SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934
For the quarterly period ended March 28, 1998 Commission File
Number 0-27050
-------
Transition report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934
For the transition period from to
-------- --------
PHAR-MOR, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1466309
- ------------------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Federal Plaza West, Youngstown, Ohio 44501-0400
- ------------------------------------------------- --------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (330) 746-6641
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X No
------ ------
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X No
------ ------
As of April 30, 1998, 12,235,865 shares of the registrant's common
stock were outstanding.
<PAGE>2
PHAR-MOR, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 28, 1998
I N D E X
Page
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 28, 1998
and June 28, 1997 3
Condensed Consolidated Statements of Operations for the
Thirteen Weeks Ended March 28, 1998 and March 29, 1997 4
Condensed Consolidated Statements of Operations for the
Thirty-nine Weeks Ended March 28, 1998 and March 29, 1997 5
Condensed Consolidated Statements of Cash Flows for the
Thirty-nine Weeks Ended March 28, 1998 and March 29, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II: Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
<PAGE>3
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 28, June 28,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,506 $ 79,847
Marketable securities 11,546 --
Accounts receivable - net 26,043 21,614
Merchandise inventories 184,299 169,103
Prepaid expenses and other current assets 5,232 5,743
--------- ---------
Total current assets 266,626 276,307
Property and equipment - net 74,407 72,835
Deferred tax asset 9,255 9,255
Other assets 4,374 4,208
--------- ---------
Total assets $ 354,662 $ 362,605
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 71,236 $ 61,808
Accrued expenses and other current liabilities 36,332 40,534
Current portion of long-term debt and capital lease obligations 9,324 9,155
--------- ---------
Total current liabilities 116,892 111,497
Long-term debt and capital lease obligations 135,068 140,213
Long-term self insurance reserves 8,056 8,098
Deferred rent and unfavorable lease liability - net 12,055 12,493
--------- ---------
Total liabilities 272,071 272,301
--------- ---------
Commitments and contingencies -- --
Minority interests 535 535
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock 122 122
Additional paid-in capital 89,976 89,402
Stock options outstanding 1,218 --
Retained (deficit) earnings (9,260) 245
--------- ---------
Total stockholders' equity 82,056 89,769
--------- ---------
Total liabilities and stockholders' equity $ 354,662 $ 362,605
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>4
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 28, 1998 March 29, 1997
-------------- --------------
<S> <C> <C>
Sales $ 277,319 $ 264,043
Less:
Cost of goods sold, including occupancy and
distribution costs 223,696 213,592
Selling, general and administrative expenses 44,236 41,362
Chief Executive Officer severance expenses 720 --
ShopKo business combination expenses -- 891
Loss on disposal of equipment 4,615 --
Depreciation and amortization 5,463 5,164
---------------- ----------------
(Loss) income from operations before interest and
income taxes (1,411) 3,034
Interest and investment income 893 1,308
Interest expense (4,194) (4,293)
---------------- ----------------
(Loss) income before income taxes (4,712) 49
Income tax expense -- --
---------------- ----------------
Net (loss) income $ (4,712) $ 49
================ ================
(Loss) earnings per common share $ (.39) $ --
================ ================
Diluted (loss) earnings per common share $ (.39) $ --
================ ================
Weighted average number of common shares
outstanding 12,229,071 12,157,054
================ ================
Weighted average number of common shares
outstanding - diluted 12,229,071 12,157,054
================ ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>5
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
March 28, 1998 March 29, 1997
-------------- --------------
<S> <C> <C>
Sales $ 825,863 $ 819,527
Less:
Cost of goods sold, including occupancy and
distribution costs 666,118 668,626
Selling, general and administrative expenses 131,834 126,278
Chief Executive Officer severance expenses 6,387 --
ShopKo business combination expenses -- 3,076
Loss on disposal of equipment 4,615 --
Depreciation and amortization 16,518 15,411
---------------- ----------------
Income from operations before interest and
income taxes 391 6,136
Interest and investment income 2,666 4,091
Interest expense (12,562) (12,921)
---------------- ----------------
Loss before income taxes (9,505) (2,694)
Income taxes -- --
---------------- ----------------
Net loss $ (9,505) $ (2,694)
================ ================
Loss per common share $ (.78) $ (.22)
================ ================
Diluted loss per common share $ (.78) $ (.22)
================ ================
Weighted average number of common shares
outstanding 12,184,541 12,157,054
================ ================
Weighted average number of common shares
outstanding - diluted 12,184,541 12,157,054
================ ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>6
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
March 28, 1998 March 29, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,505) $ (2,694)
Adjustments to reconcile net loss to net
cash (used for) provided by operating activities:
Items not requiring the outlay of cash:
Depreciation 10,470 8,926
Amortization of video rental tapes 6,048 6,489
Loss on disposal of equipment 4,615 --
Stock option compensation expense 1,218 --
Amortization of deferred financing costs 315 303
Deferred rent (438) 1,047
Changes in assets and liabilities:
Marketable securities (11,546) --
Accounts receivable (4,429) (1,653)
Merchandise inventories (14,832) (7,310)
Prepaid expenses 511 912
Other assets (516) (391)
Accounts payable 9,428 3,297
Accrued expenses and other current liabilities (4,245) (1,831)
---------------- ----------------
Net cash (used for) provided by operating activities (12,906) 7,095
---------------- ----------------
INVESTING ACTIVITIES
Additions to rental videotapes (6,377) (6,516)
Additions to property and equipment (14,539) (14,742)
---------------- ----------------
Net cash used for investing activities (20,916) (21,258)
---------------- ----------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 574 --
Principal payments on long-term debt (1,694) (2,173)
Principal payments on capital lease obligations (5,399) (4,469)
---------------- ----------------
Net cash used for financing activities (6,519) (6,642)
---------------- ----------------
Decrease in cash and cash equivalents (40,341) (20,805)
Cash and cash equivalents, beginning of period 79,847 104,265
---------------- ----------------
Cash and cash equivalents, end of period $ 39,506 $ 83,460
================ ================
NON-CASH TRANSACTIONS
Additions to property and equipment (2,178) --
Additions to capital lease obligations 2,178 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>7
PHAR-MOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. They do not
include all information and footnotes which would be required by
generally accepted accounting principles for complete financial
statements. In the opinion of management of Phar-Mor, Inc. and its
subsidiaries (the "Company"), these interim financial statements
contain all adjustments considered necessary for a fair presentation
of financial position, results of operations and cash flows for the
periods presented. Reference should be made to the Company's Annual
Report on Form 10-K for the fiscal year ended June 28, 1997 for
additional disclosures, including a summary of the Company's
accounting policies. Operating results for the thirteen and
thirty-nine weeks ended March 28, 1998 are not necessarily indicative
of the results that may be expected for the fifty-two weeks ending
June 27, 1998.
2. REORGANIZATION
On August 17, 1992, the Company filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). From
that time until September 11, 1995, the Company operated its business
as a debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the Northern District of Ohio (the
"Bankruptcy Court"). On September 11, 1995, the Company emerged from
reorganization proceedings under Chapter 11 pursuant to the
confirmation order entered on August 29, 1995 by the Bankruptcy Court
confirming the Third Amended Joint Plan of Reorganization dated May
25, 1995.
3. CHIEF EXECUTIVE OFFICER RESIGNATION
On September 19, 1997, the Company entered into a Severance Agreement
with Robert Haft whereby he resigned his positions as Chairman of the
Company's Board of Directors and as the Company's Chief Executive
Officer and received a lump sum cash payment of $4,417. Under the
terms of the Severance Agreement, the Company will continue to provide
benefits to him through September 19, 2000. He is indemnified and
entitled to reimbursement for any tax payments he is required to make
that constitute excess parachute payments under Federal Income Tax
laws resulting from the severance benefits he received.
4. PROPOSED BUSINESS COMBINATION
The Company entered into an Agreement and Plan of Reorganization dated
September 7, 1996 (as amended as of October 9, 1996) with ShopKo
Stores, Inc. ("ShopKo"), a retailer specializing in prescription and
vision benefit management and health decision support services, to
combine the respective companies under Cabot Noble, Inc. ("Cabot
Noble"), a newly organized Delaware holding company (the "Proposed
Transaction").
On April 1, 1997, the Company, ShopKo and Cabot Noble entered into a
Termination Agreement mutually terminating the Agreement and Plan of
Reorganization effective as of April 1, 1997.
5. LOSS ON DISPOSAL OF EQUIPMENT
During the quarter ended March 28, 1998, the Company purchased new
mainframe computer equipment and wrote off the net book value of the
existing mainframe computer equipment.
<PAGE>8
6. MARKETABLE SECURITIES
In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," marketable securities are carried at market value as
trading securities and realized and unrealized gains and losses are
reported within the condensed consolidated statements of operations.
The market value and cost of the securities are determined using the
specific identification method, with market value being determined by
quoted market prices. Marketable securities consist primarily of
equity securities.
The Company's Board of Directors has formed an Investment Committee
that is authorized to invest up to $20,000 of the Company's cash in
marketable securities. Not more than $5,000 may be invested in any one
company. On April 7, 1998 the independent members of the Company's
Board of Directors authorized the Investment Committee to invest up to
$5,000 in Avatex Corporation common stock. Avatex currently owns 39%
of the Company's outstanding common stock. The Company's Co-CEOs are
Co-CEOs of Avatex and each has a substantial personal ownership
position in Avatex.
7. PENSION PLAN TERMINATION
The Company is in the process of terminating its non-union defined
benefit pension plan. If the termination is completed and all benefits
are distributed to participants in the plan by June 30, 1998, the
Company expects to realize a gain of $1,500 to $2,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (all dollar amounts in thousands)
Thirteen Weeks Ended March 28, 1998 versus
Thirteen Weeks Ended March 29, 1997
Sales for the third quarter of fiscal year 1998 ("Fiscal 1998")
increased 5.0% compared to the third quarter of fiscal year 1997 ("Fiscal
1997"). Comparable store sales for the third quarter increased 3.0% from
$264,043 for Fiscal 1997 to $272,001 for Fiscal 1998. The increase in comparable
store sales was primarily due to the continued success of the store remodel
program and the introduction of Pepsi products in January 1998 partially offset
by the shift of two weeks of Easter sales from March (third quarter) in Fiscal
1997 to April (fourth quarter) in Fiscal 1998.
Cost of sales as a percentage of sales was 80.7% in Fiscal 1998
compared to 80.9% in Fiscal 1997, a 0.2% decrease. This decrease is primarily
due to lower inventory shrinkage, higher vendor income, lower store occupancy
and higher cash discounts partially offset by lower product margins and higher
warehouse and transportation expenses. In August 1997 the Company discontinued
purchasing grocery products from a wholesaler and began distributing these
products from its distribution center. The increase in warehouse and
transportation expenses associated with this change was more than offset by
higher product margins, increased cash discounts and increased vendor income.
Selling, general and administrative expenses as a percentage of sales
were 16.0% in Fiscal 1998 compared to 15.7% in Fiscal 1997. This increase was
due to an increase in wages caused by the increase in the minimum wage,
preopening expenses associated with the opening of a new store in the current
quarter and higher stock option compensation expenses.
<PAGE>9
The current quarter results include a charge of $4,615 for the
write-off of the Company's mainframe computer and other equipment which was
replaced during the third quarter with the latest technology IBM mainframe
computer equipment. The new mainframe computer equipment has lower operating and
maintenance costs and provides the Company greater capacity for growth and
expansion over the next three to five years.
Depreciation and amortization expense was $5,463 in Fiscal 1998
compared to $5,164 in Fiscal 1997, an increase of $299. The increase is the
result of depreciation on capital expenditures made since the second quarter of
Fiscal 1997.
Interest and investment income was $893 in Fiscal 1998 compared to
$1,308 in Fiscal 1997, a $415 decrease. The decrease was primarily due to a
decrease in interest income in Fiscal 1998 resulting from lower cash balances.
Thirty-nine Weeks Ended March 28, 1998 versus
Thirty-nine Weeks Ended March 29, 1997
Sales for the thirty-nine weeks ended March 28, 1998 increased 0.8%
compared to the thirty-nine weeks ended March 29, 1997. Comparable store sales
for the thirty-nine weeks ended March 28, 1998 decreased 1.1% from $807,919 to
$816,702. The decrease in comparable store sales was primarily due to the
discontinuance of certain promotional discount programs since the beginning of
fiscal year 1997.
Cost of sales as a percentage of sales was 80.7% in the thirty-nine
weeks ended March 28, 1998 compared to 81.6% in the prior year, a 0.9% decrease.
This decrease is primarily due to lower inventory shrinkage, higher vendor
income and higher cash discounts partially offset by higher warehouse and
transportation expenses.
Selling, general and administrative expenses as a percentage of sales
were 16.0% in the thirty-nine weeks ended March 28, 1998 compared to 15.4% in
the prior year. This increase was due to an increase in wages caused by the
increase in the minimum wage, preopening costs associated with the opening of
three new stores in the current year versus one new store in the previous year
and higher corporate overhead expenses.
The thirty-nine weeks ended March 28, 1998 include charges for
severance and related expenses of $6,387 associated with the departure of the
Company's former Chairman and Chief Executive Officer in September 1997.
FINANCIAL CONDITION AND LIQUIDITY (all dollar amounts in thousands)
The Company had cash of $39,506 and marketable securities of $11,546
as of March 28, 1998. The Company's cash position may fluctuate as a result of
seasonal merchandise purchases and timing of payments.
On September 11, 1995, the Company entered into the Revolving Credit
Facility (the "Facility") with BankAmerica Business Credit, Inc., as agent, and
other financial institutions (collectively, the "Lenders"), that established a
credit facility in the maximum amount of $100,000.
Borrowings under the Facility may be used for working capital needs
and general corporate purposes. Up to $50,000 of the Facility at any time may be
used for standby and documentary letters of credit. The Facility includes
restrictions on, among other things, additional debt, capital expenditures,
investments, dividends and other distributions, mergers and acquisitions, and
contains covenants requiring the Company to meet a specified quarterly minimum
EBITDA Coverage Ratio (the sum of earnings before interest, taxes, depreciation
and amortization, as defined, divided by interest expense), calculated on a
rolling four quarter basis, and a monthly minimum net worth test. As of the date
hereof, the Company is in compliance with all such financial covenants.
<PAGE>10
Credit availability under the Facility at any time is the lesser of
the Aggregate Availability (as defined in the Facility) or $100,000. The
Facility establishes a first priority lien and security interest in the current
assets of the Company, including, among other items, cash, accounts receivable
and inventory. Advances made under the Facility bear interest at the BankAmerica
reference rate plus 0.50% or, at the option of the Company, the London Interbank
Offered Rate ("LIBOR") plus the applicable margin (as defined in the Facility),
which ranges between 1.50% and 2.00%. Under the terms of the Facility, the
Company is required to pay a commitment fee of 0.28125% per annum on the unused
portion of the Facility, letter of credit fees and certain other fees. As of
March 28, 1998, letters of credit totaling $5,709 were outstanding under the
Facility. The Facility expires on September 10, 1998.
Thirty-nine weeks ended March 28, 1998
During the thirty-nine weeks ended March 28, 1998, the Company's cash
position decreased by $40,341. Net cash used by operating activities was
$12,906. The major uses of cash from operating activities were for a net loss of
$9,505, an increase in new store, seasonal and grocery warehouse inventories of
$14,832, an increase in marketable securities of $11,546, an increase in
accounts receivable of $4,429 and a decrease in accrued expenses of $4,245,
which were partially offset by an increase in accounts payable of $9,428 and
non-cash expenses of $22,228.
Capital expenditures of $14,539 and additions to video rental tapes of
$6,377 were paid for with the Company's excess cash position.
Net cash used for financing activities of $6,519 consists of principal
payments on lease obligations of $5,399 and principal payments on term debt of
$1,694 partially offset by the proceeds from the issuance of common stock as a
result of the exercise of stock options.
<PAGE>11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The first Annual Meeting of Shareholders of the Company was held on
February 17, 1998. The Company received proxies from holders of
10,673,678 shares of the Company's common stock, which constituted
more than a majority of all shares issued and outstanding (12,159,199
shares) at the close of business on December 2, 1997. The holders of
at least 10,208,742 shares of common stock voted for the election of
Abbey J. Butler, Melvyn J. Estrin, Daniel H. Levy, Monroe Osterman,
Arthur G. Rosenberg and John D. Shulman as directors of the
Corporation to hold office in staggered terms of three years for
Messrs. Butler and Estrin; two years for Messrs. Levy and Osterman;
and one year for Messrs. Rosenberg and Shulman.
The second proposal amending the Company's Restated Articles of
Incorporation, as amended, providing for a classified Board of
Directors was passed as follows: 5,472,288 shares in favor and
2,893,050 shares against.
The third proposal amending the Company's 1995 Director Stock Plan
increasing the number of shares available under the Plan from 250,000
to 500,000 was passed as follows: 7,846,771 shares in favor and
507,232 shares against.
The fourth proposal was for the approval of the Phar-Mor, Inc. 1996
Director Retirement Plan. The proposal passed as follows: 6,600,664
shares in favor and 1,653,659 shares against.
The fifth proposal amending the Phar-Mor, Inc. 1995 Amended and
Restated Stock Incentive Plan increasing the number of shares
available under this Plan from 913,333 to 3,500,000 was passed as
follows: 6,544,729 shares in favor and 1,725,986 shares against.
The sixth proposal was for the approval of the Phar-Mor, Inc. Employee
Stock Purchase Plan. The proposal passed as follows: 8,032,912 shares
in favor and 313,373 shares against.
The seventh proposal was for the appointment of the firm of Deloitte &
Touche LLP to be the Company's independent accountants for the fiscal
year ending June 27, 1998. The proposal passed as follows: 10,662,633
shares in favor and 8,022 shares against.
ITEM 5. OTHER INFORMATION
None.
<PAGE>12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on page 14.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended March 28, 1998.
<PAGE>13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHAR-MOR, INC.
Date: May 1, 1998 By: /s/ Sankar Krishnan
--------------------------------
Sankar Krishnan
Senior Vice President and
Chief Financial Officer
Date: May 1, 1998 By: /s/ John R. Ficarro
--------------------------------
John R. Ficarro
Senior Vice President and
Chief Administrative Officer
<PAGE>14
PHAR-MOR, INC.
INDEX TO EXHIBITS
Exhibit No.
*3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated By-laws
*4.1 Indenture dated September 11, 1995 between Phar-Mor, Inc. and IBJ
Schroder Bank & Trust Company
*4.2 Warrant Agreement dated September 11, 1995 between Phar-Mor, Inc. and
Society National Bank
10.1 1995 Directors Stock Plan, as Amended
10.2 1996 Director Retirement Plan
10.3 Employee Stock Purchase Plan
10.4 Amended and Restated Stock Incentive Plan
27 Financial Data Schedule
- -----------------------------------------------------------------
* Previously filed in connection with the filing of Phar-Mor's Form 10,
on October 23, 1995
BY-LAWS
OF
PHAR-MOR, INC.
Amended and Restated as of February 17, 1998
ARTICLE I
Offices and Fiscal Year
Section 1.1 Offices. The corporation may have offices at such places
within or without the Commonwealth of Pennsylvania as the Board of Directors may
from time to time appoint or the business of the corporation may require.
Section 1.2 Fiscal Year. The fiscal year of the corporation shall end
on the Saturday closest to June 30 of each year, or such other date as the Board
of Directors of the corporation shall from time to time determine.
ARTICLE II
Notice, Waivers and Meetings Generally
Section 2.1 Manner of Giving Notice.
2.1.1 General Rule. Whenever written notice is required to be given to
any person under the provisions of the Business Corporation Law or by the
articles of incorporation of the corporation or these by-laws, it may be given
to the person either personally or by sending a copy thereof by any class of
mail permitted under the Business Corporation Law, postage prepaid, or by
telegram (with messenger service specified), or courier service, charges
prepaid, or by telecopier (with appropriate answer-back), to the address (or to
the telecopier or telephone number) of the person appearing on the books of the
corporation or, in the case of Directors, supplied by the Director to the
corporation for the purpose of notice. If the notice is sent by mail, telegraph
or courier service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person or, in the case of telecopier, when
transmitted. A notice of meeting shall specify the place, day and hour of the
meeting and any other information required by any other provision of the
Business Corporation Law, the articles of incorporation of the corporation or
these by-laws.
<PAGE>
2.1.2 Adjourned Shareholder Meetings. When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the Board
of Directors fixes a new record date for the adjourned meeting.
Section 2.2 Notice of Meetings of Board of Directors. Notice of a
regular meeting of the Board of Directors need not be given. Notice of every
special meeting of the Board of Directors shall be given to each Director by
telephone or in writing at least 24 hours (in the case of notice by telephone)
or 48 hours (in the case of notice by telecopier, telegram, courier service or
express mail) or three days (in the case of notice by mail) before the time at
which the meeting is to be held. Every such notice shall state the date, time
and place of the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need to be
specified in a notice of the meeting.
Section 2.3 Notice of Meetings of Shareholders.
----------------------------------
2.3.1 General Rule. Written notice of every meeting of the shareholders
shall be given by, or at the direction of, the Secretary to each shareholder of
record entitled to vote at the meeting at least ten business days prior to the
day named for a meeting called to consider any matter. If the Secretary neglects
or refuses to give notice of a meeting, the person or persons calling the
meeting may do so. Such written notice shall specify the business to be
transacted at such meeting.
2.3.2 Notice of Shareholder Business. Except as provided in Section
3.13 of these by-laws, at any annual or special meeting of shareholders, only
such business shall be conducted as shall have been properly brought before the
meeting. Business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) properly brought before an annual meeting by a shareholder,
and, if and only if the notice of a special meeting provides for business to be
brought before the special meeting by shareholders, properly brought before the
special meeting by a shareholder. For business to be properly brought before a
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 50 days prior to the meeting; provided,
however, that if less than 60 days' notice of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed. A shareholder's
notice to the Secretary shall set forth as to each matter the shareholder
proposes to bring before the meeting (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business, (iii) the class
and number of shares of the corporation
2
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which are beneficially owned by the shareholder and (iv) any interest of the
shareholder in such business. Notwithstanding anything in these by-laws to the
contrary, no business shall be conducted at any meeting of shareholders except
in accordance with the procedures set forth in this paragraph. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this paragraph, and if he or she should so determine, the
chairman of the meeting shall so declare that any such business shall not be
transacted.
2.3.3 Notice of Action by Shareholders on By-laws or Articles of
Incorporation. In the case of a meeting of shareholders that has as one of its
purposes action on the by-laws or articles of incorporation of the corporation,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the by-laws or articles of incorporation of the corporation. In addition, there
shall be included in, or enclosed with, the notice a copy of the proposed
amendment or a summary of the changes to be effected thereby.
Section 2.4 Waiver of Notice.
2.4.1 Written Waiver. Whenever any written notice is required to be
given under the provision of the Business Corporation Law, the articles of
incorporation of the corporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to the notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of the notice.
Except as otherwise required by this subsection, neither the business to be
transacted at, nor the purpose of, a meeting need be specified in the waiver of
notice of the meeting. In the case of a special meeting of shareholders, the
waiver of notice shall specify the general nature of the business to be
transacted.
2.4.2 Waiver by Attendance. Attendance of a person, whether in person
or by proxy, at any meeting shall constitute a waiver of notice of the meeting
except where a person attends a meeting for the express purpose of objecting (i)
at the beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened, or (ii) prior to the vote on any
matter, because such matter was not identified as a matter to be considered at
such meeting in the written notice of such meeting.
Section 2.5 Use of Conference Telephone and Similar Equipment. One or
more persons may participate in a meeting of the Board of Directors, and if so
specified by a resolution of the Board of Directors with respect to a meeting of
the shareholders of the corporation, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at the meeting.
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ARTICLE III
Shareholders
Section 3.1 Place of Meetings. All meetings of the shareholders of the
corporation shall be held at the principal place of business of the corporation
unless another place has been designated by the Board of Directors and is set
forth in the notice of such meeting.
Section 3.2 Annual Meeting. The Board of Directors may fix and
designate the date and time of the annual meeting of the shareholders, but if no
such date and time is fixed and designated by the Board of Directors, the
meeting for any calendar year after 1995 shall be held on the third Tuesday of
November in such year, if not a legal holiday under the laws of Pennsylvania,
and, if a legal holiday, then on the next succeeding business day, at ten
o'clock a.m., and except as otherwise provided in Section 5.6 of the articles of
incorporation of the corporation, at said meeting the shareholders then entitled
to vote shall elect Directors and shall transact such other business as may
properly be brought before the meeting. In addition to any rights provided by
applicable law, if the annual meeting shall not have been called and held within
six months after the designated time, shareholders entitled to cast at least
one-third of the votes that all shareholders are entitled to cast at such
meeting may call the meeting at any time thereafter.
Section 3.3 Special Meetings. Special meetings of the shareholders may
be called at any time by shareholders entitled to cast at least one-third of the
votes that all shareholders are entitled to cast at such meeting, or by
resolution of the Board of Directors, which may fix the date, time and place of
the meeting. If the Board of Directors does not fix the date, time or place of
the meeting, it shall be the duty of the Secretary to do so. A date fixed by the
Secretary shall not be more than 60 days after the date of the adoption of the
resolution of the Board of Directors calling the special meeting.
Section 3.4 Quorum and Adjournment.
3.4.1 General Rule. A meeting of shareholders of the corporation duly
called shall not be organized for the transaction of business unless a quorum is
present. Except as otherwise required by the Business Corporation Law or by the
articles of incorporation of the corporation, the presence in person or by proxy
of shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
meeting shall constitute a quorum for the purposes of consideration and action
on the matter. Shares of the corporation owned, directly or indirectly, by it
and controlled, directly or indirectly, by the Board of Directors of this
corporation, as such, shall not be counted in determining the total number of
outstanding shares for quorum purposes at any given time.
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3.4.2 Withdrawal of a Quorum. The shareholders present at a duly
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
3.4.3 Adjournments Generally. Any regular or special meeting of the
shareholders, including one at which Directors are to be elected and one which
cannot be organized because of absence of a quorum, may be adjourned for such
period and to such place as the shareholders present in person or by proxy and
entitled to vote shall determine, but in the case of any meeting called for the
election of Directors such meeting may be adjourned only from day to day or for
such longer periods not exceeding fifteen days each as the holders of a majority
of the shares present in person or by proxy shall direct.
3.4.4 Electing Directors at Adjourned Meeting. Those shareholders
entitled to vote who attend a meeting in person or by proxy called for the
election of Directors that has been previously adjourned for lack of a quorum,
although less than a quorum as fixed in this section, shall nevertheless
constitute a quorum for the purpose of electing Directors.
3.4.5 Other Action in Absence of Quorum. Those shareholders entitled to
vote who attend a meeting of shareholders that has been previously adjourned for
one or more periods aggregating at least 15 days because of an absence of a
quorum, although less than a quorum as fixed in this section, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting if the notice states that those shareholders who attend
the adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.
Section 3.5 Action by Shareholders. Except as otherwise provided in the
Business Corporation Law or the articles of incorporation of the corporation or
these by-laws, whenever any corporate action is to be taken by vote of the
shareholders of the corporation, it shall be authorized by a majority of the
votes cast at a duly organized meeting of shareholders by the holders of shares
entitled to vote thereon. Except when acting by unanimous consent to remove a
Director or Directors, the shareholders of the corporation may act only at a
duly organized meeting.
Section 3.6 Organization. At every meeting of the shareholders, the
Chairman of the Board, if there be one, or in the case of vacancy in office or
absence of the Chairman of the Board, one of the following officers present in
the order stated: the Chief Executive Officer, the Vice Chairman of the Board,
if there be one, the President, the Vice Presidents, in their order of rank and
seniority, or a Chairman chosen by the Board of Directors or, if none is so
chosen, by vote of the shareholders present, shall act as Chairman. The
Secretary, or, in the absence of the Secretary, an Assistant Secretary, or in
the absence of both the Secretary and every Assistant Secretary, a person
appointed by the Chairman shall act as Secretary.
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Section 3.7 Voting Rights of Shareholders. Unless otherwise provided in
the Business Corporation Law or the articles of incorporation of the corporation
or these by-laws, every shareholder of the corporation shall be entitled to one
vote for every share standing in the name of the shareholder on the books of the
corporation.
Section 3.8 Determination of Shareholders of Record.
3.8.1 Fixing Record Date. The Board of Directors may fix a time prior
to the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be not
more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the corporation after any record date
fixed as provided in this subsection. The Board of Directors may similarly fix
in advance a record date for the determination of shareholders of record for any
other purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date for the adjourned meeting.
3.8.2 Determination When No Record Date Fixed If a record date is not
fixed:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close
of business on the day immediately preceding the day on which notice is
given.
(b) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.
3.8.3 Certification by Nominee. The Board of Directors may adopt a
procedure whereby a shareholder of the corporation may certify in writing to the
corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Section 3.9 Voting and Other Action by Proxy.
--------------------------------
3.9.1 General Rule.
(a) Every shareholder entitled to vote at a meeting of
shareholders may authorize another person to act for the shareholder by
proxy.
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(b) The presence of, or vote or other action at a meeting of
shareholders by, a proxy of a shareholder shall constitute the presence
of, or vote or action by, the shareholder.
(c) Where two or more proxies of a shareholder are present,
the corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby the vote
cast by a majority of them and, if a majority of the proxies cannot
agree whether the shares represented shall be voted or upon the matter
of voting the shares, the voting of the shares shall be divided equally
among those persons.
3.9.2 Minimum Requirements. Every proxy shall be executed in writing by
the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the Secretary of the corporation. A proxy, unless coupled with an
interest, shall be revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a proxy shall not
be effective until written notice thereof has been given to the Secretary of the
corporation. An unrevoked proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of the
death or incapacity is given to the Secretary of the corporation.
3.9.3 Expenses. The corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of shareholders by or on behalf of
the Board of Directors or its nominees for election to the Board of Directors,
including solicitation by professional proxy solicitors and otherwise.
Section 3.10 Voting by Entities.
3.10.1 Voting by Non-Individual Shareholders. Any corporation,
partnership, limited liability company or other entity that is a shareholder of
record of this corporation may vote at meetings of shareholders of this
corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the governing body
of the other entity or a provision of its organizational documents, a copy of
which resolution or provision certified to be correct by one of its officers or
authorized representatives has been filed with the Secretary of this
corporation, is appointed its general or special proxy in which case that person
shall be entitled to vote the shares.
3.10.2 Controlled Shares. Shares of this corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the Board of
Directors of this corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.
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Section 3.11 Voting Lists.
3.11.1 General Rule. The officer or agent having charge of the transfer
books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the meeting
and, except as otherwise provided by law, shall be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes thereof
except that, if the corporation has 5,000 or more shareholders, in lieu of the
making of the list the corporation may make the information required therein
available at the meeting by any other means.
3.11.2 Effect of List. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.
Section 3.12 Judges of Election.
3.12.1 Appointment. In advance of any meeting of shareholders of the
corporation, the Board of Directors may appoint judges of election, who need not
be shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may, and on
the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three. A person who is a candidate for an
office to be filled at the meeting shall not act as a judge.
3.12.2 Vacancies. In case any person appointed as a judge fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the convening of the meeting or at the
meeting by the presiding officer thereof.
3.12.3 Duties. The judges of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may be proper to
conduct the election or vote with fairness to all shareholders. The judges of
election shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
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3.12.4 Report. On request of the presiding officer of the meeting or of
any shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.
Section 3.13 Nominations for Director.
A nomination for election of a Director may be made by any shareholder
entitled to vote for the election of Directors if, and only if, written notice
(the "Notice") of such shareholder's intent to nominate a Director at the
meeting is given by the shareholder and received by the Secretary of the
corporation in the manner and within the time specified herein. The Notice shall
be delivered to the Secretary of the corporation not less than 90 days prior to
the date fixed by these by-laws for the annual meeting of shareholders;
provided, however, that if Directors are to be elected by the shareholders at
any time other than the annual meeting, the Notice shall be delivered to the
Secretary of the corporation not later than the tenth day following the day on
which notice of the meeting was first given to shareholders. In lieu of delivery
to the Secretary of the corporation, the Notice may be mailed to the corporation
by certified mail, return receipt requested, but shall be deemed to have been
given only upon actual receipt by the Secretary of the corporation.
The Notice shall be in writing and shall contain or be accompanied by:
(a) the name and residence of such shareholder and of each person to be
nominated;
(b) a representation that the shareholder is a holder of record of the
corporation's voting stock entitled to vote for the election of directors on the
date of such notice and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the Notice;
(c) such information regarding each nominee as would have been required
to be included in a proxy statement filed pursuant to Regulation 14A of the
rules and regulations established by the Securities Exchange Act of 1934 (or
pursuant to any successor act or regulation) had proxies been solicited with
respect to such nominee by the management or Board of Directors of the
corporation;
(d) a description of all arrangements or understandings among the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which such nomination or nominations are to be made by
the shareholder; and
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(e) the consent of each nominee to serve as Director of the corporation if
so elected.
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that any nomination made at the meeting was not made in
accordance with the foregoing procedures and, in such event, the nomination
shall be disregarded.
The Board of Directors shall determine in good faith whether the
proposed nominee meets the qualifications for Director as set forth in these
by-laws or in a resolution approved by the Board of Directors or the committee
of the Board of Directors responsible for identifying candidates for Director.
ARTICLE IV
Board of Directors
Section 4.1 Powers; Personal Liability.
4.1.1 General Rule. Unless otherwise provided by the Business
Corporation Law, all powers vested by law in the corporation shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the Board of Directors.
4.1.2 Personal Liability of Directors. To the fullest extent that the
laws of the Commonwealth of Pennsylvania permit the elimination or limitation of
the liability of Directors, no Director of the corporation shall be personally
liable for monetary damages as such for any action taken, or any failure to take
any action, as a Director. The provisions of this subsection shall be deemed to
be a contract with each Director of the corporation who serves as such at any
time while such provisions are in effect, and each such Director shall be deemed
to be serving as such in reliance on such provisions. Any amendment to or repeal
of this subsection or adoption of any article or other by-law of the
corporation, which has the effect of increasing director liability shall operate
prospectively only and shall not have effect with respect to any action taken,
or any failure to act, by a Director prior thereto.
4.1.3. Notation of Dissent. A Director who is present at a meeting of
the Board of Directors, or of a committee of the Board of Directors, at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his or her dissent is entered in the minutes of the
meeting or unless the Director files a written dissent to the action with the
Secretary of the meeting before the adjournment thereof or transmits the dissent
in writing to the Secretary of the corporation immediately after the adjournment
of the meeting. The right to dissent shall not apply to a Director who voted in
favor of the action. Nothing in this section shall bar a Director from asserting
that minutes of the meeting incorrectly omitted his or her
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dissent if, promptly upon receipt of a copy of such minutes, the Director
notifies the Secretary, in writing, of the asserted omission or inaccuracy.
Section 4.2 Qualifications and Selection of Directors.
------------------------------------------
4.2.1 Qualifications. No person shall be eligible to serve as a
Director unless he or she is a natural person of full age.
4.2.2 Selection. Except as otherwise provided in these by-laws,
Directors of the corporation shall be elected by the shareholders. At any
meeting of shareholders at which Directors are to be elected which is held prior
to the annual meeting of shareholders to be held in 1997, the election of
Directors shall occur as provided in Paragraph 7.G of the Third Amended Joint
Plan of Reorganization of Phar-Mor, Inc. et al. under chapter 11 of title 11,
United States Code dated May 25, 1995, as modified. If prior to any such
election the Chairman or the Secretary shall receive notice that any person, who
is listed as a nominee for the office of Director in the proxy statement that is
mailed to the shareholders in connection with such meeting, has for any reason
become unable or unwilling to serve as a Director, the number of Directors to be
elected at such meeting shall automatically be reduced by the number of such
persons, but without limiting the authority of the Board of Directors to
increase or further decrease the number of Directors either prior or subsequent
to such meeting.
Section 4.3 Number and Term of Office.
-------------------------
4.3.1 Number. The initial Board of Directors shall consist of seven (7)
Directors. Prior to March 11, 1997, any change in the number of Directors
constituting the Board of Directors shall be subject to approval by the
shareholders. From and after such date, the Board of Directors shall consist of
such number of Directors as may be determined from time to time by resolution of
the Board of Directors.
4.3.2 Term of Office. The directors shall be divided into classes, and
hold office for the terms as provided in Article Tenth of the Articles of
Incorporation and shall continue to serve until their successors shall be
elected and shall qualify or until their earlier death, resignation or removal.
A decrease in the number of Directors shall not have the effect of shortening
the term of any incumbent Director.
4.3.3 Resignation. Any Director may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as shall be specified in
the notice of resignation.
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Section 4.4 Vacancies. Vacancies in the Board of Directors, 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 of Directors though
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.
Section 4.5 Removal of Directors.
4.5.1 Removal by the Shareholders. Unless otherwise prohibited by law,
the entire Board of Directors or any individual Director may be removed from
office by vote of the shareholders entitled to elect Directors only for cause.
In case the Board of Directors or any one or more Directors are so removed, new
Directors may be elected at the same meeting.
4.5.2 Removal by the Board. The Board of Directors may declare vacant
the office of a Director who has been judicially declared of unsound mind or who
has been convicted of an offense punishable by imprisonment for a term of more
than one year or if, within 60 days after notice of his or her selection, the
Director does not accept the office either in writing or by attending a meeting
of the Board of Directors.
Section 4.6 Place of Meetings. Meetings of the Board of Directors may
be held at such place within or without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time appoint or as may be designated in the
notice of the meeting.
Section 4.7 Organization of Meetings. At every meeting of the Board of
Directors, the Chairman of the Board, if there be one, in the case of a vacancy
in the office or absence of the Chairman of the Board, any other officer then
serving as Chief Executive Officer, that Vice Chairman of the Board who is most
senior in his or her service as a Director and is present, the President, that
Vice President who is most senior in his or her service as a Director and is
present, or a Chairman chosen by a majority of the Directors present, shall
preside. The Secretary, or, in the absence of the Secretary, an Assistant
Secretary, or in the absence of the Secretary and every Assistant Secretary, any
person appointed by the Chairman of the meeting, shall act as Secretary.
Section 4.8 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated from time
to time by resolution of the Board of Directors or by the Chairman of the Board
in a notice given in accordance with these by-laws. The Chairman of the Board
may postpone any regular meeting by giving notice.
Section 4.9 Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman or by a majority of the
Directors.
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Section 4.10 Quorum of and Action by Directors.
---------------------------------
4.10.1 General Rule. A majority of the Directors in office of the
corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the Directors present and voting at a
meeting at which a quorum is present shall be the acts of the Board of
Directors.
4.10.2 Action by Written Consent. Any action required or permitted to
be taken at a meeting of the Directors may be taken without a meeting if, prior
or subsequent to the action, a consent or consents thereto by all of the
Directors if office is filed with the Secretary of the corporation.
Section 4.11 Committees of the Board.
4.11.1 Establishment and Powers. The Board of Directors may, by
resolution adopted by a majority of the Directors in office, establish one or
more committees (including audit and compensation committees) to consist of one
or more Directors of the corporation. Subject to the direction of the Board of
Directors, any committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all of the powers and authority of the
Board of Directors, except that a committee shall not have any power or
authority as to the following:
(a) The declaration of dividends or other distribution on
any equity securities of the corporation.
(b) The adoption of resolutions establishing the rights,
preferences and privileges of any series of preferred stock.
(c) The submission to shareholders of any action requiring
approval of shareholders under the Business Corporation Law.
(d) The creation of filling of vacancies in the Board of
Directors.
(e) The adoption, amendment or repeal of these by-laws.
(f) The amendment or repeal of any resolution of the Board of
Directors unless by its terms it is amendable or repealable by such
committee.
(g) Action on matters committed by a resolution of the Board
of Directors to another committee of the Board of Directors.
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4.11.2 Term. Each committee of the Board of Directors shall serve at
the pleasure of the Board of Directors.
4.11.3 Committee Procedures. The term "Board of Directors" when used in
any provision of these by-laws relating to the organization or procedures of or
the manner of taking action by the Board of Directors, shall be construed to
include and refer to any committee of the Board of Directors.
Section 4.12 Compensation. The Board of Directors shall have the
authority to fix the reasonable compensation of Directors for their services as
Directors and the reimbursement of all reasonable expenses incurred by them in
attending Board of Directors meetings. Any Director may be a salaried officer of
the corporation.
Section 4.13 Exercise of Fiduciary Duty. In taking action in the best
interests of the corporation, the Board of Directors shall consider the
long-term interests of shareholders, in addition to considering any other
factors that may be pertinent, and shall always endeavor to take such action in
a manner that enhances the long-term interests of shareholders.
ARTICLE V
Officers
Section 5.1 Officers Generally.
5.1.1 Number, Qualifications and Designation. The officers of the
corporation shall be Chairman of the Board, a President and/or Chief Executive
Officer, one or more Vice Presidents (of whom, if there are more than one, one
or more may be an Executive Vice President, Vice President and Group Executive,
Senior Vice President, or bear such other title as may be designated by the
Board of Directors), a Secretary, a Treasurer, a Controller and such other
officers as may be elected in accordance with the provisions of Section 5.3.
Officers may but need not be Directors or shareholders of the corporation. The
President and Secretary shall be natural persons of full age. The Treasurer may
be a corporation but, if a natural person, shall be of full age. The Board of
Directors may elect from among the members of the Board a Chairman of the Board
and one or more Vice Chairmen of the Board. Any number of offices may be held by
the same person, except that the same person shall not be Treasurer and
Controller.
5.1.2 Bonding. The corporation may secure the fidelity of any or all of
its officers by bond or otherwise.
Section 5.2 Election, Term of Office and Resignations.
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5.2.1 Election and Term of Office. The officers of the corporation,
except those appointed by delegated authority pursuant to Section 5.3, shall be
elected annually by the Board of Directors, and each such officer shall hold
office until the meeting of the Board of Directors following the next annual
meeting of shareholders and until a successor has been elected and qualified or
until his or her earlier death, resignation or removal.
5.2.2 Resignations. Any officer may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as may be specified in the
notice of resignation.
Section 5.3 Subordinate Officers, Committees and Agents. The Board of
Directors may from time to time appoint such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these by-laws, or as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer or committee the power to appoint subordinate officers and to
retain or appoint employees or other agents, or committees thereof, and to
prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.
Section 5.4 Removal of Officers and Agents. Any officer, committee,
employee or agent of the corporation may be removed, with or without cause, by
the Board of Directors and, if appointed by an officer or committee given such
power by Section 5.3, by such officer or committee. The removal shall be without
prejudice to the contract rights, if any, of any person so removed. Election or
appointment of an officer, committee, employee or agent shall not of itself
create contract rights.
Section 5.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by the
Board of Directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.3, as the case may be, and
if the office is one for which these by-laws prescribe a term, shall be filled
for the unexpired portion of the term.
Section 5.6 Authority. All officers of the corporation, as between
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant to
resolutions or orders of the Board of Directors or, in the absence of
controlling provisions in the resolutions or orders of the Board of Directors,
as may be determined by or pursuant to these by-laws.
Section 5.7 The Chief Executive Officer. The Chief Executive Officer of
the corporation shall have general supervision over the business and operations
of the corporation, subject however, to the control of the Board of Directors.
The Chief Executive Officer shall have the power to sign, execute and
acknowledge, in the name of the corporation, deeds,
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mortgages, bonds, contracts or other instruments authorized by the Board of
Directors, by such other corporate action as shall be appropriate, except in
cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors, or by these by-laws, to some other officer or agent of
the corporation; and, in general, shall perform all duties incident to the
office of a president of a corporation and such other duties as from time to
time may be assigned by the Board of Directors.
Section 5.8 The President. In the absence or unavailability of the
Chief Executive Officer, or if a Chief Executive Officer has not been elected by
the Board of Directors, the President shall perform the duties of the Chief
Executive Office and such other duties as may from time to time be assigned by
the Board of Directors.
Section 5.9 The Chairman and Vice Chairman of the Board. The Chairman
of the Board or in the absence of the Chairman, the Vice Chairman of the Board,
shall preside at all meetings of the shareholders and of the Board of Directors,
and shall perform such other duties as may from time to time to be requested by
the Board of Directors.
Section 5.10 The Vice Presidents. In the absence or unavailability of
the Chief Executive Officer or the President, if there be one, the Vice
Presidents shall perform the duties of the President and such other duties as
may from time to time be assigned to them by the Board of Directors or the Chief
Executive Officer.
Section 5.11 The Secretary. The Secretary or an Assistant Secretary
shall attend all meetings of the shareholders and of the Board of Directors and
shall record all the votes of the shareholders and of the Board of Directors and
the minutes of the meetings of the shareholders and of the Board of Directors
and of committees of the Board of Directors in a book or books to be kept for
that purpose; shall see that notices are given and records and reports properly
kept and filed by the corporation as required by law; shall be the custodian of
the seal of the corporation and see that it is affixed to all documents to be
executed on behalf of the corporation under its seal; and, in general, shall
perform all duties incident to the Office of Secretary, and such other duties as
may from time to time be assigned by the Board of Directors or the Chief
Executive Officer.
Section 5.12 The Treasurer. The Treasurer or an Assistant Treasurer
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as Treasurer in such banks or
other places of deposit as the Board of Directors may from time to time
designate; shall, whenever so required by the Board of Directors, render an
account showing all transactions as Treasurer, and the financial condition of
the corporation; and, in general, shall perform all duties incident to the
office of Treasurer and such other duties as may from time to time be assigned
by the Board of Directors or the Chief Executive Officer.
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Section 5.13 The Controller. The Controller shall have charge of the
accounts of the corporation and shall perform all duties incident to the office
of Controller and such other duties as may from time to time be assigned by the
Board of Directors or the Chief Executive Officer.
Section 5.14 Assistant Officers. Each Assistant Officer shall, in the
absence of disability of his or her superior in office, perform the duties and
exercise the powers of such superior as directed by such superior, by the Chief
Executive Officer, or by the Board of Directors, and shall also have such other
powers and shall perform such other duties as may be granted to or required of
him or her in accordance with this Article or by his or her superior in office.
Performance of any of the duties or the exercise of any of the powers of his or
her superior in office by any such Assistant Officer shall, as to third parties,
be conclusive evidence of his or her authority to act in such respect.
Section 5.15 Salaries. The salaries of the officers elected by the
Board of Directors shall be fixed from time to time by the Board of Directors or
by such committee as may be designated by resolution of the Board of Directors.
The salaries or other compensation of any other officers, employees and other
agents shall be fixed from time to time by the committee or officer as may be
designated by resolution of the Board of Directors. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that the officer, is also a Director of the corporation.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
Section 6.1 Share Certificates. Certificates for shares of the
corporation shall be in such form as approved by the Board of Directors, and
shall state that the corporation is incorporated under the laws of the
Commonwealth of Pennsylvania, the name of the person to whom issued, and the
number and class of shares and the designation of the series (if any) that the
certificate represents. The share record books and blank share certificates
shall be kept by the Treasurer or by any transfer agent or registrar designated
by the Board of Directors for that purpose.
Section 6.2 Issuance. The share certificates of the corporation shall
be numbered and registered in the share ledger and transfer books of the
corporation as they are issued. They shall be signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the President
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, and shall bear the corporate seal, which
may be a facsimile, engraved or printed; but where such certificate is signed by
a transfer agent or a registrar the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon any share certificate
shall have ceased be such officer because of death, resignation or otherwise,
before the
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certificate is issued, it may be issued with the same effect as if the officer
has not ceased to be such at the date of its issue. The provisions of this
Section 6.2 shall be subject to any inconsistent or contrary agreement at the
time between the corporation and any transfer agent or registrar.
Section 6.3 Transfer. Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by an attorney lawfully constituted in
writing. No transfer shall be made inconsistent with the provisions of the
Uniform Commercial Code, 13 Pa C.S. ss.ss. 8101 et seq., and its amendments and
supplements.
Section 6.4 Recordholder of Shares. The corporation shall be entitled
to treat the person in whose name any share or shares of the corporation stand
on the books of the corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person.
Section 6.5 Lost, Destroyed or Mutilated Certificates. The holder of
any shares of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate, or, in the case of loss or destruction
of the certificate, upon satisfactory proof of such loss or destruction, and, if
the Board of Directors shall so determine, the deposit of a bond in such form
and in such sum, and with such surety or sureties, as it may direct.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 7.1 Indemnification of Authorized Representatives. The
corporation shall indemnify such persons and to such extent as shall be provided
in the articles of incorporation.
ARTICLE VIII
Interested Party Transactions
Section 8.1 Interested Party Transactions. Any contract or other
transaction between the corporation and (a) any Director, officer or Significant
Shareholder (as defined below), or (b) any corporation, unincorporated
association, business trust, estate, partnership, trust, joint venture,
individual or other legal entity ("Legal Entity") in which such Director,
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officer of Significant Shareholder is a director, officer, controlling
shareholder or trustee (collectively, a "Conflict Transaction"), shall be valid
if the material facts of the Conflict Transaction and the exact nature and
extent of the interest of such Director, officer or Significant Shareholder were
disclosed in writing or known to the Board of Directors, a committee of the
Board of Directors with authority to act thereon, or the shareholders entitled
to vote thereon, and
the Board of Directors, such committee, or such shareholders authorized,
approved, or ratified the Conflict Transaction.
(A) A Conflict Transaction is authorized, approved or ratified:
(x) by the Board of Directors or such committee, if the
Conflict Transaction receives the affirmative vote of a majority of the
Directors who have no interest in the Conflict Transaction,
notwithstanding the fact that such majority may not constitute a quorum
or a majority of the Board of Directors or such committee or a majority
of the Directors present at the meeting, and notwithstanding the
presence or vote of any Director who does have such an interest; or
(y) by the shareholders of the corporation, if the Conflict
Transaction receives the affirmative vote of a majority of the voting
securities voting thereon, in which vote securities owned or voted
under the control of such Director, officer of Significant Shareholder
who, or of any Legal Entity that, has an interest in the Conflict
Transaction may not be counted for any purpose other than determining
the presence of a quorum.
(B) A Significant Shareholder is the person who is the beneficial owner
or registered holder of, or the person entitled to vote, a number of shares of
voting securities of the corporation representing not less than five percent
(5%) of the issued an outstanding voting securities of the corporation entitled
to be voted for the election of Directors of the corporation.
ARTICLE IX
Miscellaneous
Section 9.1 Execution of Instruments. All checks, drafts, bills of
exchange, acceptances, notes and other obligations and evidences of
indebtedness, deeds, conveyances, bills of sale, assignments and other
instruments of transfer and all other instruments and documents in writing of
any nature, may be signed, executed, accepted, endorsed, verified, acknowledged
or delivered on behalf of the corporation by such officer or officers or other
person or persons as the Board of Directors may from time to time designate. The
Board of Directors at its discretion
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may authorized the use of an appropriate facsimile signature of any such officer
or person in lieu of his or her manual signature.
Section 9.2 Amendment of By-laws. These by-laws may be amended or
repealed, or new by-laws may be adopted, either (a) by vote of the shareholders
at any duly organized annual or special meeting of shareholders, or (b) except
with respect to (i) Section 4.3.1 hereof and (ii) those maters which are by
statute committed expressly to the shareholders, regardless of whether the
shareholders have previously adopted or approved the by-law being amended or
repealed, by a vote of a majority of the Board of Directors of the corporation
in office at any regular or special meeting of the Board of Directors.
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PHAR-MOR, INC.
1995 DIRECTOR STOCK PLAN
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.
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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 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.
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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 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).
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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.
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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.
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.
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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 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.
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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.
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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.
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.
<PAGE>
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.
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.
2
<PAGE>
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.
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.
<PAGE>
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.
3
<PAGE>
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 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.
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.
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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;
(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.
<PAGE>
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.
<PAGE>
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.
Date Adopted by Board: June 5, 1997
Date Approved by Shareholders: February 17, 1998
PHAR-MOR, INC.
1995 AMENDED AND RESTATED
STOCK INCENTIVE PLAN
(including Schedule and Form of Initial Options)
<PAGE>
TABLE OF CONTENTS
-----------------
I THE PLAN.........................................................1
1.1 Purpose..................................................1
1.2 Administration and Authorization; Power and Procedure....1
(a) Committee...........................................1
(b) Awards; Interpretation; Powers of Committee.........1
(c) Binding Determinations..............................2
(d) Reliance on Experts.................................2
(e) Delegation..........................................2
1.3 Participation............................................3
1.4 Shares Available for Awards; Share Limits................3
(a) Shares Available....................................3
(b) Share Limits........................................3
(c) Calculation of Available Shares and Replenishment...3
1.5 Grant of Awards..........................................4
1.6 Award Period.............................................4
1.7 Limitations on Exercise of Awards........................4
(a) Provisions for Exercise.............................4
(b) Procedure...........................................4
(c) Fractional Shares/Minimum Issue.....................4
1.8 Acceptance of Notes to Finance Exercise..................5
1.9 No Transferability.......................................5
(a) Limit on Exercise...................................5
(b) Limit on Transfer...................................6
(c) Designation of Beneficiary..........................6
(d) Exceptions..........................................6
II OPTIONS..........................................................6
2.1 Grants...................................................6
2.2 Option Price.............................................6
(a) Pricing Limits......................................6
(b) Payment Provisions..................................7
2.3 Limitations on Grant and Terms of Incentive Stock Options7
(a) $100,000 Limit......................................7
(b) Other Code Limits...................................7
2.4 Limits on 10% Holders....................................7
2.5 Option Repricing/Cancellation and Regrant/Waiver of
Restrictions.............................................8
2.6 Vesting of Initial Options...............................8
i
<PAGE>
III STOCK APPRECIATION RIGHTS......................................8
3.1 Grants...................................................9
3.2 Exercise of Stock Appreciation Rights....................8
(a) Exercisability......................................8
(b) Effect on Available Shares..........................8
3.3 Payment..................................................9
(a) Amount..............................................9
(b) Form of Payment.....................................9
3.4 Limited Stock Appreciation Rights........................9
IV OTHER PROVISIONS................................................10
4.1 Rights of Eligible Employees, Participants
and Beneficiaries......................................10
(a) Employment Status..................................10
(b) No Employment Contract.............................10
(c) Plan Not Funded....................................10
4.2 Adjustments; Acceleration...............................10
(a) Adjustments........................................10
(b) Acceleration of Awards Upon Change in Control......11
(c) Termination of Awards on Dissolution...............11
4.3 Effect of Termination on Employment.....................12
4.4 Compliance with Laws....................................12
4.5 Tax Withholding.........................................13
4.6 Plan Amendment, Termination and Suspension..............13
(a) Board Authorization................................13
(b) Shareholder Approval...............................13
(c) Amendments to Awards...............................13
(d) Limitations on Amendments to Plan and Awards.......14
4.7 Privileges of Stock Ownership...........................14
4.8 Effective Date of the Plan..............................14
4.9 Term of the Plan........................................14
4.10 Governing Law/Construction/Severability.................14
(a) Choice of Law......................................14
(b) Severability.......................................14
(c) Plan Construction..................................15
(d) Bifurcation........................................15
4.11 Captions................................................15
4.12 Effect of Change of Subsidiary Status...................15
4.13 Non-Exclusivity of Plan.................................15
4.14 Conflict................................................15
ii
<PAGE>
V DEFINITIONS.....................................................16
5.1 Definitions.............................................16
Exhibits:
Exhibit A - Schedule of Initial Options
Exhibit B - Form of Initial Stock Option Agreement
iii
<PAGE>
PHAR-MOR, INC.
------------
1995 AMENDED AND RESTATED
-------------------------
STOCK INCENTIVE PLAN
--------------------
I THE PLAN
1.1 PURPOSE.
-------
The purpose of this Plan as contemplated by the Reorganization
Plan is to promote the success of the Company by providing an additional means
through the grant of Awards to attract, reward and retain key personnel
(including executive officers, whether or not directors), of the Company and
certain other closely related eligible persons with awards and incentives for
high levels of individual performance and improved financial performance of
the Company. Capitalized terms are defined in Article V.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
(a) Committee. This Plan shall be administered by, and all
---------
Awards to Eligible Employees granted after the Initial Options shall be
authorized by, the Committee. Action of the Committee with respect to the
administration of this Plan shall be taken pursuant to a majority vote or by
written consent of its members.
(b) Awards; Interpretation; Powers of Committee. Subject to
-------------------------------------------
the express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the
particular Eligible Employees who will receive any
Awards;
(ii) to grant Awards to Eligible Employees, determine the
price at which securities will be offered and the
amount of securities to be offered to any of such
persons, and determine the other specific terms and
conditions of such Awards consistent with the express
limits of this Plan, and establish the installments
(if any) in which such Awards shall become
exercisable, or determine that no delayed
exercisability is required, and establish the events
of termination of such Awards;
(iii) to approve the forms of Award Agreements (which need
not be identical either as to type of Award or among
Participants);
(iv) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and
Participants under this Plan, further define the terms
used in this Plan, and prescribe, amend and rescind
rules and regulations relating to the administration
of this Plan;
<PAGE>
(v) to cancel, modify or waive the Corporation's rights
with respect to, or modify, discontinue, suspend or
terminate any or all outstanding Awards held by
Participants, subject to any required consent under
Section 4.6;
(vi) to accelerate or extend the exercisability or extend
the term of any or all such outstanding Awards within
the maximum seven year term of Awards under Section
1.6; and
(v) to make all other determinations and take such other
action as contemplated by this Plan or as may be
necessary or advisable for the administration of this
Plan and the effectuation of its purposes.
(c) Binding Determinations. Any action taken by, or inaction of,
----------------------
the Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan shall be within the absolute discretion of that entity
or body and shall be conclusive and binding upon all persons. No member of
the Board or Committee, or officer of the Corporation or any Subsidiary, shall
be liable for any such action or inaction of the entity or body, of another
person or, except in circumstances involving bad faith, of himself or herself.
Subject only to compliance with the express provisions hereof, the Board and
Committee may act in their absolute discretion in matters within their
authority related to this Plan.
(d) Reliance on Experts. In making any determination or in
-------------------
taking or not taking any action under this Plan, the Committee or the Board,
as the case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Corporation. No director, officer or
agent of the Company shall be liable for any such action or determination
taken or made or omitted in good faith.
(e) Delegation. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees of the
Company.
1.3 PARTICIPATION.
-------------
Awards may be granted only to those persons identified on Exhibit
A hereto and such other persons as are determined to be Eligible Employees.
An Eligible Employee who has been granted an Award may, if otherwise eligible,
be granted additional Awards if the Committee shall so determine. Non-Employee
Directors shall not be eligible to receive any Awards under this Plan.
2
<PAGE>
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
-----------------------------------------
(a) Shares Available. Except as may otherwise be provided herein,
----------------
the capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock and any shares of its
Common Stock held as treasury shares. The shares may be delivered for any
lawful consideration.
(b) Share Limits. The maximum number of shares of Common Stock
------------
that may be delivered pursuant to Awards granted under this Plan shall not
exceed 3,500,000 shares. The maximum number of shares of Common Stock subject
to those Options that are granted during any calendar year to any individual
under this Plan shall not exceed 277,778 shares. Each of the foregoing
numerical limits shall be subject to adjustment as contemplated by this
Section 1.4 and Section 4.2
(c) Calculation of Available Shares and Replenishment. Shares
-------------------------------------------------
subject to outstanding Awards shall be reserved for issuance. If any Option
or other right to acquire shares of Common Stock under an Award shall expire
or be canceled or terminated without having been exercised in full, or any
Common Stock subject to an Award shall not vest or be delivered, the
unpurchased, unvested or undelivered shares subject thereto shall again be
available for the purposes of the Plan. If a Stock Appreciation Right or
similar right is exercised, the number of shares of Common Stock to which such
exercise or payment relates under the applicable Award shall be charged
against the maximum amount of Common Stock that may be delivered pursuant to
Awards under this Plan and, if applicable, such Award. If the Corporation
withholds shares of Common Stock pursuant to Section 4.5, the number of shares
that would have been deliverable with respect to an award but that are
withheld pursuant to the provisions of Section 4.5 may in effect not be
issued, but the aggregate number of shares issuable with respect to the
applicable Award and under the Plan shall be reduced by the number of shares
withheld and such shares shall not be available for additional Awards under
this Plan.
1.5 GRANT OF AWARDS.
---------------
The Initial Options shall be granted under this Plan automatically,
without further corporate action, for the past or contracted services and
continued services contemplated by the Initial Stock Option Agreement and
embodied in the vesting schedule set forth in Section 3 thereof. Subject to
the express provisions of this Plan, the Committee shall determine the number
of shares of Common Stock subject to each other Award, and the price to be
paid for such shares. Each of the Initial Options shall be evidenced by an
Initial Stock Option Agreement and shall be signed by the Corporation and (as
a condition to receiving any benefits thereunder) by the Participant. Each
other Award shall be evidenced by an Award Agreement signed by the Corporation
and, if required by the Committee, by the Participant.
3
<PAGE>
1.6 AWARD PERIOD.
------------
Each Award and all executory rights and obligations under the
related Award Agreement shall expire on such date (if any) as shall be
determined by the Committee, but not later than seven (7) years after the
Award Date.
1.7 LIMITATIONS ON EXERCISE OF AWARDS.
---------------------------------
(a) Provisions for Exercise. Subject to Section 2.6 and, in the
-----------------------
case of the Initial Options, the express terms thereof, no Award shall be
exercisable until at least six months after the initial Award Date, and once
exercisable an Award shall remain exercisable until the expiration or earlier
termination of the Award unless the Committee otherwise provides as of the
Award Date or (by amendment consistent with the terms of Section 4.6(d))
thereafter.
(b) Procedure. Any exercisable Award shall be deemed to be
---------
exercised when the Secretary of the Corporation receives written notice of
such exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a).
(c) Fractional Shares/Minimum Issue. Fractional shares shall not
-------------------------------
be issued, but fractional share interests may be accumulated. The Committee,
however, may determine that cash, other securities, or other property will be
paid or transferred in lieu of any fractional share interests. No fewer than
50 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE.
---------------------------------------
The Corporation may, with the Committee's approval at or prior to
the time of exercise of any Award, accept one or more notes from any
Participant in connection with the exercise or receipt of any outstanding
Award; provided that any such note shall be subject to the following terms and
conditions:
(a) The principal of the note shall not exceed the amount required
to be paid to the Corporation upon the exercise or receipt of one or more
Awards under the Plan and the note shall be delivered directly to the
Corporation in consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the
Committee; provided that the term of the note, including extensions, shall not
exceed a period of five (5) years.
(c) The note shall provide for full recourse to the Participant
and shall bear interest at a rate determined by the Committee but not less
than the applicable imputed interest rate specified by the Code.
4
<PAGE>
(d) If the employment of the Participant terminates, the unpaid
principal balance of the note shall become due and payable within thirty (30)
days after such termination; provided, however, that if a sale of shares would
cause such Participant to incur liability under Section 16(b) of the Exchange
Act, the unpaid balance shall become due and payable on the 10th business day
after the first day on which a sale of such shares could have been made
without incurring such liability, assuming for these purposes that there are
no other transactions by the Participant subsequent to such termination.
(e) If required by the Committee or by applicable law, the note
shall be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.
(f) The terms, repayment provisions and collateral release
provisions of the note and the pledge securing the note shall conform with
applicable rules and regulations of the Federal Reserve Board as then in
effect.
1.9 NO TRANSFERABILITY.
------------------
(a) Limit on Exercise. The Committee may permit Options or SARs
-----------------
to be exercised by and paid to certain persons or entities related to the
Participant who are transferees of the Participant without consideration, but
only pursuant to such conditions and procedures as the Committee may expressly
establish.
(b) Limit on Transfer. No Award shall be transferrable by the
-----------------
Participant or shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge (other than to the
Corporation), except (i) by will or the laws of descent and distribution or
pursuant to a QDRO, (ii) pursuant to another exception to transfer
restrictions expressly permitted by the Committee and set forth in the Award
Agreement (or an amendment thereto) and (iii) in the case of Incentive Stock
Options, as permitted by the Code. Any attempted transfer in violation of
these provisions shall be void and the Corporation shall disregard any attempt
at transfer, assignment or other alienation prohibited hereby.
(c) Designation of Beneficiary. The designation of a Beneficiary
--------------------------
hereunder shall not constitute a transfer for these purposes.
(d) Exceptions. The restrictions on exercise and transfer above
----------
shall not be deemed to prohibit the authorization by the Committee of
"cashless exercise" procedures with unaffiliated third parties who provide
financing for the purpose of (or who otherwise facilitate) exercise of Options
consistent with any applicable legal restrictions (including Rule 16b-3), nor,
to the extent permitted by the Committee, transfers for estate and financial
planning purposes, or transfers to such other persons or in such other
circumstances as the Committee may in the Award Agreement or other writing
expressly permit.
5
<PAGE>
II OPTIONS
2.1 GRANTS.
One or more Options may be granted under this Article to any
Eligible Employee. Each Option granted may be either an Option intended to be
an Incentive Stock Option, or not so intended, and such intent shall be
indicated in the applicable Award Agreement.
2.2 OPTION PRICE.
(a) Pricing Limits. The purchase price per share of the Common
---------------
Stock covered by each of the Initial Options shall be the amount set forth in
the Initial Stock Option Agreement. The purchase price per share of each
other Option shall be determined by the Committee at the time of the grant of
the Option, but shall not be less than 100% (110% in the case of an Incentive
Stock Option to a Participant who owns or is deemed to own under Section
424(d) of the Code more than 10% of the total combined voting power of all
classes of stock of the Corporation ad such Option by its terms is not
exercisable after expiration of five (5) years from its Award Date) of the
Fair Market Value of the Common Stock on the date of grant (or, in the case of
an amendment, the date of the amendment).
(b) Payment Provisions. The purchase price of any shares purchased
------------------
on exercise of an Option granted under this Article shall be paid in full at
the time of each purchase in one or a combination of the following methods:
(i) in cash or by electronic funds transfer; (ii) by check payable to the
order of the Corporation; (iii) if authorized by the Committee or specified in
the applicable Award Agreement, by a promissory note of the Participant
consistent with the requirements of Section 1.8; (iv) by notice and third
party payment in such manner as may be authorized by the Committee; or (v) by
the delivery of shares of Common Stock of the Corporation already owned by the
Participant; provided, however, that the Committee may in its absolute
discretion limit or deny the Participant's ability to exercise an Option by
delivering such shares. Shares of Common Stock used to satisfy the exercise
price of an Option shall be valued at their Fair Market Value on the date of
exercise.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
---------------------------------------------------------
(a) $100,000 Limit. To the extent that the aggregate "fair market
--------------
value" of stock with respect to which Incentive Stock Options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking
into account both Common Stock subject to Incentive Stock Options under this
Plan and stock subject to incentive stock options under all other plans of the
Company or any parent corporation, such options shall be treated as
nonqualified stock options. For this purpose, the "fair market value" of the
stock subject to options shall be determined as of the date the options
6
<PAGE>
awarded. In reducing the number of options treated as incentive stock options
to meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is
necessary to meet the $100,000 limit, the Committee may, in the manner and to
the extent permitted by law, designate which shares of Common Stock are to be
treated a shares acquired pursuant to the exercise of an Incentive Stock
Option.
(b) Other Code Limits. There shall be imposed in any Award
------------------
Agreement relating to Incentive Stock Options such terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 LIMITS ON 10% HOLDERS.
----------------------
Notwithstanding the foregoing, no Incentive Stock Option may be
granted to any person who, at the time the Option is granted, owns (or is
deemed to own under Section 422(c)(5) of the Code) shares of outstanding
Common Stock possessing more than 10% of the total combined voting power of
all classes of stock of the Corporation, unless the exercise price of such
Option is at least 110% of the Fair Market Value of the stock subject to the
Option and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS.
----------------------------------------------------------------
Subject to Section 1.4 and Section 4.6 and the specific limitations
on Awards contained in this Plan, the Committee from time to time may
authorize, generally or in specific cases only, for the benefit of any
Eligible Employee, any adjustment in the exercise or purchase price, the
number of shares subject to, the restrictions upon or the term of, an Award
granted under this Article by cancellation of an outstanding Award and a
subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment
or other action may result among other changes in an exercise or purchase
price which is higher or lower than the exercise or purchase price of the
original or prior Award, provide for a greater or lesser number of shares
subject to the Award, or provide for a longer or shorter vesting or exercise
period, provided that in no event shall any such change reduce the exercise or
base price of an outstanding Option or Stock Appreciation Right to a price
below the Fair Market Value on the effective date of the change.
III STOCK APPRECIATION RIGHTS
3.1 GRANTS.
-------
In its discretion, the Committee may grant to any Eligible Employee
Stock Appreciation Rights either concurrently with the grant of another Award
or in respect of an outstanding Award, in whole or in part. Any Stock
Appreciation Right granted in connection with an Incentive Stock Option shall
contain such terms as may be required to comply with the
7
<PAGE>
provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder thereof otherwise agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
-------------------------------------
(a) Exercisability. Unless the Award Agreement or the Committee
--------------
otherwise provides, a Stock Appreciation Right shall be exercisable only at
such time or times, and to the extent, that the related Award shall be
exercisable.
(b) Effect on Available Shares. To the extent that a Stock
--------------------------
Appreciation Right is exercised for stock or for cash, the number of
underlying shares of Common Stock with respect to which the Stock Appreciation
Right is exercised shall be charged against the maximum number of shares of
Common Stock that may be delivered pursuant to Awards under this Plan. The
number of shares subject to the Stock Appreciation Right and the related
Option of the Participant shall also be reduced by the same number of shares.
3.3 PAYMENT.
-------
(a) Amount. Unless the Committee otherwise provides, upon exercise
------
of a Stock Appreciation Right and attendant surrender of an exercisable
portion of any related Award, the Participant shall be entitled to receive
payment of an amount determined by multiplying
(i) the difference obtained by subtracting the exercise price
per share of Common Stock under the related Award from
the Fair Market Value of a share of Common Stock on the
date of exercise of the Stock Appreciation Right; by
(ii) the number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) Form of Payment. The Committee, in its sole discretion, shall
---------------
determine the form in which payment shall be made of the amount determined
under paragraph (a) above, either solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly in cash, provided
that the Committee shall have determined that such exercise and form of
payment are consistent with applicable law and outstanding contractual
commitments of the Company. If the Committee permits the Participant to elect
to receive cash or shares (or a combination thereof) on such exercise, any
such election shall be subject to such conditions as the Committee may impose.
8
<PAGE>
3.4 LIMITED STOCK APPRECIATION RIGHTS.
---------------------------------
The Committee may grant to any Eligible Employee Stock Appreciation
Rights exercisable only upon or in respect of a change in control or any other
specified event ("Limited SARs") and such Limited SARs may relate to or
operate in tandem or combination with or substitution for Options or other
SARs (or any combination thereof), and may be payable in cash or shares based
on the spread between the exercise price of the SAR and a price based upon the
Fair Market Value of the shares during a specified period (or at a specified
time) within the period commencing not more than six months and 10 days before
and ending not more than six months and 10 days after such event.
IV OTHER PROVISIONS
4.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.
------------------------------------------------------------
(a) Employment Status. Status as an Eligible Employee shall not
-----------------
be construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) No Employment Contract. Nothing contained in this Plan (or in
----------------------
any other documents related to this Plan or to any Award) shall confer upon
any Eligible Employee any right to continue in the employ or other service of
the Company or constitute any contract or agreement of employment or other
service, nor shall it interfere in any way with the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person, with or without cause, but nothing contained in
this Plan or any document related hereto shall adversely affect the
independent contractual right of such person without his or her consent
thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be
---------------
payable in shares of the Corporation (unless determined otherwise pursuant to
Section 3.3(b)) and, (except as provided in Section 1.4(c)) no special or
separate reserve, fund or deposit shall be made to assure payment of such
Awards. No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock, except as expressly otherwise provided) of the Company by reason
of any Award hereunder. Neither the provisions of this Plan (or of any
related documents), nor the creation or adoption of this Plan, nor any action
taken pursuant to the provisions of this Plan shall create, or be construed to
create, a trust of any kind or a fiduciary relationship between the Company
and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right shall be no greater than the right
of any unsecured general creditor of the Company.
9
<PAGE>
4.2 ADJUSTMENTS; ACCELERATION.
-------------------------
(a) Adjustments. If there shall occur any extraordinary dividend
-----------
or other extraordinary distribution in respect of the Common Stock (whether in
the form of cash, Common Stock, other securities or other property), or any
recapitalization, stock split (including a stock split in the form of a stock
dividend), reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Corporation, or there shall occur any
other fundamental change or event in respect of the Common Stock or a sale of
substantially all the assets of the Corporation as an entirety, then the
Committee shall, in such manner and to such extent (if any) as it in good
faith deems appropriate and equitable (1) proportionately adjust any or all of
(a) the number and type of shares of Common Stock (or other securities) which
thereafter may be made the subject of Awards (including the specific maxima
and numbers of shares set forth elsewhere in this Plan), (b) the number,
amount and type of shares of Common Stock (or other securities or property)
subject to any or all outstanding Awards, (c) the grant, exercise or base
price of any or all outstanding Awards, (d) the securities or property
deliverable upon exercise of any outstanding Awards; or (2) in the case of an
extraordinary dividend or other distribution, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin-off,
make other provision for a cash payment or for the substitution or exchange of
any or all outstanding Awards or securities deliverable to the holder of any
or all outstanding Awards based upon the distribution or consideration payable
to holders of the Common Stock of the Corporation upon or in respect of such
event; provided, however, in each case, that with respect to Incentive Stock
Options, no such adjustment shall be made which would cause the Plan to
violate Section 422 of the Code or any successor provisions thereto, without
the written consent of the holders of Incentive Stock Options who are
materially adversely affected thereby.
(b) Acceleration of Awards Upon Change in Control. As to any or all
---------------------------------------------
Participants, upon or in anticipation of a Change in Control Event, the
Committee may determine that any or all Awards or certain or limited benefits
under Awards shall be accelerated and/or extended and the extent to which they
shall be accelerated and/or extended, and/or establish a different time in
respect of such Change in Control Event for such acceleration or extension.
The Committee may override its discretionary authority to accelerate in this
Section 4.2(b) and by express provision in the Award Agreement mandate
acceleration or preclude acceleration, and may accord any Eligible Employee a
right to refuse any acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve. Any
acceleration of Awards shall comply with applicable regulatory requirements,
including without limitation, Section 422 of the Code unless, in the case of
compliance with Section 422 of the Code, the holders of Incentive Stock
Options otherwise consent in writing.
10
<PAGE>
(c) Termination of Awards on Dissolution. If any Option or other
------------------------------------
right to acquire Common Stock under this Plan is not exercised prior to a
dissolution of the Corporation, and no express provision has been made in the
Award Agreement or otherwise for the survival, substitution, exchange or other
settlement of such Option or right, such Option or right shall thereupon
terminate. Unless other provision is made for the payment of the fair value
thereof, under a reorganization event of the type described in Section 4.2(a)
that the Corporation does not legally survive, the Awards shall be converted
into or otherwise substituted for a right to receive, on exercise, the
consideration distributed or payable upon such reorganization event in respect
of the number of shares of Common Stock as to which the Option is exercised.
4.3 EFFECT OF TERMINATION ON EMPLOYMENT.
-----------------------------------
In determining the effect of a termination on the rights and
benefits of an Award, the Committee may make distinctions based upon the cause
of termination. Unless the Committee otherwise determines the effect a
termination of employment on the rights and benefits under an Award (or, in
the case of the Initial Options, extends the periods set forth herein), and in
the case of Incentive Stock Options, subject to the applicable Code limits:
(a) upon a Participant's death or Total Disability, an Award shall
become and shall remain fully exercisable for one year after the date of death
or until the expiration of the stated term of the Award, whichever occurs
first;
(b) upon the termination by the Company of the Participant's
employment for cause (other than a termination for cause within two (2) years
following a Change in Control Event), as determined by the Committee in its
sole discretion, the Award shall terminate; and
(c) upon a termination of a Participant's employment or services
for any reason other than the reasons set forth in clauses (a) and (b), any
portion of an Award that is not yet exercisable shall terminate and any
portion of such Award that is then exercisable shall remain fully exercisable
for three (3) months after the date of termination or until the expiration of
the stated term of the Award, whichever occurs first.
11
<PAGE>
4.4 COMPLIANCE WITH LAWS.
--------------------
This Plan, the granting and vesting of Awards under this Plan and
the issuance and delivery of shares of Common Stock and/or the payment of
money under this Plan or under Awards granted hereunder are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Corporation, provide such
assurances and representations to the Corporation as the Corporation may
reasonably deem necessary to assure compliance with all applicable legal
requirements.
4.5 TAX WITHHOLDING.
---------------
Upon the exercise of any Award or upon the disposition of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of
the Code, the Company shall have the right at its option to (i) require the
Participant (or Personal Representative or Beneficiary, as the case may be) to
pay or provide for payment of the amount of any taxes which the Company may be
required to withhold with respect to such transaction, or (ii) deduct from any
amount payable in cash the amount of any taxes which the Company may be
required to withhold with respect to such cash amount. In any case where a
tax is required to be withheld in connection with the delivery of shares of
Common Stock under this Plan, the Committee may grant (either at the time of
the Award or thereafter) to the Participant the right to elect, pursuant to
such rules and subject to such conditions as the Committee may establish, to
have the Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares valued at their then
Fair Market Value, to satisfy such withholding obligation.
4.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
------------------------------------------
(a) Board Authorization. Subject to the provisions of this
Section 4.6, the Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan, in whole or in part. No Awards may be
granted during any suspension of this Plan or after termination of this Plan,
but the Committee shall retain jurisdiction as to Awards then outstanding in
accordance with the terms of this Plan.
(b) Shareholder Approval. If any amendment to this Plan would (i)
materially increase the benefits accruing to Participants under this Plan,
(ii) materially increase the aggregate number of securities that may be issued
under this Plan, or (iii) materially modify the requirements as to eligibility
for participation in this Plan, then to the extent required under applicable
law, or deemed necessary or advisable by the Board, such amendment shall be
subject to shareholder approval.
(c) Amendments to Awards. Without limiting any other express
authority of the Committee under but subject to the express limits of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Participants that the Committee in the prior exercise
of its discretion has imposed, without the consent of a Participant, and may
make other changes to the terms and conditions of Awards that do not affect in
any manner adverse to the Participant, his or her rights and benefits under an
Award.
12
<PAGE>
(d) Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of the Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant, affect in
any manner materially adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any Award granted under
this Plan prior to the effective date of such change. Changes contemplated by
Section 4.2 shall not be deemed to constitute changes or amendments for
purposes of this Section 4.6
4.7 PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
Except as otherwise expressly authorized by the Committee or this
Plan, a Participant shall not be entitled to any privilege of stock ownership
as to any shares of Common Stock not actually delivered to and held of record
by him or her. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
4.8 EFFECTIVE DATE OF THE PLAN.
--------------------------
To the extent required by applicable law, the Plan shall be
submitted to the stockholders of the Corporation for approval. The effective
date shall be the Effective Date as defined in the Agreement.
4.9 TERM OF THE PLAN.
----------------
No Award shall be granted more than ten (10) years after the
Effective Date of this Plan (the "termination date"). Unless otherwise
expressly provided in this Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond such date, and all authority of the
Committee with respect to Awards hereunder shall continue during any
suspension of this Plan and in respect of outstanding Awards on such
termination date.
4.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
---------------------------------------
(a) Choice of Law. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents shall be governed by, and construed in
accordance with, the laws of the state of incorporation of the Corporation.
(b) Severability. If any provision shall be held by a court of
------------
competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.
13
<PAGE>
4.11 CAPTIONS.
--------
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
4.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
-------------------------------------
For purposes of this Plan and any Award hereunder, if an entity
ceases to be a Subsidiary, a termination of employment shall be deemed to have
occurred with respect to each employee of such Subsidiary who does not
continue as an employee of another entity within the Company.
4.13 NON-EXCLUSIVITY OF PLAN.
-----------------------
Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
4.14 CONFLICT.
--------
Notwithstanding anything contained in this Plan or any amendment or
modification thereof, in the event of any conflict, inconsistency, or
ambiguity between, or arising as the result of, the terms and provisions of
this Plan and the terms and provisions of any Initial Stock Option Agreement
or any other written agreement between the grantee of an Initial Option and
the Corporation, the terms most favorable to the Participant shall be
controlling.
V DEFINITIONS
5.1 DEFINITIONS.
-----------
(a) "Award" shall mean an award of any Option or Stock Appreciation
-----
Right authorized by and granted under this Plan.
(b) "Award Agreement" shall mean any writing setting forth the
---------------
terms of an Award that has been authorized by the Committee.
(c) "Award Date" shall mean the date upon which the Committee took
----------
the action granting an Award or such later date as the Committee designates as
the Award Date at the time of the Award.
14
<PAGE>
(d) "Award Period" shall mean the period beginning on an Award Date
------------
and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust or trusts
-----------
designated by a Participant or in the absence of a designation entitled by
will or the laws of descent and distribution to receive the benefits specified
in the Award Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is identified and able to act under the circumstances.
(f) "Board" shall mean the Board of Directors of the Corporation.
-----
(g) "Change in Control Event" shall mean any of the following:
-----------------------
(i) Approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation;
(ii) Approval by the stockholders of the Corporation of an
agreement to merge or consolidate, or otherwise
reorganize, with or into one or more entities that are
not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or
resulting entity immediately after the reorganization
are, or will be, owned by stockholders of the
Corporation immediately before such reorganization
(assuming for purposes of such determination that there
is no change in the record ownership of the
Corporation's securities from the record date for such
approval until such reorganization and that such record
owners hold no securities of the other parties to such
reorganization);
(iii) Approval by the stockholders of the Corporation of the
sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a
Subsidiary;
(iv) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act but excluding any person
described in and satisfying the conditions of Rule 13d-
(b)(1) thereunder), other than
(A) Robert Haft,
(B) Hamilton Morgan, LLC, or
(C) any affiliate of any of the foregoing persons,
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50%
of the combined voting power of the Corporation's then
outstanding securities entitled to then vote generally
in the election of directors of the Corporation; or
15
<PAGE>
(v) During any period (commencing after the Effective Date)
not longer than two consecutive years, individuals who
at the beginning of such period constituted the Board
cease to constitute at least a majority thereof, unless
the election, or the nomination for election by the
Corporation's stockholders, of each new Board member was
approved by a vote of at least three-fourths of the
Board members then still in office who were Board
members at the beginning of such period (including for
these purposes, new members whose election or nomination
was so approved).
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
----
from time to time.
(i) "Commission" shall mean the Securities and Exchange Commission.
----------
(j) "Committee" shall mean a committee appointed by the Board to
---------
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom shall be Disinterested.
(k) "Common Stock" shall mean the Common Stock of the Corporation
------------
and such other securities or property as may become the subject of Awards, or
become subject to Awards, pursuant to an adjustment made under Section 4.2 of
this Plan.
(l) "Company" shall mean, collectively, the Corporation and its
-------
Subsidiaries.
(m) "Corporation" shall mean Phar-Mor, Inc., a Pennsylvania
-----------
corporation.
(n) "Disinterested" shall mean disinterested within the meaning of
-------------
any applicable regulatory requirements, including Rule 162(m) of the Code and
"Non-Employee Directors" under Rule 16b-3.
(o) "Effective Date" shall mean the Effective Date as that term is
--------------
defined in the Agreement.
(p) "Eligible Employee" shall mean an officer (whether or not a
-----------------
director) or key executive, administrative, managerial, production, marketing
or sales employee of the Company or any Other Eligible Person.
16
<PAGE>
(q) "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
(r) "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended from time to time.
(s) "Fair Market Value" on any applicable determination date shall
-----------------
mean (i) if the stock is listed or admitted to trade on a securities exchange,
the closing price of the stock, regular way, on such day, on the principal
securities exchange on which the stock is so listed or admitted to trade, or,
if there is no such reported sale on such date, the average closing bid and
asked prices on such day, or (if none) then the closing price of the stock or
(if none) such average, as reported on the next preceding date on which there
was such reported activity in such shares (such determination or earlier date
being hereinafter referred to as the "applicable trading date"); (ii) if the
stock is not listed or admitted to trade on a securities exchange, the last
reported sales price for the stock or (if none) the average of the last
reported bid and asked prices on the applicable trading date, as reported by
the principal reputable quotation system available to the Committee; (iii) if
the stock is not listed or admitted to trade on a securities exchange and no
such reported closing sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked price for the
stock on the applicable trading date, as reported by a reputable quotation
source designated by the Committee; or (iv) if the stock is not listed or
admitted to trade on a securities exchange, trading is not so reported, and
bid and asked prices are not available on a reasonably current basis, the
value as established by the Committee in good faith at such time for purposes
of this Plan.
(t) "Incentive Stock Option" shall mean an Option which is
----------------------
designated as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions as are necessary to
comply with that section and is subject to or follows the stock holder
approval required thereby.
(u) "Initial Stock Option Agreement" shall mean the Award
------------------------------
Agreements for the Initial Options, in substantially the form of Exhibit B
hereto.
(v) "Initial Options" shall mean those Options granted under this
---------------
Plan as of the Effective Date as set forth in Exhibit A hereto.
17
<PAGE>
(w) "Nonqualified Stock Option" shall mean an Option that is
-------------------------
designated as a Nonqualified Stock Option and shall include any Option
intended as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as
an Incentive Stock Option shall be deemed to be designated a Nonqualified
Stock Option under this Plan.
(x) "Non-Employee Director" shall mean a member of the Board of
---------------------
Directors of the Corporation who is not an officer or employee of the Company.
(y) "Option" shall mean an option to purchase Common Stock under
------
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option.
(z) "Other Eligible Person" shall mean any other person (including
---------------------
a significant agent or consultant) who performs substantial services for the
Company of a nature similar to those performed by key employees, selected to
participate in this Plan by the Committee from time to time; provided that in
no event shall a Non-Employee Director be selected as an Other Eligible
Person.
(aa) "Participant" shall mean an Eligible Employee who has been
-----------
granted an Award under this Plan.
(bb) "Personal Representative" shall mean the person or persons
-----------------------
who, upon the disability or incompetence of a Participant, shall have acquired
on behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
(cc) "Plan" shall mean the Phar-Mor, Inc. 1995 Amended and Restated
----
Stock Incentive Plan, as amended from time to time.
(dd) "QDRO" shall mean a qualified domestic relations order as
----
defined in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA
(to the same extent as if this Plan were subject thereto), or the applicable
rules thereunder.
(ee) "Reorganization Plan" shall mean the Third Amended Joint Plan
-------------------
of Reorganization dated as of May 25, 1995, as filed by the Corporation and
its Subsidiaries with the United States Bankruptcy Court for the Northern
District of Ohio, as the same may be amended from time to time.
18
<PAGE>
(ff) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
----------
Commission pursuant to the Exchange Act, as amended from time to time.
(gg) "Section 16 Person" shall mean a person subject to Section
-----------------
16(a) of the Exchange Act.
(hh) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended from time to time.
(ii) "Stock Appreciation Right" or "SAR" shall mean a right to
------------------------
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock, that is authorized under this Plan.
(jj) "Subsidiary" shall mean any corporation or other entity a
----------
majority of whose outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Corporation.
(kk) "Total Disability" shall mean a "permanent and total
----------------
disability" within the meaning of Section 22(e)(3) of the Code and such other
disabilities, infirmities, afflictions or conditions as the Committee by rule
may include.
<PAGE>
EXHIBIT A
---------
STOCK OPTIONS
-------------
(To be granted under the Reorganization Plan and
Under the 1995 Stock Incentive Plan (the "1995 Plan")
Name of Optionee No. of Shares
---------------- -------------
Reorganization Plan/Management
Agreement - Alvares & Marsal 416,667
1995 Plan - Initial Stock Options
Allocated (Granted)
Robert M. Haft 256,250
M. David Schwartz 175,000
Daniel J. O'Leary 87,500
Richard Juliano 25,000
Warren E. Jeffery 45,000
Robert W. McCurdy 10,000
Sankar Krishnan 25,000
Joseph A. Yannerella 15,000
Carmen G. Forde 7,500
John R. Ficarro 15,000
Joseph P. McCabe 10,000
Michael I. Tamarkin 7,500
Joseph W. Teichman 7,500
Charles Fowler 7,500
Scott Thomas Gorley 5,500
Daniel E. Maher 5,500
Gerald Reinhardt 5,500
Anthony Forde 5,500
Peter S. Austin 5,500
Mickey V. McDonald 5,500
Lawrence G. Hruska 5,500
Robert W. Solomon 4,000
Michael L. Malkin 4,000
Gregory C. Eckhart 4,000
William Edwards 65,000*
Subtotal (allocated) 809,250
Unallocated (reserved) 24,083
------
1995 Plan Total 833,333
-------
Total Options under 1995 Plan
and Under A&M Agreement 1,250,000
=========
- --------------------------------------
*Effective as of the later of the Effective Date or the date of
employment.
<PAGE>
EXHIBIT B
---------
"Initial Option"
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------
THIS AGREEMENT dated as of the ___ day of ____________, 1995, between
Phar-Mor, Inc., a Pennsylvania corporation (the "Corporation"), and
__________________________________ (the "Employee").
W I T N E S S E T H
-------------------
WHEREAS, pursuant to the Corporation's 1995 Stock Incentive Plan (the
"Plan"), the Corporation has granted to the Employee effective as of the date
hereof (the "Option Date") a nonqualified stock option, representing an
Initial Option under the Plan, to purchase authorized but unissued or treasury
shares of Common Stock $0.01 par value per share (the "Common Stock") of the
Corporation, as an incentive to services or continued services, as the case
may be, as embodied in the vesting schedule set forth herein, subject to the
terms and conditions set forth herein and in the Plan, and in partial
consideration of any contract for services to be performed that expressly
provides for this option;
WHEREAS, the contemplated services represent fair value to the
Corporation for this Agreement, and the terms hereof are deemed advantageous
to the Corporation; and
WHEREAS, the Corporation has determined in good faith that the exercise
price of the option represents a fair value of the underlying shares as of the
Effective Date.
NOW, THEREFORE, for valuable consideration, including the foregoing, the
receipt of which is hereby acknowledged and in consideration of the mutual
promises made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned to such terms in the Plan.
2. Grant of Option. This Agreement evidences the Corporation's grant
---------------
as of the Option Date to the Employee of the right and option to purchase,
subject to the terms and conditions set forth herein and in the Plan, all or
any part of an aggregate of __________ shares of the Common Stock (the
"Option") at a price per share of $8.00 exercisable from time to time, to the
extent provided in this Agreement and the Plan, prior to the close of business
on the day before the seventh anniversary of the Option Date (the "Expiration
Date").
<PAGE>
3. Exercisability of Option. Except as earlier permitted by or
-------------------------
pursuant to the Plan or by resolution of the Committee adopted after the date
hereof and subject to Section 4.4. of the Plan, the Option shall become
exercisable in installments as to 20% of the aggregate number of shares set
forth in Section 2 hereof (subject to adjustment) on and after the Effective
Date and as to an additional 20% of the aggregate number of shares (subject to
adjustment) on each of the first, second, third and fourth anniversaries of
the Effective Date. After an installment vests, the Option may be exercised
to such extent, in whole or in part, from time to time, until its expiration
or earlier termination.
Fractional shares shall not be issued, but fractional share interests may
(at the Employee's election) be accumulated. No fewer than 50 shares may be
purchased at any one time, unless the number purchased is the total number at
the time available for purchase under the Option.
4. Method of Exercise of Option. The Option shall be exerciseable by
----------------------------
the delivery to the Corporation of a written notice stating the number of
shares to be purchased pursuant to the Option and accompanied by payment made
in accordance with and in a form permitted by Section 2.2(b) of the Plan for
the full purchase price of the shares to be purchased and by provision for tax
withholding consistent with Section 4.5 of the Plan, subject to such further
limitations and rules or procedures as the Committee may from time to time
reasonably establish (consistent with accounting, securities and corporate law
requirements) as to any non-cash payment and as to the tax withholding
requirements of Section 4.5 of the Plan. Shares delivered in payment of the
exercise price must have been owned by Employee for at least six months prior
to the exercise. In addition, the Employee (or the Employee's Beneficiary or
Personal Representative) shall furnish any written statements required
pursuant to Section 4.4 of the Plan.
5. Effect of Termination of Employment or Death: Change in Subsidiary
------------------------------------------------------------------
Status. The Option and all other rights hereunder, to the extent not
- ------
exercised, shall terminate and become null and void at such time as the
Employee ceases to be employed by either the Corporation or any Subsidiary,
except that
(a) if the Employee is terminated without cause (or for cause
within two years after a Change in Control Event) or the Employee
voluntarily retires or resigns, the Employee may at any time within a
period of six months after such termination exercise the Option to the
extent the Option was exercisable at the date of such termination; and
(b) if the Employee's employment terminated because of Total
Disability (within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986 or as otherwise defined by the Committee), or if the
Employee dies while in the employ of the Corporation or any Subsidiary,
then the Option may be exercised within a period of one year after the
date of termination, by or on behalf of the Employee by the Employee's
Beneficiary or legal representative to the extent the Option was
exercisable on the date of termination;
2
<PAGE>
provided, however, that in no event may the Option be exercised by anyone
under this Section or otherwise after the Expiration Date. If the Employee is
employed by an entity which ceases to be a Subsidiary, such event shall be
deemed for purposes of this Section 5 to be a termination of employment
described in subsection (a) in respect of the Employee. Absence from work
caused by military service or authorized sick leave shall not be considered as
a termination of employment for purposes of this Section.
6. Termination of Option Under Certain Events. To the extent
------------------------------------------
permitted by Section 4.2 of the Plan, the Committee retains the right to
adjust or, upon dissolution, terminate the Option to the extent not previously
exercised upon certain events; provided that the treatment of the Option is
consistent with the treatment of other options or rights to acquire Common
Stock of the Corporation.
7. Non-Transferability of Option; Restrictions on Shares. The Option
-----------------------------------------------------
and any other rights of the Employee under this Agreement or the Plan are
nontransferable as provided in Section 1.9 of the Plan. Any shares of Common
Stock delivered under this Agreement shall be subject to such restrictions,
and the person acquiring such shares shall, if requested, provide such
assurances and representations to the Corporation as it may reasonably deem
necessary or advisable to assure compliance with applicable legal
requirements, including federal and state securities laws.
8. Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and addressed to the Corporation at its principal offices
located in Youngstown, Ohio, to the attention of the Corporate Secretary and
to the Employee at the address given beneath the Employee's signature hereto,
or at such other address as either party may hereafter designate in writing to
the other.
9. Plan. The Option and all rights of the Employee thereunder are
----
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan, incorporated herein by this
reference; provided, however, that in the event of any conflict, inconsistency
or ambiguity between, or arising as the result of, the terms and provisions of
this Agreement or any other written agreement between the Employee and the
Corporation and the terms and provisions of the Plan, the terms and provisions
most favorable to the Employee shall control for all purposes and in all
respects. The Employee acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and (except as set forth in the proviso
of the preceding sentence) agrees to be bound by the terms thereof. Unless
otherwise expressly provided in other Sections of this Agreement or in any
other written agreement with the Employee, provisions of the Plan that confer
discretionary authority on the Committee do not (and shall not be deemed to)
create any rights in the Employee unless such rights are expressly set forth
herein or therein or are otherwise in the sole discretion of the Committee so
conferred by appropriate action of the Committee under the Plan after the date
hereof.
3
<PAGE>
10. Effective Date. This Agreement and the Option evidenced hereby
--------------
shall be granted as of the Effective Date and subject to the effectiveness of
the Reorganization Plan.
11. Ohio Securities Condition. The Option shall not be exercisable
-------------------------
unless the Common Stock issuable on exercise, at the time of exercise, is
exempt from qualification, is the subject of an exempt transaction or is
registered or qualified in the State of Ohio. The Corporation agrees to use
its best efforts to effect a qualification of the Common Stock or the subject
transaction is not otherwise exempt from such requirements.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
PHAR-MOR, INC.
(a Pennsylvania corporation)
By:
Title:
EMPLOYEE
(Signature)
(Print Name)
(Address)
(City, State, Zip Code)
4
<PAGE>
CONSENT OF SPOUSE
-----------------
(IF REQUIRED OR DEEMED BY THE CORPORATION
TO BE ADVISABLE UNDER APPLICABLE STATE LAW)
In consideration of the execution of the foregoing Nonqualified Stock
Option Agreement by Phar-Mor, Inc., I, , the
spouse of the Employee herein named, do hereby join with my spouse in
executing the foregoing Nonqualified Stock Option Agreement and do hereby
agree to be bound by all of the terms and provisions thereof and of the Plan.
DATED: , 1995.
----------------------------------
Signature of Spouse
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> MAR-28-1998
<CASH> 39,506
<SECURITIES> 11,546
<RECEIVABLES> 26,043
<ALLOWANCES> 0
<INVENTORY> 184,299
<CURRENT-ASSETS> 266,626
<PP&E> 74,407
<DEPRECIATION> 0
<TOTAL-ASSETS> 354,662
<CURRENT-LIABILITIES> 116,892
<BONDS> 135,068
0
0
<COMMON> 122
<OTHER-SE> 81,934
<TOTAL-LIABILITY-AND-EQUITY> 354,662
<SALES> 825,863
<TOTAL-REVENUES> 825,863
<CGS> 666,118
<TOTAL-COSTS> 666,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,562
<INCOME-PRETAX> (9,505)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,505)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
