**Exhibit 10.3**

 

July 8, 2003

 

 

Mr. Richard W. Dreiling1749 Via di SalernoPleasanton, CA  94566

 

Dear Rick:

 

Thank you for yourinterest in joining Longs Drug Stores California, Inc.  It is a pleasure to confirm our offer ofemployment for the position of Executive Vice President and Chief OperationsOfficer.  Your start date will beTuesday, July 15, 2003.  This offeris based on the following mutual understanding:

 

1.                                       Youwill receive an annual salary of $500,000 payable in equal bi-weekly amounts of $19,230.76 for the firstyear of employment.

 

2.                                       Youwill receive during your first year of employment a bonus opportunity that istargeted at 60% of your base annual salary. Bonuses will be based on your individual as well as the Company’soverall performance.

 

3.                                       Youwill receive a sign on bonus in the amount of Forty Thousand dollars($40,000.00), payable within thirty days of your start date. This sign on bonusof $40,000.00 will be grossed up for state and federal tax purposes.

 

4.                                       Subjectto the approval of the Board of Directors’ Compensation Committee, you willreceive a non-qualified option grant of 70,000 shares of common stock at thefirst meeting of the Compensation Committee following commencement of youremployment with the Company.  Theseshares will be subject to the vesting provisions as outlined in the Longs DrugStores Corporation 1995 Long-Term Incentive Plan.

 

5.                                       Subjectto the approval of the Board of Directors’ Compensation Committee, you willreceive a grant of 10,000 shares of restricted common stock at the firstmeeting of the Compensation Committee following commencement of your employmentwith the Company.  These shares will besubject to the vesting provisions as outlined in the Longs Drug Stores 1995Long-Term Incentive Plan.

 

6.                                       Youwill be eligible to participate in the Performance Based Restricted Stock Grantprogram currently being implemented for senior executives at Longs Drugs.  Subject to the approval of the Board ofDirectors’ Compensation Committee, you will be granted a total award value of100% of your current base salary, subject to vesting and otherrequirements.  Details of the Plan andthe Plan goals for FY04 will be provided under separate cover.

 

7.                                       Youwill begin to accrue vacation immediately at the rate of four weeks peryear.  During your first year ofemployment your vacation balance will be credited with four weeks of vacation.

 

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8.                                       Youwill be placed on the Executive Medical Plan including appropriate dependentseffective the first of the month after your hire date.  This plan includes dental and visioncare.  You will be reimbursed for anyCOBRA payments you make prior to your effective date on the Longs ExecutiveMedical Plan.

 

9.                                       Informationregarding the following programs will be sent to you under separate cover andare included as part of your overall employment with Longs:

a.               EmployeeSavings and Profit sharing, life insurance and long term disability

b.              Availablemedical insurance coverage options

 

10.                                 Youwill be provided the Company’s current standard agreement for terminationbenefits in the event of change in corporate control, as provided to otherCompany Senior Vice Presidents.

 

11.                                 Youwill be eligible for termination benefits provided for senior executives forinvoluntary separation due to reduction in force, reorganization or otherinvoluntary separation not for cause (these benefits do not apply to a changein control for which benefits are provided under a separate agreement).  Termination benefits for which you would beeligible include 24 months of base salary, medical including executive medical,outplacement, distribution of deferred compensation, 90-day period followingtermination to exercise vested stock options, and pro rata vesting ofrestricted stock in accordance with the terms of the grant based on originalgrant date and termination date of executive.

 

 

Rick, I am pleased toextend this offer and I look forward to working with you.

 
|   | Sincerely,                                                   |
|--------|--------------------------------------------------------------|
|   |                                                         |
|   | **LONGS DRUG STORES CALIFORNIA, INC.**                       |
|   |                                                         |
|   | /s/ Warren F. Bryant                                         |   |
|   |                                                         |
|   | Warren F. Bryant                                             |
|   | President and Chief  Executive Officer                       |
|   |
|   |
|   | I accept your offer of  employment as stated in this letter. |
|   |                                                         |
|   |                                                         |
|   | /s/ Richard W. Dreiling                                      |   | July 15, 2003 |   |
|   | Richard W. Dreiling                                          |   | Date |
|        |                                                              |  |  |  |  |  |

 

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