BANKRUPTCY COURT 3 Phar-Mor executives to get $1.25M in bonuses

Bonuses are needed to persuade key executives to stay and develop a new business plan, a lawyer said.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- A judge approved $1.25 million in bonuses for three Phar-Mor executives to entice them to stick with the struggling company.
The plan also provides Phar-Mor's two top executives with the chance to receive bonuses of millions of dollars.
Judge William Bodoh of U.S. Bankruptcy Court in Youngstown approved these retention bonuses Tuesday after lawyers representing creditors negotiated changes to the original bonus plan:
*David Schwartz, company president and chief operating officer, $650,000, reduced from $797,500.
*John Ficarro, senior vice president, chief administrative officer and general counsel, $375,000, reduced from $400,000.
*Martin Seekely, vice president and chief financial officer, $225,000, reduced from $300,000.
One-third of the bonuses will be paid this week and the rest when the bankruptcy case is over.
How this was done: Abbey Butler and Melvyn Estrin, co-chief executives and co-chairmen, were not slated to receive retention bonuses, but they were eligible for operating bonuses and severance pay.
In exchange for eliminating those potential payments, the two executives are eligible for a new bonus plan.
If creditors receive less than 27 percent reimbursement on their claims, the executives will not receive a bonus. If that threshold is reached, they will split $750,000.
That amount goes up by $100,000 for each one-tenth of a percent that the reimbursement raises, up to a maximum of $8 million.
Brett Miller, who represents creditors, said it's too early to tell how much creditors will be reimbursed.
Variables going forward include the uncertain economy and whether the chain will be sold or continue to operate independently, he said.
A $1.6 million retention plan for other employees was approved last month.
What's behind this: Michael Gallo, lawyer for Phar-Mor, said the bonuses are needed to maintain continuity at the Youngstown-based discount drugstore chain so a restructuring plan can be developed.
Keeping current management also is less costly than bringing in new officers, he said. In Phar-Mor's first bankruptcy case nine years ago, the company spent $20 million to bring in new management, he said.
Phar-Mor filed for bankruptcy protection in September after losing money for five consecutive years, including nearly $49 million in its last fiscal year.
Miller said he agreed to the bonuses only after negotiations which saved hundreds of thousands or perhaps millions of dollars.
The plan also provides these yearly salary and severance benefits for the executives:
U Butler and Estrin, $397,000 in salary, reduced from $535,000, with severance benefits eliminated.
U Schwartz, $697,000 in salary, reduced from $797,500. Severance reduced from two times total annual compensation to $1.2 million.
U Ficarro, $270,000 in salary, unchanged. Severance pay reduced from $800,000 to $650,000.
U Seekely, $175,000 in salary, unchanged. Severance pay reduced from $525,000 to $425,000.
Schwartz, Ficarro and Seekely also will be eligible for operating bonuses that will be based on the company's performance in the remaining six months of its fiscal year. Operating goals for those bonuses are yet to be set.
No executive bonuses were paid this year, but last year, Butler and Estrin received $154,000 each. The other three top executives received bonuses in 2000 ranging from $19,000 to $226,000.
Here's the plan: Ficarro said Phar-Mor hopes to file its reorganization plan with the court next month. Depending on the reaction from the creditors and the judge, the company could emerge from bankruptcy court protection in April, he said.
Ficarro said the company probably will emerge with the 74 stores now operating but that depends on the stores' performance. Phar-Mor recently closed 65 stores.
Company officials still are working with vendors to return the selection of merchandise to pre-bankruptcy levels, he said.
shilling@vindy.com