposition of the Common Stock and the optionee's
basis in the Common Stock.
For alternative minimum tax purposes, the excess of the fair market value
of Common Stock on the date of the exercise of the incentive stock option over
the exercise price of the option is included in alternative minimum taxable
income. If the alternative minimum tax applies to the optionee, an alternative
minimum tax credit may reduce the regular tax upon eventual disposition of the
Common Stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition by the
optionee of shares acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
Nonqualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a nonqualified stock
option. On the exercise by an optionee of a nonqualified option, generally the
excess of the fair market value of the Common Stock when the option is exercised
over its cost to the optionee will be (a) taxable to the optionee as ordinary
income and (b) generally deductible for income tax purposes by the Company.
The optionee's tax basis in Common Stock received upon exercise of
nonqualified stock options will equal his cost for the Common Stock plus the
amount of ordinary income the optionee had to recognize with respect to the
nonqualified stock option. Accordingly, upon a subsequent disposition of Common
Stock acquired upon the exercise of a nonqualified stock option, the optionee
will recognize short-term, mid-term or long-term capital gain or loss, depending
upon the holding period of the Common Stock equal to the difference between the
amount realized upon disposition of the Common Stock by the optionee and the
optionee's basis in the Common Stock.
For all options, different tax rules may apply if the optionee is subject
to Section 16 of the Exchange Act.
NEW PLAN BENEFITS
It is not possible to state the individuals who will receive grants of
stock options or other rights in the future under the Phar-Mor Director Stock
Plan, the Phar-Mor Director Retirement Plan, the Phar-Mor Stock Incentive Plan
nor the amount of options or rights which will be granted thereunder. Nor is it
possible to state the individuals who will purchase shares of Common Stock under
the Phar-Mor Employee Stock Purchase Plan, or the amount of such purchases. The
following table provides information with respect to options and rights granted
through , 1997 under the Phar-Mor Director Stock Plan, the Phar-Mor
Director Retirement Plan, the Phar-Mor Stock Incentive Plan and purchases made
under the Phar-Mor Employee Stock Purchase Plan through , 1997. See
"Proposal Number Three," "Proposal Number Four," "Proposal Number Five" and
"Proposal Number Six" above for a description of the options and rights which
are provided for under such plans.
28
<PAGE> 32
<TABLE>
<CAPTION>
PHAR-MOR
PHAR-MOR DIRECTOR PHAR-MOR DIRECTOR PHAR-MOR STOCK EMPLOYEE STOCK
STOCK PLAN RETIREMENT PLAN INCENTIVE PLAN PURCHASE PLAN
------------------ ------------------- ------------------ -----------------
DOLLAR DOLLAR DOLLAR DOLLAR
VALUE NUMBER OF VALUE NUMBER VALUE NUMBER OF VALUE NUMBER
NAME AND POSITION ($)(1) UNITS ($)(1) OF UNITS ($)(1) UNITS ($) OF UNITS
- ---------------------------------- ------ --------- ------ ---------- ------ --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Haft....................... 10,000(2) -- -- -- 256,250(4) -- --
Former Chairman and CEO
M. David Schwartz................. -- -- -- -- -- 175,000(7) -- --
President and Chief Operating
Officer
Michael K. Spear.................. -- -- -- -- -- 100,000(9) -- --
Former Senior Vice President --
Marketing & Merchandising
Warren E. Jeffery................. -- -- -- -- -- 100,000(3) -- --
Senior Vice President -- Store
and Pharmacy Operations
John R. Ficarro................... -- -- -- -- -- 15,000(8) -- --
Senior Vice President, CAO and
General Counsel
Current Executive Officers as a... -- 40,000 -- 15,407.20 -- 315,000(6) -- --
Group (5)
Current Directors as a Group...... -- 40,000 -- 7,305.936 -- -- -- --
(excluding Executive Officers)
Employees as a Group.............. -- -- -- -- -- -- -- --
(excluding Executive Officers)
</TABLE>
- ---------------
(1) The dollar value of the options is equal to the difference between the
exercise price of the options granted and the market value of the Company's
Common Stock as of the date of exercise. Accordingly, such dollar value is
not readily ascertainable.
(2) Mr. Haft was granted an option to purchase 5,000 shares of Common Stock on
October 3, 1995 at an exercise price of $7.06 per share and an option to
purchase 5,000 shares of Common Stock on October 1, 1996 at an exercise
price of $6.1719 per share. Options granted under the Phar-Mor Director
Stock Plan vest immediately upon grant and have a term of five years.
(3) Options to purchase 50,000 shares were granted as of September 11, 1995 at
an exercise price of $8.00 per share with a term of seven years, and are
exercisable as to one-fifth on the date of grant and as to one-fifth
additionally on the first, second, third and fourth anniversaries thereof.
Options to purchase an additional 50,000 shares were granted as of June 5,
1997 at an exercise price of $5.4375 per share with a term of seven years,
that are exercisable as to one-third on June 5, 1997 and as to one-third
additionally on the first and second anniversaries thereof.
(4) Options to purchase the shares indicated in the table were granted as of
September 11, 1995 at an exercise price of $8.00 per share with a term of
seven years, and are exercisable as to one-fifth on the date of grant and as
to one-fifth additionally on the first, second, third and fourth
anniversaries thereof. Does not include options to purchase 125,000 shares
that were granted as of June 5, 1997 at an exercise price of $5.4375 per
share with a term of seven years, that are exercisable as to one-third on
June 5, 1997 and as to one-third additionally on the first and second
anniversaries thereof. The grant of the options for 125,000 shares is
subject to shareholder approval of a proposed increase of available shares
under the Phar-Mor Stock Incentive Plan. See "Proposal Number Five."
(5) Includes Messrs. Butler, Estrin and Mr. Sankar Krishnan, the Chief Financial
Officer of the Company, and excludes Messrs. Spear, O'Leary and Haft.
(6) Includes options to purchase 25,000 shares that were granted to Mr. Krishnan
as of September 11, 1995 at an exercise price of $8.00 per share with a term
of seven years, and are exercisable as to one-fifth on the date of grant and
as to one-fifth additionally on the first, second, third and fourth
anniversaries thereof. Does not include options to purchase 75,000 shares
that were granted to Mr. Krishnan as of June 5, 1997 at an exercise price of
$5.4375 per share with a term of seven years, that are exercisable as to
one-third on June 5, 1997 and as to one-third additionally on the first and
second anniversaries thereof. The grant of the options for 75,000 shares is
subject to shareholder approval of a proposed increase of available shares
under the Phar-Mor Stock Incentive Plan. See "Proposal Number Five." Does
not include options to purchase 200,000 shares of Common Stock granted to
each of Messrs. Butler and Estrin as of October 1, 1997 at an
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exercise price of $6.84375 per share with a term of seven years, that are
exercisable as to one-third on October 1, 1997 and as to one-third
additionally on the first and second anniversaries thereof. The grant of
each of these options for 200,000 shares is subject to shareholder approval
of a proposed increase of available shares under the Phar-Mor Stock
Incentive Plan. See "Proposal Number Five." See also footnotes 3, 7 and 8.
(7) Options to purchase the shares indicated in the table were granted as of
September 11, 1995 at an exercise price of $8.00 per share with a term of
seven years, and are exercisable as to one-fifth on the date of grant and as
to one-fifth additionally on the first, second, third and fourth
anniversaries thereof. Does not include options to purchase 100,000 shares
that were granted as of June 5, 1997 at an exercise price of $5.4375 per
share with a term of seven years, that are exercisable as to one-third on
June 5, 1997 and as to one-third additionally on the first and second
anniversaries thereof. The grant of the options for 100,000 shares is
subject to shareholder approval of a proposed increase of available shares
under the Phar-Mor Stock Incentive Plan. See "Proposal Number Five."
(8) Options to purchase the shares indicated in the table were granted as of
September 11, 1995 at an exercise price of $8.00 per share with a term of
seven years, and are exercisable as to one-fifth on the date of grant and as
to one-fifth additionally on the first, second, third and fourth
anniversaries thereof. Does not include options to purchase 75,000 shares
that were granted as of June 5, 1997 at an exercise price of $5.4375 per
share with a term of seven years, that are exercisable as to one-third on
June 5, 1997 and as to one-third additionally on the first and second
anniversaries thereof. The grant of the options for 75,000 shares is subject
to shareholder approval of a proposed increase of available shares under the
Phar-Mor Stock Incentive Plan. See "Proposal Number Five."
(9) Includes options to purchase 50,000 shares of Common Stock granted to Mr.
Spear at an exercise price of $7.625 on May 14, 1996 and options to purchase
50,000 shares of Common Stock granted to Mr. Spear at an exercise price of
$6.50 per share on July 8, 1997.
PROPOSAL NUMBER SEVEN
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board proposes and
recommends that the shareholders ratify the selection of the firm Deloitte &
Touche, LLP, which served as the Company's independent public accountants during
Fiscal Year 1997, to serve as independent public accountants of the Company for
Fiscal Year 1998. Unless otherwise directed by the shareholders, proxies will be
voted for approval of the selection of Deloitte & Touche, LLP as the independent
public accountants for the Company for Fiscal Year 1998. A representative of
Deloitte & Touche, LLP will attend the Meeting, and will have an opportunity to
make a statement if he or she so desires and to respond to appropriate
questions.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION
OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR
FISCAL YEAR 1998. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
REPRESENTED THEREBY WILL BE VOTED FOR THIS PROPOSAL.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal of a shareholder intended to be presented at the Company's
next annual meeting must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting on or
before , 1998.
MISCELLANEOUS
The Company will bear all of the costs of the solicitation of proxies for
use at the Meeting. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone and telegram by directors, officers
and employees of the Company, who will undertake such activities without
additional compensation. Banks, brokerage houses and other institutions,
nominees or fiduciaries will be requested to forward the proxy materials to the
beneficial owners of Common Stock held of record by such persons and entities
and will be reimbursed for their reasonable expenses incurred in connection with
forwarding such material.
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Shareholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy promptly, no
matter how large or how small your holdings may be. As of the date of this Proxy
Statement, management had no knowledge of any business, other than that
described herein, which will be presented for consideration at the Meeting. In
the event any other business is properly presented at the Meeting, it is
intended that the persons named in the enclosed proxy will have authority to
vote such proxy in accordance with their judgment on such business.
By Order of the Board of Directors
John R. Ficarro
Secretary
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APPENDIX A
AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION, AS AMENDED
TENTH. The Board of Directors shall be divided into three (3) classes in
respect of term of office, designated Class I, Class II and Class III. Each
class shall contain one-third (1/3) of the entire Board of Directors, or such
other number that will cause all three (3) classes to be as nearly equal in
number as possible, with the terms of office of one class expiring each year.
Class I directors shall serve until the annual meeting of shareholders to be
held in November 1998; Class II directors shall serve until the annual meeting
of shareholders to be held in 1999; and Class III directors shall serve until
the annual meeting of shareholders to be held in 2000; provided that in each
case, directors shall continue to serve until their successors shall be elected
and shall qualify or until their earlier death, resignation or removal.
Commencing with the February 1998 meeting, one (1) class of directors shall be
elected to serve until the annual meeting of shareholders held three (3) years
next following and until their successors shall be elected and shall qualify or
until their earlier death, resignation or removal. No decrease in the number of
directors shall have the effect of shortening the term of office of any
incumbent director. Any increase or decrease in the number of directors shall be
apportioned among the classes so as to make all classes as nearly equal in
number as possible.
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APPENDIX B
PHAR-MOR, INC.
1995 DIRECTOR STOCK PLAN, AS AMENDED
ARTICLE I -- PURPOSE OF THE PLAN
The purpose of the Phar-Mor, Inc. 1995 Director Stock Plan is to promote
the long-term growth of Phar-Mor, Inc. (hereinafter sometimes referred to as the
"Corporation") by increasing the proprietary interest of Directors in Phar-Mar,
Inc. and to attract and retain highly qualified and capable Directors.
ARTICLE II -- DEFINITIONS
Unless the context clearly indicates otherwise, the following terms shall
have the following meanings:
2.1 "ANNUAL RETAINER" means the annual cash retainer fee payable by the
Corporation to a Director for services as a director of the Corporation, as such
amount may be changed from time to time.
2.2 "AWARD" means an award granted to a Director under the Plan in the
form of Options or Shares, or any combination thereof.
2.3 "BOARD" means the Board of Directors of Phar-Mor, Inc.
2.4 "CORPORATION" means Phar-Mor, Inc.
2.5 "DIRECTOR" means a director of the Corporation.
2.6 "FAIR MARKET VALUE" means, with respect to any date, the average
between the highest and lowest sale prices per Share on the Nasdaq Stock Market
on such date, provided that if there shall be no sale of Shares reported on such
date, the Fair Market Value of a Share on such date shall be deemed to be equal
to the average between the highest and lowest sale prices per Share on the
Nasdaq Stock Market for the last preceding date on which sales of Shares were
reported.
2.7 "OPTION" means an option to purchase Shares award under Article VIII
or IX which does not meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended, or any successor law.
2.8 "OPTION GRANT DATE" means the date upon which an Option is granted to
a Director.
2.9 "OPTIONEE" means a Director of the Corporation to whom an Option has
been granted or, in the event of such Director's death prior to the expiration
of an Option, such Director's executor, administrator, beneficiary or similar
person, or, in the event of a transfer permitted by Article VII hereof, such
permitted transferee.
2.10 "PLAN" means the Phar-Mor, Inc. 1995 Director Stock Plan, as amended
and restated from time to time.
2.11 "SHARES" means shares of the Common Stock, par value $.01 per share,
of the Corporation.
2.12 "STOCK AWARD DATE" means the date on which Shares are awarded to a
Director.
2.13 "STOCK OPTION AGREEMENT" means a written agreement between a
Director and the Corporation evidencing an Option.
ARTICLE III -- ADMINISTRATION OF THE PLAN
3.1 ADMINISTRATOR OF THE PLAN. The Plan shall be administered by the
Compensation Committee of the Board ("COMMITTEE").
3.2 AUTHORITY OF COMMITTEE. The Committee shall have full power and
authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and administer
the Plan, and (ii) designate persons other than members of the Committee to
carry out its
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responsibilities, subject to such limitations, restrictions and conditions as it
may prescribe, such determinations to be made in accordance with the Committee's
best business judgment as to the best interests of the Corporation and its
stockholders and in accordance with the purposes of the Plan. The Committee may
delegate administrative duties under the Plan to one or more agents as it shall
deem necessary or advisable.
3.3 DETERMINATIONS OF COMMITTEE. A majority of the Committee shall
constitute a quorum at any meeting of the Committee, and all determinations of
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or a meeting of the
Committee by a written consent signed by all members of the Committee.
3.4 EFFECT OF COMMITTEE DETERMINATIONS. No member of the Committee or the
Board shall be personally liable for any action or determination made in good
faith with respect to the Plan or any Award or to any settlement of any dispute
between a Director and the Corporation. Any decision or action taken by the
Committee or the Board with respect to an Award or the administration or
interpretation of the Plan shall be conclusive and binding upon all persons.
ARTICLE IV -- AWARDS UNDER THE PLAN
Awards in the form of Options shall be granted to Directors in accordance
with Article VIII. Deferred Contingent Shares may be granted to Directors in
accordance with Article IX. Each Option granted under the Plan shall be
evidenced by a Stock Option Agreement.
ARTICLE V -- ELIGIBILITY
Directors of the Corporation shall be eligible to participate in the Plan
in accordance with Articles VIII and IX.
ARTICLE VI -- SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Article XII, the aggregate number of
Shares which may be issued upon the award of Shares and the exercise of Options
shall not exceed 500,000 Shares. To the extent that Shares subject to an
outstanding Option are not issued or delivered by reason of the expiration,
termination, cancellation or forfeiture of such Option or by reason of the
delivery of Shares (either actually or by attestation) to pay all or a portion
of the exercise price of such Option, then such Shares shall again be available
under the Plan.
ARTICLE VII -- NON-TRANSFERABILITY OF OPTIONS
All options granted under the Plan shall not be transferable by a Director
during his or her lifetime and may not be assigned, exchanged, pledged,
transferred or otherwise encumbered or disposed of except by court order, will
or by the laws of descent and distribution. Notwithstanding the foregoing, in
the event Options may be transferable without failing to comply with Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), then
each Option shall be transferable to the extent set forth in the related Stock
Option Agreement, as determined by the Committee (provided that all Options
granted under Article VIII with the same Option Grant Date shall have identical
provisions relating to the transferability of such Options). In the event that
any Option is thereafter transferred as permitted by the preceding sentence, the
permitted transferee thereof shall be deemed the Optionee hereunder. Options
shall be exercisable during the Optionee's lifetime only by the Optionee or by
the Optionee's guardian, legal representative or similar person.
ARTICLE VIII -- OPTIONS
Each Director shall be granted Options, subject to the following terms and
conditions:
8.1 TIME OF GRANT. On the first business day of October of each year (or,
if later, on the date on which a person is first elected or begins to serve as a
Director), each person who is a Director shall be granted an Option
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to purchase 10,000 Shares (which number shall be pro-rated if such Director is
first elected or begins to serve as a Director on a date other than the date of
an annual meeting of stockholders).
8.2 PURCHASE PRICE. The purchase price per Share under each Option
granted pursuant to this Article shall be 100% of the Fair Market Value per
Share on the Option Grant Date.
8.3 EXERCISE OF OPTIONS. Each Option shall be fully exercisable on and
after the Option Grant Date. In no event shall the period of time over which the
Option may be exercised exceed ten years from the Option Grant Date. An Option,
or portion thereof, may be exercised in whole or in part only with respect to
whole Shares.
Shares shall be issued to the Optionee pursuant to the exercise of an
Option only upon receipt by the Corporation from the Optionee of payment in full
either in cash or by surrendering (or attesting to the ownership of) Shares
together with proof acceptable to the Committee that such Shares have been owned
by the Optionee for at least six (6) months prior to the date of exercise of the
Option, or a combination of cash and Shares, in an amount or having a combined
value equal to the aggregate purchase price for the Shares subject to the Option
or portion thereof being exercised. The Shares issued to an Optionee for the
portion of any Option exercised by attesting to the ownership of Shares shall
not exceed the number of Shares issuable as a result of such exercise
(determined as though payment in full therefor were being made in cash) less the
number of Shares for which attestation of ownership is submitted. The value of
owned Shares submitted (directly or by attestation) in full or partial payment
for the Shares purchased upon exercise of an Option shall be equal to the
aggregate Fair Market Value of such owned Shares on the date of the exercise of
such Option.
ARTICLE IX -- ELECTION TO RECEIVE CONTINGENT DEFERRED SHARES
9.1 ELECTION PROCEDURES. On the first business day of October of each
year, Shares shall be identified pursuant to this Article as being for the
contingent benefit of each Director who, at least six (6) months prior thereto,
files with the Committee or its designee a written election to receive a
contingent deferred right to such Shares in lieu of all or a portion of such
Director's Annual Retainer. In the event a Director does not file a written
election in accordance with the preceding sentence by reason of becoming a
Director after the date which is six (6) months prior to the first business day
of October in any year, Shares shall be identified as being for the contingent
benefit of such director as of the first day (the "EFFECTIVE DATE") which is six
(6) months after the date such Director files with the Committee or its designee
a written election to receive Shares in lieu of all or a portion of such
Director's Annual Retainer; provided, however, that such an election may apply
only to the portion of such Director's Annual Retainer determined by multiplying
such Director's Annual Retainer by a fraction, the numerator of which is the
number of days from and including the Effective Date to and including the last
day of the period for which such Annual Retainer would otherwise be payable, and
the denominator of which is 365 or 366, as the case may be. An election pursuant
to the first sentence of this Section 9.1 may be revoked or changed only on or
prior to the date which is six (6) months prior to the first business day of the
following October. An election pursuant to the second sentence of this Section
9.1 shall be irrevocable.
9.2 TERM OF DEFERRAL. Receipt of Shares subject to a Director election
made pursuant to Section 9.1 shall be deferred until such Director's retirement,
resignation, disability, death, or termination (other than termination resulting
in forfeiture as described in Section 9.8) , or in the event of emergency or
necessity, as hereinafter provided.
9.3 ACCOUNTING. The Committee shall cause records to be kept in the name
of each Director electing to participate pursuant to Section 9.1 which shall
reflect the number of contingent Shares deferred by that Director.
9.4 CONTINGENCY. Until and except to the extent that deferred Shares
hereunder are distributed to or vested in the Directors or beneficiaries from
time to time in accordance with orders of the Committee, the interest of each
Director and beneficiary therein is contingent only and is subject to forfeiture
as provided in Section 9.8. Title to and beneficial ownership of the Shares,
which the Corporation will identify as subject to its contingent obligation
hereunder, shall at all times remain in the Corporation; and no Director or
beneficiary shall under any circumstances acquire any property interest in any
specific assets of the Corporation.
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9.5 METHOD OF PAYMENT.
(a) In order to meet its contingent Share obligation hereunder, the
Corporation shall each year set aside Shares in an amount equal to the total
amounts deferred for such year under this Article IX.
(b) In the event of vesting, or upon the retirement, resignation,
disability death or termination (other than termination resulting in forfeiture
as described in Section 9.8) of a Director, the number of contingent deferred
Shares payable to such Director or his beneficiary shall be determined as of
that date. If the Committee, in the exercise of its discretion provided in
Section 9.6, determines to make installment distributions of such amount, the
Corporation shall continue to set aside Shares in an amount equal to the unpaid
balance of such obligation to pay Shares.
9.6 METHOD OF DISTRIBUTION. The Committee shall from time to time
determine the time and manner of making distributions of contingent deferred
Shares in case of the retirement, resignation, disability, or death of a
Director or in the event of an emergency or necessity affecting the personal or
family affairs of any Director or beneficiary of a deceased Director by such
methods as it shall find appropriate for providing incentive to Directors for
their continued service on behalf of the Corporation. Commencement of
distribution in each case may be deferred by the Committee, but (subject to
Section 9.8) not beyond one year after the retirement, disability or death of
the Director or, in the case of a Director who shall have resigned, not beyond
one year after such director reaches the age of 65 or incurs a disability or
dies. In the case of a Director's death before distribution is completed, the
balance may be distributed in a lump sum or on an installment basis as the
Committee may determine.
9.7 DESIGNATION OF BENEFICIARIES. Each Director shall have the right to
designate beneficiaries who are to succeed to such Director's contingent right
to receive future payments hereunder in the event of death. In case of the
failure of a Director to make a designation or the death of a designated
beneficiary without the Director having designated a successor, distribution
shall be made to the Director's estate. No designation of beneficiaries shall be
valid unless it is in writing, signed by the Director, dated, and filed with the
Committee. Beneficiaries may be changed without the consent of any prior
beneficiaries.
9.8 POSSIBLE FORFEITURE OF SHARES.
(a) The contingent right of a Director or beneficiary to receive deferred
Shares hereunder shall be forfeited upon the occurrence of any one or more of
the following events:
(1) If the Director is discharged for cause by the Corporation or a
subsidiary thereof; or
(2) If the Director shall enter into a business or employment which
the Committee determines to be (i) detrimentally competitive with the
business of the Corporation or a subsidiary, and (ii) substantially
injurious to the Corporation's financial interests;
(b) The Committee may at any time and from time to time order all or any
part of the value of the contingent right of a Director or beneficiary to
receive future Shares to be vested and no longer subject to forfeiture, and may
order payment of the amounts so vested on dates specified in such orders, if it
finds such action appropriate in the circumstances.
9.9 NUMBER OF SHARES. The number of Shares identified pursuant to this
Article shall be the number of whole Shares equal to (i) the portion of the
Annual Retainer which the Director has elected pursuant to Section 9.1 to be
payable in Shares, divided by (ii) the Fair Market Value per Share on the date
stock is identified as contingent deferred stock of the Director (which will
occur either on October 1st of the year of election or on the Effective Date,
whichever is applicable). Any fraction of a Share shall be disregarded and the
remaining amount of such Annual Retainer shall be paid to the Director in cash
and shall not be deferred pursuant to this Article.
9.10 CHARACTERIZATION OF THE RELATIONSHIPS CREATED BY THIS
ARTICLE. Nothing contained herein shall be deemed to create a trust of any kind
or create any fiduciary relationship. Shares identified hereunder shall continue
for all purposes to be treasury stock held by the Corporation, and no person
other than the Corporation shall, by virtue of the provisions of this Article
IX, have any interest in such Shares. To the extent that any person
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acquires a right to receive Shares from the Corporation under this Article IX,
such right shall be no greater than the right of any unsecured general creditor
of the Corporation.
ARTICLE X -- AMENDMENT AND TERMINATION
The Board may amend the Plan from time to time or terminate the Plan at any
time; provided, however, that no action authorized by this Article shall
adversely change the terms and conditions of an outstanding Option without the
Optionee's consent and, subject to Article XII, the number of Shares subject to
an Option granted under Article VIII, the purchase price therefor, the date of
grant of any such Option and the termination provisions relating to such Option,
shall not be amended more than once every six (6) months, other than to comply
with changes in the Internal Revenue Code of 1986, as amended, or any successor
law, or the Employee Retirement Income Security Act of 1974, as amended, or any
successor law, or the rules and regulations thereunder.
ARTICLE XI -- ADJUSTMENT PROVISIONS
11.1 If the Corporation shall at any time change the number of issued
Shares without new consideration to the Corporation (such as by stock dividend,
stock split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the Shares) or make
a distribution of cash or property which has a substantial impact on the value
of issued Shares, the total number of Shares reserved for issuance under the
Plan shall be appropriately adjusted and the number of Shares covered by each
outstanding Option and the purchase price per Share under each outstanding
Option and the number of shares underlying Options to be issued annually
pursuant to Section 8.1 shall be adjusted so that the aggregate consideration
payable to the Corporation and the value of each such Option shall not be
changed.
11.2 Notwithstanding any other provision of the Plan, and without
affecting the number of Shares reserved or available hereunder, the Committee
shall authorize the issuance, continuance or assumption of outstanding Options
or provide for other equitable adjustments after changes in the Shares resulting
from any merger, consolidation, sale of assets, acquisition of property or
stock, recapitalization, reorganization or similar occurrence in which the
Corporation is the continuing or surviving corporation, upon such terms and
conditions as it may deem necessary to preserve Optionees' rights under the
Plan.
11.3 In the case of any sale of assets, merger, consolidation or
combination of the Corporation with or into another corporation other than a
transaction in which the Corporation is the continuing or surviving corporation
and which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property, or any combination
thereof (an "Acquisition"), any Optionee who holds an outstanding Option shall
have the right (subject to the provisions of the Plan and any limitation
applicable to the Option) thereafter and during the terms of the Option, to
receive upon exercise thereof the Acquisition Consideration (as defined below)
receivable upon the Acquisition by a holder of the number of Shares which would
have been obtained upon exercise of the Option or portion thereof, as the case
may be, immediately prior to the Acquisition. The term "ACQUISITION
CONSIDERATION" shall mean the kind and amount of shares of the surviving or new
corporation, cash, securities, evidence of indebtedness, other property or any
combination thereof receivable in respect of one Share of the Corporation upon
consummation of an Acquisition.
ARTICLE XII -- EFFECTIVE DATE
The Plan shall be submitted to the stockholders of the Corporation for
approval and, if approved by a majority of all the votes cast at the next annual
meeting of stockholders, shall become effective as of October 3, 1995. If
stockholder approval is not obtained at the next annual meeting of stockholders,
the Plan shall be nullified.
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APPENDIX C
PHAR-MOR, INC.
1996 DIRECTOR RETIREMENT PLAN
ARTICLE I -- PURPOSE OF THE PLAN
The purpose of the Phar-Mor, Inc. 1996 Director Retirement Plan is to
promote the long-term growth of Phar-Mor, Inc. (hereinafter sometimes referred
to as the "CORPORATION") by offering long-term incentives to Directors in the
Corporation and to attract and retain highly qualified and capable Directors.
ARTICLE II -- DEFINITIONS
Unless the context clearly indicates otherwise, the following terms shall
have the following meanings:
2.1 "AWARD" means an award granted to a Director under the Plan in the
form of Retirement Shares.
2.2 "BOARD" means the Board of Directors of Phar-Mor, Inc.
2.3 "CORPORATION" means Phar-Mor, Inc.
2.4 "DIRECTOR" means a director of the Corporation.
2.5 "FAIR MARKET VALUE" means, with respect to any date, the average
between the highest and lowest sale prices per Share on the Nasdaq Stock Market
on such date, provided that if there shall be no sale of Shares reported on such
date, the Fair Market Value of a Share on such date shall be deemed to be equal
to the average between the highest and lowest sale prices per Share on the
Nasdaq Stock Market for the last preceding date on which sales of Shares were
reported.
2.6 "PLAN" means the Phar-Mor, Inc. 1996 Director Retirement Plan, as
amended and restated from time to time.
2.7 "RETIREMENT SHARES" mean any Shares granted pursuant to Article VI.
2.8 "SHARES" means shares of the Common Stock, par value $.01 per share,
of the Corporation.
2.9 "TOTAL DISABILITY" means complete and permanent inability by reason of
illness or accident to perform the duties of a Director when such disability
commenced. All determination as to the date and extent of the disability of any
participant shall be made by the Committee, upon the basis of such evidence as
the Committee (as defined below) deems necessary and desirable.
ARTICLE III -- ADMINISTRATION OF THE PLAN
3.1 ADMINISTRATOR OF THE PLAN. The Plan shall be administered by the
Compensation Committee of the Board ("COMMITTEE").
3.2 AUTHORITY OF COMMITTEE. The Committee shall have full power and
authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and administer
the Plan, and (ii) designate persons other than members of the Committee to
carry out its responsibilities, subject to such limitations, restrictions and
conditions as it may prescribe, such determinations to be made in accordance
with the Committee's best business judgment as to the best interests of the
Corporation and its stockholders and in accordance with the purposes of the
Plan. The Committee may delegate administrative duties under the Plan to one or
more agents as it shall deem necessary or advisable.
3.3 DETERMINATIONS OF COMMITTEE. A majority of the Committee shall
constitute a quorum at any meeting of the Committee, and all determinations of
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or a meeting of the
Committee by a written consent signed by all members of the Committee.
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3.4 EFFECT OF COMMITTEE DETERMINATIONS. No member of the Committee or the
Board shall be personally liable for any action or determination made in good
faith with respect to the Plan or any Award or to any settlement of any dispute
between a Director and the Corporation. Any decision or action taken by the
Committee or the Board with respect to an Award or the administration or
interpretation of the Plan shall be conclusive and binding upon all persons.
ARTICLE IV -- ELIGIBILITY
Directors of the Corporation shall be eligible to participate in the Plan
in accordance with Article VI provided they have served as a Director for at
least three (3) full years.
ARTICLE V -- RETIREMENT SHARES
Awards under this Plan shall be granted to a participant in the form of
Retirement Shares, which shall be credited to a Retirement Share Account to be
maintained for such participant. Each Retirement Share shall be deemed to be
equivalent in value to one Share. The award of Retirement Shares under the Plan
shall not entitle the recipient to any dividend or voting rights or any other
rights of a stockholder with respect to such Retirement Shares.
The maximum number of Retirement Shares that may be awarded under the Plan
shall not exceed an aggregate of 100,000 Retirement Shares. If any Retirement
Shares awarded under the Plan shall be forfeited or canceled, such Retirement
Shares may again be awarded under the Plan.
The Committee may in its sole discretion substitute other forms of awards
(such as restricted stock) for Retirement Shares. Notwithstanding the foregoing
provisions of this section, the Committee shall not substitute any other form of
award for Retirement Shares unless, in the opinion of the Committee, such
substitution would not result in any significant increase in the cost of the
Plan to the Corporation, or otherwise adversely affect it.
ARTICLE VI -- TIME OF GRANT OF RETIREMENT
SHARES AND NUMBER OF RETIREMENT SHARES GRANTED
On the first business day of October of each year, each Director shall
become entitled to Retirement Shares in the manner set forth below under Article
VII, with the amount of such Retirement Shares equal to (i) the Director's
Annual Retainer, divided by (ii) the Fair Market Value per Share on the date
such Retirement Shares are granted. If a Director is first elected or begins
serving on a date other than the date of an annual meeting of stockholders, such
Director shall become entitled to a pro-rated portion of the amount of
Retirement Shares described above, with such pro ration based on the period of
time remaining before the first business day of the first October following that
date. Any fraction of a Retirement Share calculated pursuant to this Article
shall be disregarded.
ARTICLE VII -- TIMING AND RIGHT TO PAYMENT OF RETIREMENT SHARES
A Director shall have no right to receive payment for any part of his or
her Retirement Shares until such Director's (a) retirement from the Board after
having served at least three (3) full years as a Director; (b) death; (c) or
Total Disability. If such Director leaves the Corporation prior to the
occurrence of all of the above events, such Director's Retirement Shares shall
be forfeited.
The Committee may, if in the opinion of the Committee circumstances warrant
such action, approve payment of any or all of Retirement Shares which would
otherwise be forfeited as a result of a participant failing to remain as a
Director for the required period.
C-2
<PAGE> 43
ARTICLE VIII -- FORM OF PAYMENT
Payments shall be made to the holder of Retirement Shares wholly in cash or
wholly in an equal number of Shares, or partly in cash and partly in Shares in
such proportion as the Committee deems appropriate. Shares issued upon payment
of Retirement Shares may be either treasury Shares, or authorized and unissued
Shares, or both.
Payment in respect of Retirement Shares shall be made as soon as
practicable after the event which determines a Director's right to receive such
payment provided, however, that before the grant of any award a Director may
elect that the payment of his Retirement Shares should be made in a specified
number of installments.
ARTICLE IX -- DESIGNATION OF BENEFICIARIES
Each Director shall have the right to designate beneficiaries who are to
succeed to such Director's contingent right to receive future payments hereunder
in the event of death. In case of the failure of a Director to make a
designation or the death of a designated beneficiary without the Director having
designated a successor, distribution shall be made to the Director's estate. No
designation of beneficiaries shall be valid unless it is in writing, signed by
the Director, dated, and filed with the Committee. Beneficiaries may be changed
without the consent of any prior beneficiaries.
ARTICLE X -- AMENDMENT AND TERMINATION
The Board may amend the Plan from time to time or terminate the Plan at any
time; provided, however, that, no action authorized by this Article shall
adversely change the number of Retirement Shares outstanding, and that subject
to Article XI, the number of Retirement Shares granted under Article VI, shall
not be amended more than once every six (6) months, other than to comply with
changes in the Internal Revenue Code of 1986, as amended, or any successor law,
or the Employee Retirement Income Security Act of 1974, as amended, or any
successor law, or the rules and regulations thereunder.
ARTICLE XI -- ADJUSTMENT PROVISIONS
11.1 If the Corporation shall at any time change the number of issued
Shares without new consideration to the Corporation (such as by stock dividend,
stock split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the Shares) or make
a distribution of cash or property which has a substantial impact on the value
of issued Shares, the total number of Retirement Shares outstanding under the
Plan shall be appropriately adjusted so that the value of each such Retirement
Share shall not be changed.
11.2 Notwithstanding any other provision of the Plan, and without
affecting the number of Retirement Shares reserved or available hereunder, the
Committee shall authorize continuance or assumption of outstanding Retirement
Shares or provide for other equitable adjustments after changes in the Shares
resulting from any merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization, reorganization or similar occurrence in
which the Corporation is the continuing or surviving corporation, upon such
terms and conditions as it may deem necessary to preserve Directors' rights
under the Plan.
11.3 In the case of any sale of assets, merger, consolidation or
combination of the Corporation with or into another corporation, other than a
transaction in which the Corporation is the continuing or surviving corporation,
and which does not result in the outstanding Retirement Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), any Director granted Retirement Shares
shall have the right (subject to the provisions of the Plan) thereafter to
receive the Acquisition Consideration (as defined below) receivable upon the
Acquisition by a holder of the number of Shares equal to the number of
Retirement Shares granted to the Director. The term "ACQUISITION CONSIDERATION"
shall mean the kind and amount of shares of the surviving or new corporation,
cash, securities, evidence of indebtedness, other
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<PAGE> 44
property or any combination thereof receivable in respect of one Share of the
Corporation upon consummation of an Acquisition.
ARTICLE XII -- EFFECTIVE DATE
The Plan shall be submitted to the stockholders of the Corporation for
approval and, if approved by a majority of all the votes cast at the next annual
meeting of stockholders, shall become effective as of May 14, 1996. If
stockholder approval is not obtained at such annual meeting of stockholders, the
Plan shall be nullified.
ARTICLE XIII -- MISCELLANEOUS PROVISIONS
13.1 A Director's rights and interests under the Plan may not be assigned
or transferred. In the case of a Director's death, payment of Retirement Shares
due under this Plan shall be made to his designated beneficiary, or in the
absence of such designation, by will or the laws of descent and distribution.
13.2 No Director shall have any claim or right to be granted an Award
under this Plan. Neither this Plan nor any action taken hereunder shall be
construed as giving any person any right to be retained as a Director.
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APPENDIX D
PHAR-MOR, INC. EMPLOYEE STOCK PURCHASE PLAN
Phar-Mor, Inc. (the "Company") does hereby establish its Employee Stock
Purchase Plan (the "Plan") as follows:
1. PURPOSE OF THE PLAN. The Plan is intended to provide a method whereby
eligible employees of the Company and its Subsidiaries will have an opportunity
to acquire a proprietary interest in the Company through the purchase of shares
of common stock of the Company. The Company believes that employee participation
in the ownership of the Company is of benefit to both the employees and the
Company. The Company intends to have the plan qualify as an "employee stock
purchase plan" under Section 423 of the Code. The provisions of the Plan shall,
accordingly, be construed so as to allow participation in a manner that is
consistent with the requirements of that Section of the Code. The Company shall
issue Shares under the Plan which are authorized and unissued Shares, Shares
issued and held by the Company as treasury stock or Shares purchased on the open
market, as may be determined from time-to time by the Board of Directors.
2. DEFINITIONS
Account. "Account" means the funds that are accumulated with respect to
each individual Participant as a result of payroll deductions for the purpose of
purchasing Shares under the Plan. The funds that are allocated to a
Participant's Account shall at all times remain the property of that
Participant, but such funds may be commingled with the general funds of the
Company.
Authorization. "Authorization" means the payroll deduction authorization
form submitted by employees to the Company in accordance with the instructions
thereon to authorize regular payroll deductions under the Plan, as provided for
in Section 6.
Base Pay. "Base Pay" means an employee's regular straight time salary or
earnings (determined prior to any reduction thereof for amounts contributed to
an employee benefit plan of the Company or a subsidiary as the result of a
salary reduction agreement intended to satisfy Section 125, 402(e)(3) of 402(h)
of the Code or the successor thereto and not including overtime and bonus
payments).
Board. The "Board" means the Board of Directors of the Company.
Code. The "Code" means the Internal Revenue Code of 1986, as amended.
ESPP Agent. The "ESPP Agent" is a qualified stock brokerage or other
financial services firm that has been designated from time-to-time by the
Company.
Grant Date. The "Grant Date" means the January 1, April 1, July 1, and
October 1 on which options to purchase Stock are granted to an employee who is a
Participant in the Plan on that date. The first Grant Date shall not be any
earlier than October 1, 1997.
Holding Period. The "Holding Period" shall mean the holding period that is
set forth in Section 423(a) of the Code, which, as of the date that the
Company's Board of Directors adopted this Plan, is the later of (a) that two (2)
year period after the Grant Date and (b) that one (1) year period after transfer
to a Participant of any Shares under the Plan.
Participant. "Participant" means an employee who, pursuant to Section 3,
is eligible to participate in the Plan and has complied with the requirements of
Section 6.
Purchase Price. "Purchase Price" means the price at which options granted
by the Company to a Participant are exercised pursuant to Section 4.
Quarterly Purchase Date. The "Quarterly Purchase Date" means the last day
of any calendar quarter in which options are granted to Participants, or if not
a business day, the immediately preceding business day.
Shares. "Shares" means shares of the Company's common stock, $0.01 par
value per share, that will be sold to Participants under the Plan.
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<PAGE> 46
Subsidiaries. "Subsidiaries" shall mean any present or future or domestic
or foreign corporation that: (i) qualifies as a "subsidiary corporation" of the
Company as that term is defined in Section 424 of the Code, and (ii) whose
employees have been designated by the Board to be eligible, subject to Section
3, to be Participants under the Plan.
Withdrawal Notice. "Withdrawal Notice" means a notice, in a form designed
by the Company, that a Participant who wishes to withdraw from the Plan must
submit to the Company pursuant to Section 13 prior to the Quarterly Purchase
Date.
3. EMPLOYEES ELIGIBLE TO PARTICIPATE. Any employee of the Company or any
of its Subsidiaries who (a) is in the employ of the Company or any of its
Subsidiaries on the Grant Date, (b) has been so employed for at least ninety
(90) days prior to the Grant Date, and (c) is customarily employed for more than
twenty (20) hours per week and for more that five (5) months per calendar year
during such employment is eligible to participate in the Plan, except employees
as provided in Section 19.
4. PURCHASE PRICE. The Purchase Price per Share shall be ninety percent
(90%) of the fair market value of the stock on the Quarterly Purchase Date. Fair
market value shall mean the closing price on the NASDAQ National Market.
5. NUMBER OF SHARES RESERVED UNDER THE PLAN. The maximum number of Shares
that will be offered under the Plan is 500,000. If, on any date, the total
number of Shares for which purchase rights are to be granted pursuant to Section
8 exceeds the number of Shares then available under this Section 5, (after
deduction of all Shares (a) that have been purchased under the Plan, and (b) for
which options to purchase are then outstanding), the Company shall make a pro
rata allocation of the Shares that remain available in as nearly a uniform
manner as shall be practicable and as it shall determine, in its sole judgment
to be equitable. In such event, each Participant's payroll deductions shall be
reduced accordingly, and the Company shall give to each Participant a written
notice of such reduction.
6. PARTICIPATION. An eligible employee may become a Participant on any
Grant Date (after July 1, 1997) by completing the Authorization provided by the
Company and submitting it to the Company at the time specified prior to the
Grant Date to which it relates. The Authorization shall authorize an after-tax
regular payroll deduction from the pay of the Participant commencing with the
first pay date following the Grant Date. Payroll deductions and participation in
the Plan shall continue for any employee submitting an Authorization, until such
employee becomes ineligible to participate in the Plan or withdraws from the
Plan or the Plan is terminated. A Participant who ceases to participate in the
Plan may again participate in the Plan on any following Grant Date on which the
Participant is eligible to do so, but only once in the calendar year in which
participation ceases, by completing and filing an Authorization with the Company
at the time specified prior to the Grant Date to which it relates.
7. PAYROLL DEDUCTION.
7.1 At the time the Authorization is filed with the Company and for so
long as a Participant participates in the Plan, each Participant shall authorize
the Company to make payroll deductions of a fixed dollar amount per pay period
not less than Ten Dollars ($10.00) up to a maximum of One Hundred Dollars
($100.00) per week; provided, however, that no payroll deduction shall exceed
ten percent (10%) of Base Pay. The amount of the minimum fixed dollar deduction
may be adjusted by the Board of Directors from time-to-time.
7.2 Each Participant's payroll deductions shall be credited to that
Participant's Account. A Participant may not make a separate cash payment into
such Account nor may payment for Shares be made from other than the
Participant's Account.
7.3 A Participant's payroll deductions shall begin on the first pay date
following the applicable Grant Date, and shall end on the date the Participant
becomes ineligible to participate in the Plan or withdraws from the Plan, or the
Plan is terminated.
7.4 A Participant may increase or decrease the amount of his or her
payroll deductions, subject to the limits herein, by delivering a new
Authorization. Only one (1) increase or decrease in the amount of payroll
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deductions shall be permitted in a calendar year. A new Authorization shall take
effect as soon as it can be processed by the Company.
8. GRANTING OF RIGHT TO PURCHASE. On each Grant Date, the Plan shall be
deemed to have granted automatically to each Participant a right to purchase as
many Shares (including fractional Shares) as may be purchased with such
Participant's Account on the next following Quarterly Purchase Date, subject to
the limitations of the Plan.
9. PURCHASE OF SHARES. On the Quarterly Purchase Date, each Participant
whose Account has not been refunded due to the death of such Participant or
ineligibility to participate in the Plan shall be deemed to have carried out the
right to purchase, and shall be deemed to have purchased at the number of Shares
(including fractional Shares) that may be purchased with such Participant's
Account on the Quarterly Purchase Date at the Purchase Price.
10. CARRYOVER OF ACCOUNT. Following the purchase of Shares on an
Quarterly Purchase Date, any balance of a Participant's Account shall be used to
purchase Shares on the next Quarterly Purchase Date, unless the Participant has
advised the Company otherwise in writing, in which case the Company shall refund
to the Participant the funds that remain in the Participant's Account as soon as
practicable thereafter or unless the Participant's Account is otherwise refunded
under the applicable terms of the Plan.
11. PARTICIPANT'S RIGHTS AS A SHAREHOLDER. No Participant shall have any
rights of a shareholder with respect to any Shares until the Shares have been
purchased in accordance with Section 9 and issued by the Company.
12. EVIDENCE OF OWNERSHIP OF SHARES.
12.1 Promptly following each Quarterly Purchase Date, the Shares that are
purchased by each Participant shall be deposited into an account that is
established in the Participant's name with the ESPP Agent.
12.2 A Participant may direct, by written notice to the Company prior to
an Quarterly Purchase Date, that the ESPP Agent account be established in the
names of the Participant and one such other person as may be designated by the
Participant as a joint tenant with right of survivorship, tenants in common, or
community property, to the extent and in the manner permitted by applicable law.
12.3 A Participant shall be free to undertake a disposition, as that term
is defined in Section 424(c) of the Code (which generally includes any sale,
exchange, gift or transfer of legal title), of Shares in the Participant's ESPP
Agent account at any time, whether by sale, exchange, gift or other transfer of
title. A Participant may move such Shares to an account at another brokerage
firm of the Participant's choosing or request that a certificate that represents
the Shares be issued and delivered to the Participant.
13. WITHDRAWAL. A Participant may terminate his or her participation and
withdraw from the Plan at any time prior to the Quarterly Purchase Date by
delivering a Withdrawal Notice to the Company, in which event the Company shall
carry out the purchase of Shares with the balance of Participant's Account prior
to Participant's withdrawal on the next Quarterly Purchase Date. (Thereafter,
such Participant may again participate in the Plan in accordance with Section
6.)
14. INTEREST. No interest shall be paid or allowed on a Participant's
Account.
15. RIGHTS NOT TRANSFERABLE. No Participant shall be permitted to sell,
assign, transfer, pledge, or otherwise dispose of or encumber such Participant's
Account or any rights and interest to purchase or to receive Shares under the
Plan, and such Account and rights and interests shall not be liable for, or
subject to, a Participant's debtors, contracts, or liabilities. If any such
action is taken by the Participant or any valid claim is made by any party with
respect to such Account or rights and interest, whether by garnishment, levy,
attachment or otherwise, such Participant shall cease to participate in the
Plan, no further payroll deductions shall be taken from the pay due and owing to
the Participant, and the balance in such Participant's Account shall be refunded
to the Participant.
16. RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event of a
Participant's termination of employment with the Company and all subsidiaries
for any reason (including retirement, death or disability) or in
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<PAGE> 48
the event the corporation by which Participant is employed ceases to be a
Subsidiary of the Company, no further payroll deduction shall be taken from any
pay due and owing to such Participant. In the event of a Participant's
termination of employment due to the death of such Participant, the balance in
such Participant's Account shall be refunded to his or her estate, or if none,
to the person(s) entitled to his or her estate under the intestate laws of the
state in which he or she resides. In the event of a Participant's termination of
employment for any reason other than death, on the following Quarterly Purchase
Date, each such Participant shall be deemed to have carried out the right to
purchase, and shall be deemed to have purchased at the number of Shares
(including fractional Shares) that may be purchased with such Participant's
Account on the Quarterly Purchase Date.
17. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THIS
PLAN. The Board may amend the Plan at any time and for any reason, provided,
however, that no such amendment shall be effective without the approval of the
shareholders of the Company if the amendment (a) increases the number of Shares
to be offered under the Plan (other than as provided for herein) or (b)
decreases the Purchase Price per share or if such approval is required to meet
the requirements of Section 423 of the Code or Securities and Exchange
Commission Rule 16b-3 (or successors thereto).
18. CHANGES IN CAPITALIZATION. In the event of reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, offerings of rights, or any other change in the capital structure
of the Company, the Board may make such adjustment, if any, as it may deem
appropriate in the number, kind, and the price of the Shares that are available
for purchase under the Plan, and in the number of Shares that an employee is
entitled to purchase all to the end that a Participant's proportionate interest
shall be maintained as before the occurrence of such event. (Such adjustment
made by the Board shall be conclusive.)
19. SHARE OWNERSHIP. Notwithstanding anything herein to the contrary, no
Participant shall be granted a right to purchase any Shares under the Plan if
such Participant, immediately after the granting of such rights, owns Shares
that account for (including all shares that may be purchased under outstanding
rights and options) five percent (5%) or more of the total combined voting power
or value of all classes of shares of the Company or its Subsidiaries (or its
parent with in the meaning of Section 424(e) of the Code). For the foregoing
purposes, the rules of Section 424(d) of the Code shall apply in determining
share ownership. In addition, no Participant shall be granted a right to
purchase any Shares under the Plan that permits such Participant's rights to
purchase Shares under all "employee stock purchase plans" of the Company and its
Subsidiaries (or its parent within the meaning of 423(e) of the Code) to accrue
at a rate that exceeds $25,000 of the fair market value of such shares
(determined at the time such right to purchase is granted) for each calendar
year in which such right to purchase is outstanding at any time (as interpreted
and applied in accordance with Section 423(b) (8) of the Code).
20. ADMINISTRATION. The Plan shall be administered by the Board, which
may engage the ESPP Agent to assist in the administration of the Plan. The Board
shall be vested with full authority and discretion to (a) administer, construe,
and interpret the Plan, (b) define the terms of the Plan, (c) prescribe, amend
and rescind rules and regulations for the Plan, (d) correct any defect, supply
any omission or reconcile any inconsistency in the Plan, and (e) make all legal
and factual determinations necessary or advisable for the administration of the
Plan. All determinations, decisions, or actions of the Board in connection with
the construction, interpretation, administration or application of the Plan
shall be final, conclusive, and binding upon all Participants and any and all
persons that claim rights or interests under or through a Participant. The Board
may delegate any or all of its authority hereunder to a committee of the Board,
as it may designate.
21. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, that is designated by the Company from time to time for the receipt
thereof, and, in the absence of such designation, the Company's Legal
Department; Attention: General Counsel.
22. TERMINATION OF PLAN.
22.1 This Plan shall terminate at the earliest of the following:
(a) July 1, 2002;
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<PAGE> 49
(b) The date of the filing of a statement of intent to dissolve by the
Company or the effective date of a merger or consolidation wherein the
Company is not to be the surviving corporation, which merger or
consolidation is not between or among a corporation related to the Company.
In such event, a Participant shall be treated with respect to such Share
for which the Participant has been granted a right to purchase in the same
manner, as nearby as reasonably possible as a holder of a Share subject to
options is otherwise treated in such event.
(c) The date the Board acts to terminate the Plan; and
(d) The date when all of the Shares that were reserved for issuance
hereunder have been purchased.
22.2 Upon termination of the Plan, the Company shall refund to each
Participant the balance of each Participant's Account that is not otherwise used
to purchase Shares.
23. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is
intended to provide Shares for investment and not for resale. The Company does
not, however, intend to restrict or influence the conduct of any employee's
affairs. An employee, therefore, may sell Shares that are purchased under the
Plan at any time, subject to compliance with any applicable federal and state
securities laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE
PRICE OF THE SHARES.
24. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver Shares under this Plan is subject to any governmental approval that is
required in connection with the authorization, issuance, or sale of such Shares.
No right to purchase Shares or purchase and delivery of Shares shall be granted
or exercised if the same would be contrary to law or the regulations of any duly
constituted authority having jurisdiction or would disqualify the Plan as
"employee stock purchase plan" under Section 423 of the Code.
25. NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any Shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
26. EFFECTIVE DATE AND APPROVALS. The Plan shall be effective September
1, 1997, subject to its adoption by the Board by that date and subject to
approval of the stockholders of the Company (in accordance with applicable law
for the issuance of corporate stock or options) within (12) months before or
after the date the Plan is adopted by the Board. If the Plan is not so adopted
and approved, it shall not be effective.
27. EXCHANGE ACT. Notwithstanding any contrary provisions, any
Participants that are directors, executive officers and 10% or greater
shareholders subject to Section 16 of the Securities Exchange Act of 1934 (or
successor thereto) must effect transactions hereunder in accordance with Section
16 of the 1934 Act and the rules promulgated thereunder. In this regard, it is
intended that the Plan comply with Rule 16b-3, and in order to maintain
compliance with Rule 16b-3, as well as the 1934 Act, the Board may make such
rules and impose such limitations as it deems advisable. Moreover, in the event
the Plan does not include a provision required by Rule 16b-3 to be stated
therein, such provision (other than one relating to eligibility requirements to
purchase Shares, the amount of Shares that may be purchased or the price for the
purchase of Shares) shall be deemed to be incorporated by reference into the
Plan with respect to Participants subject to Section 16 of the 1934 Act.
28. GOVERNING LAW. The law of the Commonwealth of Pennsylvania shall
govern all matters that relate to this Plan, except to the extent it is
superseded by the laws of the United States.
<TABLE>
<S> <C>
Date Adopted by Board: June 5, 1997
Date Approved by Shareholders:
------------------------------
</TABLE>
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<PAGE> 50
PROXY FOR ANNUAL MEETING OF THE SHAREHOLDERS OF
PHAR-MOR, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints Abbey J. Butler, Melvyn J.
Estrin, John R. Ficarro and Sankar Krishnan, and each of them, with full power
of substitution, as proxies to vote all shares in Phar-Mor, Inc. (the
"Company"), which the undersigned is entitled to vote at the Annual Meeting of
the Company to be held at the Watergate Hotel, 2650 Virginia Avenue, NW,
Washington, D.C. on February 17, 1998 at 9:30 a.m. (local time) and at any
postponement or adjournment thereof (the "Meeting"), with the effect and as if
the undersigned were personally present and voting upon the matters set forth
in this proxy card.
PROXIES WILL BE VOTED AS DIRECTED OR SPECIFIED. IF NO CHOICE IS SPECIFIED, THIS
PROXY WILL BE VOTED (A) FOR THE NOMINATED DIRECTORS, (B) FOR PROPOSALS 2, 3, 4,
5, 6 AND 7 AND (C) FOR OR AGAINST ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING AT THE DISCRETION OF THE PROXY HOLDERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINATED DIRECTORS AND FOR
PROPOSALS 2, 3, 4, 5, 6 AND 7.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE
REVERSE SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE> 51
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1.Election of Directors For Withheld For All 2. Amendment to the Company's For Against Abstain
Nominees: Abbey J. All All Except Restated Articles of In- / / / / / /
Butler, Melvyn J. / / / / / / corporation, as Amended,
Estrin, Daniel H. providing for a classified
Levy, Monroe Board of Directors.
Osterman, Arthur G.
Rosenburg, John D. 3. Approval of 1995 Director / / / / / /
Shulman. Stock Plan, as amended,
and an amendment thereto
------------------------ increasing the number of
(Except nominees written shares available under
above) such plan.
4. Approval of 1996 Director / / / / / /
Retirement Plan.
5. Amendment to 1995 Stock / / / / / /
Incentive Plan increasing
the number of shares
available under such plan.
6. Approval of 1997 Employee / / / / / /
Stock Purchase Plan.
7. Ratification of appointment / / / / / /
of Deloitte & Touche LLP
as the Company's indepen-
dent public accountants.
8. In their discretion, the
proxies are authorized to
vote upon such other
business as may properly
come before the Meeting.
MARK HERE FOR ADDRESS CHANGE / /
AND REVISE PREPRINTED
ADDRESS AS NECESSARY.
MARK HERE IF YOU PLAN TO / /
ATTEND THE MEETING.
Dated: ___________________________, 1996
Signature(s)____________________________________
________________________________________________
IMPORTANT--PLEASE SIGN AND RETURN PROMPTLY. When
shares are held by joint tenants, both should
sign. When signing as attorney, executor, admin-
istrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in
full corporate name by president or other author-
ized officer. If a partnership, please sign in
partnership name by an authorized person.
</TABLE>
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN ND DATE THIS PROXY
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
PROXIES WILL BE VOTED AS DIRECTED OR SPECIFIED. IF NO CHOICE IS SPECIFIED, THIS
PROXY WILL BE VOTED (A) FOR THE NOMINATED DIRECTORS, (B) FOR PROPOSALS 2, 3, 4,
5, 6 AND 7 AND (C) FOR OR AGAINST ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING AT THE DISCRETION OF THE PROXY HOLDERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINATED DIRECTORS AND FOR
PROPOSALS 2, 3, 4, 5, 6 AND 7.
