Exhibit 10.1


SEPARATION
AGREEMENT


THIS SEPARATION AGREEMENT (this “Agreement”), is made
between Ronald Lovelady (“Employee”) and Longs Drug Stores Corporation, a
Maryland corporation (“Longs Corporation”), and Longs Drug Stores California,
Inc., a California corporation (“Longs California” and, together with Longs
Corporation, “Longs” or the “Company”) and will become effective upon the
Effective Date set forth in Section 19.


RECITALS


WHEREAS, Employee has been employed by Longs
California as Senior Vice President and Regional Manager, and has served as a
director of Longs California, and the parties hereto desire to end those
relationships, and to settle, fully, finally and amicably, all claims against
each other, including, but not limited to, any claims related to the employment
of Employee and the termination of that employment.


NOW, THEREFORE, in order to provide such benefits and
in consideration of the mutual promises, covenants and representations set
forth below and other good and valuable consideration, the parties agree as
follows:


1.             Relinquishment
of Positions.  Employee has resigned
effective September 26, 2002 from his positions as Longs California’s Senior
Vice President and Regional Manager and as a Longs California director.


2.             Earned
Salary and Bonus.  Employee will be
paid his earned salary and accrued vacation through September 30, 2002.  Employee will be paid his full third quarter
fiscal year 2003 bonus no later than November 30, 2002.


3.             Payment
of Good and Valuable Consideration. 
Even though Employee is not otherwise entitled to it, in consideration
of Employee’s acceptance of this Agreement and the release contained herein,
Longs will provide the following:


(a)           Subject to the deduction set forth in
paragraph 3(d), Employee will be paid four hundred thousand dollars ($400,000)
as follows: one-third (1/3) of said amount, or one hundred thirty three
thousand, three hundred thirty three and thirty three cents ($133,333.33) on or
about January 31, 2003; one-fourth (1/4) of said amount, or one hundred
thousand dollars ($100,000.00) on or about October 31, 2003, and the remaining
amount or one hundred sixty six 
thousand six hundred sixty six dollars and sixty seven cents
($166,666.67) on or about January 31, 2004.


(b)           During the period he is eligible for,
and elects COBRA continuation coverage, and for a period of 6 months after
COBRA eligibility ends, employee will be paid an amount per month equal to five
hundred dollars ($500); notwithstanding the foregoing, such payments will
terminate in the month that Employee becomes eligible for health insurance
coverage from a subsequent employer, if Employee becomes so eligible prior to
the termination of the COBRA continuation coverage period.  Such payments will be mailed or delivered to
Employee on Longs California’s second regular payroll date of each month.

















 


(c)           Employee will be paid three thousand
eight hundred ninety-five dollars and seventy eight cents ($3,895.78) on the
first business day that is three (3) days after the Effective Date as reimbursement
for the anticipated contributions of Employee and his current eligible
dependents under the Longs Executive Medical Plan during the eighteen month
period following the Effective Date.


                                                (d)       The Company will pay the fair market
value, or negotiated value, whichever is less, of the value of Employee’s 2001
model year Acura MDX and transfer ownership to Employee.  However, said value, which was  $35, 273.00 as of October 7, 2002, will be
deducted from the amount to be paid Employee in January 31, 2003, pursuant to
Paragraph 3(a) above.  Employee will be
responsible for all additional amounts due to the sale of the vehicle
including, but not limited to, any applicable sales tax, license and registration
fees.


(d)           Employee’s resignation will be deemed
to be “Normal Retirement” for purposes of (i) his outstanding options to
purchase Company common stock under Longs’ 1995 Long-Term Incentive Plan (the
“1995 Plan”) and (ii) his award of 1,800 shares of restricted Company common
stock under the 1995 Plan, which restricted stock award was granted to him on
March 17, 1998.


Under the terms of the 1995 Plan, Employee will receive 1629 shares of
the restricted stock granted to him, pro-rated to the effective date of
retirement.


Employee has 39,000 stock options as of his retirement.  Employee has three years from his normal
retirement date to exercise these stock options awarded to him.


(e)           Ownership of the laptop computer used
by Employee during his employment with Longs will be transferred to Employee
after all confidential, and business-related information pertaining in any way
to Longs or Employee’s employment with Longs, has been deleted or otherwise
permanently removed from the computer.


(f)            Longs will pay premiums to maintain
Employee as a covered individual under Longs group life insurance plan for a
period of 36 months following the effective date of resignation.  Long term disability coverage does not
extend beyond Employee’s termination date stated above.


(g)           Executive outplacement services with
Lee Hecht Harrison Inc. of Walnut Creek, California.  Lee Hecht Harrison will provide the services under its Executive
Outplacement Plan, a 12-month program.


(h)           Longs will recommend that Employee
receive a Longs “Gold Card” for his service to the Company.


(i)            Any tax obligations of Employee and
tax liability therefor, including any penalties and interest based upon such
tax obligation, that arises from the benefits and payments made to him under
this Agreement will be Employee’s responsibility and liability.  Longs California will report each payment
provided for in this Section 3 on form W-2 for the tax year in which the
payment was made.


 


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4.             No
Other Benefits; No Admission of Liability. 
Employee acknowledges that except as specifically set forth in Sections
2 and 3, Employee will not be entitled to any other payments or benefits after
September 26, 2002.  Employee also
acknowledges that the Agreement for Termination Benefits in the Event of a Change
in Control entered into between Employee and Longs California will terminate as
of September 26, 2002.  Notwithstanding
the foregoing, in the event there is a “Change in Control” of Longs as
described in such agreement, the payments set forth in Sections 3(a), 3(b),
3(c) and 3(d) of this Agreement that remain unpaid will be payable within
thirty (30) days following such Change in Control.  The furnishing of the consideration for this Agreement will not
be deemed or construed at any time or for any purpose as an admission of
liability by Longs or Employee to the other.


5.             Purchase
or  Sale of Stock.  Employee
will abide by Longs insider trading policy for a period of 180 days after his
resignation date.   Blackout periods
within that time frame are 10/3/02 to 11/23/02 and 1/2/03 to 3/1/03.


5.             Indemnification
Against Claims.  To the fullest
extent provided by law, Longs will indemnify and hold Employee harmless from
any liability, claim, demand, cost, expense and attorneys’ fees incurred by him
as a result of any actions or omissions by him in the course of his service to
the Company as an employee, officer or director.


6.             Confidentiality and Non-Disclosure.


(a)           Subject to required disclosure under
the rules and regulations of the 1933 Securities Act and the 1934 Exchange Act
(10K-10Q-S8 filings for example)and unless required or otherwise permitted by
law, Employee will keep confidential and will not disclose to others, including
present or former Longs employees, any information described below:


(i)            Longs’ “Confidential
Information”.  As used in this
Agreement, “Confidential Information” includes, but is not limited to the
following:  (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 regarding Longs’
NonStop Solutions project and related data, (l) cost-benefit analysis
regarding pharmacy distribution, (m) Longs’ PRO program, (n) store
and pharmacy inventory data, (o) pharmacy purchase data,
(p) information regarding pharmacy automated dispensing system(s) and
robotic technology, (q) corporate strategic planning information,
(r) pharmacy prescription processing system, (s) computer programs
and know how, (t) business and marketing plans and strategies, and (u) unpublished
financial statements, budgets, projections, prices, costs and customer lists
whether developed before or after the Effective Date;


(ii)           Longs’ “Trade secrets”, as defined
under the Uniform Trade Secrets Act, California Civil Code section 3426.1;


 


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(iii)          Any information that affords Longs a
competitive advantage in the retail industry;


(iv)          Longs’ proprietary information
including but not limited to, supplier lists, product marketing or any other
information obtained during his employment with Longs; and


(v)           Information with respect to
acquisitions and mergers or sales or other dispositions of businesses or
material assets by, of or with Longs.


(b)           The provisions of this Section 6 will
not apply to (i) information which is generally known within the industry
or in the public domain prior to the Effective Date, (ii) information which,
not as a result of the disclosure by Employee, 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 Employee by a third
party (other than any employees or agents of Longs).


(c)           The non-disclosure obligations of
this Section 6 will not apply to disclosures made by Employee in response to
any deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar legal process (“legally compelled disclosure”)
provided that Employee complies with the 
conditions of this Section 6(c). 
In the event that Employee is requested or becomes subject to make a
legally compelled disclosure of any of the Confidential Information, Employee
will first provide Longs with prompt prior written notice of such requirement
so that Longs may seek a protective order or other appropriate remedy and/or
waive compliance with the terms of this Section 6.


(d)           On or before the Effective Date,
Employee will turn over to Longs all Company confidential files, records, and
other documents.  In addition, Employee
will return all property in his possession owned by Longs.


7.             Non-Solicitation.  Employee will not, for a period of three
years after the Effective Date:


(a)           directly or indirectly request,
induce or attempt to influence any past, current or future customer of Longs,
or any current or future supplier of goods or services to Longs, to avoid,
curtail or cancel any business it transacts with Longs; or


(b)           directly or indirectly request,
induce or attempt to influence any current or future employee of, or
independent contractor or consultant to, Longs to terminate his or her
employment with or services to Longs, 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 Longs.


8.             Non-Disparagement.  Both Employee and Longs, through its directors and officers, will
not make any unfavorable or disparaging remarks about the other to third
parties, including, without limitation, to any current or former employee,
consultant, independent contractor, customer, supplier or vendor of Longs.  However, the Company’s non-disparagement
obligation pursuant to this Agreement will extend solely to the actions of
Longs’ directors and officers.  For this
purpose, “officers” is defined as those persons identified by the Board of
Directors as subject to the reporting requirements of Section 16 of the
Securities Exchange Act of 1934, as amended.


 


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9.             Cooperation. 
Employee will cooperate with Longs, its attorneys or experts retained by
Longs or its attorneys in connection with any litigation matters involving
Longs that are pending on the Effective Date or that may arise thereafter from
events or alleged events occurring prior to the Effective Date.  The Company will reimburse Employee for all
reasonable expenses incurred in connection with such cooperation and, if such
cooperation is required after the date that is two (2) years after the
Effective Date, the Company will also compensate Employee for time reasonably
spent in connection with such cooperation at an hourly rate equivalent to his
salary in effect at the time of his resignation.


10.           No Other Claims.  Employee represents and warrants that he has
not filed against Longs or any of its representatives, any claim, complaint,
charge or suit with any federal, state or other agency, court, board, office or
other forum or entity, including without limitation, any application for
workers’ compensation benefits. 
Employee will not, at any time hereafter, file any such claim, complaint,
charge or suit based upon circumstances arising before the Effective Date,
other than a claim arising from a breach by the Company of this Agreement
(which will be subject to Section 12), and if any agency, court, board, office,
forum or other entity assumes jurisdiction of any such claim, complaint, charge
or suit, he will request such entity to withdraw from the matter.  A breach of this Section 10 will entitle
Longs to damages as provided by law and will relieve Longs of all obligations
to Employee as provided in this Agreement.


11.           General
Release.


(a)           Employee, on behalf of himself and
his heirs, executors, administrators, successors and assigns, does hereby
irrevocably and unconditionally release, acquit and forever discharge Longs
Corporation, Longs California, and all of their respective affiliates,
stockholders, directors, officers, employees, representatives, successors,
assigns, agents and attorneys from any and all charges, complaints, grievances,
claims, liabilities, obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorneys’ fees and costs actually incurred), of whatever
kind or nature, known or unknown, suspected or unsuspected, joint or several
(“Claims”), which Employee has had or may hereafter claim to have had, against
any such persons or entities by reason of any matter, act, omission, cause or
event whatever that has occurred up to and including the Effective Date other
than those obligations set forth in this Agreement.  This release and waiver of Claims specifically includes, without
limitation:  (i) all Claims arising
from or relating in any way to any act or failure to act by any employee,
officer or director of Longs, (ii) all Claims arising from or relating in
any way to the employment relationship of Employee with Longs and/or the
termination thereof, including any Claims which have been asserted or could
have been asserted against Longs, and (iii) any and all Claims which might
have been asserted by Employee in any suit, claim, or charge, for or on account
of any matter or things whatsoever that has occurred up to and including the
Effective Date, under any and all laws, constitutions, statutes, orders,
regulations, or any other claim of right(s), including without limitation, any
claim under (as amended) the Age Discrimination in Employment Act of 1967,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991,
the Employee Retirement Income Security Act of 1974, the Americans with
Disabilities Act, the California Fair Employment and Housing Act, the
California Labor Code, any other federal, state or local statute or law
governing employment or the termination of employment, and any Claim in
contract or tort.


 


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(b)           For the purpose of implementing a
full and complete release and discharge, Employee expressly acknowledges that
this Agreement with the general release set forth in this Section 11 is
intended to include in its effect, without limitation, all Claims which
Employee does not know or suspect to exist in his favor at the time of
execution of this Agreement, and that this Agreement and such general releases
contemplate the extinguishment of all such Claims.  Employee expressly waives and relinquishes all rights and benefits
he may have under Section 1542 of the California Civil Code which
provides:


A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.


12.           Arbitration and Equitable Relief.


(a)            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, will 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, and the parties specifically reserve all rights to appeal such
judgment as if it were rendered in a court of law.


(b)           Notwithstanding Section 12(a), 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.


13.           Binding Agreement.  This Agreement will be binding upon and
inure to the benefit of Employee and Longs and their respective heirs,
administrators, representatives, executors, successors and assigns.  Employee hereby designates Janice Lovelady
as his beneficiary under this Agreement.


14.           Attorneys’ Fees.  Each party will bear its own costs and
attorneys’ fees incurred in the achieving the settlement and release of the
matters set forth in this Agreement.  If
one party commences an action against the other to enforce or interpret the
terms of this Agreement, or to obtain a declaration of rights under this
Agreement, the prevailing party will be entitled to reasonable attorneys’ fees,
costs and expenses incurred in such action or any appeal or enforcement of such
action, in addition to any other relief to which that party may be entitled under
this Agreement.


 


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15.           Voluntary Participation.  Each of the parties acknowledges that he or
it has read the Agreement, and that he or it enters into this Agreement freely,
voluntarily, without coercion and based on the party’s own judgment and not in
reliance upon any representations or promises made by the others, except those
contained in this Agreement.


16.           Method of Execution.  This Agreement may be executed in
counterparts and each counterpart will be deemed a duplicate original.


17.           Governing Law.  This Agreement is deemed to have been made
and entered into in the State of California and will in all respects be
interpreted, enforced and governed under the laws of the State of California.  The language of all parts of this Agreement
will in all cases be construed as a whole according to its fair meaning and not
strictly for or against any party.


18.           Severability.  The provisions of this Agreement are
severable and should any provision of this Agreement be declared or be
determined by any arbitrator or court to be illegal or invalid, any such
provision will be stricken, and the validity of the remaining parts, terms or
provisions will not be affected.


19.           Older Workers Benefit Protection
Act.  Pursuant to the requirements
of the Older Workers Benefit Protection Act, Employee has up to twenty-one (21)
days from the date of his receipt of this Agreement to consider and sign this
Agreement, although Employee may accept it at any time within those 21 days.  Employee hereby acknowledges that he has
been advised to consult an attorney about this Agreement.  Once Employee accepts the terms of this
Agreement and signs this Agreement, he has seven (7) days to revoke his acceptance.  To revoke this Agreement, Employee must send
to the Secretary of Longs Corporation a written statement of revocation by
registered mail, return receipt requested. 
If he does not revoke this Agreement, this Agreement will become
effective on the eighth day after he signs it (the “Effective Date”).


20.           Confidentiality
of Agreement.


(a)         Employee represents that he has not
disclosed the terms of this Agreement and, until such time that Longs is
required by law to publicly disclose the terms of this Agreement, Employee will
keep the terms, amounts and all other specific facts of this Agreement
completely confidential and will not disclose any information concerning this
Agreement to any person or entity, other than that which is legally required
and other than to his immediate family and professional representatives; provided,
that disclosure to his immediate family or professional representatives is
conditioned on the fact that they agree to keep such information confidential
and not disclose it to others.


(b)         In the event Employee discloses, in
violation of this Section 20, the alleged facts upon which this Agreement is
based, the amount of consideration tendered to him, or the terms of the
Agreement, Longs will be entitled to terminate any payment due under this
Agreement or take any other action legally allowable.


 


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21.           Entire Agreement.  This Agreement sets forth the entire
agreement between the parties as to the subject matter hereof and supersedes
any and all prior agreements or understandings between the parties written or
oral.  No waiver, alteration, or
modification of any of the provisions of this Agreement will be binding unless
in writing and signed by the party against whom enforcement of the change or
modification is sought.  Failure or
delay on the part of either party to enforce any right, power, or privilege
under this Agreement will not be deemed to constitute a waiver thereof.


 


	
  Date:

  	
  10-23-02

  	
   

  	
  /s/ Ronald Lovelady

  
	
   

  	
   

  	
   

  	
   Ronald
  Lovelady

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  10-23-02

  	
   

  	
  Longs Drug Stores
  Corporation   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Harold R. Somerset

  
	
   

  	
   

  	
   

  	
   

  	
  Authorized Signatory

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  10-18-02

  	
   

  	
  Longs Drug Stores
  California, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Linda Watt

  
	
   

  	
   

  	
   

  	
   

  	
  Authorized Signatory

  



 


 


 


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