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Exhibit 10.1
EMPLOYMENT
AGREEMENT
EMPLOYMENT
AGREEMENT (this " Agreement
"), dated as of March 13, 2008, by and between
Duane Reade, Inc., a Delaware corporation (the "
Company "), and John A.
Lederer (" Executive
").
WHEREAS, the
Company desires to employ Executive and to enter into an agreement
embodying the terms of such employment and considers it to be in
its best interests and in the best interests of its stockholders to
employ Executive during the term of this Agreement;
WHEREAS,
Executive desires to accept such employment with the Company and to
enter into this Agreement; and
WHEREAS,
Executive is willing to accept employment on the terms hereinafter
set forth in this Agreement.
NOW, THEREFORE,
in consideration of the premises and mutual covenants herein and
for other good and valuable consideration, the parties hereby agree
as follows:
1.
Term of
Employment. Subject to the provisions of
Section 13, this Agreement shall be effective for a term
commencing on the later of (i) the day after the day on which
Executive is admitted into the United States in "O" visa
classification as an "alien who has extraordinary ability" in
business permitting Executive to be legally employed within the
United States and (ii) April 1, 2008 (as applicable, the
" Effective Date ") and ending on the fourth (4 th ) anniversary of
the Effective Date (the " Initial
Term "); provided , however , that such term shall be
automatically extended for successive twelve (12) month
periods (the Initial Term together with any extension shall be
referred to hereinafter as the " Employment Term ") unless, no
later than ninety (90) days prior to the expiration of the
Initial Term or any extension thereof, either party hereto shall
provide written notice to the other party hereto of its or his
desire not to extend the term hereof (" Notice of Nonrenewal "), in which
case Executive's employment hereunder shall terminate as of the
expiration of the Employment Term unless earlier terminated in
accordance with the provisions of Section 13.
2.
Position.
-
(a) As
of the Effective Date, Executive shall serve as the Chairman and
Chief Executive Officer of the Company and Duane Reade
Holdings, Inc. (" Holdings
"). In such position, Executive shall have such
authorities, responsibilities and duties customarily exercised by a
person holding that position, including, without limitation, the
authority and responsibility for the management, operation,
strategic direction and overall conduct of the business of Holdings
and the Company. Executive shall report directly to the Board of
Directors of the Company (the " Board ").
(b) Executive
shall become a member of the Board and the Board of Directors of
Holdings (the " Holdings Board
") on the Effective Date. During the Employment
Term, Executive will devote his entire business time and best
efforts to the performance of his duties hereunder and will not
engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition
of such services without the prior written consent of the
Board; provided , however ,
that Executive may (i) serve as a director, trustee or officer
or otherwise participate in not-for-profit educational, welfare,
social, religious and civic organizations; (ii) with the prior
approval of the Board, serve as a director of a for-profit business
which does not compete with the Company or any of its subsidiaries
or affiliates (it being understood that the Board has approved
Executive's continuing service as a director of Tim
Hortons Inc.); and (iii) acquire passive investment
interests in one or more entities which do not compete in any
material manner with the Company or any subsidiary or affiliate
thereof, to the extent that such other activities do not inhibit or
interfere with the performance of Executive's duties under this
Agreement, do not conflict with the written policies of the Company
or any subsidiary or affiliate thereof which have been communicated
to Executive, and do not exceed twenty percent (20%) of the
outstanding equity interests of any such entity.
3.
Base Salary.
During the Employment Term,
the Company shall pay Executive a base salary (the "
Base Salary ") at the
annual rate of $900,000.00, payable in regular installments in
accordance with the Company's usual payroll practices. The Board
shall annually review Executive's Base Salary and may increase, but
not decrease, Executive's Base Salary in its sole discretion based
on Executive's performance.
4.
Bonus.
Commencing in 2008, during
the Employment Term, Executive shall be afforded the opportunity to
earn a cash bonus for each fiscal year ending during the Employment
Term, contingent upon the Company's achievement (as reasonably
determined by the Board or a committee thereof) of certain
specified target earnings (calculated consistently with
calculations made for prior periods) before interest, income taxes,
depreciation and amortization, and in addition, to the extent the
Board acting reasonably and in good faith so determines, excluding
acquisitions, divestitures, refinancings, any change required by
GAAP or other extraordinary and nonrecurring events (the "
EBITDA Target ")
established prior to, or as soon as practicable after, each
December 23rd in respect of the fiscal year commencing
thereafter, by the Board or a committee thereof in its discretion
(but after consultation with Executive). Such bonus award shall be
as follows: (i) 50% of Base Salary upon the Company's
attainment of 95% of the EBITDA Target, and for each whole
percentage increase above 95% and through 99% of the EBITDA Target,
such amount shall be increased by 10% of Base Salary,
(ii) 100% of Base Salary upon the Company's attainment of 100%
of the EBITDA Target, and for each whole percentage increase above
100% and through 104% of the EBITDA Target, such amount shall be
increased by 10% of Base Salary, and (iii) 150% of Base Salary
upon the Company's attainment of 105% or greater of the EBITDA
Target (the " Annual Bonus
"). Unless otherwise determined by the Board, no
Annual Bonus shall be payable in respect of any fiscal year to the
extent the Company does not attain at least 95% of the EBITDA
Target for such fiscal year. Notwithstanding the foregoing, the
Annual Bonus in respect of the Company's fiscal year ending on or
about or close to December 31, 2008 (the " 2008 Fiscal Year ") shall be no
less than 100% of the portion of Base Salary Executive actually
earned during the 2008 fiscal year (the " 2008 Annual Bonus Minimum "). The
Annual Bonus shall be paid at the same time as annual bonuses are
paid to other senior executives of the Company, which shall be paid
on the March 15 next following the close of the fiscal year;
provided that it shall not be a breach of this Agreement if payment
is made later in such year to the extent financial results are not
available by March 15 so long as payment is made by payroll as
soon as practicable following the certification of such results.
Other than as set forth in Section 13 below, Executive must
have remained employed with the Company through the close of the
fiscal year in respect of which the Annual Bonus is to be paid and
have not given or received a Notice of Termination before the close
of the fiscal year in respect of which the Annual Bonus is paid in
order to receive it.
5.
Stock Option
Grant. On the
Effective Date, Executive shall be granted a nonqualified stock
option (the " Option
") under the Duane Reade Holdings, Inc.
Management Stock Option Plan, effective as of July 30, 2004
(the " Plan "),
to purchase 165,000 shares of the common stock of Holdings, par
value $0.01 per share (the " Common
Stock "). The Option shall be granted
pursuant to the Stock Option Agreement attached hereto as
Exhibit A .
Executive acknowledges and agrees that the grant of the Option is
conditional upon and subject to Executive becoming a party to the
Stockholders Agreement (as defined in the Plan) (the "
Stockholders Agreement ").
6.
Stock
Purchase. Within
90 days following the Effective Date, Executive shall purchase
20,000 shares of Common Stock at a purchase price of $100.00 per
share of Common Stock (the " Executive
Investment Purchase ") pursuant to the
Subscription Agreement attached hereto as Exhibit B (the "
Subscription Agreement "). Executive acknowledges and agrees that the Executive
Investment Purchase is conditional upon and subject to Executive
becoming a party to the Stockholders Agreement.
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7.
Employee
Benefits. Other
than as specifically stated in this Agreement, Executive shall be
provided with employee pension and welfare benefits on a comparable
basis as such benefits are generally provided by the Company from
time to time to the Company's other senior executives.
8.
Reimbursement of Business
Expenses. During
the Employment Term, all reasonable business expenses incurred by
Executive in the performance of his duties hereunder shall be
reimbursed by the Company upon receipt of documentation of such
expenses in a form reasonably acceptable to the Company, and
otherwise in accordance with the Company's expense reimbursement
policies.
9.
Vacation.
Executive shall be entitled
to four (4) weeks annual paid vacation.
10.
Car Allowance.
Executive shall have the use
of a car and driver provided by the Company for business purposes,
in accordance with established Company policy.
11.
Relocation.
Executive shall be employed
at the Company's executive headquarters in New York, New York. In
connection with Executive's relocation from Canada to the greater
New York City metropolitan area (including New York, Connecticut
and New Jersey) (the " New York Tri-State
Area "), the Company shall reimburse
Executive's temporary housing costs and/or lease a residence
(selected by Executive) in New York City for Executive's use during
the Employment Term through the earlier of:
-
(a) The
second anniversary of the Effective Date;
(b) The
consummation of an initial underwritten public offering by the
Company (or any corporate successor of the Company) of the Common
Stock pursuant to a registration statement that has been filed
under the Securities Act of 1933 and declared effective by the
Securities and Exchange Commission (" IPO "); or
(c) Executive's
closing of the sale of his current primary residence in
Canada.
During such
period, the Company shall pay up to $10,000 per month to cover
temporary housing costs, if applicable, lease rental costs and
utilities of Executive's residence. If prior to the second
anniversary of the Effective Date Executive terminates his
employment with the Company without Good Reason or the Company
terminates Executive's employment for Cause, Executive shall assume
the lease and all obligations relating thereto, or, at Executive's
option, reimburse the Company for any costs arising in connection
with the breaking of the lease.
In addition,
the following reasonable out-of-pocket costs and expenses shall be
reimbursed by the Company in accordance with the Company's expense
reimbursement policies as in effect from time to time. To the
extent such reimbursements are taxable as compensation to
Executive, the Company shall provide Executive with a gross up
payment equal to the amount of all such taxes in respect of the
items set forth below in clauses (i)-(iv), plus any taxes
payable in connection with the gross up payment:
-
-
(i) Travel
expenses incurred by Executive during the first thirty days
following the date hereof for the purpose of locating a new
residence in the New York Tri-State Area;
(ii) All
closing costs (including real estate commissions) incurred by
Executive in connection with purchasing a new residence in the New
York Tri-State Area, and if completed prior to the first
anniversary of the Effective Date, all closing costs (including
real estate commissions) incurred by Executive in connection with
the sale of Executive's primary residence in Canada;
(iii) Costs
incurred by Executive in transporting his household goods and
personal effects from his primary residence in Canada to a new
primary residence in the New York Tri-State Area; and
(iv) $30,000.00
to cover any costs and expenses incurred by Executive and his
family in connection with relocating to the New York Tri-State Area
other than those that are specifically reimbursable in accordance
with the foregoing provisions of this Section 11.
3
12.
Travel
Allowance. The
Company will provide up to $25,000 per annum to cover the cost of
personal travel for Executive and Executive's immediate family
between Canada and the greater New York Tri-State Area.
13.
Termination.
Notwithstanding any other
provision of the Agreement:
-
(a)
For Cause by the Company or Without Good Reason
by Executive . The
Employment Term, and Executive's employment hereunder, may be
terminated at any time by the Company for "Cause" (as defined
below) upon delivery of a " Notice of
Termination " (as defined in
Section 13(g)) by the Board to Executive. If Executive is
terminated by the Company for Cause pursuant to this
Section 13(a) or if Executive voluntarily resigns without
"Good Reason" (as defined in Section 13(c) below), Executive
shall be entitled to receive only the following: (i) as soon
as reasonably practicable after his date of termination or such
earlier time as may be required by applicable statute or
regulation, his earned but unpaid Base Salary through the date of
termination, (ii) payment in respect of any vacation days
accrued but unused through the date of termination, to the extent
provided by Company policy, and (iii) reimbursement for all
business expenses properly incurred in accordance with Company
policy prior to the date of termination and not yet reimbursed by
the Company (the aggregate benefits payable pursuant to
clauses (i), (ii) and (iii) hereafter referred to as
the " Accrued Obligations
"), and except as provided herein he shall have no
further rights to any compensation (including any Base Salary,
Annual Bonus or 2008 Annual Bonus Minimum) or any other benefits
under this Agreement. All other accrued and vested benefits, if
any, due Executive following Executive's termination of employment
pursuant to this Section 13(a) shall be determined and paid in
accordance with the plans, policies and practices of the
Company; provided , however ,
that Executive shall not participate in any severance, separation
pay or termination plan, policy or program of the
Company.
For purposes of this
Agreement, the following shall constitute " Cause " for termination:
(i) the commission by Executive of any act of fraud or
embezzlement against the Company or any of its subsidiaries,
(ii) Executive's conviction of, or pleading guilty to, a
felony that may have an adverse impact on the Company's reputation
or standing in the community, (iii) intentional and serious
misconduct by Executive which is materially injurious (or if public
could be materially injurious) to the reputation or financial
interests of the Company, including, without limitation, sexual or
racial harassment of employees of the Company, its subsidiaries or
of persons engaged in business with the Company or any of its
subsidiaries, (iv) Executive's intentional material breach of
this Agreement, (v) Executive's willful misconduct or gross
negligence in the performance of Executive's duties hereunder
(other than by reason of physical or mental incapacity) which is
materially injurious (or if public could be materially injurious)
to the reputation or financial interests of the Company, including
without limitation, sexual or racial harassment of employees of the
Company, its subsidiaries or of persons engaged in business with
the Company or any of its subsidiaries, (vi) Executive's
intentional material breach of any covenant, in this Agreement or
otherwise, or Company policy regarding the protection of the
Company's business interests, including, without limitation,
covenants and policies addressing confidentiality and
non-competition, that is materially injurious (or if public could
be materially injurious) to the reputation or financial interests
of the Company or (vii) Executive's willful refusal to follow
the lawful instructions of the Board; provided, that Executive has
not corrected (if capable of correction) any such misconduct,
breach or refusal described in the immediately preceding
clauses (iv), (v), (vi) or (vii) within thirty
(30) days following Executive's receipt of written notice of
such misconduct, breach or refusal.
(b)
Disability or Death . The Employment Term, and Executive's
employment hereunder, shall terminate immediately upon his death
or, following delivery of a Notice of Termination by the Company to
Executive, if Executive becomes physically or mentally
incapacitated and is therefore unable for a period of ninety
(90) consecutive days or one-hundred twenty (120) days
during any
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consecutive six
(6) month period to perform his duties with substantially the
same level of quality as immediately prior to such incapacity (such
incapacity is hereinafter referred to as " Disability "). If and to the
extent termination of Executive's employment by reason of
Disability shall cause Executive to fail to remain eligible to
receive long-term disability benefits that he would have otherwise
been entitled to receive under the Company's long-term disability
plan in which he then participates as a result of such Disability,
then Executive shall be removed from the positions of Chairman and
Chief Executive Officer of Holdings and the Company, and the
Company shall continue to pay Base Salary to Executive for up to
six months following the delivery of a Notice of Termination to
Executive, or for such shorter period as may be necessary for
Executive to become eligible for benefits under Company's long term
disability plan. For the avoidance of doubt, Executive's removal
from the positions of Chairman and Chief Executive Officer of
Holdings and the Company, as described in the preceding sentence,
shall not constitute Good Reason or termination of employment
without Cause. During such period, Executive shall remain an
employee of the Company but shall not be entitled to any
compensation, bonus or benefits other than the Base Salary
continuation referenced above. Following termination of Executive's
employment hereunder for Disability or death, Executive or
Executive's estate (as the case may be) shall be entitled to
receive (i) within ten (10) days following termination,
the Accrued Obligations and (ii) subject to
Sections 13(h) and 14(f), (A) any earned but unpaid
Annual Bonus in respect of any of the Company's fiscal years
preceding the fiscal year in which the termination occurs, payable
when annual bonuses are paid to other senior executive officers of
the Company generally, (B) a pro-rated Annual Bonus in respect
of the year of termination equal to the product of (x) the
amount of Annual Bonus that would have been payable to Executive
had his employment not so terminated based on the actual percentage
attainment of that year's EBITDA Target and (y) a fraction,
the numerator of which is the number of days elapsed in the fiscal
year in which such termination occurs through such termination and
the denominator of which is 365, payable when such annual bonuses
are paid to other senior executive officers of the Company (the
" Pro-Rated Annual Bonus
"); provided
that if Executive's employment terminates in 2008,
the Pro-Rated Annual Bonus shall only include such amount, if any,
in excess of the 2008 Annual Bonus Minimum, and (C) if unpaid,
the 2008 Annual Bonus Minimum, payable when annual bonuses are paid
to other senior executive officers of the Company generally. Except
as provided herein, Executive or Executive's estate (as the case
may be) shall have no further rights to any compensation (including
any Base Salary or Annual Bonus) or any other benefits under this
Agreement. All other accrued and vested benefits, if any, due
Executive following Executive's termination for Disability or death
shall be determined in accordance with the plans, policies and
practices of the Company; provided , however , that Executive (or his
estate, as the case may be) shall not participate in any severance,
separation pay or termination plan, policy or program of the
Company.
(c)
Without Cause by the Company or for Good Reason
by Executive . The
Employment Term, and Executive's employment hereunder, may be
terminated by the Company without Cause (other than by reason of
Executive's Disability) following the delivery of a Notice of
Termination to Executive or by Executive for "Good Reason" (as
defined below) following the delivery of a Notice of Termination to
the Company. If Executive's employment is terminated by the Company
without Cause (other than by reason of Executive's Disability) or
by Executive for Good Reason then Executive shall receive
(i) within ten (10) days following termination, the
Accrued Obligations and (ii) subject to Sections 13(h)
and 14(f), (A) within ten (10) days following
termination, any earned but unpaid Annual Bonus in respect of any
of the Company's fiscal years preceding the fiscal year in which
the termination occurs, (B) if unpaid, the 2008 Annual Bonus
Minimum, (C) cash severance consisting of (x) an amount
equal to two (2) times the "Severance Bonus" (as defined
below), payable in equal monthly installments over a period of
twenty-four (24) months immediately following Executive's
termination of employment (the " Severance
Period ") in accordance with the
Company's usual payroll practices, with the first such installment
to be paid
5
on the first usual
payroll date following Executive's termination of employment and
(y) the "Present Value" (as defined below) of two
(2) times the Base Salary at the rate in effect at the time of
termination, payable in a lump sum within fourteen (14) days
following termination of employment pursuant to this
Section 13(c), and (D) if requested by Executive,
continued participation during the Severance Period in the health
insurance benefits of the Company that are provided from time to
time to employees of the Company during the Severance Period at the
same cost to Executive as that charged to other active employees of
the Company; provided
, that the Company's obligation to provide health
insurance benefits shall cease with respect to such benefits at the
time Executive becomes eligible for such benefits from another
employer. To the extent that the health insurance benefits provided
for in this Section 13(c) are not permissible after
termination of employment under the terms of the benefit plans of
the Company then in effect (and cannot be provided through the
Company's paying the applicable premium for Executive in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended (" COBRA ")), the Company shall pay to Executive such amount as is
necessary to provide Executive, after tax, with an amount equal to
the cost of acquiring, for Executive and his spouse and dependents,
if any, on a non-group basis, for the required period, those health
insurance benefits that would otherwise be lost to Executive and
his spouse and dependents as a result of Executive's termination,
after taking into account any amount Executive would have to pay
for such benefits had they been provided through the Company as
described above.
Except as provided
herein, Executive shall have no further rights to any compensation
(including any Base Salary or Annual Bonus) or any other benefits
under this Agreement. All other accrued and vested benefits, if
any, due Executive following a termination pursuant to this
Section 13(c) shall be determined in accordance with the
plans, policies and practices of the Company; provided , however , that Executive shall not
participate in any severance, separation pay or termination plan,
policy or program of the Company.
For purposes of this
Agreement, the " Severance
Bonus " shall mean:
-
(i) if
a termination under this Section 13(c) occurs prior to the
Company's determination of the Annual Bonus for the Company's 2008
Fiscal Year, $900,000;
(ii) if
such termination occurs on or after the Company's determination of
the Annual Bonus for the Company's 2008 Fiscal Year, but before the
Company's determination of the Annual Bonus for the Company's
fiscal year ending on or about or close to December 31, 2009,
(the " 2009 Fiscal Year
"), the Annual Bonus payable for the Company's 2008
Fiscal Year; and
(iii) if
such termination occurs on or after the Company's determination of
the Annual Bonus for the 2009 Fiscal Year, the average of the
Annual Bonus in respect of the two (2) years prior to the year
of such termination;
provided
, however
, that for the purposes of the preceding
clauses (ii) and (iii), the Annual Bonus for the Company's
2008 Fiscal Year shall be determined based on the percentage of the
EBITDA Target actually attained for the Company's 2008 Fiscal Year,
without regard to the 2008 Annual Bonus Minimum.
For purposes of
this Agreement, " Good Reason
" shall mean:
-
-
(i) the
assignment to Executive of any duties materially and adversely
inconsistent with Executive's positions as Chairman and Chief
Executive Officer of the Company or Holdings or the removal of any
one or more of Executive's duties, title or office, which in the
aggregate results in a material and adverse change in Executive's
status, offices or titles with the Company;
6
-
-
(ii) removal
of Executive from the Board or the Holdings Board other than for
Cause (or for cause as determined under company's organizational
documents and by-laws or applicable law);
(iii) a
reduction in Executive's Base Salary or target Annual Bonus
opportunity; or a reduction (or series of reductions) in material
benefits or perquisites, that in the aggregate results in a
cumulative reduction in the total cash value of the compensation
and benefits available to Executive by 10% or more (it being
understood that the Company may substitute cash for an in-kind
benefit); or
(iv) an
intentional material breach of this Agreement by the
Company;
provided,
however , that any event described in
clause (i), (ii), (iii) or clause (iv) shall not
constitute Good Reason unless Executive has given the Company prior
written notice of such event and the Company has not cured such
event (if capable of cure) within (30) days following receipt
of such notice. For avoidance of doubt, Good Reason shall not
include the delivery of a Notice of Nonrenewal by the Company to
Executive.
For purposes of
this Agreement, " Present Value
" shall mean the present value of future payments
discounted at the Company's cost of borrowing under the revolving
debt instrument in effect for the Company at the time of
Executive's termination of employment.
-
(d)
Nonrenewal by the Company or the
Executive . The
Employment Term, and Executive's employment hereunder, shall
terminate at the end of the Employment Term following the delivery
of a Notice of Nonrenewal by the Company to Executive or by
Executive to the Company. Upon such termination, Executive shall
receive (i) the Accrued Obligations and (ii) subject to
Sections 13(h) and 14(f), (A) any earned but unpaid
Annual Bonus in respect of any of the Company's fiscal years
preceding the fiscal year in which the termination occurs, payable
when annual bonuses are paid to other senior executive officers of
the Company generally, and (B) a Pro-Rated Annual Bonus for
the fiscal year in which the Employment Term ends. Except as
provided herein, Executive shall have no further rights to any
compensation (including any Base Salary or Annual Bonus) or any
other benefits under this Agreement. All other accrued and vested
benefits, if any, due Executive following a termination pursuant to
this Section 13(d) shall be determined in accordance with the
plans, policies and practices of the Company; provided, however,
that Executive shall not participate in any severance, separation
pay or termination plan, policy or program of the Com
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