Exhibit 10.44


 





 


John A. Lederer


Chairman and Chief Executive Officer


 


November 9, 2008


 


Mr. Frank
V. Scorpiniti


249
Golf Links St.


Pleasant
Hills, CA 94523


 


Dear
Frank:


 


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, Pharmacy, 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 pharmacy operations, as traditionally defined, including all aspects
of such. You will be based at our headquarters office located in New York, NY.


 


Subject to the terms and conditions of this offer
letter, your employment with the Company shall be effective for a term
commencing on December 1, 2008 (the “Effective Date”) and shall continue
until terminated by either you or the Company in accordance with the provisions
of this offer letter.


 


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.  While the structure of this annual cash bonus
will be generally similar to the bonus structure applicable to other similarly
situated members of senior management, all specific terms of any annual cash
bonus are subject to future modification at the discretion of the Chief
Executive Officer and the Board of Directors. 
Subject to your continued employment with the Company, if you do not
receive your annual bonus for calendar year 2008 from your current employer,
you will be entitled to receive a make-whole bonus such that the total
aggregate bonus amount received by you from both your current employer and the
Company with respect to calendar year 2008 will be equal to $66,000.  Subject to your continued employment with the
Company, you will be entitled to receive a guaranteed minimum bonus with
respect to calendar year 2009 equal to 50% of your base salary.  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 thousand (20,000) 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 


 


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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 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 Pharmacy Benefit Management (PBM) customers of the Company or
any of its subsidiaries during the term of your employment 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 term of your employment and for a period of six
months (6) 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”, (i) you will be paid severance equal to 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, (ii) you
will be entitled to receive 


 


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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 you (based on actual performance of the Company for
such year) under the Company’s performance incentive plan had your employment
not so terminated 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 (“Pro-Rated Bonus”),
payable when such annual bonuses are paid to other senior executive officers of
the Company.  If your employment
terminates due to your death or disability, the Company shall pay you (or your
estate, as applicable) a Pro-Rated Bonus.


 


The Company’s payment of this severance and Pro-Rated
Bonus will be subject to both your execution (within 30 days following
termination of employment) 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 offer
letter “cause” shall mean termination for: 
(1) a failure to follow lawful instructions of the Chief Executive
Officer; (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 crime; (4) willful
and continued failure to substantially perform your duties; (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 offer letter.  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, 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.


 


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


 


(i)                                   the
assignment to you of any duties materially and adversely inconsistent with your
position as Senior Vice President, Pharmacy, 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 decrease in your base salary, other than
a decrease of less than 10% of your base salary in connection with a reduction
of not less than the same percentage of base salary for all other similarly
situated senior executives of the Company (i.e., all Senior Vice Presidents);


 


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(iii)                           any intentional material breach by the
Company of this offer letter, 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;


 


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


 


(v)                               the
Company’s entering into or otherwise establishing, after the date hereof, an
agreement, plan or arrangement that provides compensation and benefits to one
or more similarly situated senior executives (i.e., Senior Vice Presidents) in
the event of a change in control of the Company that is materially more
favorable than any such compensation and benefits provided to you in the event
of a change in control of the Company;


 


provided, however, that any
event described in clause (i), (ii), (iii), (iv) or (v) 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 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).  You agree that you will endeavor
to relocate to the New York City metro vicinity within two (2) months of
the Effective Date.  For a period of up
to ninety (90) days 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, up to a maximum of three (3) round-trips.  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/ FRANK V. SCORPINITI

  	
   

  	
   

  
	
  Mr. Frank V. Scorpiniti/Date

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CC:  Mr. John Henry—SVP/CFO

  	
   

  	
   

  



 


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