Exhibit 10.1


 


LONGS DRUG STORES CORPORATION

2003 EXECUTIVE INCENTIVE PLAN

(As Adopted February 25, 2003)


 


1.     Purpose


 


The
purpose of this Plan is to motivate and reward eligible employees for good
performance by making a portion of their cash compensation dependent on the
achievement of certain Performance Goals related to the performance of Longs
Drug Stores Corporation (the “Company”) and its operating units. This Plan is
designed to ensure that the incentives paid hereunder to executive officers of
the Company are deductible under Section 162(m) of the Internal Revenue
Code of 1986, as amended, and the regulations and interpretations promulgated
thereunder (the “Code”). Accordingly, the adoption of this Plan as to “covered
employees” under Code Section 162(m) is subject to the approval of the
Company’s stockholders pursuant to Code Section 162(m).


 


2.     Definitions


 


The
following definitions shall be applicable throughout the Plan:


 


(a)  “Award”
means the amount of bonus payable under the Plan to a Participant with respect
to a Performance Period.


 


(b)  “Board”
means the Board of Directors of the Company.


 


(c)  “Committee”
means the Compensation Committee of the Board or another Committee designated
by the Board which is comprised of two or more “outside directors” as defined
in Code Section 162(m).


 


(d)  “Participant”
means any officer or key employee of the Company who is designated as a
Participant by the Committee.


 


(e)  “Performance
Goals” means one or more objective measurable performance factors as determined
by the Committee with respect to each Performance Period based upon one or more
factors, including, but not limited to: operating income before provisions for
LIFO accounting, taxes, contributions to the Company’s profit sharing plan, and
executive bonuses; cash flow return on investment; sales revenue; operating
cash flow; pre-tax earnings; earnings; profit; earnings before taxes; earnings
before interest, depreciation, taxes and amortization; working capital; return
on equity; net income; operating income; revenue; earnings per share, economic
value added (“EVA”), stock price, price/earnings; return on assets (or total
assets) return on earning assets; operating expenses; selling, general and
administrative expenses; inventory (or inventory turnover); debt; profit margin
(net income/sales); accounts receivable (or accounts receivable turnover,
collection periods); writeoffs; cash; cost of goods sold; liquidity (current
assets/current liabilities); and debt to equity. Bonuses paid to Participants
who are not subject to the limitations of Code Section 162(m) may take
into account other factors.


 


(f)  “Performance
Period” means any period not exceeding 36 months as determined by the
Committee, in its sole discretion. The Committee may establish different
Performance Periods for different Participants, and the Committee may establish
concurrent or overlapping Performance Periods.


 


(g)  “Plan”
means this Longs Drug Stores Corporation 2003 Executive Incentive Plan, as
amended from time to time.


 

















 


3.     Administration


 


The
Plan shall be administered by the Committee, which shall have the discretionary
authority to interpret the provisions of the Plan, including all decisions on
eligibility to participate, the establishment of payment targets and the amount
of the Awards payable under the Plan. The decisions of the Committee shall be
final and binding on all parties making claims under the Plan.


 


4.     Eligibility


 


Officers
and key employees of the Company shall be eligible to participate in the Plan
as determined at the sole discretion of the Committee.


 


5.     Amount of Bonus


 


With
respect to each Participant, the Committee will establish one or more
Performance Periods, an individual Participant incentive target for each
Performance Period and the Performance Goal or Goals to be met during such
Performance Periods (increased or decreased, in each case in accordance with
factors adopted by the Committee with respect to the Performance Period that
relate to unusual or extraordinary items). The selection and adjustment of
applicable Performance Goals and targets shall occur in compliance with the
rules of Code Section 162(m). The maximum amount of any Awards that can be
paid under the Plan to any Participant during any Performance Period is the
annualized amount of 300% of the highest rate of base salary paid to any
executive of the Company with respect to the fiscal year ending in 2003 as
reported in the Company’s proxy statement for the 2003 annual meeting. The
Committee reserves the right, in its sole discretion, to reduce or eliminate
the amount of an Award otherwise payable to a Participant with respect to any
Performance Period in its sole discretion.


 


6.     Payment of Bonus


 


(a)  Unless
otherwise determined by the Committee, a Participant must be on the Company’s
payroll on the date the bonus is to be paid. The Committee may make exceptions
to this requirement in the case of retirement, death or disability or under
other circumstances, as determined by the Committee in its sole discretion.


 


(b)  Bonus
payments may be made (i) in cash, (ii) in shares of Company stock
granted under the Company’s 1995 Long-Term Incentive Plan, as replaced,
modified, amended or supplemented from time to time (the “1995 Stock Plan”) or
under the Company’s Non-Executive Long-Term Incentive Plan, as replaced,
modified, amended or supplemented from time to time (the “Non-Executive Plan”),
and/or (iii) in options to purchase Company stock granted under the
Company’s 1995 Stock Plan or the Non-Executive Plan, as determined by the
Committee in its sole discretion. The number of shares granted shall be
determined by dividing the cash amount forgone by the Fair Market Value (as
defined under the 1995 Stock Plan or the Non-Executive Plan) of a share on the
date in question. Options granted pursuant to this Section 6 shall have a
fair value equal to the amount of cash forgone, which fair value shall be based
on the Black-Scholes or other objective method determined by the Committee, in
its sole discretion.


 


(c)  Any
distribution made under this Plan shall occur within a reasonable period of
time after the end of the Performance Period in which the Participant has
earned the Award; provided, that no Award shall become payable to a Participant
with respect to any Performance Period until the Committee has certified in
writing that the terms and conditions underlying the payment of such  Award have been satisfied. The Committee, in
its sole discretion, may permit a Participant to defer receipt of cash that
would otherwise be delivered to the Participant under this Plan. Any such
deferral elections shall be subject to such rules and procedures as determined
by the Committee in its sole discretion.


 


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(d)  If
a Participant entitled to the payment of an Award under the Plan dies prior to
the distribution of such Award, the distribution shall be made to the
Participant’s beneficiary, as designated under the Plan, within the same time
period in which the Award otherwise would have been paid to the Participant.


 


7.     General


 


(a)  REGISTRATION
OF STOCK. The Company shall be under no obligation to register under the
Securities Act of 1933, as amended (the “Act”), any of the shares of Company
common stock distributed under the Plan, if any. If the shares of Company common
stock distributed under the Plan, if any, are in certain circumstances exempt
from registration under the Act, the Company may restrict the transfer of such
shares in such manner as it deems advisable to ensure the availability of any
such exemption.


 


(b)  TAX
WITHHOLDING. The Company shall have the right to deduct from all Awards paid in
cash any federal, state or local income and/or payroll taxes required by law to
be withheld with respect to such payments. In the case of Awards settled in
Company common stock, the person receiving such common stock may be required to
pay to the Company the amount of any such taxes which the Company is required
to withhold with respect to such common stock or, at the Committee’s sole
discretion, the Company may withhold a number of shares of Company common stock
which have a fair market value equal to the amount of such withholdings. The
Company also may withhold from any other amount payable by the Company or any
affiliate to the Participant an amount equal to the taxes required to be
withheld from any Award.


 


(c)  CLAIM
TO AWARDS AND EMPLOYMENT RIGHTS. Nothing in the Plan shall confer on any
Participant the right to continued employment with the Company or any of its
affiliates, or affect in any way the right of the Company or any affiliate to
terminate the Participant’s employment at any time, and for any reason, or
change the participant’s responsibilities. Awards represent unfunded and
unsecured obligations of the Company and a holder of any right hereunder in
respect of any Award shall have no rights other than those of a general
unsecured creditor to the Company.


 


(d)  BENEFICIARIES.
To the extent the Committee permits beneficiary designations, any payment of
Awards due under this Plan to a deceased Participant shall be paid to the
beneficiary duly designated by the Participant in accordance with the Company’s
practices. If no such beneficiary has been designated or survives the
Participant, payment shall be made to the Participant’s legal representative. A
beneficiary designation may be changed or revoked by a Participant at any time,
provided the change or revocation is filed with the Committee prior to the
Participant’s death.


 


(e)  NONTRANSFERABILITY.
A person’s rights and interests under the Plan, including any Award previously
made to such person or any amounts payable under the Plan, may not be assigned,
pledged, or transferred except, in the event of a Participant’s death, to a
designated beneficiary as provided in the Plan, or in the absence of such
designation, by will or the laws of descent and distribution.


 


(f)  INDEMNIFICATION.
Each person who is or shall have been a member of the Committee and each
employee of the Company or an affiliate who is delegated a duty under the Plan
shall be indemnified and held harmless by the Company from and against any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be involved by reason
of any action or failure to act under the Plan and against and from any and all
amounts paid by him in satisfaction of judgment in any such action, suit or
proceeding against him, provided such loss, cost, liability or expense is not
attributable to such person’s willful misconduct. Any person seeking
indemnification under this provisions shall give the Company prompt notice of
any claim and shall give the Company an opportunity, at its own expense, to
handle and defend the same before the person undertakes to handle and defend it
on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company’s Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.


 


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(g)  EXPENSES.
The expenses of administering the Plan shall be borne by the Company.


 


(h)  PRONOUNS.
Masculine pronouns and other words of masculine gender shall refer to both men
and women.


 


(i)  TITLES
AND HEADINGS. The titles and headings of the sections in the Plan are for
convenience of reference only, and in the event of any conflict, the text of
the Plan, rather than such titles or headings, shall control.


 


(j)  INTENT.
The intention of the Company and the Committee is to administer the Plan in
compliance with Code Section 162(m) so that the Awards paid under the Plan
to Participants who are or may become subject to Code Section 162(m) will
be treated as performance-based compensation under Code
Section 162(m)(4)(C). If any provision of the Plan does not comply with
the requirements of Code Section 162(m), then such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.


 


(k)  GOVERNING
LAW. The validity, construction, and effect of the Plan, any rules and
regulations relating to the Plan, and any Award shall be determined in
accordance with the laws of the State of California (without giving effect to
principles of conflicts of laws thereof) and applicable Federal law.


 


(l)  AMENDMENTS
AND TERMINATION. The Board may terminate the Plan at any time, provided such
termination shall not affect the payment of any Awards accrued under the Plan
prior to the date of the termination. The Board may, at any time, or from time
to time, amend or suspend and, if suspended, reinstate, the Plan in whole or in
part, provided however, that any amendment of the Plan shall be subject to the
approval of the Company’s shareholders to the extent required to comply with
the requirements of Code Section 162(m), or any other applicable laws,
regulations or rules.


 


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