Exhibit 10.43


 





 


John A. Lederer


Chairman and Chief
Executive Officer


 


September 3, 2008


 


Mr. Mark W.
Scharbo

1252 Reeder Circle

Atlanta, GA 30306


 


Dear Mark:


 


This
letter will confirm an offer of employment to you by Duane Reade Inc. (the “Company.”)


 


Terms
of Employment. Your initial assignment will be as Senior Vice
President, Supply Chain, reporting directly to Mr. John A. Lederer,
Chairman and Chief Executive Officer.  In
such position, you will have such authorities, responsibilities and duties
customarily exercised by a person holding that position, including, without
limitation, responsibility for the complete point-to-point supply chain
operation, as traditionally defined, including all aspects of such. You will be
based at our headquarters office located at 440 Ninth Avenue, New York, NY.


 


Subject
to the terms and conditions of this offer letter, this Agreement shall be
effective for a term commencing on October 6, 2008 (the “Effective Date”)
and shall continue until terminated by either you or the Company in accordance
with the provisions of this offer letter. 
(With respect to any services you perform for the Company prior to the
Effective Date, you will be compensated at a per diem rate to be mutually agreed
between you and Mr. Lederer.)


 


Your
initial salary will be at an annual rate of $400,000.00, to be paid in
bi-weekly installments of $15,384.62, subject to annual review by Mr. Lederer.  Future salary increases will be at the
discretion of the Company and based on demonstrated job performance in
accordance with Company policy and practice.


 


The
Company offers an executive benefit program in which you will be able to
participate, subject to the terms of eligibility for the individual benefit
plans.  Those plans include a 401(k) program,
major medical benefits, Company paid life and disability programs and other
welfare benefit packages.  You will
receive four (4) weeks of paid vacation each calendar year subject to
restrictions of your job requirements. 
Please be aware that Company’s vacation policy does not allow carryover
of vacation from year to year. 
Therefore, if the four weeks are not taken they are forfeited each year.


 


Executive Offices:   440 9th Avenue, New York, NY 10001


Telephone
212-273-5704       FAX:  917-351-0392


 

















 


As a
senior executive of the Company, you will be eligible to participate in the
Company’s performance incentive plan and will have the opportunity to receive
an annual cash bonus pursuant to the terms of that plan of between fifty
percent (50%) and one hundred and fifty percent (150%) of your annual salary
rate, determined as follows:  50% of your
annual salary will be paid upon achievement of the “threshold target,” 100% of
your annual salary will be paid upon achievement of the “target,” 150% of your
annual salary will be paid upon achievement of the “maximum target” and no
bonus will be paid if the “threshold target” is not achieved.  The amount of your bonus will be determined
based on a straight-line interpolation for achievement between the “threshold
target” and “maximum target”.  The plan
targets are set by the Company’s Board of Directors and compensation committee
annually and are typically based on the attainment of Company performance
towards EBITDA targets and your individual performance towards goals mutually
set between you and the Chief Executive Officer.  It is anticipated that with respect to the
Company, the “threshold target” will require achievement of 95% of the annual
EBITDA targets, the “target” will require achievement of 100% of the annual
EBITDA targets, and the “maximum target” will require achievement of 105% of
the annual EBITDA targets.  Subject to
your continued employment with the Company, you will be entitled to receive a
guaranteed minimum bonus with respect to the twelve (12) month period following
the Effective Date equal to 50% of your base salary, which will be divided
pro-rata between your bonus for 2008 and your bonus for 2009 to reflect the
portion of 2008 following the Effective Date during which you were employed by
the Company.  Actual incentive payments
will be paid yearly on the same date that the Company makes such payments to
other members of its senior management, usually at the end of the first quarter
of the year immediately following the year for which the bonus is payable,
after Board approval and subject to your continued employment with the Company
on each such date and having not given or received a notice of termination
before the close of the fiscal year in respect of which the annual bonus is to
be paid.  As with other executive
benefits programs, eligibility and participation are subject to the specific
provisions of the plan.


 


As
an executive, you will be eligible to participate in the Company’s 2004
Management Stock Option Plan.  Subject to
the terms and conditions of that plan, on the Effective Date you will receive
an initial grant of options to acquire twenty five thousand (25,000) shares of
Company stock at an exercise price of one hundred dollars ($100.00 per share)
(the “Options”).  Subject to your
continued employment, 60% of the Options (the “Service Options”) will vest at a
rate of twenty-five percent (25%) per year of service with the Company, such
that those Options will be 100% vested at the end of four (4) years
employment.  The remaining 40% of the Options
(the “Performance Options”) will vest at a rate of twenty-five percent (25%)
per year of service with the Company, subject to both your continued employment
and the achievement of annual EBITDA targets by the Company.  Notwithstanding the preceding sentence, if
any portion of the Options fail to vest because the annual EBITDA targets are
not attained for a given fiscal year, such portion of the Options may still
subsequently vest and become exercisable if the Company achieves the cumulative
EBITDA targets set with respect to a later fiscal year.  The grant of the Options is conditioned upon
and subject to you becoming a party to the Company’s Stockholders
Agreement.  The Options will, in
accordance with the terms of the Plan pursuant to which such Options are
issued, be subject to such standard equitable adjustments as the Company deems
necessary or appropriate to prevent substantial enlargement or dilution of your
rights in the event of certain corporate transactions and extraordinary events,
including a grant of extraordinary 


 


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dividends. 
Nothing in this provision shall act as a guarantee of any specific value
of the Company stock other than the value described in the stock plan
itself.  In connection with an initial
public offering of the Company stock, the Company reserves the right to convert
the Options into options to purchase equity securities of an entity other than
the Company, if such entity will become the public company, and such equitable
adjustments will be made to the terms and conditions of your Options as the
Company deems necessary or appropriate.


 


Subject
to your continued employment with the Company through the consummation of a
change in control, the Service Options will vest as necessary to enable you to
exercise your rights pursuant to a ‘Tag-Along Sale’ and to satisfy the Company’s
rights with respect to a ‘Drag-Along Sale’ (in each case, pursuant to the
Company’s Stockholders Agreement).  All
unvested Performance Options will vest upon a change in control of the Company
if, and only if, such change in control yields for the Company’s controlling
stockholder and its affiliates a certain minimum cash-on-cash return on the
investment in the Company made by Company’s controlling stockholder and its
affiliates, provided you are employed by the Company on the date that such
change in control is consummated.


 


As a
senior executive of the Company, you will be required to enter into a
restrictive covenants agreement which will include, without limitation: (i) an
ongoing covenant not to disclose confidential information of the Company or any
of its subsidiaries, (ii) an ongoing covenant not to make disparaging
statements of any kind or in any form about the Company or any of its
subsidiaries, (iii) a covenant not to solicit any employees or customers
of the Company or any of its subsidiaries during the Employment Term and for a
period of twenty four (24) months following termination of your employment, and
(iv) a covenant not to compete, directly or indirectly, with the Company
or any of its subsidiaries, including, without limitation, by providing
services of any kind or in any capacity for any company engaged in a business
similar to that of the Company in, or within a one hundred (100) mile radius
of, the New York City metro vicinity and in any other geographic area in which
the Company then has plans to expand, during the Employment Term and for a
period of twelve (12) months following termination of your employment.  You acknowledge and agree that the Company
will be entitled to preliminary and permanent injunctive relief (without the
necessity of proving actual damages) as well as an equitable accounting of all
earnings, profits and other benefits arising from any violation by you of these
restrictive covenants, in addition to any other legal or equitable rights or
remedies to which the Company may be entitled.


 


Your
employment with the Company will be “at will,” meaning that either you or the
Company will be entitled to terminate your employment at any time and for any
reason or no reason, with or without cause. 
In the event the Company terminates your employment other than for “cause,”
or you terminate your employment for “good reason”, (a)  you will be paid
severance equal to either:


 


(i)           two
years of your base salary determined using your then-current salary rate in
effect at the time of your termination, payable in bi-weekly installments
(should such termination occur prior to the first anniversary of the Effective
Date); or


 


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(ii)           one year of your base
salary determined using your then-current salary rate in effect at the time of
your termination, payable in bi-weekly installments (should such termination
occur on or after the first anniversary of the Effective Date);


 


and (b) you and your eligible dependents will
receive continued participation during the one-year period following
termination of employment in the health insurance benefits of the Company that
are provided from time to time to employees of the Company during such period
at the same cost to you as that charged to other active employees of the
Company; provided, that the Company’s obligation to provide health
insurance benefits will cease with respect to such benefits at the time you
become eligible for such benefits from another employer.


 


The
Company’s payment of this severance will be subject to both your execution of a
general release of claims against the Company and its subsidiaries in a form to
be provided by the Company and your continuing compliance with all restrictive
covenants to which you are subject under this offer letter, the restrictive
covenants agreement, or otherwise.  For
purposes of this Agreement “cause” shall mean termination for:  (1) a failure to follow lawful
instructions of the Chief Executive Officer (other than any such failure
resulting from death or incapacity due to physical or mental illness),
provided, however, that following a change in control of the Company (as
defined for purposes of the Options), any such failure will serve as the basis
for a termination for Cause only if it is willful, (2) serious misconduct,
dishonesty or disloyalty which results from a willful act or omission and 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 any employee of the Company, any of its
subsidiaries or of any person engaged in business with the Company or any of its
subsidiaries; (3) being convicted of (or entering into a plea bargain
admitting criminal guilt to) any felony; (4) willful and continued failure
to substantially perform your duties under this Agreement; (5) commission
of any act of fraud or embezzlement against the Company or any subsidiary
thereof; (6) material breach of any covenant or Company policy regarding
the protection of the Company’s business interests, including, without
limitation, policies addressing confidentiality and non-competition; or (7) a
material breach of this Agreement.  In
the event of termination of your employment for any reason, with or without
cause, you will be entitled to any earned but unpaid salary through the date of
termination, plus any earned and accrued unused vacation pay, any accrued but
unpaid business expenses, and any other vested and accrued compensation and
benefits payable in accordance with the applicable Company policy or plan.  If your employment is terminated by the Company
for cause, or you terminate your employment other than for good reason, you
will not be entitled to any other compensation from the Company, including,
without limitation, severance pay, and any unpaid bonus together with all of
your outstanding vested and unvested Options will be immediately
forfeited.  Should you elect to terminate
your employment with the Company for any reason prior to the second anniversary
of the Effective Date, you will be required to repay the Company any difference
between your actual annual bonus payment(s) and what you otherwise would
have received without any guaranteed minimum bonus.


 


For purposes of this Agreement, “good reason” shall mean (in the
absence of your written consent) the occurrence of any of the following events
or circumstances:


 


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(i)            the assignment to you
of any duties materially and adversely inconsistent with your position as
Senior Vice President, Supply Chain,
excluding for this purpose an isolated, insubstantial and inadvertent action
not taken in bad faith and that is remedied by the Company within the time
period set forth below after receipt of notice thereof given by you;


 


(ii)           any intentional material breach by the
Company of this Agreement, other than an isolated, insubstantial and inadvertent
breach not occurring in bad faith and that is remedied by the Company within
the time period set forth below after receipt of notice thereof given by you;
or


 


(iii)          the
Company’s requiring you to be based primarily at a location more than 50 miles
from the Company’s headquarters office;


 


provided, however, that any
event described in clause (i), (ii) or (iii) shall not constitute
good reason unless you have 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.


 


You
will be reimbursed for all normal business expenses in accordance with Company
policy.  You will be reimbursed for
relocation expenses in accordance with Company policy, determined by reference
to what is usual and customary for an individual holding your position and
which will include: (i) usual and customary moving expenses (to the extent
such moving expense reimbursements are taxable as compensation to you, the
Company shall provide you with a tax gross-up payment equal to the amount of
all taxes in respect of such moving expense reimbursements, plus any taxes
payable in connection with the tax gross-up payment); (ii) reimbursement
of any documented brokerage fee up to an amount of $15,000 in the aggregate for
an apartment in the New York City metro vicinity; and (iii) to offset the
cost of your temporarily maintaining dual residences, an amount of $5,000 per
month for a period of up to six (6) months from the Effective Date or until
you sell your primary residence, if sooner. 
You agree that you will endeavor to relocate to the New York City metro
vicinity within two (2) months of the Effective Date.  During the first two (2) months
following the Effective Date, the Company will reimburse you for reasonable
temporary housing and reasonable travel expenses to and from the New York City
metro vicinity for you and your wife, up to a maximum of three (3) round-trips
per person.  For the avoidance of doubt,
none of the payments referenced in this paragraph or elsewhere in this letter
will be grossed up for tax unless specifically noted.


 


Representations and Warranties.  You
represent and warrant to the Company that you are not a party to or bound by
any enforceable agreement, covenant or other obligation with any other person
or entity which would restrict or otherwise interfere with your ability to
commence employment with the Company and perform your duties hereunder.  You further represent and warrant that you
will not disclose or use in connection with your employment with the Company
any information or trade secrets which constitute ‘confidential information’ or
‘proprietary information’ (or any similar term) as defined in any agreement,
covenant or other obligation that you are a party to or bound by with any other
person or entity, including, without limitation, your previous employers, to the extent, if any, that you are in
possession of such information. 
You acknowledge that you have been represented by counsel in connection
with the 


 


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negotiation of the terms of this offer letter and the
commencement of your employment with the Company.


 


Miscellaneous.
This offer letter will be governed by, and interpreted in accordance with, the
laws of the state of New York, without regard to the conflict of law provisions
of any jurisdiction which would cause the application of any law other than
that of the state of New York.  Any
controversy or claim arising out of or relating to this offer letter (other
than with respect to any restrictive covenants to which you are subject), or
the breach thereof, will be settled by arbitration administered by one
arbitrator of the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect.  Unless otherwise awarded by the arbitrator,
each party will be responsible for its own fees and expenses.


 


It
is the intention of the parties that the severance payments and benefits are
not construed as “deferred compensation” (as defined under Section 409A of
the Internal Revenue Code of 1986, as amended (“Section 409A”)) and that
the restrictions and possible delays in payment that could be imposed under Section 409A
should not apply.  However,
notwithstanding the foregoing, if the Company reasonably concludes that it is
reasonably necessary to avoid additional or accelerated taxation pursuant to Section 409A
in respect of the severance payments and benefits to which you may become
entitled hereunder, then you shall not receive such payments or benefits until
the first regular payroll date which occurs at least six months following the
date of your termination of employment, at which time you 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,
and the remainder of such payments shall thereafter be paid in equal
installments on the original schedule. 
In furtherance of the intent of this paragraph, each severance payment
or installment shall be treated as a separate payment in order to maximize the
application of payments during the “short term deferral period” under Section 409A.


 


This
offer letter is intended to memorialize the offer of employment provided by the
Company and if these terms are acceptable, to create an at-will employment
relationship under these terms until such time as a mutually agreeable
definitive employment agreement is entered into by you and the Company
reflecting the terms of this offer letter and other customary terms.  Nothing in this offer letter is intended or
shall have the effect of modifying or amending the terms, conditions or
requirements of any benefit plan, retirement plan or welfare plan or
arrangement offered by the Company. 
During your employment, you will remain subject to, and be required to
abide by, all terms, conditions and requirements of the policies and practices
dictated by the Company for executive employees.


 


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We
all look forward to you joining our team in the near future.  Please do not hesitate to call me if you have
any questions.


 


	
   

  	
   

  	
  Sincerely,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ JOHN A.
  LEDERER

  
	
   

  	
   

  	
  John A. Lederer

  
	
   

  	
   

  	
  Chairman and
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ MARK W.
  SCHARBO

  	
   

  	
   

  
	
  Mr. Mark W.
  Scharbo/Date

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CC:

  	
  Mr. John
  Henry—SVP/CFO

  	
   

  	
   

  
	
   

  	
  Ms. Michelle
  Bergman—SVP/General Counsel

  	
   

  	
   

  



 


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