EXHIBIT 10.1
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "AGREEMENT"), effective as of
November 21, 2005 (the "EFFECTIVE DATE"),
by and between Duane Reade, Inc., a
Delaware corporation (the "COMPANY"), and
Richard W. Dreiling ("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
10, this Agreement shall be effective for a term commencing on
the
Effective Date and ending on the fourth (4th) 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
10.
2.
POSITION.
(a)
As of the Effective Date, Executive shall serve
as the
President and Chief Executive Officer of the Company. 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 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 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
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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; 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 three percent (3%) of the outstanding equity
interests
of any such entity.
(c)
Executive's primary office shall be located at
the Company's executive headquarters, subject to travel on
Company business as may be necessary or appropriate to the
performance of Executive's duties and responsibilities
hereunder.
3. BASE
SALARY. During the Employment Term, the Company
shall pay Executive a base salary (the "BASE SALARY") at the
annual
rate of $825,000.00, payable in regular installments in accordance
with
the Company's usual payroll practices. From time to time, the Board
may
review and increase, but not decrease, Executive's Base Salary in
its
sole discretion based on Executive's performance.
4. BONUS.
(a)
Commencing in 2006, during the Employment Term,
Executive shall be afforded the opportunity to earn a cash
bonus
for each
calendar 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 before interest, taxes, depreciation
and amortization (the "EBITDA TARGET") established prior to, or
as soon as practicable after, each December 31st 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"). Notwithstanding the foregoing, the Annual Bonus in
respect of the Company's fiscal year ending December 31, 2006
shall be no less than 100% of Base Salary (the "2006 ANNUAL
BONUS"). The Annual Bonus shall be paid at the same time as
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annual bonuses are paid to other senior executives of the
Company. Other than as set forth in Section 10 below, Executive
must remain employed with the Company at the time the Annual
Bonus is paid in order to receive it.
(b)
Within ninety (90) days following the Effective
Date, the Company shall pay to Executive a one-time signing
bonus of $330,000.00 (the "SIGNING BONUS"). Other than as set
forth in
Section 10 below, Executive must remain employed with
the Company at the time the Signing 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 such number of shares of
the
common stock of Duane Reade Holdings, Inc. ("HOLDINGS"), par
value
$0.01 per share (the "COMMON STOCK"), equal to five percent (5%) of
the
outstanding Common Stock on a fully diluted basis as of the
Effective
Date, assuming conversion of all outstanding Holdings preferred
stock
to Common Stock and including all shares of Common Stock reserved
for
issuance under the Plan. 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).
6. 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.
7.
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.
8. VACATION.
Executive shall be entitled to five (5) weeks
annual paid vacation.
9.
RELOCATION. Executive shall be employed at the Company's
office in New York, New York. In connection with Executive's
relocation
from Pleasanton, California to the greater New York City
metropolitan
area (including New York, Connecticut and New Jersey ) (the "NEW
YORK
TRI-STATE AREA"), 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 plus any taxes payable in
connection with the gross up payment.
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(a)
Up to six (6) months of temporary housing costs
for Executive, to a maximum of $5,000.00 per month;
(b)
Travel expenses incurred by Executive and his
spouse for the purpose of locating a new residence in the New
York Tri-State Area (business class airfare);
(c)
All closing costs incurred by Executive in
connection with purchasing a new primary residence in the New
York Tri-State Area;
(d)
Costs incurred by Executive in transporting his
household goods and personal effects from his primary residence
in Pleasanton, California to the new primary residence in the
New York Tri-State Area; and
(e)
$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 9.
10.
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 10(g)) by the Board to
Executive. If Executive is terminated by the Company for Cause
pursuant to this Section 10(a) or if Executive voluntarily
resigns without "Good Reason" (as defined in Section 10(c)
below), Executive shall be entitled to receive (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, 2006 Annual Bonus or Signing Bonus)
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 10(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.
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For purposes of this Agreement, the following shall constitute
"CAUSE" for termination: (i) Executive's conviction of, or
pleading guilty to, a felony, (ii) intentional misconduct by
Executive (including the commission by Executive of any act of
fraud or embezzlement against the Company or any of its
subsidiaries), which is materially injurious (or if known to
the
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, (iii) 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, or (iv) Executive's willful refusal to follow
the lawful instructions of the Board after having received
prior
written notice of such refusal and Executive has not corrected
such refusal (if capable of correction) within ten (10) days
following Executive's receipt of such written notice.
(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 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"). 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 five (5) days following
termination, the Accrued Obligations and (ii) subject to
Sections 10(h) and 11(e), (A) within five (5) 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) 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 calendar 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
2006, the Pro-Rated Annual Bonus shall only include such
amount,
if any, in excess of the guaranteed 2006 Annual Bonus, (C) any
unpaid Signing Bonus, and (D) if unpaid, the guaranteed 2006
Annual Bonus. 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
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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 five (5) days following
termination, the Accrued Obligations and (ii) subject to
Sections 10(h) and 11(e), (A) within five (5) 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) the Pro-Rated Annual Bonus,
(C) any unpaid Signing Bonus, (D) if unpaid, the guaranteed
2006
Annual Bonus , (E) cash severance in the form of two (2) times
the sum of (x) the Base Salary at the rate in effect at the
time
of termination and (y) the "Severance Bonus" (as defined
below),
payable in equal monthly installments over a period of
twenty-four (24) months (the "SEVERANCE PERIOD") in accordance
with the Company's usual payroll practices, with the first such
installment to be paid on the first usual payroll date
following
Executive's termination of employment, and (F) continued
participation 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 10(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. Notwithstanding the above, if necessary to avoid
additional or accelerated taxation pursuant to Section 409A of
the Internal Revenue Code of 1986, as amended (the "Code") in
respect of payments to which Executive is entitled pursuant to
this Section 10(c), Executive shall not receive such payments
until the first regular payroll date which occurs at
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least six months following the date of his termination, at
which
time Executive shall receive a single lump sum payment for all
amounts that would have been payable in respect of the period
preceding such date but for the delay imposed on account of
Section 409A of the Code, and the remainder of such payments
shall thereafter be paid in equal monthly installments for the
remainder of the Severance Period. 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 10(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
10(c) occurs prior to the Company's determination of the
2006 Annual Bonus, the target Annual Bonus for the year
of termination;
(ii) if
such termination occurs on or after
the Company's determination of the 2006 Annual Bonus,
but before the Company's determination of the Annual
Bonus for the Company's 2007 fiscal year, the 2006
Annual Bonus; and
(iii) if such
termination occurs on or after
the Company's determination of the Annual Bonus for the
2007 fiscal year, the average of the Annual Bonus in
respect of the two (2) years prior to such termination;
PROVIDED, HOWEVER, that for the purposes of the preceding
clauses (ii) and (iii), the 2006 Annual Bonus shall be
determined based on the percentage of the EBITDA Target
actually
attained for the Company's 2006 fiscal year, without regard to
the minimum guaranteed amount for 2006.
For purposes of this Agreement, "GOOD REASON" shall mean:
(i)
the assignment to Executive of any
duties materially and adversely inconsistent with
Executive's position as President and Chief Executive
Officer, which results in a material and adverse change
in Executive's status, offices or titles with the
Company;
(ii)
the
failure of Executive to be elected
or reelected to the Board; or
(iii) a
reduction in Executive's Base Salary
or Annual Bonus opportunity;
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PROVIDED, HOWEVER, that any event described in clause
(i) or clause (iii) 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 (10) 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.
(d)
NONRENEWAL BY THE COMPANY. 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. Upon such termination,
Executive shall receive (i) the Accrued Obligations and (ii)
subject to Sections 10(h) and 11(e), (A) cash severance in the
form of two (2) times the Base Salary at the rate in effect at
the time of termination, payable in equal monthly installments
over the Severance Period in accordance with the Company's
usual
payroll practices, with the first such installment to be paid
on
the first usual payroll date following the date of such
termination of employment, and (B) continued participation 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 10(d) 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
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,
