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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PHAR-MOR, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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[PHAR-MOR LOGO]
October 31, 2000
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Phar-Mor, Inc. (the "Company"), which will be held at The Willard
Inter-Continental Hotel, 1401 Pennsylvania Avenue, Washington, D.C. 20004 on
Thursday, December 7, 2000, at 10:00 a.m. (local time).
The Notice of Meeting and the Proxy Statement that follow describe the
business to be conducted at the meeting. Management will report on current
operations and there will be an opportunity for discussion concerning the
Company and its activities.
Your vote is very important. Whether or not you plan to attend the meeting,
and regardless of the number of shares you own, it is important that your shares
be represented at the meeting. Please sign and return your proxy card in the
enclosed envelope to ensure that your shares will be represented and voted at
the meeting in the event that you are unable to attend. You are urged to sign
and return the enclosed proxy card even if you plan to attend the meeting. If
you do plan to be present at the meeting and wish to vote in person, you may
withdraw your proxy at that time.
We hope you will attend and look forward to personally meeting you on
December 7th.
Sincerely,
/s/ Abbey J. Butler
/s/ Melvyn J. Estrin
Abbey J. Butler & Melvyn J. Estrin
Co-Chairmen of the Board
and Co-Chief Executive Officers
20 Federal Plaza West
P.O. Box 400
Youngstown, Ohio 44501
<PAGE> 3
[PHAR-MOR LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held December 7, 2000
To the Shareholders of Phar-Mor, Inc.
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders (the
"Meeting") of Phar-Mor, Inc., a Pennsylvania corporation (the "Company"), will
be held at The Willard Inter-Continental Hotel, 1401 Pennsylvania Avenue,
Washington, D.C. 20004 on Thursday, December 7, 2000, at 10:00 a.m. (local
time), with registration beginning at 9:00 a.m., for the following purposes:
1. To elect two directors as set forth in the accompanying Proxy Statement
to hold office until the 2003 annual meeting and their successors are
duly elected and qualified;
2. To approve an amendment to the Phar-Mor, Inc. 1995 Amended and Restated
Stock Incentive Plan increasing the number of shares available under
such plan from 3.85 million to 5.0 million;
3. To ratify the selection by the Board of Directors of Deloitte & Touche
LLP as the Company's independent public accountants; and
4. To transact such other business as may properly come before the Meeting
or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on September 29,
2000 as the record date for the purpose of determining shareholders entitled to
notice of and to vote at the Meeting or at any postponement or adjournment
thereof.
In order to assure a quorum, it is important that shareholders who do not
expect to attend the Meeting in person complete, sign, date and promptly return
the enclosed proxy card in the accompanying envelope.
By Order of the Board of Directors,
/s/ John R. Ficarro
John R. Ficarro
Secretary
Youngstown, Ohio
October 31, 2000
<PAGE> 4
PHAR-MOR, INC.
20 FEDERAL PLAZA WEST
YOUNGSTOWN, OHIO 44501-0400
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 7, 2000
The enclosed proxy is solicited by the Board of Directors of Phar-Mor,
Inc., a Pennsylvania corporation (the "Company"), for use at its annual meeting
of shareholders to be held at The Willard Inter-Continental Hotel, 1401
Pennsylvania Avenue, Washington, D.C. 20004 on Thursday, December 7, 2000, at
10:00 a.m. (local time), and at any postponement or adjournment thereof (the
"Meeting"). The enclosed proxy, properly executed and received by the Secretary
of the Company prior to the Meeting, and not revoked, will be voted in
accordance with the directions thereon. If no directions are indicated, the
persons named in the enclosed proxy intend to vote: (i) FOR the nominees for
election as directors; (ii) FOR approval of the amendments to the Phar-Mor, Inc.
1995 Amended and Restated Stock Incentive Plan; and (iii) FOR approval of the
selection of Deloitte & Touche LLP as the Company's independent public
accountants.
The Company's management knows of no matter to be brought before the
Meeting which is not referred to in the Notice of Meeting and this Proxy
Statement. If, however, any other matter should be presented at the Meeting upon
which a vote properly may be taken, the shares represented by the proxy will be
voted with respect thereto at the discretion of the person or persons holding
such proxy. Proxies may be revoked by shareholders at any time prior to the
voting of the proxy by written notice to the Secretary of the Company, by
submitting a new proxy to the Secretary of the Company or by personal ballot at
the Meeting. Attendance at the Meeting shall not have the effect of revoking a
proxy unless the shareholder so attending shall, in writing, so notify the
Secretary of the Meeting at any time prior to the voting of the proxy. The first
date on which this proxy statement and the enclosed form of proxy are being sent
to the Company's shareholders is on or about October 31, 2000.
The holders of a majority of the shares of common stock, $0.01 par value
per share ("Common Stock"), entitled to vote at the Meeting, present in person
or by proxy, shall constitute a quorum. Abstentions will be considered shares of
Common Stock that are present and entitled to vote for purposes of determining
the presence of a quorum, but as not voted for purposes of determining the
approval of any matter submitted to shareholders for a vote. If a broker
indicates on a proxy that such broker does not have discretionary authority as
to certain shares of Common Stock to vote on a particular matter, such shares of
Common Stock will not be considered as present and entitled to vote with respect
to that matter.
As of the close of business on September 29, 2000, the record date for
determining shareholders entitled to vote at the Meeting, the Company had issued
and outstanding 12,240,865 shares of Common Stock, held of record by 2,962
shareholders. Only shareholders of record at the close of business on September
29, 2000 will be entitled to vote at the Meeting. Shareholders do not have
cumulative voting rights. Each share of Common Stock is entitled to one vote on
each matter voted on at the Meeting.
The Common Stock is traded on the Nasdaq National Market ("Nasdaq-NMS")
under the symbol "PMOR."
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Under the Company's Restated Articles of Incorporation and Bylaws, its
Directors are divided into three classes, each class to be elected at successive
annual meetings of shareholders for a term of three years. On August 11, 1999
the Board adopted a resolution, consistent with the Company's Bylaws, to set the
number of Directors on the Board at five. The directors whose terms will expire
at the Meeting are Abbey J. Butler and Melvyn J. Estrin. Messrs. Butler and
Estrin have been nominated by the Board to stand for re-election as
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Directors at the Meeting to hold office until the 2003 Annual Meeting and until
their successors are duly elected and qualified or until their resignation or
removal.
The nominees have indicated a willingness to serve as Directors, but in the
event the nominees should become unable to serve as Directors, an event which
the Board does not expect, the Board will nominate different persons, and the
proxies named on the enclosed proxy card will vote for the election of such
nominees.
If a quorum is present at the Meeting, the election of each Director will
require the affirmative vote of a plurality of the votes cast at the Meeting, in
person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
NOMINEE.
INFORMATION ON THE NOMINEE AND THE INCUMBENT DIRECTORS
The following information relates to the nominee named above and to the
other directors of the Company whose terms will continue after the Meeting.
NOMINEES FOR TERM EXPIRING 2003
<TABLE>
<CAPTION>
NAME SERVED AS DIRECTOR SINCE AGE
---- ------------------------ ---
<S> <C> <C>
Abbey J. Butler........................................... 1995 63
Melvyn J. Estrin.......................................... 1995 58
</TABLE>
INCUMBENT DIRECTORS: TERM EXPIRING 2001
<TABLE>
<CAPTION>
NAME SERVED AS DIRECTOR SINCE AGE
---- ------------------------ ---
<S> <C> <C>
Arthur G. Rosenberg....................................... 1997 62
John D. Shulman........................................... 1997 37
</TABLE>
INCUMBENT DIRECTOR: TERM EXPIRING 2003
<TABLE>
<CAPTION>
NAME SERVED AS DIRECTOR SINCE AGE
---- ------------------------ ---
<S> <C> <C>
Monroe Osterman........................................... 1997 73
</TABLE>
ABBEY J. BUTLER has been a director of the Company since September 1995 and
Co-Chairman of the Board and Co-Chief Executive Officer of the Company since
October 1, 1997. Mr. Butler is Co-Chairman of the Board and Co-Chief Executive
Officer of Avatex Corporation ("Avatex"), formerly known as FoxMeyer Health
Corporation. He also serves as President and a director of C.B. Equities Corp.,
a private investment company. Mr. Butler presently serves as a director of
GrandBanc, Inc., iLife Systems, Inc. ("iLife"), Carson, Inc. and Cyclone
Acquisition Company, LLC and, in connection with our investments, as a director
of RAS Holding Corp. ("RAS") and its subsidiary, Presby Corp., and as a member
of the Board of Managers of ChemLink Laboratories, LLC. Mr. Butler is a trustee
of the Board of Trustees of The American University, and a director of the
Starlight Foundation, a charitable organization. He was appointed by President
George Bush to serve on the President's Advisory Committee on the Arts, and he
now serves as President of the National Committee for the Performing Arts, John
F. Kennedy Center, Washington, D.C. Mr. Butler also served as Co-Chairman of the
Board of FoxMeyer Corporation since March 1991 and was its Co-Chief Executive
Officer from May 1993 to November 1996, and also served as Co-Chairman of the
Board of Ben Franklin from November 1991 until March 1997. FoxMeyer Corporation
and Ben Franklin each filed for relief under the Bankruptcy Code in 1996.
MELVYN J. ESTRIN has been a director of the Company since September 1995
and Co-Chairman of the Board and Co-Chief Executive Officer of the Company since
October 1, 1997. Mr. Estrin is Co-Chairman of the Board and Co-Chief Executive
Officer of Avatex. He also has served as Chairman of the Board and Chief
Executive Officer of Human Service Group, Inc., a private management and
investment firm, since 1983. Mr. Estrin presently serves as Chairman of
GrandBanc, Inc.; and a director of Washington Gas Light Company, Carson, Inc.,
iLife and Cyclone Acquisition Company, LLC and, in connection with our
investments, as a director of RAS, and HPD Holdings Corp., and as a member of
the Board of Managers of ChemLink Laboratories, LLC.
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Mr. Estrin also served as a Trustee of the University of Pennsylvania and was
appointed by President George Bush to serve as Commissioner of the National
Capital Planning Commission. Mr. Estrin also served as Co-Chairman of the Board
of FoxMeyer Corporation since March 1991 and was it Co-Chief Executive Officer
from May 1993 to November 1996, and also served as Co-Chairman of the Board of
Ben Franklin from November 1991 until March 1997. FoxMeyer Corporation and Ben
Franklin each filed for relief under the Bankruptcy Code in 1996.
ARTHUR G. ROSENBERG has been a director of the Company since November 23,
1997. Mr. Rosenberg was a principal of The Associated Companies, a real estate
development firm, from 1987 to 1998 and in 1999 became a principal of Millennium
Development Group LLC. Prior thereto, Mr. Rosenberg was a practicing lawyer in
Huntington, New York and served as General Counsel for ITT Levitt & Sons, Inc.,
an international builder.
JOHN D. SHULMAN has been a director of the Company since November 23, 1997.
Mr. Shulman has served as President and Chief Executive Officer of ONYX
International, L.L.C., a merchant banking and venture firm focusing primarily on
private equity placements in high growth companies, since 1994. Prior to serving
as President and Chief Executive Officer of ONYX International, L.L.C., Mr.
Shulman served as the Director of Development for Tower Companies, a diversified
group of companies including real estate development, banking and related
activities since 1986. Mr. Shulman currently serves on the Board of Directors of
U.S. Interactive, Inc. (NASDAQ:USIT); Performance Distribution, Inc., Taiwan
Mezzanine Fund I, L.P.; Interactive Video Technologies, Inc.; and on the Board
of Managers of ChemLink Laboratories, LLC. Mr. Shulman is the husband of Mr.
Estrin's niece.
MONROE OSTERMAN has been a director of the Company since September 25,
1997. Mr. Osterman has served as President of Gala Trading Corporation, an
investment company specializing in large purchases of diamonds from Europe,
since 1982. Prior to serving as President of Gala Trading Corporation, Mr.
Osterman served as President of Paras USA and Bermont Corporation and was also a
partner at J. Winston & Company, an importing and merchandising company.
COMMITTEES OF THE BOARD; MEETINGS
The Board met four times during the fiscal year ended July 1, 2000 ("Fiscal
Year 2000"). During Fiscal Year 2000, each director attended all Board meetings
during the time such person was a member of the Board.
The Board has a standing Audit Committee and a standing Compensation
Committee.
AUDIT COMMITTEE. The Audit Committee of the Board provides the Board with
an independent review of the Company's accounting policies, the adequacy of
financial controls and the reliability of financial information reported to the
public. The Audit Committee also conducts examinations of the affairs of the
Company as required by law or as directed by the Board, supervises the
activities of the internal audit department and reviews the services provided by
the independent auditors. For Fiscal Year 2000, the Audit Committee consisted of
Messrs. Rosenberg and Shulman until March 2, 2000 when Mr. Osterman became a
member. During Fiscal Year 2000, the Audit Committee met four times. Messrs.
Rosenberg, Osterman and Shulman are considered "independent directors" under the
NASD's rules.
On May 19, 2000, the Board unanimously adopted an Audit Committee Charter
outlining the responsibilities and duties of the Audit Committee. A copy of the
Audit Committee Charter is included as Appendix A to the proxy statement.
COMPENSATION COMMITTEE. The Compensation Committee of the Board determines
compensation and benefits for officers, reviews salary and benefit changes for
other senior officers, administers the Phar-Mor, Inc. 1995 Amended and Restated
Stock Incentive Plan (the "Phar-Mor Stock Incentive Plan"), the Phar-Mor, Inc.
1995 Director Stock Plan (the "Phar-Mor Director Stock Plan"), the Phar-Mor,
Inc. 1996 Director Retirement Plan, as amended (the "Phar-Mor Director
Retirement Plan"), the Phar-Mor, Inc. Employee Stock Purchase Plan (the
"Phar-Mor Employee Stock Purchase Plan"), and other employee benefits. For
Fiscal Year 2000, the
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Compensation Committee consisted of Messrs. Schulman and Osterman. During Fiscal
Year 2000, the Compensation Committee met once.
COMPENSATION OF DIRECTORS
Each director of the Company receives an annual retainer fee of $25,000 and
an attendance fee of $1,000 ($2,000 in the case of a committee chairman) for
each meeting of the Board, and of each of the committees of the Board attended,
other than committee meetings occurring on a date on which a Board meeting is
scheduled. All directors are also reimbursed for travel and other out-of-pocket
expenses incurred by them in attending Board or committee meetings.
Pursuant to the Phar-Mor Director Stock Plan, directors receive an annual
grant of options to purchase shares of Common Stock. Before October 1, 1997,
directors received an annual grant of an option to purchase 5,000 shares of
Common Stock. Pursuant to an amendment to the Phar-Mor Director Stock Plan
approved by the Board on September 25, 1997, commencing with the grant on
October 1, 1997, directors receive an annual grant of an option to purchase
10,000 shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock on the date of grant. On June 29, 2000, the Board
approved a resolution which was subsequently approved by the shareholders,
changing the automatic grant date to July 1 beginning July 1, 1999. Directors
may elect to receive additional shares of Common Stock in lieu of all or a
portion of their annual retainer. Directors may elect to defer payment of all or
a portion of their annual retainer under a non-qualified, unfunded deferred
compensation plan. Deferred amounts are invested, at the election of the
director, in an interest-bearing account or a stock equivalent account. The
amounts deferred, plus any appreciation thereon, are paid in cash on the dates
specified by the director. The Phar-Mor Director Stock Plan provides that
500,000 shares of Common Stock are available for grants under such Plan. On
April 14, 2000, the Board of Directors approved the repricing of options to
purchase 10,000 shares of the Company's common stock previously issued to each
of Messrs. Osterman, Rosenberg and Shulman under the Phar-Mor Director Stock
Plan. The options' exercise price was lowered from $7.375 per share to $1.53125
per share.
Pursuant to the Phar-Mor Director Retirement Plan, the Company credits each
director of the Company who is not an employee of the Company or a subsidiary of
the Company (an "Eligible Director") annually, commencing in October 1996, with
that number of shares of Common Stock whose aggregate fair market value on a
date as specified under the Phar-Mor Director Retirement Plan equals the amount
of the annual retainer payable to such Eligible Director, or such other amount
as may be determined by resolution of the Compensation Committee of the Board.
The award is not in the form of actual shares of Common Stock, and no shares of
Common Stock will be set aside for the benefit of Eligible Directors under the
Phar-Mor Director Retirement Plan. The number of shares of Common Stock in each
retirement share account is subject to adjustment for dilution or otherwise as
set forth in the Phar-Mor Director Retirement Plan. As of July 1, 2000, in
accordance with the Phar-Mor Director Retirement Plan, the retirement accounts
of Messrs. Butler and Estrin have each been credited with 7,693.37 shares of
Common Stock, and the retirement accounts of Messrs. Osterman, Rosenberg and
Shulman have each been credited with 8,723.16 shares of Common Stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is not deemed to be "soliciting material" or deemed to be
"filed" with the Securities and Exchange Commission (the "SEC") or subject to
the SEC's proxy rules or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the report shall not
be deemed to be incorporated by reference into any prior or subsequent filing by
the Company under the Securities Act of 1933 or the Exchange Act.
EXECUTIVE COMPENSATION. The Company's executive compensation program is
intended to attract, retain and reward experienced, highly motivated executive
officers who are capable of effectively leading and continuing the growth of the
Company. Officers of the Company are paid salaries in line with their
responsibilities and generally comparable to industry standards. Executive
officers are also eligible to receive discretionary bonuses upon the achievement
of revenue and profit goals established by the Company as an incentive for
superior individual, group and corporate performance. Likewise, stock option
grants to officers (and
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other employees) promote success by aligning employee financial interests with
long-term shareholder value. Stock option grants are based on various subjective
factors primarily relating to the responsibilities of the individual officers,
and also to their expected future contributions and prior option grants. All
executive officers are also significant shareholders and/or holders of options
to purchase significant amounts of Common Stock. To the extent that the
performance of such individual officers translates into an increase in the value
of the Common Stock, all shareholders, including such officers, share the
benefits.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICERS. The Compensation Committee
will annually review and approve the compensation of the Chief Executive
Officer(s) of the Company. The Board believes that Messrs. Butler and Estrin,
the Company's Co-Chief Executive Officers, are paid reasonable salaries based on
the same corporate financial goals as the other officers of the Company. Messrs.
Butler and Estrin also are eligible to receive discretionary bonuses awardable
upon the achievement of specific revenue and profitability goals for the Company
as a whole. In addition, Messrs. Butler and Estrin are significant shareholders
in the Company through Avatex, and to the extent their performance as Co-Chief
Executive Officers translates into an increase in the value of the Common Stock,
all shareholders, including them, share the benefits.
The SEC requires that this report comment upon the Company's policy with
respect to Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), which limits the deductibility on the Company's tax return of
compensation over $1 million to any of the named executive officers of the
Company unless, in general, the compensation is paid pursuant to a plan which is
performance related, non-discretionary and has been approved by the Company's
shareholders. Because the compensation of certain executive officers will or may
exceed $1 million in any year, the provisions of Section 162(m) of the Code may
limit the deductibility of such compensation unless an exception to such
limitations is available. Because of the uncertainties surrounding the
application and interpretation of such limits, no assurance can be given that
such compensation will be deductible.
Submitted by the Compensation Committee
John D. Shulman (Chairman)
Monroe Osterman
EXECUTIVE COMPENSATION PLANS
PHAR-MOR, INC. 1995 AMENDED AND RESTATED STOCK INCENTIVE PLAN. The Phar-Mor
Stock Incentive Plan was adopted in order to attract, reward and retain key
personnel (including officers, whether or not directors) of the Company and its
subsidiaries and certain other closely related eligible persons who provide
substantial services to such entities ("Eligible Persons") and to provide them
with long-term incentives that are linked to the Company's stock performance.
Approximately nine officers and approximately 450 other employees of the Company
and its subsidiaries are currently eligible to participate under the Phar-Mor
Stock Incentive Plan.
The Phar-Mor Stock Incentive Plan is administered by the Compensation
Committee of the Board (the "Administrator"). Currently, a maximum of 3.85
million shares of the Company's Common Stock (subject to adjustment) may be
issued upon the exercise of awards granted under the Phar-Mor Stock Incentive
Plan. As of July 1, 2000, a total of 3,694,633 shares of the Company's Common
Stock were subject to options granted under the Phar-Mor Stock Incentive Plan.
The Phar-Mor Stock Incentive Plan authorizes the issuance of options and
(subject to plan limitations) certain stock appreciation rights ("SARs"). As is
customary in incentive plans of this nature, the number and kind of shares
available under the Phar-Mor Stock Incentive Plan, share limits, and shares
subject to outstanding awards are subject to adjustment in the event of certain
reorganizations, recapitalizations, stock splits, stock dividends, spin-offs,
property distributions or other similar extraordinary transactions or events in
respect of the Company or the shares of the Company. Shares relating to options
or SARs that are not exercised or that expire or are canceled will again become
available for grant purposes under the Phar-Mor Stock Incentive Plan to the
extent permitted by law and the plan. Awards may be repriced or otherwise
amended after grant, provided that the amendment does not adversely affect the
holder's rights without his or her consent. A maximum of 277,778 shares of the
Company's Common Stock may be subject to options that during any calendar year
are granted to any Eligible Person under the Phar-Mor Stock Incentive Plan.
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The exercise price of the options granted under the Phar-Mor Stock
Incentive Plan generally may not be less than the fair market value of the
Company's Common Stock on the date of grant or such greater amount as may be
determined by the Administrator. An option may either be an incentive stock
option, as defined in the Code, or a non-qualified stock option. All options
granted pursuant to the Phar-Mor Stock Incentive Plan as of July 1, 2000 are
non-qualified stock options, except the options granted to Messrs. Butler and
Estrin which are incentive stock options. The aggregate fair market value of the
Common Stock (determined at the time the option is granted) for which incentive
stock options may be first exercisable by an option holder during any calendar
year under the Phar-Mor Stock Incentive Plan or any other plan of the Company or
its subsidiaries may not exceed $100,000. A non-qualified stock option is not
subject to any of these limitations.
Subject to early termination or acceleration provisions (which are
summarized below), an option generally will be exercisable, in whole or in part,
from the date specified in the related award agreement until the expiration
date, all as determined by the Administrator. Earlier expiration may occur
following a termination of service. In no event, however, is an option under the
Phar-Mor Stock Incentive Plan exercisable more than seven years after its date
of grant.
Upon the occurrence of either (A) a Change in Control Event (as defined in
the Phar-Mor Stock Incentive Plan to include, but not be limited to, (i) the
approval by the shareholders of the Company of a dissolution or liquidation,
(ii) certain agreements of merger or consolidation resulting in the Company's
shareholders, or entities associated or affiliated with them, holding less than
50% of the voting stock of the surviving entity, (iii) the sale of substantially
all the assets of the Company as an entirety to a person that is not an
affiliated person of the Company, (iv) a person or group (other than Robert M.
Haft, Hamilton Morgan, LLC ("Hamilton Morgan") or other 25% owners as of
September 11, 1995 and certain related entities) acquiring beneficial ownership
of over 50% of the voting power, or (v) certain changes in the composition of
the Board, or (B) under other circumstances (such as a termination of service),
the Administrator, in its discretion, may provide for acceleration or extension
of the exercisability of awards, or provide for certain other limited benefits,
which may include SARs, under some or all awards and may determine the extent,
duration and other conditions of such additional rights by amendment to
outstanding awards or otherwise. The Board may terminate or amend the Phar-Mor
Stock Incentive Plan, subject to the rights of holders of outstanding options.
If an amendment would (i) materially increase the benefits accruing to Eligible
Persons under the Phar-Mor Stock Incentive Plan, (ii) materially increase the
aggregate number of shares that may be issued under the Phar-Mor Stock Incentive
Plan, or (iii) materially modify the eligibility requirements for participation
under the Phar-Mor Stock Incentive Plan, the amendment, to the extent deemed
necessary by the Board or the Administrator or then required by applicable law,
must be approved by the shareholders.
CORPORATE EXECUTIVE BONUS PLAN. Under the Company's Corporate Executive
Bonus Plan for Fiscal Year 2000 (the "2000 Bonus Plan"), certain executive
officers were eligible to receive a cash bonus if the Company achieved a
pre-established level of performance for the fiscal year. The participating
executive would receive at least 60% of his or her individual targeted
percentage bonus ("target bonus") if this performance were at target, and 35% of
the target bonus (e.g., if the target bonus is 50%, 35% of 50%) if the Company's
performance were at entry level; the remaining amount (up to 40%) was subject to
the discretion of the Board. If the Company did not achieve the targeted level
of performance, but achieved an "entry level" or minimum performance threshold
for payment of bonuses established by the Board, the specific bonus amount
between minimum and target bonus levels would be extrapolated, pro rata, based
on the relationship of actual performance to the entry and target levels of
performance; 60% of such amount would be mandatory and up to 40% discretionary.
Although the Company did not achieve its pre-established level of performance
for Fiscal Year 2000, the Board of Directors approved payment of discretionary
bonuses to 134 employees totaling $1,320,487. The Board believes the payment of
these discretionary bonuses is in the best interest of the Company, particularly
relative to the retention of key employees.
The employment agreements between the Company and each of Messrs. Butler
and Estrin provide for an annual incentive bonus under a Company-sponsored bonus
plan (if a bonus plan is approved, or otherwise as provided under a separate
agreement between the Company and each of Messrs. Butler and Estrin), if
reasonable performance objectives approved by the Board are achieved, with a
maximum bonus of 60% and a minimum
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bonus of 21% of annual base salary, commencing in Fiscal Year 1998; provided,
however, that if the performance objectives are exceeded, then such bonus will
be increased to a level commensurate with the amount of bonuses payable to
senior officers of the Company who are situated similarly to Messrs. Butler and
Estrin. See "Employment Contracts and Termination of Employment and
Change-In-Control Arrangements--Messrs. Butler and Estrin."
401(k) EMPLOYEE SAVINGS PLAN. Employees of the Company are eligible to
participate in the 401(k) Employee Savings Plan (the "401(k) Plan"). The 401(k)
Plan is a tax-qualified profit sharing plan that provides for pre-tax deferrals
by employees and employer matching and profit-sharing contributions. In
addition, warehouse employees and drivers are eligible to participate in a
separate 401(k) savings plan.
RETIREMENT AND PENSION PLANS. The Company provided pension benefits under
noncontributory defined benefit pension plans to its non-union employees who
have met the applicable age and service requirements specified in the plans.
During fiscal 1996 the Company's Board of Directors voted to freeze the benefits
accruing under its defined benefit plan that covers nonunion personnel effective
June 29, 1996 and to increase the Company's matching contribution to the defined
contribution plan for those employees. The Company terminated its defined
benefit plan that covers non-union personnel on April 30, 1998. Lump sum cash
payments were made to the majority of the plan participants by June 27, 1998.
Annuities were purchased for the remaining participants during Fiscal Year 1999.
In addition, the Company maintains two pension plans for various groups of
employees: (i) the Phar-Mor, Inc. Retirement Plan for Hourly Employees at Niles,
Ohio Store and (ii) the Tamco Distributors Company Warehouse and Drivers Pension
Plan (collectively, the "Pension Plans"). The Pension Plans are defined benefit
plans subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
To the extent permitted by law, the minimum eligibility and vesting
provisions under these and other retirement, health and welfare benefit plans
were waived for Messrs. Estrin and Butler under the terms of their respective
employment agreements.
EMPLOYEE STOCK PURCHASE PLAN. The Company sponsors an Employee Stock
Purchase Plan ("ESPP") under which it is authorized to grant up to 500,000
shares, in the aggregate, of Common Stock obtained by open market purchases.
Employees, including executive officers, with a minimum of three months of
service are eligible to participate in the ESPP. The ESPP allows eligible
employees to contribute, through payroll deductions, up to 10% (not to exceed
$25,000) of their annual salary toward stock purchases. Stock purchases are made
quarterly and purchased by participants at 90% of the closing price on the last
day of the calendar quarter.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with Messrs. Butler,
Estrin, Schwartz, Jeffery and Ficarro, each of which is described below.
Messrs. Abbey J. Butler and Melvyn J. Estrin. The employment agreements
with Messrs. Butler and Estrin have a rolling three-year term commencing on
October 1, 1997 that provide for Messrs. Butler and Estrin to serve as Co-Chief
Executive Officers and Co-Chairmen of the Board. The initial annual base salary
of each of Messrs. Butler and Estrin is $425,000 subject to annual increases of
8%. For the contract year ending September 30, 2000, the annual base salary of
each of Messrs. Butler and Estrin is $495,720. The agreements provide for an
annual incentive bonus under a Company-sponsored bonus plan (if a bonus plan is
approved, or otherwise as provided under a separate agreement between the
Company and each of Messrs. Butler and Estrin), if reasonable performance
objectives approved by the Board are achieved, with a maximum bonus of 60% and a
minimum bonus of 21% of annual base salary; provided, however, that if the
performance objectives are exceeded, then such bonus will be increased to a
level commensurate with the amount of bonuses payable to senior officers of the
Company who are situated similarly to Messrs. Butler and Estrin.
Each of Messrs. Butler and Estrin was also granted options to purchase
200,000 shares of Common Stock at an exercise price of $6.84375 per share under
the Phar-Mor Stock Incentive Plan, which options vested with respect to 33.34%
of the underlying shares on the date of grant (October 1, 1997), and with
respect to an
7
<PAGE> 11
additional 33.33% on each of the first and second anniversaries of the date of
grant. The term of the options is seven years and unless Messrs. Butler and
Estrin elect otherwise, to the fullest extent permitted by law and under the
plan, such options shall be treated and reported as incentive stock options.
Messrs. Butler and Estrin were also each granted incentive stock options to
purchase 200,000 shares of Common Stock at an exercise price of $9.625 per share
on June 23, 1998, 200,000 shares of Common Stock at an exercise price of
$4.28125 per share on June 29, 1999; and 180,000 shares of Common Stock at an
exercise price of $2.51625 per share on April 14, 2000 on terms similar to the
earlier grants.
Pursuant to their respective employment agreements, Messrs. Butler and
Estrin are permitted to engage in activities (except certain activities that are
competitive with the Company's business), in addition to serving as Co-Chief
Executive Officers and Co-Chairmen of the Board, and pursue other investments
(except ownership of more than a 10% interest in an entity that derives more
than 50% of its gross revenues from the retail sale, at a discount, of
pharmaceuticals, unless Messrs. Butler and Estrin or their respective immediate
families owned or controlled, directly or indirectly, an ownership interest of
at least 1% in the entity as of October 1, 1997). The agreements do not require
Messrs. Butler and Estrin to provide services at the Company's principal
locations.
The employment agreements with Messrs. Butler and Estrin also provide for
long-term performance payouts to each of them, commencing with the three-year
period ending September 30, 2000 and each third year thereafter during the term
of the employment agreement, in an amount (subject to the offset referred to in
the last sentence of this paragraph) equal to 1.5% of any excess of (i) the
aggregate market value of the publicly traded shares of Common Stock based on
the average closing price for the thirty (30)-day period ending on the last day
of the subject period (less the sum of (a) the proceeds from the exercise during
such period of any options or warrants plus (b) any cash or property
consideration actually received by the Company during such period from the
issuance of any shares of its Common Stock) over (ii) the aggregate market value
of the publicly traded shares of Common Stock based on the average closing price
for the thirty (30)-day period ending on the last day of the immediately prior
subject period (provided that for the first day of the period ending on
September 30, 2000, such average closing price shall be deemed to be $6.84375
per share). One-half of the aggregate annual bonuses paid or payable in respect
of the applicable three-year period will be offset against the long-term payout
amount.
The employment agreements with Messrs. Butler and Estrin further provide
for various employee benefits and perquisites, including but not limited to
payment, on a tax reimbursed, "grossed up" basis, for a $1,500,000 whole life
insurance policy on Messrs. Butler and Estrin's lives or, at the election of
either of them, a term policy requiring an equivalent premium; disability
insurance adequate to pay Messrs. Butler and Estrin 60% of their respective base
salaries until age 75; reimbursement of all medical, hospitalization and dental
costs for Messrs. Butler and Estrin and their families; the use of a car owned
or leased by the Company and the provision of other transportation for Messrs.
Butler and Estrin's travel requirements such as the lease of an aircraft; and
business expenses at locations other than the Company's headquarters.
Each of the agreements with Messrs. Butler and Estrin provides that, if it
is terminated without cause (as defined), such officer will be entitled to the
present value of his base salary, discounted at 5%, for the remaining contract
term, annual and long-term incentive payments payable for the remainder of the
term, all compensation, benefits, stock options, health and disability benefits
accruing under the agreement for the remainder of the term (or at their option,
the value of such stock options determined in accordance with the
"Black-Scholes' Formula"), tax reimbursement in respect of any termination
payments that constitute excess parachute payments under Federal income tax
laws, and the accelerated vesting (and extended post-termination exercise
periods) of all stock options. Under each agreement, termination with cause by
the Company is limited to the entry of a felony conviction, voluntary
resignation, death, or permanent disability (as defined).
Mr. M. David Schwartz. The employment agreement with Mr. Schwartz, as
amended, has a rolling term of two years commencing on February 10, 1999 and
provides for Mr. Schwartz to serve as the Company's President and Chief
Operating Officer. Mr. Schwartz's annual base salary was $715,500 for the
contract year ending June 1, 2000 and has not subsequently changed. On September
11, 1995, Mr. Schwartz received a confirmation bonus of $450,000 and 6,250
shares of Common Stock, and was granted options under the Phar-Mor Stock
Incentive Plan to purchase 175,000 shares of Common Stock at an exercise price
of $8.00 per share. Pursuant to the Phar-Mor Stock Incentive Plan, Mr. Schwartz
was granted additional options on June 5, 1997, to purchase
8
<PAGE> 12
100,000 shares of Common Stock at an exercise price of $5.4375 per share; on
June 23, 1998, to purchase 100,000 shares of Common Stock at an exercise price
of $9.625 per share; on June 29, 1999, to purchase 150,000 shares of Common
Stock at an exercise price of $4.28125 per share; and on April 14, 2000, 135,000
shares at an exercise price of $2.51625 per share.
Mr. Warren E. Jeffery. The employment agreement with Mr. Jeffery, as
amended, had a rolling term of two years commencing February 10, 1999 and
provided for Mr. Jeffery to serve as the Company's Executive Vice
President/Marketing, Merchandising and Logistics. Mr. Jeffery's salary was
$300,000 for the contract year ending June 1, 2000 and was not subsequently
changed. On September 11, 1995, Mr. Jeffery received a confirmation bonus of
$75,000 and was granted options under the Phar-Mor Stock Incentive Plan to
purchase 45,000 shares of Common Stock at an exercise price of $8.00 per share.
Pursuant to the Phar-Mor Stock Incentive Plan, Mr. Jeffery was granted
additional options on May 14, 1996, to purchase 5,000 shares of Common Stock at
an exercise price of $7.56250 per share; on June 5, 1997, to purchase 50,000
shares of Common Stock at an exercise price of $5.4375 per share; on June 23,
1998, to purchase 75,000 shares of Common Stock at an exercise price of $9.625
per share; on June 29, 1999, to purchase 100,000 shares of Common Stock at an
exercise price of $4.28125 per share; and on April 14, 2000, to purchase 90,000
shares of Common Stock at an exercise price of $2.51625 per share.
On October 9, 2000, Mr. Jeffery ceased service as an executive officer of
the Company. As a result, and pursuant to his employment agreement, Mr. Jeffery
is entitled to receive a cash payment in an amount equal to two times his annual
compensation, including incentive bonus. The total amount of such payment is
$840,000. Mr. Jeffery is also entitled to receive continuation of existing
medical benefits for a period of two years and all stock options currently held
by Mr. Jeffery become vested. Mr. Jeffery will have a period of six months to
exercise any or all of the stock options.
Mr. John R. Ficarro. The employment agreement with Mr. Ficarro, as amended,
has a rolling term of two years commencing on February 10, 1999, and provides
for Mr. Ficarro to serve as the Company's Senior Vice President/Chief
Administrative Officer and General Counsel. Mr. Ficarro's annual base salary was
$230,000 for the contract year ending June 1, 2000 and has not been subsequently
changed. On September 11, 1995, Mr. Ficarro was granted options under the
Phar-Mor Stock Incentive Plan to purchase 15,000 shares of Common Stock at an
exercise price of $8.00 per share. Pursuant to the Phar-Mor Stock Incentive
Plan, Mr. Ficarro was granted additional options on June 5, 1997, to purchase
75,000 shares of Common Stock at an exercise price of $5.4375 per share; on June
23, 1998, to purchase 75,000 shares of Common Stock at an exercise price of
$9.625 per share; on June 29, 1999, to purchase 100,000 shares of Common Stock
at an exercise price of $4.28125 per share; and on April 14, 2000, to purchase
90,000 shares of Common Stock at an exercise price of $2.51625 per share.
The employment agreements with Messrs. Jeffery and Ficarro provide for an
annual incentive bonus if the Company achieves certain performance objectives
approved by the Board, with a target bonus of not less than 40% of annual base
salary and a maximum of 100% of annual base salary. The employment agreement
with Mr. Schwartz provides for an annual incentive bonus if the Company achieves
certain performance objectives approved by the Board, with a target bonus of not
less than 60% of annual base salary and a maximum of 100% of annual base salary.
The options granted to Messrs. Schwartz, Jeffery, and Ficarro on September 11,
1995, and the options granted to Mr. Jeffery on May 14, 1996, have a term of
seven years from the date of grant and vest with respect to 20% of the
underlying shares on the date of grant and 20% on each of the first through the
fourth anniversaries of the date of grant. The options granted to Messrs.
Schwartz, Jeffery, and Ficarro on June 5, 1997, June 23, 1998 and June 29, 1999,
and April 14, 2000 have a term of seven years from the date of grant and vest
with respect to one-third of the underlying shares on the date of grant and
one-third on each of the first and second anniversaries of the date of grant.
The options granted to Messrs. Butler and Estrin in October 1997 and to Messrs.
Schwartz, Jeffery, and Ficarro in June 1997 were subject to shareholder
approval, which approval was obtained in February 1998. Each of the employment
agreements provides for accelerated vesting and exercisability of all options if
the employee is terminated without cause or if he terminates for "good reason"
because of certain unilateral material changes to certain terms of service or
other events (as more fully defined in the agreements).
9
<PAGE> 13
Loans. The Phar-Mor Stock Incentive Plan authorizes the Administrator to
make loans to optionees to pay the exercise price of options, subject to
specified conditions.
Under the terms of the employment agreements with Messrs. Butler and
Estrin, the Company has agreed to loan Messrs. Butler and Estrin an amount equal
to the exercise price of their options (upon exercise). Such loan or loans will
become due on the first to occur of (i) the fifth anniversary of the date that
the loan was made, (ii) to the extent of net proceeds of sale, after payment of
related taxes, five business days after the sale of the shares so acquired,
(iii) 30 days after a termination of their employment by the Company with cause
(other than by death or permanent disability) or his voluntary resignation
(except if his resignation is a result of certain delineated reasons), or (iv)
by way of offset, upon the payment of settlement amounts to him upon a
termination without cause by the Company. The loans will bear interest, payable
semi-annually, on the outstanding principal balance at the mid-term applicable
federal rate in effect on the date such loans were made and shall be subject to
compliance with applicable laws. No loans have been made to Mr. Estrin or Mr.
Butler under these provisions.
Severance Plan. The Company's current severance plan, as it applies to
officers generally, provides for payment of severance pay equal to salary at the
time of termination for a period of 26 weeks, plus one additional week for each
year of service, up to ten years. On March 27, 1997, the Company approved an
amendment to its existing severance plan, enhancing benefits to all employees,
including executive officers, whereby all such employees would receive
additional severance payments upon loss of employment due to certain "change of
control" events. Generally, executive officers who are not party to an
employment agreement would receive a minimum of 18 months of pay in such event.
The employment agreements for Messrs. Schwartz, Jeffery and Ficarro
provide, in the case of a termination by the Company for each individual,
without cause or by them "for good reason," for a severance payment equal to two
years' total compensation plus benefits (which includes salary plus incentive
bonus).
Change in Control Consequences for Messrs. Butler, Estrin, Schwartz,
Jeffery and Ficarro. The employment agreements with Messrs. Butler and Estrin
provide that upon a change in control (as defined) Messrs. Butler and Estrin
have the right for 90 days to terminate their agreements without cause and
realize the present value of the full (and certain accelerated) benefits under
the agreements for what would otherwise be the remaining term, as in the case of
a termination by the Company without cause. A change in control under the
agreements includes (among other events) the acquisition by any person or group
(other than persons affiliated with Messrs. Butler or Estrin) of 40% or more of
the voting capital stock of the Company, the approval by the shareholders of
certain transactions resulting in a change in ownership of 40% or more control
of the voting capital stock of the Company, including a merger, consolidation,
or sale or disposal of all or substantially all of the Company's assets
(including a plan of liquidation or dissolution), or a fundamental alteration in
the nature of its business. Such a termination by Messrs. Butler or Estrin is
deemed a termination without cause by the Company and entitles them to the
rights attendant thereto.
The employment agreements with Messrs. Schwartz, Jeffery and Ficarro
provide that upon a change in control (as defined), subject to certain
exceptions more fully described in the employment agreements or amendments
thereto, each named executive will have the right to terminate the agreement for
"good reason" and receive the full benefits thereunder as in the case of a
termination by the Company without cause. A change in control under each
agreement may include (among other events) (a) the acquisition by any
individual, entity or group of beneficial ownership of 20% or more of either (i)
the then outstanding shares of Common Stock of the Company or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors of the Company; (b) any event
that results in the replacement of a majority of the members of the Board as
composed on the date of the employment agreement; (c) approval by the
shareholders of the Company of a reorganization, merger or consolidation (i)
which results in a change of ownership and/or voting rights of 30% or more of
the then outstanding shares of Common Stock of the Company or (ii) in which the
members of the Board do not become members of the Board of the entity resulting
from such reorganization, merger or consolidation; or (d) approval by the
shareholders of the Company of a liquidation or a dissolution of the Company, or
the sale or other disposition or substantially all of the assets of the Company.
10
<PAGE> 14
EXECUTIVE SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officers and the other three most highly compensated
executive officers of the Company who served in those capacities as of July 1,
2000 (the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- ---------- ----------
NAME AND FISCAL OTHER ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL PERSON YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) OPTIONS(#) PAYOUTS($) COMPENSATION(3)
---------------- ------ --------- ----------- ------------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Abbey J. Butler............... 2000 486,670 154,032(4) -- 180,000 -- 108,168
Co-Chairman and Co-CEO 1999 458,939 305,653 -- 220,000 -- 112,175
1998 315,484(5) 203,900 -- 410,000 -- 116,791
Melvyn J. Estrin.............. 2000 486,670 154,032(4) -- 180,000 -- 168,913
Co-Chairman and Co-CEO 1999 458,939 305,653 -- 220,000 -- 164,301
1998 315,484(5) 203,900 -- 410,000 -- 104,178
M. David Schwartz............. 2000 715,500 226,456 -- 135,000 -- 10,869
President and COO 1999 691,721 460,686 -- 150,000 -- 37,445
Executive Vice President 1998 638,402 412,800 -- 200,000 -- 14,475
Warren E. Jeffery (6)......... 2000 300,000 63,300 -- 90,000 -- 7,936
Executive Vice President 1999 236,040 104,802 -- 100,000 -- 10,031
1998 200,925 86,600 -- 75,000 -- 9,582
John R. Ficarro............... 2000 230,000 48,530 -- 90,000 -- 6,468
Senior Vice President, 1999 219,646 119,592 -- 100,000 -- 9,157
CAO and General Counsel 1998 195,689 84,400 -- 150,000 -- 9,034
</TABLE>
---------------
(1) Bonuses are shown for the fiscal year earned, but may be paid in the
following year.
(2) No information is provided in the column labeled "Other Annual Compensation"
since the aggregate amount of perquisites and other personal benefits for
the periods indicated is less than the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each of the Named Officers.
(3) Information provided in the column labeled "All Other Compensation" for
Fiscal Year 2000 includes the following: (i) the value of insurance premiums
paid by the Company for the benefit of each of the Named Officers as
follows: Mr. Schwartz, $4,925; Mr. Jeffery, $1,300; and Mr. Ficarro, $790;
(ii) matching contributions to the Company's 401(k) Employee Savings and
Retirement Plan to each of the Named Officers as follows: Mr. Schwartz,
$5,944; Mr. Jeffery, $6,636.43; and Mr. Ficarro, $6,468.40; (iii) matching
contributions to the Company's non-qualified deferred compensation plan as
follows: Mr. Butler $11,680.30 and Mr. Estrin $11,680.30.
Information provided in the column labeled "All Other Compensation" for
Fiscal Year 1999 includes the following: (i) the value of insurance premiums
paid by the Company for the benefit of each of the Named Officers as
follows: Mr. Butler, $101,372; Mr. Estrin, $153,498; Mr. Schwartz, $31,391;
Mr. Jeffery, $4,505; and Mr. Ficarro, $3,995; (ii) matching contributions to
the Company's 401(k) Employee Savings and Retirement Plan to each of the
Named Officers as follows: Mr. Schwartz, $6,054; Mr. Jeffery, $5,526; and
Mr. Ficarro, $5,162; and (iii) matching contributions to the Company's
non-qualified deferred compensation plan as follows: Mr. Butler, $10,803;
and Mr. Estrin, $10,803.
Information provided in the column labeled "All Other Compensation" for
Fiscal Year 1998 includes the following: (i) the value of insurance premiums
paid by the Company for the benefit of each of the Named Officers as
follows: Mr. Butler, $111,691; Mr. Estrin, $99,078; Mr. Schwartz, $8,839;
Mr. Jeffery, $4,764; and Mr. Ficarro, $4,179; (ii) matching contributions to
the Company's 401(k) Employee Savings and Retirement Plan to each of the
Named Officers as follows: Mr. Schwartz, $6,086; Mr. Jeffery, $4,818; and
Mr. Ficarro, $4,855; and (iii) matching contributions to the Company's
non-qualified deferred compensation plan as follows: Mr. Butler, $5,100; and
Mr. Estrin, $5,100.
(4) Messrs. Butler and Estrin voluntarily elected to defer payment indefinitely
of their bonuses.
(5) The salary shown for Messrs. Butler and Estrin in Fiscal Year 1998
represents their salary from the date of the commencement of their
employment with the Company, October 1, 1997, through the end of Fiscal Year
1998.
(6) Mr. Jeffery ceased service as an executive officer of the Company effective
October 9, 2000. See "--Employment Contracts and Termination of Employment
and Change-In-Control Arrangements--Mr. Warren E. Jeffery".
11
<PAGE> 15
OPTION GRANTS IN FISCAL YEAR 2000
Option Grants. The table below shows, for each of the Named Officers, the
number of options granted during Fiscal Year 2000. All of the options set forth
below were issued under the Phar-Mor Stock Incentive Plan. As of July 1, 2000,
no stock appreciation rights ("SARs") were outstanding.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES APPRECIATION FOR
UNDERLYING IN FISCAL OPTION TERM(2)
OPTIONS YEAR EXERCISE EXPIRATION --------------------
NAME AND POSITION GRANTED(#) (%)(1) PRICE($/SH) DATE 5%($) 10%($)
----------------- ---------- ---------- ------------ ---------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Abbey J. Butler.............. 180,000 22.2 2.52 4/14/2007 184 430
Co-Chairman and Co-CEO
Melvyn J. Estrin............. 180,000 22.2 2.52 4/14/2007 184 430
Co-Chairman and Co-CEO
M. David Schwartz............ 135,000 16.7 2.52 4/14/2007 138 322
President and COO
Warren E. Jeffery............ 90,000 11.1 2.52 4/14/2007 92 215
Executive Vice President
John R. Ficarro.............. 90,000 11.1 2.52 4/14/2007 92 215
Senior Vice President
CAO and General Counsel
</TABLE>
---------------
(1) Based on a total of 810,300 options granted to employees of Phar-Mor.
(2) Annual growth-rate assumptions are prescribed by the rules of the SEC and do
not reflect actual or projected price appreciation of the underlying Common
Stock.
All options under the Phar-Mor Stock Incentive Plan will be subject to
early termination within periods of up to one year (depending on the cause of a
termination of service) after the effective date of a termination of service
under the Phar-Mor Stock Incentive Plan or (if applicable) the expiration date
under an applicable employment agreement. To the extent then not vested, the
options will terminate and to the extent then vested, they may be exercised
within one year following the death or disability of the holder of the option,
and within six months following any other termination event, except where a
termination by the Company is for cause, in which case the options then will
terminate.
12
<PAGE> 16
OPTION EXERCISES AND VALUES FOR FISCAL YEAR 2000
The following table sets forth certain information concerning the exercise
of stock options, the number of unexercised options, and the values of
unexercised options at July 1, 2000 for the Named Officers. Value is considered
to be, in the case of exercised options, the difference between the exercise
price and the market price on the date of exercise and, in the case of
unexercised options, the difference between the exercise price and the market
price on July 1, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT JULY 1, 2000 JULY 1, 2000($)
NAME EXERCISE(#) REALIZED($) (EXERCISABLE/UNEXERCISABLE)(#) (EXERCISABLE/UNEXERCISABLE)(1)
---- ----------- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Melvyn J. Estrin..... -- -- 633,333/186,667 0/0
Abbey J. Butler...... -- -- 633,333/186,667 0/0
M. David Schwartz.... -- -- 520,000/140,000 0/0
Warren E. Jeffery.... -- -- 271,667/93,333 0/0
John R. Ficarro...... -- -- 261,667/93,333 0/0
</TABLE>
---------------
(1) Options are "in the money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between 1.50 per share, the market value of the
Common Stock at July 1, 2000 issuable upon exercise of options, and the
exercise price of the option, multiplied by the applicable number of shares
underlying the options.
13
<PAGE> 17
PERFORMANCE GRAPH
The performance graph is not deemed filed with the Securities and Exchange
Commission, and is not incorporated by reference to any filing of the Company
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language in any such filing.
The SEC requires that the Company include in this Proxy Statement a
line-graph presentation comparing its cumulative shareholder returns, on an
indexed basis, with a broad equity market index and a published industry or
line-of-business index. The following graph compares the cumulative total
shareholder return on the Common Stock against the cumulative total return of
the Center for Research in Security Prices Total Return Index for the Nasdaq
Stock Market (which includes all U.S. stocks traded on The Nasdaq National
Market ("Nasdaq--NMS") and Nasdaq Small-Cap Market) and the Center for Research
in Security Prices Total Return Index for NASDAQ Stocks (SIC 5900-5999 U.S.
Companies) Miscellaneous Retail for the period beginning with October 31, 1995
and ending on June 30, 2000, assuming the reinvestment of all dividends
throughout the period shown, and assuming the value of the investment in the
Company and in each Index was $100 on October 31, 1995. Prior to September 11,
1995, when the Company emerged from bankruptcy, there was no established trading
market for the shares of Common Stock. From September 11, 1995, through October
31, 1995, the only market activity in the Common Stock of which the Company was
aware was trading on a limited basis, primarily through inter-dealer quotations.
From October 31, 1995 through February 7, 1996, the Common Stock was trading on
the Nasdaq SmallCap Market. Since February 8, 1996, the Common Stock has been
included for quotation on the Nasdaq-NMS under the symbol "PMOR."
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR PHAR-MOR, INC.:
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET (US NASDAQ STOCKS (SIC 5900-
DATE PHAR-MOR, INC. COMPANIES) 5999 US COMPANIES)
---- -------------- ----------------------- ------------------------
<S> <C> <C> <C>
10/1995 100 100 100
06/1996 103.2 115.3 115.2
06/1997 80.6 189.7 114.8
06/1998 137.9 181.9 148.6
07/1999 55.6 271 124.9
06/2000 19.4 392.1 65.8
</TABLE>
Please note that stockholder returns over the indicated period should not
be considered indicative of future stockholder returns.
14
<PAGE> 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below is information, as of September 29, 2000, with
respect to the number of shares of Common Stock beneficially owned by (i) each
person or entity known by the Company to own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Officers and (iv) all directors and executive officers of the
Company as a group. A person or entity is considered to "beneficially own" any
shares (i) over which such person or entity exercises sole or shared voting or
investment power or (ii) which such person or entity has the right to acquire at
any time within 60 days (e.g., through the exercise of options or warrants).
<TABLE>
<CAPTION>
NUMBER OF SHARES
PERIOD WHICH MAY
NAME AND ADDRESS OF AMOUNT AND NATURE OF OF BE ACQUIRED
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(2) CLASS WITHIN 60 DAYS(3)
-------------------- ----------------------- ------- -----------------
<S> <C> <C> <C>
Avatex Corporation 5,088,435(4) 41.3% 91,902(5)
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Dimensional Fund Advisors Inc. 934,000(6) 7.6% --
1299 Ocean Avenue
Santa Monica, California 90401
M. David Schwartz 537,137 4.2% 520,000(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Warren E. Jeffery 273,667 2.2% 271,667(7)
20 Federal Plaza West
Youngstown, Ohio 44501
John R. Ficarro 261,667 2.1% 261,667(7)
20 Federal Plaza West
Youngstown, Ohio 44501
Abbey J. Butler 5,827,668(8) 44.9% 735,235(5)(9)
c/o Avatex Corporation
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Melvyn J. Estrin 5,731,768(8) 44.2% 735,235(5)(9)
c/o Avatex Corporation
5910 North Central Expressway
Suite 1780
Dallas, Texas 75206
Monroe Osterman 40,000 * 40,000(10)
20 Federal Plaza West
Youngstown, Ohio 44501
Arthur G. Rosenberg 40,000 * 40,000(10)
20 Federal Plaza West
Youngstown, Ohio 44501
John D. Shulman 40,000 * 40,000(10)
20 Federal Plaza West
Youngstown, Ohio 44501
All Directors and Executive 7,663,472 51.8% 2,551,902
Officers, including those named
above, as a Group (8 persons)
</TABLE>
---------------
(1) No director or executive officer is the beneficial owner of other equity
securities of the Company or any of its subsidiaries.
15
<PAGE> 19
(2) Unless otherwise indicated, each person or entity has sole investment power
and sole voting power with respect to the Common Stock beneficially owned
by such person or entity.
(3) This column lists the number of shares of Common Stock which the named
person or entity has the right to acquire within 60 days after September
29, 2000, through the exercise of stock options and warrants. The shares
shown in this column are included in the Amount and Nature of Beneficial
Ownership column.
(4) Includes 4,996,533 shares held directly by Avatex and 91,902 shares subject
to purchase by Avatex within 60 days upon exercise of warrants.
(5) Includes 91,902 shares of Common Stock subject to purchase by Avatex within
60 days upon exercise of warrants.
(6) The information provided is based on information provided to the Company on
October 2, 2000 by Dimensional Fund Advisors Inc. ("Dimensional") and the
Company's registrar. Dimensional, an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, serves as investment
manager to certain other investment vehicles, including commingled group
trusts. (These investment companies and investment vehicles are the
"Portfolios"). In its role as investment advisor and investment manager,
Dimensional possessed both voting and investment power over 934,000 shares
of Phar-Mor stock as of June 30, 2000. The Portfolios own all securities
reported in this statement, and Dimensional disclaims beneficial ownership
of such securities.
(7) All such shares of Common Stock are subject to purchase by the indicated
person within 60 days upon exercise of options awarded under the Phar-Mor
Stock Incentive Plan.
(8) Messrs. Butler and Estrin are Co-Chairmen of the Board, Co-Chief Executive
Officers and major shareholders of Avatex.
(9) All such shares (other than 91,902 shares deemed beneficially owned by
Messrs. Butler and Estrin, as described in note (4) above) are subject to
purchase within 60 days by the indicated person upon exercise of options
under the Phar-Mor Director Stock Plan and/or Phar-Mor Stock Incentive
Plan.
(10) All such shares are subject to purchase within 60 days by the indicated
person upon exercise of options awarded under the Phar-Mor Director Stock
Plan.
Avatex has pledged 1,132,500 shares of its Common Stock as collateral to
Bart A. Brown, Jr., as trustee (the "Trustee") as partial collateral to secure
certain obligations of Avatex. In the event of a default, the Trustee may
acquire such shares by foreclosing on the collateral.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From September 11, 1995 to September 19, 1997, Avatex owned 69.8% of
Hamilton Morgan L.L.C. ("Hamilton Morgan") which beneficially owned
approximately 39.9% of the Company's common stock. Robert Haft, the Company's
former Chairman of the Board of Directors and Chief Executive Officer, was
President of Hamilton Morgan. Messrs. Butler and Estrin, the two Co-chairmen of
the Board of Directors of Avatex, were members of the Board of Directors of the
Company during this time.
During August and September 2000 Avatex purchased 292,500 shares of the
Company's common stock on the open market, increasing its beneficial ownership
level to 41.3% of the Company's common stock as of September 29, 2000.
In April 1998, 13 persons and entities purchased (or committed to purchase)
a total of $3,000,000 of Series B Preferred Stock and warrants to purchase
Series B Preferred Stock of RAS Holding Corp. These persons and entities
included the Company; Avatex; two of the Company's executive officers, Melvyn J.
Estrin and Abbey J. Butler; all of Avatex's executive officers and its Director
of Accounting (and/or their designees); one non-officer director of Avatex; and
two additional parties related to, or referred by Abbey J. Butler or Melvyn J.
Estrin. Of the total amount invested, Avatex's share was approximately 46.7%,
the Company's share was 25%, the Avatex officers/designees' share was 19.8%, the
Avatex non-officer director's share was 1% and the related parties' share was
approximately 7.5%. The largest share invested by an officer or director of the
Company (or his designee) was 5% of the total amount invested.
16
<PAGE> 20
In April 1999, RAS Holding Corp. distributed to its stockholders (including
Cabot Noble, Inc., a wholly-owned subsidiary of the Company, Avatex and two
parties related to or referred by Directors Butler and Estrin) shares of common
stock in two RAS Holding Corp. subsidiaries, PC Lens Corp. and Medical Internet
Technologies, Inc. In April 2000, the Company and other Series B preferred
stockholders exercised warrants acquired in April 1998 to purchase additional
shares of Series B preferred stock. In addition, Avatex is a party to a
consulting agreement with RAS Holding Corp. under which Avatex provides certain
financial, accounting and other management consulting services to RAS Holding
Corp. Avatex also leases to RAS Holding Corp. a portion of Avatex' office space
in Dallas, Texas. Directors Butler and Estrin are Co-Chairman and Co-Chief
Executive Officers of Avatex and directors of RAS Holding Corp.
In March and December 1998, certain persons and entities purchased a total
of $7,200,000 of membership interests in ChemLink Acquisition Company, LLC,
which in turn purchased a total of 50% of the membership interests in ChemLink
Laboratories, LLC ("ChemLink"). These persons and entities included the Company;
Avatex; the Company's Co-Chairmen and Co-Chief Executive Officers, Abbey J.
Butler and Melvyn J. Estrin (and/or their designees); one former Avatex officer,
Edward L. Massman; one non-officer director of Avatex; and five additional
parties related to or referred by Abbey J. Butler or Melvyn J. Estrin. Of the
total amount invested, the Company's share was approximately 35.8%, Avatex's
share was approximately 41.1%, the Avatex officers/designees' share (including
Messrs. Butler and Estrin) was approximately 14.4%, the Avatex non-officer
director's share was approximately 0.7% and the related parties' share was
approximately 8.0%. The largest share invested by an Avatex officer or director
(or his designee) was approximately 6.1% of the total amount invested. In May
1999, the members of ChemLink Acquisition Company, LLC including the Company and
the other members of ChemLink loaned a total of $250,000 to ChemLink pro rata
based on their ultimate ownership interests in ChemLink, in the form of one-year
notes. In January and July 2000, all of these persons and entities made
contributions to ChemLink's capital in the form of new cash, the May 1999 notes
and other indebtedness, and the net amount of prior advanced owed to them by
ChemLink. Avatex is also a party to a consulting agreement with ChemLink, under
which they provide certain financial, accounting and other management consulting
services to ChemLink. Messrs. Butler, Estrin, and Shulman serve on the Board of
Managers of ChemLink Laboratories, LLC.
The Company and Avatex each acquired $1.25 million of preferred stock and
2.5% of the common stock of HPD Holdings Corp. in 1998. The largest shareholder
of HPD Holdings Corp. is HPD Partners, L.P., a Delaware limited partnership, and
Mr. Butler and Mr. Estrin are limited partners of HPD Partners, L.P. Mr. Estrin
and another executive officer of Avatex are directors of HPD Holdings Corp. In
February and April 2000, along with virtually all of HPD Holdings Corp.'s other
common stockholders, the Company and Avatex purchased a total of $131,575 in
convertible debentures to maintain their respective common stock ownership
positions.
During Fiscal 1998, 1999 and 2000 the Company invested $10.725 million to
purchase approximately 25.2% of the outstanding common stock of Avatex. Pursuant
to the Company's By-Laws, each transaction was approved by an Independent
Committee of disinterested Company directors.
During Fiscal Year 2000, the Company paid $95,000 to Human Service Group,
Inc. for secretarial services provided to Mr. Estrin. Human Service Group, Inc.
is a corporation wholly owned by Mr. Estrin.
During Fiscal Year 2000, the Company purchased $20,000 of product from
Carson Products, a subsidiary of Carson, Inc. Mr. Butler and Mr. Estrin are
directors of Carson, Inc. A subsidiary of Avatex purchased a total of 372,000
shares of Carson Class A common stock in December 1997 and January 1999.
During Fiscal Year 2000, the Company paid CB Equities Corporation $67,000
for office and equipment support for Mr. Butler. Mr. Butler is President of CB
Equities Corporation.
SECTION 16(a) DISCLOSURE
Pursuant to Section 16(a) of the Exchange Act, the Company is required to
identify any person who, at any time during Fiscal Year 2000, was a director of
the Company, an executive officer of the Company or its subsidiaries or
beneficial owner of more than 10% of the Company's Common Stock or any other
person who was subject to Section 16(a) of the Exchange Act with respect to the
Company that, during Fiscal Year 2000, failed to file on a timely basis with the
SEC any report required by Section 16(a) of the Exchange Act, which are
17
<PAGE> 21
Form 3 (an initial report of beneficial ownership of common stock), Form 4 and
Form 5 (relating to changes in beneficial ownership of common stock). Based
solely on a review of such Forms 3, 4 and 5, and amendments thereto, furnished
to the Company by the reporting persons known to it, and to the Company's
knowledge, all filings under Section 16(a) of the Exchange Act required to be
filed by the Company's directors and executive officers were made on a timely
basis.
CERTAIN FEDERAL INCOME TAX EFFECTS OF
PARTICIPATION IN OPTION PLANS
The following summary of the material federal income tax consequences to
the Company and participants in the Phar-Mor Director Stock Plan or the Phar-Mor
Stock Incentive Plan is based upon the Code, applicable U.S. Treasury
Regulations, judicial authority, and administrative rulings and practice, all as
of the date of this Proxy Statement. These laws and authorities are subject to
change, possibly with retroactive effect. The discussion below does not address
any state, local or foreign tax consequences to participants. The tax treatment
to participants will vary depending upon their particular situations.
Participants are urged to consult with their own tax advisors and financial
planners regarding the particular tax consequences to them of participation in
the plans, including the applicability and effect of any state, local or foreign
laws, and the effect of possible changes in applicable tax laws.
The Phar-Mor Director Stock Plan provides for the grant of non-qualified
stock options which are not intended to meet the requirements of Section 422 of
the Code. The Phar-Mor Stock Incentive Plan permits the grant of either
non-qualified stock options or incentive stock options which are intended to
satisfy the requirements of Section 422 of the Code.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. If the optionee holds the shares
received pursuant to the exercise of the option for at least one year after the
date of exercise and for at least two years after the date the option is
granted, the optionee will recognize long-term capital loss upon the disposition
of the Common Stock measured by the difference between the option exercise price
(the Common Stock's basis) and the amount received for such shares upon
disposition.
In the event that the optionee disposes of the Common Stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will recognize ordinary income at the time of disposition
equal to the difference between the exercise price and the lower of the fair
market value of the Common Stock at the date of the option exercise or the sale
price of the Common Stock. The tax basis in the Common Stock generally will
equal the amount of ordinary income recognized by the optionee plus the option
exercise price. Upon the disposition of the Common Stock, the optionee generally
will also recognize capital gain equal to the excess, if any, of the sale price
of the Common Stock over the optionee's tax basis in the Common Stock, and such
gain will be long-term capital gain if the Common Stock has been held for more
than one year at the time of disposition.
For federal alternative minimum tax purposes, the excess of the fair market
value of Common Stock on the date of the exercise of the incentive stock option
over the exercise price of the option is included in federal alternative minimum
taxable income. If the federal alternative minimum tax applies to the optionee,
a federal alternative minimum tax credit may reduce the regular tax upon
eventual disposition of the Common Stock.
The Company will not be allowed a federal income tax deduction upon the
grant or exercise of an incentive stock option. Upon a disqualifying disposition
by the optionee of shares acquired upon exercise of the incentive stock option,
the Company will be allowed a deduction in an amount equal to the ordinary
income recognized by the optionee.
Nonqualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a nonqualified stock
option. On the exercise by an optionee of a nonqualified option, generally the
excess of the fair market value of the Common Stock when the option is exercised
over its cost to the optionee will be for federal income tax purposes (a)
taxable to the optionee as ordinary income and (b) generally deductible by the
Company.
18
<PAGE> 22
The optionee's tax basis in Common Stock received upon exercise of
nonqualified stock options will equal his cost for the Common Stock plus the
amount of ordinary income the optionee recognized upon the exercise.
Accordingly, upon a subsequent disposition of Common Stock acquired upon the
exercise of a nonqualified stock option, the optionee generally will recognize
capital gain or loss, depending upon the holding period of the Common Stock
equal to the difference between the amount realized upon disposition of the
Common Stock by the optionee and the optionee's basis in the Common Stock, and
long-term capital gain or loss if the Common Stock has been held for more than
one year at the time of disposition. For federal alternative minimum tax
consequences, an optionee's income, gain and losses upon the exercise of a
non-qualified stock option or disposition of Common Stock received upon the
exercise of such an option generally will be the same as described above.
PROPOSAL NUMBER TWO
APPROVAL OF AN AMENDMENT TO THE
PHAR-MOR, INC. 1995 AMENDED AND RESTATED STOCK INCENTIVE PLAN
The Board believes that it is desirable and in the best interests of the
Company for options to purchase the Company's Common Stock to be granted to
employees at all levels of the Company. In order to allow flexibility for future
option grants to key employees of the Company pursuant to the Phar-Mor Stock
Incentive Plan as well as attract new employees, it is necessary to increase the
number of shares available under the Phar-Mor Stock Incentive Plan from 3.85
million shares to 5.0 million shares, subject to anti-dilution adjustments
reflecting changes in the Company's capitalization. There are currently only
approximately 50,000 shares available for grant under this Plan. Amendments to
the Phar-Mor Stock Incentive Plan increasing the number of shares available
under such plan from 913,333 to 1.75 million shares, from 1.75 million shares to
2.5 million shares, from 2.5 million shares to 3.5 million shares, and from 3.5
million shares to 3.85 million shares, were approved by the Board, subject to
shareholder ratification and approval, when required, on June 5, 1997, September
25, 1997, November 18, 1997 and April 13, 2000, respectively.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE PHAR-MOR STOCK INCENTIVE PLAN. UNLESS INDICATED OTHERWISE ON THE PROXY, THE
SHARES REPRESENTED THEREBY WILL BE VOTED FOR APPROVAL OF THE AMENDMENT TO THE
PHAR-MOR STOCK INCENTIVE PLAN.
PROPOSAL NUMBER THREE
RATIFICATION OF THE SELECTION
OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board proposes and
recommends that the shareholders ratify the selection of the firm Deloitte &
Touche LLP, which served as the Company's independent public accountants during
Fiscal Year 2000, to serve as independent public accountants of the Company for
Fiscal Year 2001. Unless otherwise directed by the shareholders, proxies will be
voted for approval of the selection of Deloitte & Touche LLP as the independent
public accountants for the Company for Fiscal Year 2001. A representative of
Deloitte & Touche LLP will attend the Meeting, and will have an opportunity to
make a statement if he or she so desires and to respond to appropriate
questions.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR FISCAL YEAR 2001. UNLESS INDICATED OTHERWISE ON THE PROXY, THE
SHARES REPRESENTED THEREBY WILL BE VOTED FOR THIS PROPOSAL.
19
<PAGE> 23
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal of a shareholder intended to be presented at the Company's
next annual meeting scheduled to be held in December 2001 must be received by
the Company a reasonable time before the solicitation is made in order to be
included in the Company's proxy statement and form of proxy relating to that
meeting. In addition, the Bylaws of the Company provide that any shareholders
wishing to make a nomination for director or wishing to introduce a proposal
with respect to other business at the next annual meeting must give advance
written notice to the Company that must meet certain other requirements set
forth in the Bylaws. Shareholder proposals regarding shareholder business other
than nominations for director must be delivered to or mailed and received at the
principal executive offices of the Company not less than 50 days prior to the
next annual meeting, except that if less than 60 days' notice of the date of the
meeting is given or made to shareholders, advance written notice must be so
received by the Company 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.
Notice of a shareholder's intent to nominate a director at the next annual
meeting must be delivered to the Secretary of the Company not less than 90 days
prior to the meeting or in lieu of delivery to the Secretary of the Company, the
notice may be mailed to the Company by certified mail, return receipt requested,
but shall be deemed to have been given only upon actual receipt by the Secretary
of the Company. A copy of the Bylaws may be obtained from the Secretary of the
Company.
MISCELLANEOUS
The Company will bear all of the costs of the solicitation of proxies for
use at the Meeting. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone and telegram by directors, officers
and employees of the Company, who will undertake such activities without
additional compensation. Banks, brokerage houses and other institutions,
nominees or fiduciaries will be requested to forward the proxy materials to the
beneficial owners of Common Stock held of record by such persons and entities
and will be reimbursed for their reasonable expenses incurred in connection with
forwarding such material.
Shareholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy promptly, no
matter how large or how small your holdings may be. As of the date of this Proxy
Statement, management had no knowledge of any business, other than that
described herein, which will be presented for consideration at the Meeting. In
the event any other business is properly presented at the Meeting, it is
intended that the persons named in the enclosed proxy will have authority to
vote such proxy in accordance with their judgment on such business.
By Order of the Board of Directors,
/s/ John R. Ficarro
John R. Ficarro
Secretary
20
<PAGE> 24
APPENDIX A
AUDIT COMMITTEE CHARTER
This charter shall be reviewed, updated and approved annually by the Board
of Directors.
ROLE AND INDEPENDENCE
The Audit Committee of the Board of Directors assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and reporting practices of the Corporation and other such
duties as directed by the Board. The membership of the Committee shall consist
of at least three directors who are generally knowledgeable in financial
auditing matters, including at least one member with accounting or related
financial management expertise. Each member shall be free of any relationship
that, in the opinion of the Board, would interfere with his or her individual
exercise of independent judgment, and shall meet the director independence
requirements for serving on audit committees as set forth in the corporate
governance standards of the NASDAQ. The Committee is expected to maintain free
and open communication (including private executive sessions at least annually)
with the independent accountants, the internal auditors and the management of
the Corporation. In discharging this oversight role, the Committee is empowered
to investigate any matter brought to its attention, with full power to retain
outside counsel or other experts for this purpose.
The Board of Directors shall appoint one member of the Audit Committee as
chairperson. He or she shall be responsible for leadership of the Committee,
including preparing the agenda, presiding over meetings, making Committee
assignments and reporting to the Board of Directors. The Chairperson shall also
maintain regular liaison with the co-CEOs, CFO, other senior management, the
lead independent audit partner and the Director of Internal Audit.
RESPONSIBILITIES
The Audit Committee's primary responsibilities include:
- Recommending to the Board the independent accountant to be selected or
retained to audit financial statements of the Corporation. In so doing,
the Committee will request from the auditor a written affirmation that
the auditor is in fact independent, discuss with the auditor any
relationships that may impact the auditor's independence, and recommend
to the Board any actions necessary to oversee the auditor's independence.
- Overseeing the independent auditor relationship by discussing with the
auditor the nature and rigor of the audit process, receiving and
reviewing audit reports, and providing the auditor full access to the
Committee (and the Board) to report on any and all appropriate matters.
- Providing guidance and oversight to the internal audit activities of the
Corporation including reviewing the organization, plans and results of
such activity.
- Reviewing the audited financial statements and discussing them with
Management and the independent auditor. These discussions shall include
consideration of the quality of the Company's accounting principles as
applied in its financial reporting, including review of estimates,
reserves and accruals, review of judgmental areas, review of audit
adjustments whether or not recorded and such other inquiries as may be
appropriate. Based on the review, the Committee shall make its
recommendation to the Board as to the inclusion of the Company's audited
financial statements in the Company's annual report on Form 10-K.
- Reviewing with Management and the independent auditor the quarterly
financial information prior to the Company's filing of Form 10-Q. The
review may be performed by the Committee or its chairperson.
- Discussing with Management, the internal auditors and the external
auditors the quality and adequacy of the Company's internal controls.
- Discussing with Management the status of pending litigation, taxation
matters and other areas of oversight to the legal and compliance area as
may be appropriate.
- Reporting Audit Committee activities to the full Board and issuing
annually a report to be included in the proxy statement (including
appropriate oversight conclusions) for submission to the shareholders.
A-1
<PAGE> 25
PROXY PROXY
PHAR-MOR, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 7, 2000
The undersigned Stockholder of Phar-Mor, Inc., a Pennsylvania corporation (the
"Company"), hereby appoints Abbey J. Butler, Melvyn J. Estrin, M. David Schwartz
and John R. Ficarro or any of them, with full power of substitution (the
"proxies"), as proxy or proxies of the undersigned, to represent the
undersigned, and to exercise all the powers that the undersigned would have if
personally present to act and to vote all of the shares of the Company that the
undersigned is entitled to vote, at the Annual Meeting of Stockholders of the
Company called to be held on December 7, 2000, at 10:00 a.m., local time, at the
Willard Inter-Continental Hotel, 1401 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, and at any adjournments or postponements thereof (the "Meeting") as
follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3
SEE REVERSE
SIDE
DETACH CARD
<PAGE> 26
PHAR-MOR, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
AGAINST
FOR AGAINST ONE OR
ALL ALL MORE
1. To elect each of the following nominees as [ ] [ ] [ ]
directors to serve for the term ending at the
2003 annual meeting, or until their respective
successors are duly elected and qualified.
Nominees: Abbey J. Butler, Melvyn J. Estrin
(Please strike name(s) from list above)
FOR AGAINST ABSTAIN
2. To approve an amendment to the [ ] [ ] [ ]
Company's Amended and Restated 1995 Stock
Incentive Plan ("the Plan") which
increases to 5,000,000 the number of
shares reserved for issuance under the
Plan, subject to adjustments reflecting
changes in the Company's
capitalization.
FOR AGAINST ABSTAIN
3. To ratify the selection of Deloitte & [ ] [ ] [ ]
Touche LLP as independent public
accountants of the Company for the 2001
fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ITEMS 1, 2, AND 3
The shares represented by this proxy card when properly executed will be voted
as specified. If no specification is made, the shares will be voted (1) FOR
Items 1, 2 and 3 and (2) for or against any other matters that may properly come
before the Meeting at the discretion of the proxy holders. All proxies
previously given are hereby revoked. Receipt of the accompanying Proxy Statement
is hereby acknowledged.
Date:___________________________________________________________________________
--------------------------------------------------------------------------------
Signature
--------------------------------------------------------------------------------
Additional signatures (if shares are held jointly)
INSTRUCTIONS: Please sign exactly as your name appears on the label above and
return this proxy card promptly in the accompanying envelope. When shares are
held by joint tenants, both should sign. When shares are held in the name of a
corporation, partnership, limited liability company or other entity, please sign
the full entity name by an authorized officer, partner, manager, member or other
authorized person. When signing as attorney, executor, administrator, trustee,
guardian or in any other representative capacity, please give your full title as
such.
................................................................................
FOLD AND DETACH HERE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED SELF-ADDRESSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
