**Exhibit10.1**

 

**SEPARATIONAGREEMENT**

 

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

 

**RECITALS**

 

WHEREAS, Employee hasbeen employed by Longs California as Senior Vice President and Chief OperatingOfficer and has served as a director of Longs California, and the partieshereto desire to end those relationships and Employee’s employment, and tosettle, fully, finally and amicably, all claims against each other, including,but not limited to, any claims related to the employment of Employee and thetermination of that employment.

 

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

 

1.                               Relinquishmentof Positions.  Employee has resignedeffective February 20, 2003 from his positions as Senior Vice President andChief Operating Officer of Longs California and as a Longs Californiadirector.  Employee shall remain anemployee of Longs California (but shall not be required to perform servicesexcept as provided in this Agreement) until May 1, 2003.

 

2.                               EarnedSalary and Bonus.  Employee will bepaid his earned salary and accrued vacation in accordance with Longs Californiaregular payroll procedures through May 1, 2003.  Employee will be paid his fourth quarter fiscal year 2003 bonus(computed in accordance with the applicable formula) no later than March 31,2003.  No additional bonus will accrue,or be paid, to Employee.

 

3.                               Paymentof Good and Valuable Consideration. In consideration of Employee’s acceptance of this Agreement and therelease contained herein, Longs will provide the following:

 

(a)                          TheCompany will pay Employee thirteen thousand four hundred sixty-one dollars andfifty-three cents ($13,461.53), less applicable withholding tax and deductions,every two weeks for a period of twenty-one and one-half (21 1/2) months (*i.e.*,forty-seven (47) payments) in accordance with Longs California regular payrollprocedures beginning May 15, 2003.

 

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(b)                         UntilFebruary 20, 2005, the Company will pay premiums for Employee and his eligibledependents under the Longs PPO medical benefits plan; this provision shall coverapplicable COBRA payments during the specified period for continuation ofmedical benefits.

 

(c)                          UntilFebruary 20, 2005, the Company will reimburse Employee for the expenses ofEmployee and his eligible dependents under the Longs Executive Medical Plan.

 

(d)                         Until thetermination of the Company’s automobile lease for Employee’s 1999 MercedesML430 on September 30, 2003, the Company will continue to make the requiredlease payments to the automobile lessor. At such lease termination date, the Company will cause Employee to havethe option to purchase the automobile for the same amount that the Company isentitled to purchase the automobile under the lease at termination of thelease, with Employee also liable for any applicable taxes and fees.  Whether or not Employee chooses to purchasethe 1999 Mercedes ML430, from October 2003 until February 2005, the Companywill pay Employee $625.41 (the current amount of the lease payment), lessapplicable withholding tax, each month on the second regular payroll date forthe month.  Subject to prior approval bythe Company, Company will pay for normal vehicle maintenance during the leaseterm, up to September 30, 2003. Such maintenance will be providedaccording to the terms and conditions of Company’s corporate leaseprogram.  Employee will have use of thecompany gas card up to and including May 1, 2003.

 

(e)                          TheCompany will pay for executive level outplacement services selected by mutualagreement of the Company and Employee for up to the lesser of (i) a period oftwelve (12) months and (ii) $12,000.

 

Employee’s resignation asan employee of Longs California effective May 1, 2003 will be deemed“Normal Retirement” for purposes of Longs’ 1995 Long-Term Incentive Plan;accordingly, Employee will receive 3,908 shares of restricted stock onMay 1, 2003 and Employee’s options to purchase 119,000 shares of Longscommon stock shall become fully vested and exercisable on May 1,2003.  Employee has three years from hisnormal retirement date (the normal retirement date is May 1, 2003), toexercise these stock options awarded to him.

 

(f)                            Ownershipof the laptop computer and Palm Pilot (including docking stations andrecharging units) used by Employee during his employment with Longs will betransferred to Employee after all confidential, and business-relatedinformation pertaining in any way to Longs or Employee’s employment with Longs,has been deleted or otherwise permanently removed from the computer.

 

(g)                         Any taxobligations of Employee and tax liability therefor, including any penalties andinterest based upon such tax obligations, that arise from the benefits andpayments made to him under this Agreement will be Employee’s responsibility andliability.  Longs California will reporteach payment provided for in this Section 3 on Form W-2 for the tax year inwhich the payment was made.

 

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4.                               NoOther Benefits; No Admission of Liability. Employee acknowledges that except as specifically set forth in Sections2 and 3, Employee will not be entitled to any other payments or benefits afterFebruary 20, 2003.  Employee alsoacknowledges that the Agreement for Termination Benefits in the Event of aChange in Control entered into between Employee and Longs California willterminate as of February 20, 2003. Notwithstanding the foregoing, in the event there is a “Change inControl” of Longs as described in such agreement, the payments set forth inSection 3(a) 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 bedeemed or construed at any time or for any purpose as an admission of liabilityby Longs or Employee to the other.

 

5.                               IndemnificationAgainst Claims.  To the fullestextent provided by law, Longs will indemnify and hold Employee harmless fromany liability, claim, demand, cost, expense and attorneys’ fees incurred by himas a result of any actions or omissions by him in the course of his service tothe Company as an employee, officer or director.

 

6.                               Confidentialityand Non-Disclosure.

 

(a)                          Unlessrequired by law, Employee will keep confidential and will not disclose toothers, including present or former Longs employees, any information describedbelow:

 

(i)                            Longs’“Confidential Information.”  As used inthis Agreement, “Confidential Information” includes, but is not limited to thefollowing:  (a) weekly sales andwage data, (b) profitability data, (c) financial planning andforecasting data, (d) sales reports, including pharmacy prescription andsales 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) warehousedistribution costs, (k) information regarding Longs’ NonStop Solutionsproject and related data, (l) cost-benefit analysis regarding pharmacydistribution, (m) Longs’ PRO program, (n) store and pharmacyinventory data, (o) pharmacy purchase data, (p) information regardingpharmacy automated dispensing system(s) and robotic technology,(q) corporate strategic planning information, (r) pharmacyprescription processing system, (s) computer programs and know how,(t) business and marketing plans and strategies, and (u) unpublishedfinancial statements, budgets, projections, prices, costs and customer listswhether developed before or after the Effective Date;

 

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

 

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

 

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

 

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

 

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(b)                         Theprovisions of this Section 6 will not apply to (i) information which isgenerally known within the industry or in the public domain prior to theEffective Date, (ii) information which, not as a result of the disclosure byEmployee, becomes part of the public domain, (iii) information which is availableas a matter of public record and (iv) information which is hereafter lawfullydisclosed to Employee by a third party (other than any employees or agents ofLongs).

 

(c)                          Thenon-disclosure obligations of this Section 6 will not apply to disclosures madeby Employee in response to any deposition, interrogatory, request fordocuments, subpoena, civil investigative demand or similar legal process(“legally compelled disclosure”) provided that Employee complies with theconditions of this Section 6(c).  In theevent that Employee is requested to make, or becomes subject to making, alegally compelled disclosure of any of the Confidential Information, Employeewill first provide Longs with prompt prior written notice of such requirementso that Longs may seek a protective order or other appropriate remedy and/orwaive compliance with the terms of this Section 6.

 

(d)                         On orbefore the Effective Date, Employee will turn over to Longs all Company files,records and other documents.  Inaddition, Employee will return to Longs all other property that is owned byLongs and that remains in his possession.

 

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

 

(a)                          directlyor indirectly request, induce or attempt to influence any past, current orfuture customer of Longs, or any current or future supplier of goods orservices to Longs, to avoid, curtail or cancel any business it transacts withLongs; or

 

(b)                         directlyor indirectly request, induce or attempt to influence any current or futureemployee of, or independent contractor or consultant to, Longs to terminate hisor her employment with or services to Longs, or induce, entice, hire or attemptto employ or retain the services of any such employee, independent contractoror consultant other than on behalf of Longs.

 

The restrictions setforth in subsections (a) and (b) apply only to Employee and do not apply to anyfuture employer of Employee who provides goods or services to Longs.

 

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

 

9.                               Cooperation.  Employee will cooperate with Longs, itsattorneys or experts retained by Longs or its attorneys in connection with anylitigation matters involving Longs that are pending on the Effective Date orthat may arise thereafter from events or alleged

 

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events occurring prior tothe Effective Date.  The Company willreimburse Employee for all reasonable expenses incurred in connection with suchcooperation and, if such cooperation is required after the date that is two (2)years after the Effective Date, the Company will also compensate Employee fortime reasonably spent in connection with such cooperation at an hourly rateequivalent to his salary in effect at the time of his resignation.

 

10.                         NoOther Claims.  Employee representsand 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 EffectiveDate, 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, chargeor suit, he will request such entity to withdraw from the matter.  A breach of this Section 10 will entitleLongs to damages as provided by law and will relieve Longs of all obligationsto Employee as provided in this Agreement.

 

11.                         GeneralRelease.

 

(a)                          Employee,on behalf of himself and his heirs, executors, administrators, successors andassigns, does hereby irrevocably and unconditionally release, acquit andforever discharge Longs Corporation, Longs California, and all of theirrespective affiliates, stockholders, directors, officers, employees,representatives, successors, assigns, agents and attorneys from any and allcharges, 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 costsactually incurred), of whatever kind or nature, known or unknown, suspected orunsuspected, joint or several (“Claims”), which Employee has had or mayhereafter claim to have had, against any such persons or entities by reason ofany matter, act, omission, cause or event whatever that has occurred up to andincluding the Effective Date other than those obligations set forth in thisAgreement.  This release and waiver ofClaims specifically includes, without limitation:  (i) all Claims arising from or relating in any way to anyact or failure to act by any employee, officer or director of Longs,(ii) all Claims arising from or relating in any way to the employmentrelationship of Employee with Longs and/or the termination thereof, includingany 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 inany suit, claim, or charge, for or on account of any matter or thingswhatsoever that has occurred up to and including the Effective Date, under anyand all laws, constitutions, statutes, orders, regulations, or any other claimof right(s), including without limitation, any claim under (as amended) the AgeDiscrimination in Employment Act of 1967, Title VII of the Civil RightsAct of 1964, the Civil Rights Act of 1991, the Employee Retirement IncomeSecurity Act of 1974, the Americans with Disabilities Act, the California FairEmployment and Housing Act, the California Labor Code, any other federal, stateor local statute or law governing employment or the termination of employment,and any Claim in contract or tort.

 

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(b)                         For thepurpose of implementing a full and complete release and discharge, Employeeexpressly acknowledges that this Agreement with the general release set forthin this Section 11 is intended to include in its effect, withoutlimitation, all Claims which Employee does not know or suspect to exist in hisfavor at the time of execution of this Agreement, and that this Agreement andsuch general release contemplates the extinguishment of all such Claims.  Employee expressly waives and relinquishesall rights and benefits he may have under Section 1542 of the CaliforniaCivil Code which provides:

 

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

 

12.                         Arbitrationand Equitable Relief.

 

(a)                          Anydispute, controversy or claim between the parties arising out of or relating tothis Agreement (whether based in contract or tort, in law or equity), or anybreach or asserted breach thereof, will be determined and settled exclusivelyby private and confidential arbitration in Walnut Creek, California, inaccordance with the rules for dispute resolution of JAMS/ENDISPUTE.  Judgment on the award may be entered in anycourt of competent jurisdiction, and the parties specifically reserve allrights to appeal such judgment as if it were rendered in a court of law.

 

(b)                         NotwithstandingSection 12(a), the parties may apply to any court of competent jurisdiction fora temporary restraining order, preliminary injunction or other interim orprovisional relief as may be necessary, without breach of this Agreement andwithout abridgment of the powers of the arbitrator.  The parties hereby submit themselves to the Superior Court ofCalifornia in and for the County of Contra Costa for the purpose of enforcingthis Agreement.

 

13.                         BindingAgreement.  This Agreement will bebinding upon and inure to the benefit of Employee and Longs and theirrespective heirs, administrators, representatives, executors, successors andassigns.

 

14.                         Attorneys’Fees.  Each party will bear its owncosts and attorneys’ fees incurred in the achieving the settlement and releaseof the matters set forth in this Agreement. If one party commences an action against the other to enforce orinterpret the terms of this Agreement, or to obtain a declaration of rightsunder this Agreement, the prevailing party will be entitled to reasonableattorneys’ fees, costs and expenses incurred in such action or any appeal orenforcement of such action, in addition to any other relief to which that partymay be entitled under this Agreement.

 

15.                         VoluntaryParticipation.  Each of the partiesacknowledges that he or it has read the Agreement, and that he or it entersinto this Agreement freely, voluntarily, without

 

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coercion and based on theparty’s own judgment and not in reliance upon any representations or promises madeby the others, except those contained in this Agreement.

 

16.                         Methodof Execution.  This Agreement may beexecuted in counterparts and each counterpart will be deemed a duplicateoriginal.

 

17.                         GoverningLaw.  This Agreement is deemed tohave been made and entered into in the State of California and will in allrespects be interpreted, enforced and governed under the laws of the State ofCalifornia.  The language of all partsof this Agreement will in all cases be construed as a whole according to its fairmeaning and not strictly for or against any party.

 

18.                         Severability.  The provisions of this Agreement areseverable and should any provision of this Agreement be declared or bedetermined by any arbitrator or court to be illegal or invalid, any suchprovision will be stricken, and the validity of the remaining parts, terms orprovisions will not be affected.

 

19.                         OlderWorkers Benefit Protection Act. Pursuant to the requirements of the Older Workers Benefit ProtectionAct, Employee has up to twenty-one (21) days from the date of his receipt ofthis Agreement to consider and sign this Agreement, although Employee mayaccept it at any time within those 21 days. Employee hereby acknowledges that he has been advised to consult anattorney about this Agreement.  OnceEmployee accepts the terms of this Agreement and signs this Agreement, he hasseven (7) days to revoke his acceptance. To revoke this Agreement, Employee must send to the Secretary of LongsCorporation a written statement of revocation by registered mail, returnreceipt requested.  If he does notrevoke this Agreement, this Agreement will become effective on the eighth dayafter he signs it (the “Effective Date”).

 

20.                         Confidentialityof Agreement.

 

(a)                          Employeerepresents that he has not disclosed the terms of this Agreement and, untilsuch time that Longs is required by law to publicly disclose the terms of thisAgreement, Employee will keep the terms, amounts and all other specific factsof this Agreement completely confidential and will not disclose any informationconcerning this Agreement to any person or entity, other than that which islegally required and other than to his immediate family and professionalrepresentatives; *provided*, that disclosure to his immediate family orprofessional representatives is conditioned on their agreement to keep suchinformation confidential and not disclose it to others.

 

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

 

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21.                         EntireAgreement.  This Agreement setsforth the entire agreement between the parties as to the subject matter hereofand supersedes any and all prior agreements or understandings between theparties written or oral.  No waiver,alteration, or modification of any of the provisions of this Agreement will bebinding unless in writing and signed by the party against whom enforcement ofthe 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 awaiver thereof.

 

 
| Date:  |   March 26,  2003 |                   | /s/ Terry D. Burnside               |   |
|--------|-----------------------------|------------------------|-------------------------------------|--------|
|   | Terry D. Burnside           |                   |
|   |                        |
|   |                        |
| Date:  |   April 1,  2003  |                   | Longs Drug Stores  Corporation      |
|   |                        |
|   |                        |
|   | By:                         | /s/  William J. Rainey |                                |
|   | Authorized Signatory        |                   |
|   |                        |
|   |                        |
| Date:  |   April 1,  2003  |                   | Longs Drug Stores  California, Inc. |
|   |                        |
|   |                        |
|   | By:                         | /s/ Linda Watt         |                                |
|   | Authorized Signatory        |                   |

 

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