Exhibit
10.2


 


EMPLOYMENT AGREEMENT


THIS AGREEMENT is entered into as of the 30th day of October, 2002, by
and between Warren F. Bryant (the “Executive”), Longs Drug Stores Corporation,
a Maryland corporation (the “Parent”), and Longs Drug Stores California, Inc.,
a California corporation (the “Corporation”).


For ease of reference, this Agreement is divided into the following
parts, which begin on the pages indicated:


	
  FIRST PART:

  	
   

  	
  TERM OF
  EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT,
  RELOCATION BENEFITS

  (Sections 1-7,
  beginning on page 2)

  
	
   

  	
   

  	
   

  
	
  SECOND PART:

  	
   

  	
  COMPENSATION AND
  BENEFITS IN CASE OF TERMINATION WITHOUT CAUSE OR FOR GOOD REASON AND OTHER
  TERMINATIONS (Sections 8-10, beginning on page 6)

  
	
   

  	
   

  	
   

  
	
  THIRD PART:

  	
   

  	
  COMPENSATION AND
  BENEFITS IN CASE OF A TERMINATION WITHOUT CAUSE OR FOR GOOD REASON OCCURRING
  WITHIN TWO YEARS AFTER A CHANGE IN CONTROL (Sections 11 and 12, beginning on
  page 9)

  
	
   

  	
   

  	
   

  
	
  FOURTH PART:

  	
   

  	
  CONFIDENTIAL
  INFORMATION AND NON-DISCLOSURE, RESTRICTIONS ON ACTIVITIES OF THE EXECUTIVE,
  REMEDIES, SEVERABILITY, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE
  (Sections 13-18, beginning on page 13)

  



 

















 


 


	
  FIRST
  PART:

  	
   

  	
  TERM
  OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT,
  RELOCATION BENEFITS

  



 


Section 1.  Term of Employment


(a)                                  Basic Term.  The Corporation agrees to employ the
Executive, and the Executive agrees to be employed by the Corporation at its
headquarters in Walnut Creek, California, under the terms of this Agreement,
from October 30, 2002 until the earlier of (1) the date of the Executive’s
death or (2) the date when the Executive’s employment terminates pursuant to
Section 1(b), (c) or (d) below (the “Term”).


(b)                                 Early
Termination or Resignation.  The Corporation may terminate the Executive’s employment at any
time and for any reason by giving the Executive written notice.  The Executive may terminate the Executive’s
employment for any reason by giving the Corporation not less than thirty (30) days’
advance written notice.  The foregoing
shall be subject to all of the rights and obligations described herein.


(c)                                  Termination for
Cause.  The Corporation may terminate
the Executive’s employment at any time for Cause.  For all purposes under this Agreement, “Cause” shall mean
(1) a willful failure by the Executive to substantially perform the
Executive’s duties under this Agreement, other than a failure resulting from
the Executive’s complete or partial incapacity due to physical or mental
illness, (2) a willful act by the Executive that constitutes gross
misconduct, (3) a willful breach by the Executive of a material provision
of this Agreement, (4) a material and willful violation of a federal or
state law or regulation applicable to the business of the Corporation or (5) a
material violation of the Parent’s or the Corporation’s code of business
conduct, code of ethics or other policies. 
No act, or failure to act, by the Executive shall be considered
“willful” unless committed without good faith and without a reasonable belief
that the act or omission was in the Corporation’s best interest.


(d)                                 Termination for
Disability.  The
Corporation may terminate the Executive’s employment for Disability by giving
the Executive not less than thirty (30) days advance written notice.  For all purposes under this Agreement,
“Disability” shall mean that the Executive, at the time the notice is given,
has been unable to perform the Executive’s duties under this Agreement for a
period of not less than six (6) consecutive months as a result of the Executive’s
incapacity due to physical or mental illness. 
In the event that the Executive resumes the performance of substantially
all of the Executive’s duties under this Agreement before the termination of
the Executive’s employment under this Section 1(d) becomes effective, the
notice of termination shall automatically be deemed to have been revoked.


Section 2.  Duties and Scope of
Employment


(a)                                  Position.  The Parent and the Corporation agree that,
during the Term, the Executive shall serve in the positions of President and
Chief Executive Officer of the Parent and the Corporation.  Executive shall be given such duties,
responsibilities and authorities as are appropriate to his positions and shall
report directly to the Board of Directors of the 


 


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Parent (the “Board of
Directors”).  The Board of Directors
shall elect the Executive onto the Board of Directors as soon as reasonably
practicable after the date of this Agreement.


(b)                                 Obligations.  During the Term, the Executive shall devote
the Executive’s full business efforts and time to the business and affairs of
the Parent and the Corporation as needed to carry out his duties and
responsibilities, subject to absence for illnesses and subject to the overall
supervision of the Board of Directors; it being understood that the Executive
shall not be required devote such full efforts and time while he is on vacation
but that the Executive shall be reasonably available during his vacation time
in a manner consistent with his position, duties and responsibilities.  The foregoing shall not preclude the
Executive from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private investments
or, with the prior consent of the Audit Committee of the Parent, from serving
on up to two boards of directors of other entities, in each case, as long as
such activities and service do not interfere or conflict with the Executive’s
duties and responsibilities to the Parent, the Corporation and their respective
affiliates.


Section 3.  Base Compensation


During the Term, the Corporation agrees to pay the
Executive as compensation for services to the Parent, the Corporation and their
respective affiliates a base salary at the annual rate of $750,000, subject to
annual review (beginning in the year starting in January 2004) by the
Compensation Committee of the Board of Directors (the “Compensation
Committee”).  Such salary shall be
payable in accordance with the standard payroll procedures of the
Corporation.  The annual compensation
specified in this Section 3, together with any increases in such compensation
that the Compensation Committee may grant from time to time, is referred to in
this Agreement as the “Base Compensation.”


Section 4.  Annual Incentive
Compensation


During the Term, the Corporation shall award the
Executive annual incentive compensation (“Incentive Compensation”) having a
target amount equal to 80% of the Base Compensation, with an actual annual
incentive award of between 0% and 200% of the Base Compensation.  The Executive may recommend performance
measures and levels with respect to the Incentive Compensation, but the
Incentive Compensation will be determined by the Compensation Committee, in its
sole discretion, in accordance with the terms and conditions of the bonus
program in which senior executives participate; provided, however, that the
Executive shall be paid a bonus of no less than $400,000 in respect of the
fiscal year ending in January 2004.  Any
compensation paid to the Executive as Incentive Compensation shall be in
addition to the Base Compensation.


Section 5.  Long-Term Incentive
Compensation


On October 30, 2002, Executive shall be granted an
option to purchase 230,000 shares of the Parent’s common stock under the
Parent’s 1995 Long-Term Incentive Plan. 
The per share exercise price for such options shall equal the fair
market value of one (1) share of the Parent’s common stock on the date of
grant.  The option shall vest with
respect to 25% of the shares on each of the first four anniversaries of the
date of grant and shall be subject to such other terms 


 


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and conditions that are generally applicable to senior
executives of the Corporation.  Any
subsequent grants of stock options or other equity-based awards to the
Executive shall be made in the sole discretion of the Compensation Committee.


On or before January 31, 2003, the Executive and the
Compensation Committee shall begin working together to establish equity-based
award grant guidelines for the Executive and members of senior management.


Section 6.  Additional Benefits


(a)                                  In General.  During the Term, the Executive shall be
eligible to participate in the arrangements described in Schedule A, and in all
other employee and executive benefit plans and executive compensation programs
maintained by the Parent and the Corporation, including (without limitation)
savings or profit-sharing plans, deferred compensation plans, stock option,
restricted share, incentive or other bonus plans, life, disability, health,
accident and other insurance programs, paid vacations and similar plans or
programs, subject in each case to the generally applicable terms and conditions
of the plan or program in question and the discretion and determinations of any
person, committee or entity administering such plan or program made in
accordance with the terms and conditions of such plan or program.


(b)                                 Automobile/Automobile
Allowance.  During the
Term, the Executive shall be provided with an automobile or an automobile
allowance pursuant to the Corporation’s policy for senior executives.


(c)                                  Relocation
Benefits.  The
Corporation shall reimburse the Executive for pre-approved reasonable direct
expenses relating to the Executive’s relocation from South Lebanon, Ohio to the
San Francisco Bay Area.  Such expenses
shall include expenses relating to two (2) house hunting trips to the San
Francisco Bay Area for the Executive and his spouse and physical relocation of
household goods.  In addition, the
Corporation shall reimburse the Executive for reasonable out-of-pocket expenses
incurred by the Executive for a temporary residence in the San Francisco Bay
Area and/or the Cincinnati, Ohio metropolitan area up to an aggregate amount of
$25,000 and up to an additional $7,500 per month for two (2) months after the
date of this Agreement to the extent that a contract for the sale of the
Principal Residence (as defined below) has not been executed by the Executive.  The Corporation shall also reimburse the
Executive for the Housing Sale Costs (defined below).  Such expenses shall be reimbursed to the Executive within ten
(10) business days after the Executive submits to the Corporation appropriate
documentation of expenses to be reimbursed. 
In addition, within seven (7) business days after the date of this
Agreement, the Corporation shall pay the Executive a one-time relocation
allowance of $20,000.  As soon as
practicable, the Corporation shall make a payment to the Executive equal to
such amount as shall make the Executive whole on an after-tax basis for any
income taxes incurred by the Executive in connection with the payments
contemplated by this Section 6(c).  To
the extent not explicitly set forth in this Section 6(c), the Executive’s
rights with respect to this Section 6(c) shall be determined by reference to
the Corporation’s relocation policies. 
For all purposes under this Agreement, Housing Sale Costs shall mean the
(1) ordinary closing costs associated with the sale of the Executive’s principal
residence in South Lebanon, Ohio (the “Principal 


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Residence”), which costs
shall include, but not be limited to, real estate fees, commissions, title
fees, attorney fees, escrow fees, recording costs, transfer fees, appraisal
fees, taxes and points, etc., (2) pre-approved reasonable expenses incurred by
the Executive following the date of this Agreement but prior to March 15, 2003
for the maintenance of Principal Residence prior to its sale and (3)
pre-approved reasonable expenses incurred by the Executive for the staging of
the Principal Residence in connection with its sale.  The Executive shall use his reasonable best efforts to consummate
the sale of the Principal Residence immediately following the date of this
Agreement, but the Executive may, in his reasonable discretion, postpone his
efforts to sell the Principal Residence after November 15, 2002 through March
15, 2003.


(d)                                 Employment
Bonus.  Within seven (7) business
days after execution of this Agreement, the Corporation shall pay the Executive
a one-time bonus in the amount of $300,000 (the “Employment Bonus”).  If the Executive terminates his employment
pursuant to Section 1(b) other than for Good Reason or without giving notice as
required in 1(b), or if the Executive’s employment hereunder is terminated for
Cause, in each case, within six (6) or twelve (12) months after the date
hereof, the Executive shall repay to the Corporation the following amounts of
the Employment Bonus:


(1)                                  In the case of
employment termination within six (6) months after the date hereof, $300,000.


(2)                                  In the case of
employment termination following the period set forth in 6(d)(1) but within
twelve (12) months after the date hereof, $150,000.


Such repayment shall be required to be made for the full amount set
forth above and shall not be reduced for any taxes paid by the Executive with
respect to the Employment Bonus.


(e)                                  Former Employer Relocation Obligation. 
Subject to Section 1 of Schedule A, within seven (7) business days after
execution of this Agreement, the Corporation shall pay the Executive a one-time
payment in the amount of $50,000.  Such
payment is intended to defray the Executive’s obligation to repay to his former
employer relocation benefits afforded to the Executive by his former employer.


Section 7.  Business Expenses and
Travel


During the Term, the Executive shall be authorized to
incur and shall be reimbursed for all necessary and reasonable travel,
entertainment and other business expenses incurred in connection with the
Executive’s duties hereunder, and the Corporation shall reimburse the Executive
for such expenses upon presentation of an itemized account and appropriate
supporting documentation, in each case, in accordance with the Corporation’s policies
with respect to travel, entertainment and other business expenses.


 


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  SECOND
  PART:

  	
   

  	
  COMPENSATION
  AND BENEFITS IN CASE OF TERMINATION WITHOUT CAUSE OR FOR GOOD REASON AND
  OTHER TERMINATIONS

  



 


Section 8.  Terminations 


This Second Part of the Agreement, consisting of
Sections 8 through 10, describes the benefits and compensation, if any, payable
in case of a termination of the Executive’s employment hereunder that does not
entitle the Executive to benefits or compensation under the Third Part of this
Agreement.  In the event of a
termination of employment that entitles the Executive to compensation or
benefits under the Third Part of this Agreement, no compensation or benefits
shall be payable under this Second Part.


Section 9.  Termination Without
Cause; Termination for Good Reason


In the event that, during the Term, the Executive’s
employment terminates as a result of a Qualifying Termination, as defined in
Section 9(a), then, after executing the release of claims described in
Section 9(f) and subject to compliance by the Executive with his
obligations set forth in Sections 13, 14 and 18(k), the Executive shall be
entitled to receive the payments and benefits described in Sections 9(b), (c),
(d) and (e).


(a)                                  Qualifying
Termination.  A
Qualifying Termination occurs if:


(1)                                  The Corporation
terminates the Executive’s employment for any reason other than Cause or
Disability; or


(2)                                  The Executive
resigns for Good Reason, which means (i) any reduction in the Executive’s Base
Compensation prior to January 1, 2004, (ii) a greater than 15% reduction in
Base Compensation, Incentive Compensation target amount or other benefits, in
each case, except if a reduction is made with respect to similarly situated
senior executives or if the reduction is part of a reduction that is generally
applicable to participants or a group of participants under a benefit plan,
(iii) a material reduction in position or responsibilities including, but not
limited to, his no longer being the Chief Executive Officer of the Parent (or
the ultimate parent entity (the “Ultimate Parent”), if any, in the event of a
reorganization or transaction that results in the Parent ceasing to be the
ultimate parent entity) or his no longer reporting to the Board of Directors
(or the board of directors of the Ultimate Parent, if any), (iv) a requirement
to relocate, except for office relocations that would not increase the
Executive’s one-way commute distance by more than fifty (50) miles or (v)
failure by the Parent to nominate and endorse the Executive for reelection to
the Board of Directors during his employment hereunder.


For avoidance of doubt, termination of the Executive’s
employment by reason of death shall not constitute a Qualifying Termination.


(b)                                 Severance
Payments and Benefits.  The
Corporation shall pay to the Executive (or, in the event of his death, to his
designated beneficiary or, if none, his estate; his “Severance 


 


6

















 


Beneficiary”) following the
date of the employment termination and ratably spread over the succeeding
eighteen (18) months, in accordance with standard payroll procedures, an
aggregate amount equal to the following:


(1)                                  1.5 times the
highest Base Compensation paid or payable to the Executive during the Term; and


(2)                                  1.5 times the
greater of (i) if the termination occurs before the bonus has been paid for the
fiscal year ending in January 2004, the amount set forth in section 4; (ii) the
highest Incentive Compensation paid to the Executive during the Term; or (iii)
the Executive’s Incentive Compensation target amount based on the Base
Compensation as in effect on the date of employment termination.


(c)                                  Equity Vesting.  Notwithstanding anything to the contrary in
the applicable plan, Executive shall continue to vest, for a period of eighteen
(18) months following employment termination, in all outstanding Parent stock
options and other equity based awards held by the Executive on the date of
employment termination.


(d)                                 Health Plan Coverage.  Subject to Section 9(h), the coverage
described in this Section 9(d) shall be provided for a “Continuation Period”
beginning on the date of employment termination and ending on the earlier of
(1) the 18-month anniversary of the date of employment termination or
(2) the date of the Executive’s death. 
During the Continuation Period, the Executive (and, where applicable,
the Executive’s dependents) shall be entitled to continue participation in the
Corporation’s health care plan(s) in which the Executive participated
immediately prior to employment termination as if the Executive were still an
executive of the Corporation.  The
coverage provided under this Section 9(d) shall not be offset against any
continuation coverage under Part 6 of Title I of the Executive Retirement
Income Security Act of 1974, as amended and Section 4980B of the Internal
Revenue Code of 1986, as amended.  To
the extent that the Corporation finds it undesirable to cover the Executive under
the health plan(s) of the Corporation, the Corporation shall provide the
Executive (at its own expense) with the same level of coverage under individual
policies.


(e)                                  Pro-Rated Bonus
and Accrued Benefits.  At such
time as awards are paid by the Corporation to other employees, the Executive or
his Severance Beneficiary shall be paid a pro-rated Incentive Compensation
award at the target amount in respect of the performance period in which the
employment termination occurs based on the percentage of the performance period
that has elapsed as of the date of employment termination.  Executive shall also be entitled to the
Accrued Benefits (as defined in Section 10)


(f)                                    Release of
Claims.  As a condition to the receipt
of the payments and benefits described in this Section 9, the Executive shall
execute a covenant not to sue and release of all claims arising out of the
Executive’s employment or the termination thereof including, but not limited
to, any claim of discrimination under state or federal law in a form that is
satisfactory to the Corporation; provided that such release shall not impose
restrictions or requirements on the activities of the Executive beyond those
described herein.


 


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(g)                                 Conditions to
Receipt of Payments and Benefits.  The obligation to provide to the Executive the payments and
benefits described in this Section 9 shall cease, and, notwithstanding
anything to the contrary in the applicable plan(s) (or agreement(s)
thereunder), all unexercised stock options and any unvested equity-based awards
shall terminate in the event of, and at such time as, any breach (other than an
insubstantial breach) of any of the provisions of Sections 13, 14 or
18(k).


(h)                                 No Mitigation.  The Executive shall not be required to
mitigate the amount of any payment or benefit contemplated by this Section 9,
nor shall any such payment or benefit be reduced by any earnings or benefits
that the Executive may receive from any other source; provided that if the
Executive becomes employed by another employer following termination of his
employment hereunder and such employer provides the Executive and his
dependants with comparable health plan coverage, the Executive shall no longer
be entitled to the benefits described in Section 9(d).


Section 10.  Other Terminations
Under This Part


If termination of employment hereunder occurs and
neither Section 9 or the Third Part of this Agreement apply to such
termination, then the Executive shall be entitled only to the Accrued
Benefits.  For purposes of this Section
10 and Sections 9 and 12, “Accrued Benefits” shall mean, subject to any
applicable plan terms (including, without limitation, any vesting requirements)
and Section 6(d), the compensation, benefits and reimbursements described in
Sections 3, 4, 5, 6 and 7 of this Agreement for the period preceding the
date of the termination including any Disability or death benefits to which
Executive (or his estate or beneficiary(s)) may be entitled as a result of
termination of his employment on account of Disability or death.  This Section 10 applies, without
limitation, to any termination of employment initiated by the Executive (except
an Executive-initiated termination that is a Qualifying Termination or
Qualifying CIC Termination), termination of employment caused by the Executive’s
death, and to a termination of the Executive for Cause or Disability.


 


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  THIRD
  PART:

  	
   

  	
  COMPENSATION
  AND BENEFITS IN CASE OF A TERMINATION WITHOUT CAUSE OR FOR GOOD REASON
  OCCURRING WITHIN TWO YEARS AFTER A CHANGE IN CONTROL

  



 


Section 11.  Terminations
Following a Change in Control


This Third Part of the Agreement, consisting of
Sections 11 and 12, describes the benefits and compensation, if any, payable in
the case of certain terminations of employment hereunder in connection with a
Change in Control (as defined in Section 12). 
The Second Part of this Agreement, consisting of Sections 8 through 10,
describes benefits and compensation, if any, payable in case of a termination
of employment hereunder to which this Third Part does not apply.  If benefits and compensation are payable
under this Third Part, then no benefits and compensation are payable under the
Second Part.


Section 12.  Termination Without
Cause; Termination for Good Reason Within Two Years Following a Change in
Control


In the event that the Executive’s employment
terminates as a result of a Qualifying CIC Termination (as defined below), the
Executive shall be entitled to receive the payments and benefits described in
Sections 12(a), (b), (c), (d) and (e). 
For all purposes under this Agreement, “Qualifying CIC Termination”
shall mean termination of the Executive’s employment hereunder (i) by the
Corporation for any reason other than Cause or Disability within two (2) years
after a Change in Control, (ii) by the Executive’s resignation for Good Reason
within one hundred seventy nine (179) days after a Change in Control or (iii)
by the Executive’s resignation for any reason on or after the date that is one
hundred eighty (180) days after a Change in Control but within two (2) years
after such Change in Control.  For
avoidance of doubt, termination of the Executive’s employment by reason of
death shall not constitute a Qualifying CIC Termination.


(a)                                  Within fifteen
(15) days after a Qualifying CIC Termination, the Corporation shall pay to the
Executive or his Severance Beneficiary the Accrued Benefits.


(b)                                 Within thirty
(30) days after a Qualifying CIC Termination, the Executive or his Severance
Beneficiary shall be paid a pro-rated Incentive Compensation award at the
target amount in respect of the performance period in which the employment
termination occurs based on the percentage of the performance period that has
elapsed as of the date of employment termination.


(c)                                  Within thirty
(30) days after a Qualifying CIC Termination, the Corporation shall pay to the
Executive an amount equal to three (3) times the sum of:


(1)
the highest Base Compensation paid or payable to the Executive during the Term;
and


(2)
the greater of: (i) if the termination occurs before the bonus has been paid
for the fiscal year ending in January 2004, the amount set forth in section 4;
(ii) the highest Incentive Compensation paid to the Executive during the Term;
or (iii) the Executive’s 


 


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Incentive Compensation
target amount based on the Base Compensation as in effect on the date of
employment termination.


(d)                                 Subject to
Section 12(f), the coverage described in this Section 12(d) shall be provided
for a period beginning on the date of employment termination and ending on the
earlier of (1) the 36-month anniversary of the date of employment
termination or (2) the date of the Executive’s death.  During such period, the Executive (and,
where applicable, the Executive’s dependents) shall be entitled to continue
participation in the Corporation’s health care plan(s) in which the Executive
participated immediately prior to employment termination as if the Executive
were still an executive of the Corporation. 
The coverage provided under this Section 12(d) shall run concurrently
with and shall be offset against any continuation coverage under Part 6 of
Title I of the Executive Retirement Income Security Act of 1974, as amended and
Section 4980B of the Internal Revenue Code of 1986, as amended.  To the extent that the Corporation finds it
undesirable to cover the Executive under the health plan(s) of the Corporation,
the Corporation shall provide the Executive (at its own expense) with the same
level of coverage under individual policies.


(e)                                  The Executive
shall be entitled to full Excise Tax Restoration Payments such that in the
event that it is determined that any payment of any type to or for the benefit
of the Executive made by the Parent, by any of its affiliates, by any person who
acquires ownership or effective control or ownership of a substantial portion
of the assets of the Parent (within the meaning of section 280G of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”))
or by any affiliate of such person, whether paid or payable pursuant to the
terms of this Agreement or otherwise, including the accelerated vesting of
stock options or other equity-based awards (the “Total Payments”), would be
subject to the excise tax imposed by section 4999 of the Code or any interest
or penalties with respect to such excise tax (such excise tax, together with
any such interest or penalties, are collectively referred to as the “Excise
Tax”), then the Executive shall be entitled to receive an additional payment
(an “Excise Tax Restoration Payment”) in an amount that shall fund the payment
by the Executive of any Excise Tax on the Total Payments as well as all income
taxes imposed on the Excise Tax Restoration Payment, any Excise Tax imposed on
the Excise Tax Restoration Payment and any interest or penalties imposed with
respect to taxes on the Excise Tax Restoration or any Excise Tax.


(f)                                    The Executive
shall not be required to mitigate the amount of any payment or benefit
contemplated by this Section 12, nor shall any such payment or benefit be
reduced by any earnings or benefits that the Executive may receive from any
other source; provided that if the Executive becomes employed by another
employer following termination of his employment hereunder and such employer
provides the Executive and his dependants with comparable health plan coverage,
the Executive shall no longer be entitled to the benefits described in Section
12(d).


(g)                 “Change in Control” means the occurrence of any of the
following events on or after the effective date of this Agreement:


The
consummation of a merger or consolidation of the Parent or the Corporation with
or into another entity or any other corporate reorganization, if more than 50%
of the 


 


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combined
voting power of the continuing or surviving entity’s securities outstanding
immediately after such merger, consolidation or other reorganization is owned
by persons who were not part of the same controlled group of the Parent immediately
prior to such merger, consolidation or other reorganization, and who directly
or indirectly in the aggregate owned less than 25% of the Parent’s or the
Corporation’s, as the case may be, combined voting power represented by the
Parent’s or the Corporation’s, as the case may be, outstanding securities
immediately prior to such merger, consolidation or other reorganization;


                                                The sale,
transfer or other disposition of all or substantially all of the Parent’s or
the Corporation’s assets;


A change in the composition
of the Board of Directors over a period of twenty-four (24) consecutive months
or less such that a majority of the members of the Board of Directors (rounded
up to the next whole number) cease, by reason of one or more proxy contests for
the election of directors, to be comprised of individuals who either (i) have
been directors continuously since the beginning of such period or (ii) have
been elected or nominated for election as directors during such period by at
least a majority of the directors described in clause (i) who were still in
office at the time such election or nomination was approved by the Board of
Directors;


The stockholders of the
Corporation approve the dissolution or liquidation of the Corporation or the
commencement by or against the Corporation of any case under the federal
bankruptcy laws or any other proceeding under any other laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief or there is an involuntary dissolution of the Corporation; or


Any
transaction as a result of which any person becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Parent or the Corporation representing at least 50% of the
total voting power represented by the Parent’s or the Corporation’s, as the
case may be, then outstanding voting securities.  For purposes of this Paragraph (v), the term “person” shall have
the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act
but shall exclude:


(A)          A trustee or other fiduciary holding securities under an
employee benefit plan of the Parent or a subsidiary of the Parent;


(B)           A corporation owned directly or indirectly by the
stockholders of the Parent in substantially the same proportions as their
ownership of the common stock of the Parent;


                                (C)           The Parent; and


                                (D)          The Corporation.


A transaction shall not constitute a Change in
Control if its sole purpose is to change the state of the Parent’s or the
Corporation’s incorporation or to create a holding company 


 


11

















 


that will be owned in substantially the same
proportions by the persons who held the Parent’s or the Corporation’s
securities immediately before such transaction.


The definition of Change in Control in this Section
12(g) shall be substituted for the definition of “Uninvited Change in Corporate
Control” in the Parent’s 1995 Long-Term Incentive Plan for purposes of
Executive’s stock options granted hereunder. 
In addition, notwithstanding anything to the contrary in the Parent’s
1995 Long-Term Incentive Plan, none of the Executive’s stock options granted
hereunder shall be divested for purposes of the excise tax referred to in
Section 12(e).


 


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  FOURTH
  PART:

  	
   

  	
  CONFIDENTIAL
  INFORMATION AND NON-DISCLOSURE, RESTRICTIONS ON ACTIVITIES OF THE EXECUTIVE,
  REMEDIES, SEVERABILITY, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE

  



 


Section 13.  Confidential
Information and Non-Disclosure


(a)                                  Unless required
or otherwise permitted by law or as may be necessary in the ordinary course of
performing Executive’s duties under this Agreement, the Executive shall keep
confidential and shall not disclose to others, including present or former
employees of the Parent, the Corporation and their respective affiliates, any
information described below during and after the Term:


(1)                                  “Confidential
Information”.  As used in this
Agreement, “Confidential Information” includes, but is not limited to the
following with respect to the Parent, the Corporation and their respective
affiliates:  (a) weekly sales and
wage data, (b) profitability data, (c) financial planning and
forecasting data, (d) sales reports, including pharmacy prescription and
sales volume, (e) individual store and collective gross profit
information, (f) expense data, (g) return-on-investment data,
(h) return-on-asset data, (i) bonus plans and reports,
(j) warehouse distribution costs, (k) information and related data
regarding any project or program, (l) cost-benefit analysis regarding
pharmacy distribution, (m) store and pharmacy inventory data,
(n) pharmacy purchase data, (o) information regarding pharmacy
automated dispensing system(s) and robotic technology, (p) corporate
strategic planning information, (q) pharmacy prescription processing
system, (r) computer programs and know how, (s) business and
marketing plans and strategies, and (t) unpublished financial statements,
budgets, projections, prices, costs and customer lists whether developed before
or after the date of this Agreement;


(2)                                  “Trade secrets”
of the Parent, the Corporation and their respective affiliates, as defined
under the Uniform Trade Secrets Act, California Civil Code section 3426.1;


(3)                                  Any information
that affords the Parent, the Corporation or their respective affiliates a
competitive advantage in the retail industry;


(4)                                  Proprietary
information of the Parent, the Corporation and their respective affiliates
including but not limited to, supplier lists, product marketing or any other
information obtained by the Executive during his employment with the Parent,
the Corporation or their respective affiliates; and


(5)                                  Information
with respect to acquisitions and mergers or sales or other dispositions of
businesses or material assets by, of or with the Parent, the Corporation or
their respective affiliates.


(b)                                 The provisions
of this Section 13 shall not apply to (i) information which is generally
known within the industry or in the public domain prior to the date of this
Agreement, (ii) 


 


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information which, not as a
result of the disclosure by the Executive, becomes part of the public domain,
(iii) information which is available as a matter of public record and (iv) information
which is hereafter lawfully disclosed to the Executive by a third party (other
than any employees or agents of the Parent, the Corporation or their respective
affiliates).


(c)                                  The
non-disclosure obligations of this Section 13 shall not apply to disclosures
made by the Executive in response to any deposition, interrogatory, request for
documents, subpoena, civil investigative demand or similar legal process
(“legally compelled disclosure”) provided that the Executive complies with the
conditions of this Section 13(c).  In
the event that the Executive is requested or becomes subject to make a legally
compelled disclosure of any of the Confidential Information, the Executive
shall first provide the Parent or the Corporation with prompt prior written notice
of such requirement so that the Parent or the Corporation may seek a protective
order or other appropriate remedy and/or waive compliance with the terms of
this Section 13, unless the Executive is prohibited by law from giving such
notice.


(d)                                 On or before
the date of employment termination, the Executive shall turn over to the
Parent, the Corporation and their respective affiliates all Parent, Corporation
and affiliate confidential files, records, and other documents.  In addition, the Executive shall return all
property in his possession owned by the Parent, the Corporation and their
respective affiliates.


Section 14.  Restrictions on
Activities of the Executive


(a)                                  Non-Solicitation.  The Executive shall not, while employed
hereunder and for a period of 18 months thereafter:


(1)                                  directly or
indirectly request, induce or attempt to influence any past, current or future
customer of the Parent, the Corporation or their respective affiliates, or any
current or future supplier of goods or services to Parent, the Corporation or
their respective affiliates, to avoid, curtail or cancel any business it
transacts with the Parent, the Corporation or their respective affiliates; and


(2)                                  directly or
indirectly request, induce or attempt to influence any current or future
employee of, or independent contractor or consultant to, the Parent, the
Corporation or their respective affiliates to terminate his or her employment
with or services to the Parent, the Corporation or their respective affiliates,
or induce, entice, hire or attempt to employ or retain the services of any such
employee, independent contractor or consultant other than on behalf of the
Parent, the Corporation or their respective affiliates; provided, however,
that, with respect to independent contractors and consultants, this Section
14(a)(2) shall only apply to independent contractors and consultants who derive
25% or more of their revenue from the Parent, the Corporation and their
respective affiliates.


(b)                                 Non-Disparagement.  The Executive shall not, while employed
hereunder and thereafter, make any unfavorable or disparaging remarks about the
Parent, the Corporation and their respective affiliates to third parties,
including, without limitation, to any employee, 


 


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consultant, independent
contractor, customer, supplier or vendor of the Parent, the Corporation and
their respective affiliates.


Section 15.  Remedies


It is specifically understood and agreed that any
breach of the provisions of Section 13 or 14 of this Agreement is likely
to result in irreparable injury to the Parent, the Corporation and/or their
respective affiliates and that the remedy at law alone shall be an inadequate
remedy for such breach, and that in addition to any other remedy the Parent or
the Corporation may have, the Parent and the Corporation shall be entitled to
enforce the specific performance of this Agreement by the Executive and to
obtain both temporary and permanent injunctive relief without the necessity of
proving actual damages.


Section 16.  Severable Provisions


The provisions of this Agreement are severable and the
invalidity of any one or more provisions shall not affect the validity of any
other provision.  In the event that a
court of competent jurisdiction shall determine that any provision of this
Agreement or the application thereof is unenforceable in whole or in part
because of the duration or scope thereof, the parties hereby agree that said
court in making such determination shall have the power to reduce the duration
and scope of such provision to the extent necessary to make it enforceable and
that the Agreement in its reduced form shall be valid and enforceable to the
full extent permitted by law.


Section 17.  Successors


(a)                                  Corporation’s
Successors.  This Agreement
shall inure to the benefit of and be binding upon any successor (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Parent’s or the Corporation’s
business and/or assets.


(b)                                 Executive’s
Successors.  The rights
of the Executive hereunder to payments and benefits shall inure to the benefit
of, and be enforceable by, the Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.


Section 18.  Miscellaneous
Provisions


(a)                                  Waiver.  No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Executive and by an authorized officer
of the Corporation (other than the Executive) and the Parent.  No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of
the same condition or provision at another time.


(b)                                 Whole Agreement.  This instrument contains the entire
agreement of the parties with respect to the subject matter hereof and it
replaces and supercedes any agreements, representations or understandings
(whether oral or written and whether express or 


 


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implied) that are not
expressly set forth in this Agreement that have been made or entered into by
either party with respect to the subject matter hereof.


(c)                                  Notice.  Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid.  In the case of the Executive, mailed notices
shall be addressed to the Executive at the home address that the Executive most
recently communicated to the Corporation in writing.  In the case of the Parent and the Corporation, mailed notices
shall be addressed to their respective corporate headquarters, and all notices
shall be directed to the attention of the General Counsel.


(d)                                 Choice of Law.  The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California, irrespective of California’s choice-of-law principles.


(e)                                  Arbitration and
Equitable Relief.  Any
dispute, controversy or claim between the parties arising out of or relating to
this Agreement (whether based in contract or tort, in law or equity), or any
breach or asserted breach thereof, shall be determined and settled exclusively
by private and confidential arbitration in Walnut Creek, California, in
accordance with the rules for dispute resolution of JAMS/ENDISPUTE.  Judgment on the award may be entered in any
court of competent jurisdiction. 
Notwithstanding this Section 18(e), the parties may apply to any court
of competent jurisdiction for a temporary restraining order, preliminary
injunction or other interim or provisional relief as may be necessary, without
breach of this Agreement and without abridgment of the powers of the
arbitrator.  The parties hereby submit
themselves to the Superior Court of California in and for the County of Contra
Costa for the purpose of enforcing this Agreement.


(f)                                    No Assignment
of Benefits.  The rights
of any person to payments or benefits under this Agreement shall not be made
subject to option or assignment, either by voluntary or involuntary assignment
or by operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor’s process, and any action in violation of this
Section 18(f) shall be void.


(g)                                 Employment At
Will; Limitation of Remedies.  The Parent, the Corporation and the Executive acknowledge that
the Executive’s employment is at will, as defined under applicable law.  If the Executive’s employment terminates for
any reason, the Executive shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement.


(h)                                 Employment
Taxes.  All payments made pursuant to
this Agreement shall be subject to withholding of applicable taxes.


(i)                                     Benefit
Coverage Non-Additive.  In
the event that the Executive is entitled to health plan coverage under more
than one provision hereunder, only one provision shall apply, and neither the
periods of coverage nor the amounts of benefits shall be additive.


 


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(j)                                     Discharge of
Responsibility. The payments under this Agreement, when made in
accordance with the terms of this Agreement, shall fully discharge all
responsibilities of the Parent, the Corporation and their respective affiliates
to the Executive that existed at the time of termination of the Executive’s
employment.


(k)                                  Cooperation.  Following termination of the Executive’s
employment hereunder, the Executive shall reasonably
cooperate with, assist and provide information to the Parent, the Corporation
and their respective affiliates concerning any matters about which he has
knowledge because of his prior employment with the Parent, the Corporation or
their respective affiliates or his prior involvement as an officer or director
of the Parent and/or any of its affiliates. 
This agreement by Executive to cooperate with, assist and/or provide
information to the Parent, the Corporation and their respective affiliates
includes, if necessary, assistance by Executive in any litigation matters.  Such assistance and cooperation will be
scheduled at times and locations personally convenient for Executive and not
inconsistent with the responsibilities he may have with subsequent employment
or rendering of services, except where such scheduling is unreasonable or
impracticable (giving the needs of both parties equal weight) under all of the
circumstances.  The Parent, the
Corporation or their respective affiliates shall pay, or reimburse Executive,
for reasonable, out-of-pocket costs incurred by Executive in providing such
assistance (e.g., reasonable travel costs and reasonable legal fees).  In the event that the Executive shall be
required to provide services pursuant to this Section 18(k) in excess of twenty
(20) hours in any month, the Executive shall be compensated at a rate of $1,000
per day; provided, however, that the Executive shall not be compensated for any
service that he is otherwise required to perform pursuant to applicable law.


(l)                                     Indemnification.  To the fullest extent permitted by
applicable law, the Articles of Incorporation and the by-laws of the Parent and
the Corporation (as in effect from time to time), the Parent and the
Corporation shall indemnify and hold harmless the Executive for any acts or
decisions made by him in good faith while performing services for the Parent,
the Corporation and their respective affiliates, whether in the capacity of
officer, employee or director.  The
Parent and the Corporation shall use their reasonable best efforts to include
the Executive under any director and officer liability insurance policies now
in force covering the officers or directors of the Parent and the
Corporation.  The Corporation’s
obligation hereunder shall survive the Executive’s termination.


(m)                               Legal Fees.  The Corporation agrees that the cost of any
legal fees, up to $20,000, incurred by the Executive in connection with
entering into this Agreement shall be borne by the Corporation, subject to
submission by the Executive to the Corporation of appropriate documentation for
such fees.  The prevailing party in any
dispute or controversy with respect to this Agreement shall be entitled to
recover, in addition to any other available remedies specified in this
Agreement, all litigation expenses and costs, including any arbitrator,
administrative or filing fees and reasonable attorneys’ fees.


 


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IN WITNESS WHEREOF, each of the parties has
executed this Agreement, in the case of the Parent and the Corporation by a
duly authorized officer, as of the day and year first above written.  The Executive has consulted (or has had the
opportunity to consult) with his own counsel (who is other than the Parent’s or
the Corporation’s counsel) prior to execution of this Agreement.


	
   

  	
   

  	
  WARREN F. BRYANT

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Warren F.
  Bryant

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LONGS DRUG
  STORES CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Harold R.
  Somerset

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its

  	
  Vice Chairman

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LONGS DRUG
  STORES CALIFORNIA, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Harold R.
  Somerset

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its

  	
  Vice Chairman

  
					



 


 


 


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SCHEDULE A


1.                                       Nonqualified
Retirement Benefit.  If the
Executive is employed by the Corporation until November 1, 2007, or his
employment is terminated sooner (a) by the Corporation for Disability or by the
Corporation other than for Cause, (b) by the Executive for Good Reason, or by
the Executive for any reason between six (6) and twenty-four (24) months after
a Change in Control, or (c) due to the Executive’s death, the Corporation shall
commence to pay either (1) to the Executive, within thirty (30) days after the
later of Executive’s attainment of age 62 or termination of employment, or (2)
if Executive’s termination of employment is due to Executive’s death, to the
Executive’s spouse, within thirty (30) days after the later of Executive’s
death or such time as Executive would have attained age 62, an annuity that is
actuarially equivalent to the Projected Value (as defined below) as of the date
the annuity commences (the “Annuity”); provided, however, that, in the case of
termination of the Executive’s employment for any reason between six (6) and
twenty-four (24) months after a Change in Control, the Annuity shall not be
paid to the Executive and, instead, the Executive shall be paid a lump sum as
soon as reasonably practicable following such termination equal to the
Projected Value at such payment date. 
The form of Annuity shall be of a type that is reasonably commercially
available and selected by the Executive or his spouse (as the case may be) and
actuarial equivalence shall be determined using the interest rate and mortality
assumptions in effect for the Kroger Consolidated Retirement Benefit Plan (or
any successor plan thereto) (the “Kroger Plan”) for calculating lump sum
distributions on the date of commencement of payment of the Annuity.  If the Kroger Plan does not contain such
assumptions on such date, then the Annuity shall be determined using the
interest rate and mortality assumptions described in Section 417(e)(3) of the
Internal Revenue Code of 1986, as amended (or any successor provision thereto)
as in effect at such time using the same “lookback period” in the then latest
version of the Kroger Plan.  For this
purpose, the Executive’s spouse (if any) shall be his spouse as of the date of
this Agreement.


 


For purposes of this Section
1, (I) “Projected Value” shall be equal to the lesser of (i) $850,000 as of the
date of this Agreement and (ii) the Pension Make-Up Amount (as defined below)
as of the date of this Agreement, increased 
monthly by interest on a compounded basis on the last day of each
calendar month to the date the Annuity commences (or, in the case of
termination of Executive’s employment for any reason between six (6) and
twenty-four (24) months after a Change in Control, the payment date of the lump
sum described in the preceding paragraph). 
Such monthly interest shall be equal to one-twelfth of the interest rate
described in Section 417(e)(3) of the Internal Revenue Code of 1986, as amended
(or any successor provision thereto) as in effect at such time using the same
“lookback period” in the then latest version of the Kroger Plan; and (II)
“Pension Make-Up Amount” shall mean the difference between (i) the actuarially
equivalent lump sum value as of the date of this Agreement of the annual
benefit that would have been payable to the Executive as a single life annuity
commencing at age 65 under the Kroger Plan using the Executive’s benefit
accrual service that is actually recognized under the Kroger Plan as of the
date of this Agreement, but assuming that the Executive’s earnings utilized in
determining this benefit under the Kroger Plan had increased by 2% per annum
until age 65 and (ii) the actuarially equivalent lump sum 


 


 

















 


value as of the date of this
Agreement of the Executive’s actual accrued annual benefit payable as a single
life annuity commencing at age 65 under the Kroger Plan.  The Pension Make-Up Amount shall be
calculated using the interest rate and mortality assumptions in effect for the
Kroger Plan on the date of this Agreement. 
If the Kroger Plan does not contain such assumptions on such date, then
such lump sum amount shall be determined using the interest rate and mortality
assumptions described in Section 417(e)(3) of the Internal Revenue Code of
1986, as amended (or any successor provision thereto) as in effect at such time
using the same “lookback period” in the then latest version of the Kroger Plan.


 


To the extent, but only to
the extent, that the Pension Make-Up Amount shall be less than $850,000, the
amount of the payment described in Section 6(e) shall be increased, dollar for
dollar, but by no more than $56,875.


2.                                       Life Insurance.  During his employment hereunder, the
Executive shall be entitled to term life insurance coverage providing for a
$2,000,000 death benefit.


3.                                       Disability
Insurance.  During his
employment hereunder, the Executive shall be entitled to disability insurance
coverage providing for a yearly benefit of at least $690,000.


4.                                       Vacation
Package.  During his employment
hereunder, the Executive shall be entitled to four weeks paid vacation per year
in accordance with such other terms and conditions that are generally
applicable to senior executives of the Corporation.


 


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