**Exhibit10.5**

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**RETENTION AGREEMENT**

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THIS RETENTION AGREEMENT (the “Agreement”) is entered into as of                           ,20      (the “Effective Date”), by and between                                 (the “Executive”) and Longs Drug Stores of California, Inc., a Californiacorporation (the “Corporation”).

 

WHEREAS, the Board of Directors of Longs Drug StoresCorporation (the “Parent Corporation”) and the Board of Directors of theCorporation have determined that it is in the best interests of the ParentCorporation and the Corporation to encourage the retention of the Executive byagreeing to provide reasonable severance benefits to the Executive in the eventof a Qualifying Termination (as defined in Section 1).

 

NOW, THEREFORE, in consideration of the covenants and agreementscontained in this Agreement, the Executive and the Corporation hereby agree asfollows:

 

1.                                       SeverancePayment and Benefits.

 

Subject to subsection1(g), if during the Term (as defined below) the Executive ceases to be employedby each and all of the Parent Corporation, the Corporation and their respectiveaffiliates by reason of termination for any reason other than Just Cause (asdefined in Section 3), Total Disability (as defined in Section 3) or death (a“Qualifying Termination”), then the Executive shall be entitled to receiveseverance payments from the Corporation as set forth in subsection 1(b)(collectively, the “Severance Payment”) and the other benefits as set forth insubsections 1(c) and 1(e).  Subsections1(d) and 1(f) shall apply with respect to any termination of Executive’semployment during the Term, including a Qualifying Termination.

 

(a)                                  Term of Agreement.  This Agreement shall be effective from theEffective Date until the second anniversary of the Effective Date.  If the Corporation does not deliver to theExecutive written notice of non-renewal at least 180 days before the secondanniversary of the Effective Date, then this Agreement shall automaticallyrenew for another two year period and shall automatically renew for successivetwo year periods thereafter unless and until the Corporation delivers to theExecutive written notice of non-renewal at least 180 days before the end of thethen current period.  Notwithstandingthe foregoing, this Agreement shall automatically terminate upon the earlier of(i) a Change in Corporate Control and (ii) such time as Executive ceases to beemployed by each and all of the Parent Corporation, the Corporation and theirrespective affiliates for any reason (the foregoing in this subsection 1(a),the “Term”).  The Executive shall not beentitled to any payments or benefits on account of termination of thisAgreement except following employment termination as described in this Section1.  Notwithstanding anything to thecontrary in this subsection 1(a), the provisions of Sections 2 and 4 shallsurvive termination of this Agreement. For purposes of this Agreement, “Change in Corporate Control” shall havethe meaning set forth in that certain Agreement for Termination Benefits in theEvent of a Change in Corporate Control between the Corporation and theExecutive, dated                          (the “Change in Corporate Control Agreement”).

 

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(b)                                 SeverancePayment.  The Severance Paymentshall consist of payment to the Executive of Executive’s annual base salary atthe same rate, and on the same schedule, as in effect immediately prior to thedate of the Qualifying Termination for a period of twenty-four (24) months(eighteen (18) months where the date of the Qualifying Termination is on orafter the second anniversary of theEffective Date) (the “Severance Period”).  Payment of the Severance Payment shall commence on the normalCorporation payroll date following the later of the delivery of the releasereferred to in subsection 1(g) to the Corporation or the last day of anyperiod such release may be revoked by the Executive (the “Release EffectiveDate”).

 

(c)                                  Health Coverage.  The Executive (and, where applicable, theExecutive’s dependents) shall be entitled to continue participation in theCorporation’s health care plan(s) (including the Corporation’s executivemedical reimbursement plan) in which the Executive participated immediatelyprior to the date of the Qualifying Termination as if the Executive were stillan executive of the Corporation until the earlier of (i) the date that theExecutive is offered comparable coverage by another employer, (ii) the end ofthe Severance Period or (iii) the Executive’s death.  The coverage provided under this subsection 1(c) shall run concurrentlywith and shall be offset against any continuation coverage under Part 6 ofTitle I of the Employee Retirement Income Security Act of 1974, as amended andSection 4980B of the Internal Revenue Code of 1986, as amended.  To the extent that the Corporation finds itundesirable to cover the Executive under the health plan(s) of the Corporation,the Corporation shall provide the Executive (at its own expense) with acomparable level of coverage under individual policies.

 

(d)                                 OtherEmployee Benefits.  Except asprovided in this Agreement, the Executive’s participation in all employeebenefit programs and management perquisites shall cease upon his or her date ofemployment termination.  Executive’soutstanding stock options, unvested restricted stock, outstanding SARs,outstanding phantom stock and accrued deferred compensation, if any, and otheraccrued employee benefits not specifically addressed by this Agreement shall begoverned by the terms of the applicable plans and agreements and in accordancewith any applicable previous election(s) by the Executive.

 

(e)                                  OutplacementServices.  After the ReleaseEffective Date, for one year after the date of the Qualifying Termination, theExecutive will be provided with outplacement counseling services at theCorporation’s expense; provided, however, the expense for such service shallnot exceed$                         .The counseling shall include, but not be limited to, skill assessment, jobmarket analysis, resume preparation, interviewing skills, job search techniquesand negotiating, and shared office facilities and administrative support.

 

(f)                                    NoOther Benefits.  Except as providedin this Agreement, the Executive shall not be entitled to any other retentionbenefits from the Parent Corporation, the Corporation or their respectiveaffiliates in the event his or her employment terminates for any reason duringthe Term.

 

(g)                                 Conditions.  The payments and benefits provided underthis Section 1 (other than those described in subsection 1(d)) are conditionedon Executive’s continuing compliance with this Agreement and the applicablepolicies of the Parent Corporation, the Corporation and their respectiveaffiliates and the Executive’s execution (and effectiveness) of a generalrelease of 

 

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claims and covenant not to suein a form that is satisfactory to the Corporation upon termination ofemployment.  If the Executive does notproperly execute such a release or if the Executive attempts to revoke or revokessuch a release the Executive will not be entitled to any of the benefitsprovided under this Section 1 (other than those described in subsection1(d)).

 

2.                                       ConfidentialInformation; Non-Competition; Non Disparagement.

 

(a)                                  ConfidentialInformation.

 

(i)                                     Unlessrequired or otherwise permitted by law or as may be necessary in the ordinarycourse of performing Executive’s duties, the Executive shall keep confidentialand shall not disclose to others, including present or former employees of theParent Corporation, the Corporation and their respective affiliates, anyinformation described below:

 

(A)                              “ConfidentialInformation”.  As used in thisAgreement, “Confidential Information” includes, but is not limited to thefollowing with respect to the Parent Corporation, the Corporation and theirrespective affiliates:  (a) weeklysales and wage data, (b) profitability data, (c) financial planningand forecasting data, (d) sales reports, including pharmacy prescriptionand sales volume, (e) individual store and collective gross profitinformation, (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 dataregarding any project or program, (l) cost-benefit analysis regardingpharmacy distribution, (m) store and pharmacy inventory data,(n) pharmacy purchase data, (o) information regarding pharmacyautomated dispensing systems(s) and robotic technology, (p) corporatestrategic planning information, (q) pharmacy prescription processingsystem, (r) computer programs and know how, (s) business andmarketing plans and strategies, and (t) unpublished financial statements,budgets, projections, prices, costs and customer lists whether developed beforeor after the date of this Agreement;

 

(B)                                “Tradesecrets” of the Parent Corporation, the Corporation and their respectiveaffiliates, as defined under the Uniform Trade Secrets Act, California CivilCode section 3426.1;

 

(C)                                Anyinformation that affords the Parent Corporation, the Corporation or theirrespective affiliates a competitive advantage in the retail industry;

 

(D)                               Proprietaryinformation of the Parent Corporation, the Corporation and their respectiveaffiliates including but not limited to, supplier lists, product marketing orany other information obtained by the Executive during his employment with theParent Corporation, the Corporation or their respective affiliates; and

 

(E)                                 Informationwith respect to acquisitions and mergers or sales or other dispositions ofbusinesses or material assets by, of or with the Parent Corporation, theCorporation or their respective affiliates.

 

(ii)                                  Theprovisions of this subsection 2(a) shall not apply to

 

(A)                              Informationwhich is generally known within the industry or in the public domain prior tothe date of this Agreement;

 

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(B)                                Informationwhich, not as a result of the disclosure by the Executive, becomes part of thepublic domain;

 

(C)                                Informationwhich is available as a matter of public record; and

 

(D)                               Informationwhich is hereafter lawfully disclosed to the Executive by a third party (otherthan any employees or agents of the Parent Corporation, the Corporation ortheir respective affiliates).

 

(iii)                               Thenon-disclosure obligations of this subsection 2(a) shall not apply to thedisclosures made by the Executive in response to any deposition, interrogatory,request for documents, subpoena, civil investigative demand or similar legalprocess (“legally compelled disclosure”) provided that the Executive complieswith the conditions of this paragraph (iii).  In the event that the Executive is requested or becomes subjectto make a legally compelled disclosure of any of the Confidential Information,the Executive shall first provide the Parent Corporation or the Corporationwith prompt prior written notice of such requirement so that the ParentCorporation or the Corporation may seek a protective order or other appropriateremedy and/or waive compliance with the terms of this subsection 2(a).

 

(iv)                              Onor before the date of employment termination, the Executive shall turn over tothe Parent Corporation, the Corporation and their respective affiliates allParent Corporation, Corporation and affiliate confidential files, records, andother documents.  In addition, theExecutive shall return all property in his possession owned by the ParentCorporation, the Corporation and their respective affiliates.

 

(b)                                 Non-Solicitation.  During any period for which the Executive isreceiving payments from the Corporation, either as an employee or pursuant toSection 1, the Executive shall not directly or indirectly:

 

(i)                                     request,induce or attempt to influence any past, current or future customer of theParent Corporation, the Corporation or their respective affiliates, or anycurrent or future supplier of goods or services to the Parent Corporation, theCorporation or their respective affiliates, to avoid, curtail or cancel anybusiness it transacts with the Parent Corporation, the Corporation or theirrespective affiliates; and

 

(ii)                                  request,induce or attempt to influence any current or future employee of, orindependent contractor or consultant to, the Parent Corporation, theCorporation or their respective affiliates to terminate his or her employmentwith or services to the Parent Corporation, the Corporation or their respectiveaffiliates, or induce, entice, hire or attempt to employ or retain the servicesof any such employee, independent contractor or consultant other than on behalfof the Parent Corporation, the Corporation or their respective affiliates.

 

(c)                                  Non-Disparagement.  The Executive shall not, during the Term andthereafter, make any unfavorable or disparaging remarks about the ParentCorporation, the Corporation and their respective affiliates to third parties,including, without limitation, to any employee, consultant, independentcontractor, customer, supplier or vendor of the Parent Corporation, theCorporation and their respective affiliates.

 

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(d)                                 Equitable Remedies.  The Executive acknowledges that thespecialized nature of the Executive’s knowledge of the ConfidentialInformation, trade secrets and other intellectual property of the ParentCorporation and the Corporation are such that a breach of his covenant not tosolicit or confidentiality obligations contained in this Section 2 wouldnecessarily and inevitably result in a disclosure, misappropriation and misuseof such Confidential Information and other intellectual property.  Accordingly, the Executive acknowledges andagrees that such a breach would inflict unique and irreparable harm upon theParent Corporation, the Corporation and their respective affiliates and thatthe Parent Corporation, the Corporation and their respective affiliates shallbe entitled, in addition to their other rights and available remedies(including the Corporation’s cessation of payments under Section 1 orotherwise), to enforce, in any court of competent jurisdiction by injunction ordecree of specific performance, the Executive’s obligations set forth herein.

 

3.             Definitions.  The following definitions shall apply forall purposes under this Agreement:

 

(a)                                  JustCause. “Just Cause” shall mean the occurrence after the Effective Date ofone or more of the following: (i) failure by the Executive to substantiallyperform the Executive’s duties, other than a failure resulting from theExecutive’s complete or partial incapacity due to physical or mental illness;(ii) an act by the Executive that constitutes gross misconduct; (iii) a breachby the Executive of a material provision of this Agreement; (iv) a materialviolation of a federal or state law or regulation applicable to the business ofthe Corporation; (v) material violation of the code of business conduct, codeof ethics or other policies of the Parent Corporation or the Corporation or(vi) conviction of or the entering of a guilty plea or plea of no contest withrespect to a felony, the equivalent thereof, or any other crimes with respectto which imprisonment is a punishment.

 

(b)                                 Total Disability.  “Total Disability” shall mean the inabilityof the Executive to perform his or her duties for a period of not less than six(6) consecutive months as a result of Executive’s incapacity due to physical ormental illness.

 

4.                                       MiscellaneousProvisions.

 

(a)                                  Notice.  Notices and all other communicationscontemplated by this Agreement shall be in writing and shall be deemed to havebeen duly given when personally delivered or when mailed by U.S. registered orcertified mail, return receipt requested and postage prepaid.  In the case of the Executive, mailed noticesshall be addressed to him or her at the home address which he or she mostrecently communicated to the Corporation in writing.  In the case of the Corporation, mailed notices shall be addressedto Longs Drug Stores of California, Inc., 141 N. Civic Drive, WalnutCreek, CA 94596, and all notices shall be directed to the attention of itsCorporate Secretary.

 

(b)                                 Amendment;Waiver; Remedies.  No provision ofthis Agreement may be amended, modified, waived or discharged unless theamendment, modification, waiver or discharge is agreed to in writing and signedby the Executive (or the Executive’s personal or legal representative(s),executor(s), administrator(s), successor(s), heir(s), distributee(s),devisee(s) and legatee(s)) and 

 

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by two authorized officers ofthe Corporation (other than the Executive) (with the approval of the Board ofDirectors of the Corporation).  Nowaiver by either party of any breach of, or of compliance with, any conditionor provision of this Agreement by the other party shall be considered a waiverof any other condition or provision or of the same condition or provision atanother time.

 

(c)                                  EntireAgreement.  This Agreement containsall the legally binding understandings and agreements between the Executive andthe Corporation pertaining to the subject matter of this Agreement andsupersedes all such agreements, whether oral or in writing, previously enteredinto between the parties.  In the eventof any inconsistency, conflict or ambiguity as to the rights and obligations ofthe parties under this Agreement and the Change in Corporate Control Agreement,the terms of this Agreement shall control and supersede any such inconsistency,conflict and ambiguity.

 

(d)                                 WithholdingTaxes.  All payments made under thisAgreement shall be subject to reduction to reflect taxes required to bewithheld by law.

 

(e)                                  Choiceof Law.  The validity,interpretation, construction and performance of this Agreement shall begoverned by the Employee Retirement Income Security Act of 1974, as amended(“ERISA”), and the laws of the State of California to the extent not preempted.  This Agreement constitutes part of anemployee welfare benefit plan subject to the requirements of ERISA.

 

(f)                                    Severability.  The invalidity or unenforceability of anyprovision or provisions of this Agreement shall not affect the validity orenforceability of any other provision.

 

(g)                                 Arbitration.  Any dispute, controversy or claim betweenthe parties arising out of or relating to this Agreement (whether based incontract or tort, in law or equity), or any breach or asserted breach thereof,shall be determined and settled exclusively by private and confidentialarbitration in Walnut Creek, California, in accordance with the rules fordispute resolution of JAMS/ENDISPUTE. Judgment on the award may be entered in any court of competent jurisdiction.  Notwithstanding this subsection 4(g), theparties may apply to any court of competent jurisdiction for a temporaryrestraining order, preliminary injunction or other interim or provisionalrelief as may be necessary, without breach of this Agreement and withoutabridgment of the powers of the arbitrator. The parties hereby submit themselves to the Superior Court of Californiain and for the County of Contra Costa for the purpose of enforcing thisAgreement.

 

(h)                                 NoAssignment.  This Agreement may notbe assigned by the Executive otherwise than by will or the laws of descent anddistribution.  Without limiting theforegoing, the rights of the Executive to payments or benefits under thisAgreement shall not be made subject to option or assignment, either byvoluntary or involuntary assignment or by operation of law, includingbankruptcy, garnishment, attachment or other creditor’s process, and any actionin violation of this subsection 4(h) shall be void.  Subject to this subsection 4(h), this Agreement shall be bindingupon and inure to the benefit of the parties hereto and their respective heirs,representatives, successors and assigns.

 

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(i)                                     EmploymentAt Will; Limitation of Remedies. This Agreement shall not give the Executive any rights to remain anemployee or director of the Parent Corporation, the Corporation and/or theirrespective affiliates.  The Corporationand the Executive acknowledge that the Executive’s employment is at will, as definedunder applicable law, and any such employment may be terminated at any time andfor any reason.  If the Executive’semployment terminates for any reason during the Term, the Executive shall notbe entitled to any payments, benefits, damages, awards or compensation otherthan as provided by this Agreement.

 

(j)                                     Cooperation.  After the date of employment termination forany reason, Executive will cooperate with the Parent Corporation, theCorporation and their respective affiliates, their attorneys or experts inconnection with any matters involving the Parent Corporation, the Corporationor their respective affiliates that are pending on the date of the Executive’semployment termination or that may arise thereafter from events or allegedevents occurring prior to such date. Either the Parent Corporation or the Corporation will reimburseExecutive for all reasonable expenses incurred in connection with suchcooperation.

 

(k)                                  VoluntaryParticipation.  Each of the partiesacknowledges that he or it has read the Agreement, and that he or it entersinto this Agreement freely, voluntarily, without coercion and based on theparty’s own judgment and not in reliance upon any representations or promisesmade by the others, except those contained in this Agreement.

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement (inthe case of the Corporation, by two duly authorized officers) as of the day andyear first above written.

 

 
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|   |                                  | , Executive |
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|   | LONGS DRUG STORES OF CALIFORNIA, INC. |
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