Exhibit 10.29


 


EXECUTION COPY


 


DUANE READE HOLDINGS, INC.


 


2004 MANAGEMENT STOCK OPTION PLAN


 


NONQUALIFIED STOCK OPTION AGREEMENT


 


THIS OPTION AGREEMENT
(the “Agreement”), dated as of July 30, 2004, is made by and between Duane
Reade Holdings, Inc., a Delaware corporation (the “Company”), and Anthony J.
Cuti (“Optionee”), such date, being the “Effective Date” of the amended and
restated employment agreement, dated March 16, 2004, and amended June 18,
2004 (“Employment Agreement”) between Optionee, the Company, Duane Reade Inc.
and Duane Reade Shareholders, LLC.


 


WHEREAS, the Company
adopted the Duane Reade Holdings 2004 Management Stock Option Plan (the “Plan”),
pursuant to which stock options may be granted to purchase Common Stock of the
Company; and


 


WHEREAS, the Company
desires to grant the Optionee a Nonqualified Stock Option to purchase the
number of shares of the Common Stock provided for herein.


 


NOW, THEREFORE, in
consideration of the recitals and the mutual agreements herein contained, the
parties hereto agree as follows:


 


1.                                       Grant
of Option.


 


(a)                                  The
Company hereby grants to the Optionee an option (“Option”) to purchase 115,277 shares of Common Stock of the Company (such shares,
the “Option Shares”) on the terms and conditions set forth in this Agreement
and as otherwise provided in the Plan. 
This Option is not intended to be treated as an Incentive Stock Option,
as such term is defined in Section 422 of the Internal Revenue Code of
1986, as amended.


 


(b)                                 Incorporation
by Reference, Etc.  The provisions of
the Plan are hereby incorporated herein by reference.  Except as otherwise expressly set forth
herein, this Agreement shall be construed in accordance with the provisions of
the Plan and any capitalized terms not otherwise defined in this Agreement
shall have the meaning set forth in the Plan or in the absence of a definition
in the Plan shall have the meaning set forth in the Employment Agreement.


 


2.                                       Terms
and Conditions.


 


(a)                                  Purchase
Price.  The price at which the
Optionee shall be entitled to purchase Option Shares upon the exercise of all
or any portion of this Option shall be $100.00 per Option Share (the “Exercise
Price”).


 





















 


(b)                                 Expiration
Date.  The Option shall expire at
11:59 p.m. Eastern Standard Time on the tenth anniversary of the Effective Date
(the “Expiration Date”).


 


(c)                                  Exercisability
of Option.  Except as may otherwise
be provided herein, subject to the Optionee’s continued employment with the
Company or its Affiliates: (i)
one-third of 33-1/3% of the shares of Common Stock underlying the Option shall
vest on the first, second and third anniversary of the Effective Date; (ii)
one-third of 33-1/3% of the shares of Common Stock underlying the Option shall
vest on the second, third and fourth anniversary of the Effective Date; and (iii)
one-third of 33-1/3% of the shares of Common Stock underlying the Options shall
vest on the third, fourth and fifth anniversary of the Effective Date.


 


(d)                                 Change
In Control.  Notwithstanding Section 2(c)
hereof, immediately prior to a “Change in Control” (as defined in the
Employment Agreement) occurring prior to the IPO, the Option shall become
vested and exercisable to the extent necessary for the Optionee (i) to exercise
his rights pursuant to a Tag-Along Sale (as defined in the Stockholders Agreement)
(the “Tag-Along Right”) and (ii) to satisfy the Company’s rights with respect
to a Drag-Along Sale (as defined in the Stockholders Agreement) (the “Drag-Along
Right”), in each case, as provided in the Stockholders Agreement. Accordingly,
the Option shall vest (in addition to the portion vested pursuant to Section 2(c)
hereof) in the case of a Drag-Along Sale in an amount such that after giving
effect to such acceleration, the Option shall be vested in the aggregate as to
the same percent as the Parent Transfer Percentage Interest proposed to be
transferred pursuant to such Drag-Along Sale. 
Similarly, the Option shall vest (in addition to the portion vested
pursuant to Section 2(c) hereof) in the case of a Tag-Along Sale in an
additional amount such that after giving effect to such acceleration, the
Option shall be vested in the aggregate as to the excess, if any, of (A) the
number of shares of Common Stock to be acquired through the exercise of the
Option equal to the product of (x) the Optionee’s Percentage Interest as
of such date (the numerator of such Percentage Interest to be calculated only
as to the Optionee’s Option and not shares of Common Stock held by the
Optionee) multiplied by (y) the number of shares of Common Stock
proposed to be transferred by the Parent Stockholders (or the Parent Transfer
Units in the case of a Parent Tag-Along Sale) over (B) the number
of shares of Common Stock underlying the vested portion of the Option (without
regard to this section) as of the date of such Tag-Along Sale.


 


For purposes of this Agreement, the terms “Parent
Stockholders,” “Percentage Interest,” “Parent Transfer Percentage Interest,” “Parent
Transfer Units” and “Parent Tag-Along Sale” shall have the meaning ascribed
such terms in the Stockholders Agreement.


 


(e)                                  Method
of Exercise.  The Option may be
exercised only by written notice, in a form to be provided by the Committee,
and delivered by the Optionee in person or sent by mail in accordance with Section 4(a)
hereof and, in either case, accompanied by payment therefor.  The Option Price shall be payable (i) in cash
and/or shares of Stock valued at the Fair Market Value at the time the Option
is exercised (including by means of attestation of ownership of a sufficient
number of shares of Stock in lieu of actual delivery of such shares to the
Company) (provided, however, that such


 


2





















 


shares are not subject to
any pledge or other security interest and have either been held by the Optionee
for six months, previously acquired by the Optionee on the open market or meet
such other requirements as the Committee may determine necessary in order to
avoid an accounting earnings charge in respect of the Option), (ii) by means of
a cashless exercise whereby the number of shares of Common Stock of the Company
to be received by the Optionee shall equal the difference between (A) the
number of shares of Common Stock that would be received by the Optionee upon
such exercise had the Optionee paid the Exercise Price in respect of the
underlying shares in cash less (B) a number of shares of Common Stock of the
Company, the aggregate fair market value of which is equal to the aggregate
Exercise Price that would have been paid as determined pursuant to the
immediately preceding clause (A) (provided, however, that this
clause (ii) shall only apply in connection with the IPO, Distribution (each as
defined in the Employment Agreement) or the exercise of a Tag-Along Right or
Drag-Along Right, unless the Company elects or has elected to account for stock
options in accordance with FAS 123), (iii) in the discretion of the Committee,
either (A) in other property having a fair market value on the date of exercise
equal to the Option Price or (B) if there shall be a public market for the Stock,
by delivering to the Committee a copy of irrevocable instructions to a
stockbroker to deliver promptly to the Company an amount of loan proceeds, or
proceeds of the sale of the Stock subject to the Option, sufficient to pay the
Option Price or (iv) by such other method as the Committee may allow.  Notwithstanding the foregoing, in no event
shall the Optionee be permitted to exercise an Option in any manner described
in this sub-section 2(e) if the Committee determines that exercising an
Option in such manner would violate applicable law, the applicable rules and
regulations of the Securities and Exchange Commission and the applicable rules
and regulations of any securities exchange or inter-dealer quotation system on
which the securities of the Company or any of its affiliates are listed or
traded.


 


(f)                                    Exercise
Upon Termination of Employment.  In
the event that the Optionee ceases to be employed by the Company and its
Affiliates the Option held by the Optionee (to the extent then outstanding)
shall terminate as follows:


 


(i)                                     Without
Cause or With Good Reason. If the Company or its Affiliates terminates the
Optionee’s employment without Cause or the Optionee resigns for Good Reason,
then the Option (to the extent not exercisable at the time of the Optionee’s
termination of employment) shall become fully vested and exercisable and,
subject to Section 11(d) of the Employment Agreement, shall remain
exercisable until the earlier of (x) the Expiration Date or (y) a period of
ninety (90) days following such termination of employment, and shall thereafter
terminate.


 


(ii)                                  For
Cause or Without Good Reason.  If the
Optionee’s employment is terminated by the Company or its Affiliates for Cause
or the Optionee resigns without Good Reason, then the Option (to the extent
exercisable at the time of the Optionee’s termination of employment) shall
remain exercisable, subject to Section 11(d) of the Employment Agreement,
until the earlier of (x) the Expiration Date or (y) a period of ninety (90)
days following such termination of employment, and shall thereafter
terminate.  Any portion of the Option
which is not exercisable at the time of the Optionee’s termination of


 


3





















 


employment
pursuant to this Section 2(f)(ii) (after taking into account any
acceleration of the exercisabilty pursuant to Section 2(d) above) shall
terminate upon such termination of employment.


 


(iii)                               Death or Disability.  If the Optionee’s employment with the Company
or its Affiliates is terminated by reason of his death or Disability, then the
Option (to the extent not exercisable at the time of the Optionee’s termination
of employment) shall become fully vested and, subject to Section 11(d) of
the Employment Agreement, exercisable and shall remain exercisable until the
earlier of (x) the Expiration Date or (y) the first anniversary of such
termination of employment, and shall thereafter terminate.


 


(g)                                 Transferability.  Other than as provided in Section 2.2 of
the Stockholders Agreement and Section 8(h) of the Plan, the Option may
not be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by the Optionee other than by will or by the laws of descent and
distribution, and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company; provided, that, the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.  No such permitted transfer
of the Option to heirs or legatees of the Optionee shall be effective to bind
the Company unless the Committee shall have been furnished with written notice
thereof and a copy of such evidence as the Committee may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions hereof. 
During the Optionee’s lifetime, the Option is exercisable only by the
Optionee or his or her legal representative or a Permitted Transferee.  For purposes of this Agreement, Permitted
Transferee shall have the meaning set forth in both the Plan and Section 2.2
of the Stockholders Agreement.


 


(h)                                 Rights
as Stockholder.  The Optionee shall
not be deemed for any purpose to be the owner of any of the Option Shares
subject to this Option unless, until and to the extent that (i) the Option
shall have been exercised pursuant to its terms and (ii) the Company shall have
issued and delivered to the Optionee the Option Shares.  The Option Shares shall be subject to the
terms and conditions set forth in the Stockholders Agreement.


 


(i)                                     Repurchase/Put,
Drag-Along, Tag-Along, Registration and Related Rights.  Notwithstanding anything herein to the
contrary, the vested portion of the Option and all of the Option Shares
acquired upon the exercise of the Option shall be subject to the Repurchase
Right set forth in the Employment Agreement and to all of the applicable terms
and conditions set forth in the Stockholders Agreement and the Preemptive
Rights Agreement dated as of July 30, 2004, by and among OH, DRS LLC, the
Company, the Optionee and certain other members of the management of Duane
Reade, Inc. (the “Preemptive Rights Agreement”).


 


(i)                                     In
connection with the IPO, the Optionee may elect to convert the Option into an
option to purchase an Equity Security of the IPO Entity or a Subsidiary of the
Company, with the terms of such Option (including


 


4





















 


its Exercise
Price) being equitably adjusted by the Committee in accordance with Section 9
of the Plan (the “Converted Option”).


 


(ii)                                  Within
a reasonable time following the IPO, the applicable IPO Entity shall use its
commercially reasonable efforts to register under the Securities Act, the
Equity Securities of the applicable IPO Entity to be acquired upon the exercise
of the Converted Option, or the shares of Common Stock sufficient to cover the
Option, as applicable, by filing a Registration Statement on Form S-8 (or any
successor or similar forms thereto);
unless in the reasonable judgment of the Board or the Board of Directors of the
applicable IPO Entity (or of the managing underwriter in the IPO) such a
registration could reasonable be expected to have an adverse effect on the
market for the securities being registered in the IPO; provided, however,
that the resale of any shares of Common Stock distributed pursuant to an Award
shall be restricted as if the volume and manner of sale restrictions of Rule
144 (without regard to Rule 144 (k)) were applicable.


 


(iii)                               In connection with a
Drag-Along Sale (as defined in the Stockholders Agreement), the Company may
require the Optionee to, and the Optionee in such event shall, exercise
(pursuant to the method or methods that may be elected by the Optionee pursuant
to Section 2(e) hereof) the vested portion of the Option (after giving
effect to Section 2(d) hereof) to the extent necessary to satisfy the
Company’s Drag-Along Right as provided in Sections 2.3 and 2.6 of the
Stockholders Agreement.


 


(iv)                              In connection with a Tag-Along Sale (as
defined in the Stockholders Agreement) if the Optionee delivers the Tag-Along
Exercise Notice (as defined in the Stockholders Agreement) then he shall
exercise (pursuant to the method or methods that he so elects pursuant to Section 2(e)
hereof) the vested portion of the Option (after giving effect to Section 2(d)
hereof) to the extent necessary to satisfy his participation in the Tag-Along
Sale as provided in Sections 2.4 and 2.6 of the Stockholders Agreement.


 


(j)                                     Withholding
Taxes.  Prior to the delivery of a
certificate or certificates representing the Option Shares, and immediately
following the exercise of the Option the Optionee must pay to the Company any
amount that the Company determines it is required to withhold under applicable
federal, state or local tax laws in respect of the exercise of the Option or
the transfer of Option Shares. 
Notwithstanding the foregoing, the Optionee may satisfy such withholding
obligation by any other method described in Section 8(d) of the Plan or
any combination of methods described in Section 8(d) of the Plan; provided,
however, that such other method does not violate the terms of any credit
agreement to which the Company or any of its Affiliates is a party or cause a
default thereunder.


 


3.                                       Purchase
for Investment; Other Representations of Optionee.


 


(a)                                  Investment
Intent.  In the event that the
offering of Option Shares with respect to which the Option is being exercised
is not registered under the


 


5





















 


Securities Act, but an
exemption is available that requires an investment representation or other
representation, the Optionee, if electing to purchase Option Shares, will be
required to represent that such Option Shares are being acquired for investment
and not with a view to distribution thereof, and to make such other reasonable
and customary representations regarding matters relevant to compliance with
applicable securities laws as are deemed necessary by counsel to the Company.  Stock certificates evidencing such
unregistered Option Shares that are acquired upon exercise of the Options shall
bear restrictive legends as are required or advisable under the provisions of
any applicable laws or in the Stockholders Agreement.


 


(b)                                 Other
Representations.  The Optionee hereby
represents and warrants to the Company as follows:


 


(i)                                     Access
to Information.  Because of the
Optionee’s business relationship with the Company and with the management of
the Company, the Optionee has had access to all material and relevant
information concerning the Company, thereby enabling the Optionee to make an
informed investment decision with respect to his investment in the Company, and
all pertinent data and information requested by the Optionee from the Company
or its representatives concerning the business and financial condition of the
Company and the terms and conditions of this Agreement have been
furnished.  The Optionee acknowledges
that the Optionee has had the opportunity to ask questions of and receive
answers from and to obtain additional information from the Company and its
representatives concerning the present and proposed business and financial
condition of the Company.


 


(ii)                                  Financial
Sophistication.  The Optionee has
such knowledge and experience in financial and business matters that the
Optionee is capable of evaluating the merits and risks of investing in the
Option Shares.


 


(iii)                               Understanding the
Investment Risks.  The Optionee
understands that:


 


A.                                   An
investment in the Option Shares represents a highly speculative investment, and
there can be no assurance as to the success of the Company in its business; and


 


B.                                     There
is at present no market for the Option Shares and there can be no assurance
that a market will develop in the future.


 


(iv)                              Understanding
of the Nature of the Option Shares. 
The Optionee understands and agrees that:


 


A.                                   Other
than as reflected herein or in the Stockholders Agreement there can be no
assurance that the Option Shares will be registered under the Securities Act or
any state securities laws and if they are not so registered, they will only be
issued and sold in reliance upon certain exemptions contained in the Securities
Act and applicable state securities laws, and the representations and
warranties of the Optionee


 


6





















 


contained herein,
which will have to be renewed as to the Option Shares at the times of exercise
of the Option, are essential to any claim of exemption by the Company under the
Securities Act and such state laws.  It
is understood that the Company’s intent is that the purchase of the Option
Shares pursuant to an exercise of the Option not be covered by Rule 701
under the Securities Act, and that another exemption, if necessary, will need
to be found in respect of the exercise of the Option; provided that the Company
may determine at time of the exercise of the Option (which determination must
be in writing) that Rule 701 does apply to such exercise;


 


B.                                     If
the Option Shares are not so registered, the Option Shares will be “restricted
securities” as that term is defined in Rule 144 promulgated under the
Securities Act;


 


C.                                     The
Option cannot be exercised and the Option Shares will not be sold to the
Optionee and the Optionee cannot resell or transfer the Option Shares without
registration under the Securities Act and applicable state securities laws
unless the Company receives an opinion of counsel acceptable to it (as to both
counsel and the opinion) that such registration is not necessary, the cost of
such opinion to be borne by the Company;


 


D.                                    Only
the Company can register the Option Shares under the Securities Act and
applicable state securities laws;


 


E.                                      Other
than as provided in the Stockholders Agreement and Section 2(i) hereof,
the Company has not made any representations to the Optionee that the Company
will register the Option Shares under the Securities Act or any applicable
state securities laws, or with respect to compliance with any exemption
therefrom;


 


F.                                      The
Optionee is aware of the conditions for the Optionee’s obtaining an exemption
for the resale of the Option Shares under the Securities Act and any applicable
state securities laws; and


 


G.                                     The
Company may, from time to time, make stop transfer notations in its transfer
records to ensure compliance with the Securities Act and any applicable state
securities laws, and any additional restrictions imposed by state securities
administrators.


 


4.                                       Miscellaneous.


 


(a)                                  Notices.  Any and all notices, designations, consents,
offers, acceptances and any other communications provided for herein shall be
given in writing and shall be delivered either personally or by registered or
certified mail, postage prepaid, which shall be addressed, in the case of the
Company to the Secretary of the Company at the principal office of the Company
and, in the case of the Optionee, to


 


7





















 


Optionee’s address
appearing on the books of the Company or to Optionee’s residence or to such
other address as may be designated in writing by the Optionee.


 


(b)                                 No
Right to Continued Employment. 
Nothing in the Plan or in this Agreement shall confer upon the Optionee
any right to continue in the employ of the Company or its Affiliates or shall
interfere with or restrict in any way the right of the Company or its Affiliates,
which are hereby expressly reserved, to remove, terminate or discharge the
Optionee at any time for any reason whatsoever. 
Notwithstanding the foregoing, nothing in this Section 4(b) shall
be construed as interfering with an Optionee’s rights under the Employment
Agreement or any other agreement between the Optionee and the Company or an
Affiliate.


 


(c)                                  Bound
by Plan.  By signing this Agreement,
the Optionee acknowledges that he has received a copy of the Plan and has had
an opportunity to review the Plan and agrees to be bound by all the terms and
provisions of the Plan.


 


(d)                                 Adjustments.  Notwithstanding any provision of the Plan or
this Agreement to the contrary, no adjustment shall be made to the Option, as
to the number, price or kind of share of stock or other consideration subject
to such Option in connection with a dividend or distribution in which the
Optionee participates as a member of Duane Reade Shareholders, LLC.


 


(e)                                  Successors.  The terms of this Agreement shall be binding
upon and inure to the benefit of the Company, its successors and assigns, and
of the Optionee and the beneficiaries, executors, administrators, heirs and
successors of the Optionee.


 


(f)                                    Invalid
Provision.  The invalidity or
unenforceability of any particular provision hereof shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had been omitted.


 


(g)                                 Modifications.  No change, modification or waiver of any
provision of this Agreement shall be valid unless the same be in writing and
signed by the parties hereto.


 


(h)                                 Entire
Agreement.  This Agreement, the Plan,
the Employment Agreement, the Stockholders Agreement and the Preemptive Rights
Agreement including all exhibits thereto, contain the entire agreement and
understanding of the parties hereto with respect to the subject matter
contained herein and therein and supersede all prior communications,
representations and negotiations in respect thereto.


 


(i)                                     Governing
Law.  This Agreement and the rights
of the Optionee hereunder shall be construed and determined in accordance with
the laws of the State of New York.


 


(j)                                     Headings.  The headings of the Sections hereof are
provided for convenience only and are not to serve as a basis for
interpretation or construction, and shall not constitute a part, of this
Agreement.


 


8





















 


(k)                                  Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


 


[Remainder of page intentionally left blank.]


 


9





















 


IN WITNESS WHEREOF, this
Agreement has been executed and delivered by the parties hereto on the first
date set forth above.


 


 




	
   

  	
   

  	
  DUANE READE HOLDINGS,
  INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ ANDREW J. NATHANSON

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ANTHONY J. CUTI

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ ANTHONY J. CUTI