<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
DUANE READE INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
1724-PS-00
<PAGE>
[LOGO]
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"2000 Annual Meeting") of DUANE READE INC., a Delaware corporation ("Duane
Reade"), to be held on Monday, May 1, 2000, at 2:00 p.m., Eastern Standard time
at Duane Reade's distribution facility, 55-02 55th Avenue, Maspeth, New York
11378.
At the 2000 Annual Meeting, you will be asked to consider and vote upon the
following matters, all of which are described more completely in the
accompanying Proxy Statement:
1. To elect six persons to Duane Reade's Board of Directors to serve for
a term of one year and until the election and qualification of their
respective successors; and
2. To transact such other business as may properly come before the 2000
Annual Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN THE PROXY STATEMENT.
Only stockholders of record at the close of business on March 27, 2000 are
entitled to notice of, and to vote at, the 2000 Annual Meeting.
We urge you to review carefully the Proxy Statement. We hope you will attend
the 2000 Annual Meeting. However, whether or not you plan to attend the 2000
Annual Meeting, it is important that your shares are represented. Accordingly,
please complete, sign and date the enclosed proxy and return it in the enclosed
prepaid envelope. If you are present at the 2000 Annual Meeting you may, if you
wish, withdraw your proxy and vote in person.
Very truly yours,
[LOGO]
Anthony J. Cuti, Chairman of the Board
of
Directors, Chief Executive Officer and
President
April 5, 2000
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 1, 2000
DUANE READE INC.
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
To the Stockholders of DUANE READE INC.:
The Annual Meeting of Stockholders of DUANE READE INC., a Delaware
corporation, will be held at Duane Reade's distribution facility, 55-02 55th
Avenue, Maspeth, New York 11378, on Monday, May 1, 2000, at 2:00 p.m., Eastern
Standard time for the following purposes:
1. To elect six persons to Duane Reade's Board of Directors to serve for
a term of one year and until the election and qualification of their
respective successors; and
2. To transact such other business as may properly come before the 2000
Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of Duane Reade has fixed the close of business on
March 27, 2000 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the 2000 Annual Meeting or any
adjournments or postponements thereof. Only stockholders of record at the close
of business on the Record Date are entitled to notice of, and to vote at, the
2000 Annual Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN THE PROXY STATEMENT.
Whether or not you plan to attend the 2000 Annual Meeting, please complete,
sign, date and return promptly the enclosed form of proxy. A return envelope is
enclosed for your convenience and requires no postage for mailing in the United
States.
By Order of the Board of Directors
/s/ John K. Henry
John K. Henry, Secretary
DUANE READE INC.
April 5, 2000
<PAGE>
DUANE READE INC.
440 Ninth Avenue
New York, New York 10001
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Duane Reade Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies on behalf of the Company's Board of Directors (the "Board of Directors")
to be voted at the 2000 Annual Meeting of Stockholders (the "2000 Annual
Meeting") to be held on Monday, May 1, 2000 at 2:00 p.m., Eastern Standard time
at the Company's distribution facility, 55-02 55th Avenue, Maspeth, New York
11378, or at such other time and place to which the 2000 Annual Meeting may be
adjourned, for the purposes set forth in the accompanying Notice of Meeting.
This Proxy Statement and Notice of Meeting and the related proxy card are first
being mailed to stockholders beginning on or about April 5, 2000. The Company's
principal executive office is located at 440 Ninth Avenue, New York, New York,
10001.
RECORD DATE
The Board of Directors has fixed the close of business on March 27, 2000 as
the record date (the "Record Date") for the 2000 Annual Meeting. Only
stockholders of record on that date are entitled to vote at the meeting in
person or by proxy.
PROXIES
Anthony J. Cuti and John K. Henry were appointed by the Board of Directors
to vote the shares represented by the proxy card. Upon receipt by the Company of
a properly signed and dated proxy card, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a stockholder
does not return a signed proxy card, his or her shares cannot be voted by proxy.
Stockholders are urged to mark the boxes on the proxy card to show how their
shares are to be voted.
IF A STOCKHOLDER RETURNS A SIGNED PROXY CARD WITHOUT MARKING THE BOXES, THE
SHARES REPRESENTED BY THE PROXY CARD WILL BE VOTED AS RECOMMENDED BY THE BOARD
OF DIRECTORS HEREIN AND ON THE PROXY CARD FOR THE ELECTION OF THE PERSONS NAMED
UNDER "ELECTION OF DIRECTORS" AS NOMINEES FOR ELECTION AS DIRECTORS OF THE
COMPANY (EACH A "NOMINEE" AND, COLLECTIVELY, THE "NOMINEES") FOR TERMS TO EXPIRE
ON THE DATE OF THE FIRST ANNUAL MEETING OF THE COMPANY'S STOCKHOLDERS FOLLOWING
THE 2000 ANNUAL MEETING.
The proxy card also confers discretionary authority on the proxies to vote
on any other matter not presently known to the Board of Directors that may
properly come before the meeting or any adjournment thereof. Any proxy delivered
pursuant to this solicitation is revocable at the option of the person(s)
executing the same (i) upon receipt by the Company before the proxy is voted of
a duly executed proxy bearing a later date, (ii) by written notice of revocation
to the Secretary of the Company received before the proxy is voted or (iii) by
such person(s) voting in person at the 2000 Annual Meeting. Duly executed
proxies in the form enclosed, unless properly revoked, will be voted at the 2000
Annual Meeting.
The expenses incidental to the preparation and mailing of this proxy
material are being paid by the Company. The Company will reimburse banks,
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to stockholders. To assure
that a quorum will be present in person or by proxy at the 2000 Annual Meeting,
it may be necessary for certain officers, directors, employees or other agents
of the Company to solicit proxies by telephone, facsimile or other means or in
person. No other solicitation currently is planned beyond the mailing of this
proxy material to stockholders and to brokerage firms, nominees, custodians and
fiduciaries, who may be requested to forward the proxy materials to the
beneficial owners of shares held of record by them.
1
<PAGE>
VOTING SHARES AND QUORUM REQUIRED
On the Record Date, the Company had outstanding 17,450,239 shares of Common
Stock, par value $.01 per share (the "Common Stock"). Holders of Common Stock on
the Record Date are entitled to one vote per share on all matters submitted to a
vote of stockholders. The presence in person or by proxy of the holders of a
majority of the issued and outstanding Common Stock, excluding Common Stock held
by the Company, is necessary to constitute a quorum at the 2000 Annual Meeting.
The affirmative vote of a majority of the shares of Common Stock represented
in person or by proxy at the 2000 Annual Meeting is required to elect the
Directors. Business that might have been transacted at the 2000 Annual Meeting
as originally called may be conducted at any adjournment at which the requisite
quorum is present.
Pursuant to the laws of the State of Delaware, the inspectors of the
election will not count shares represented by proxies that reflect abstentions
or "broker non-votes" (i.e., shares held by brokers or nominees that are
represented at the 2000 Annual Meeting, but with respect to which the broker or
nominee is not empowered to vote on a particular proposal) as votes cast with
respect to the election of Directors, and therefore, neither abstentions nor
broker non-votes will affect the election of Nominees. With respect to all other
proposals scheduled to come before the 2000 Annual Meeting, abstentions with
respect to a particular proposal will have the effect of a vote against such
proposal. Broker non-votes, however, will be treated as unvoted for purposes of
determining approval of such proposal and will not be counted as votes for or
against such proposal.
MATTERS TO BE VOTED UPON
1. ELECTION OF DIRECTORS
The Company's by-laws (the "By-laws") provide for no fewer than two nor more
than fourteen directors, as determined by the Board of Directors, which has
fixed the number of directors at six. Each of these directors will be elected at
the 2000 Annual Meeting to serve for a term of one year, or until their
successors are elected and qualified.
Each of the Nominees has indicated a willingness to serve as a member of the
Board of Directors if elected. If any of the Nominees should become unavailable
prior to the 2000 Annual Meeting, the proxy will be voted for a substituted
Nominee or Nominees designated by the Board of Directors. The information
provided below with respect to the Nominees is as of the Record Date.
The names of the Nominees for election as directors are listed below,
together with certain personal information as at March 27, 2000, including the
present principal occupation and recent business experience of each Nominee.
Each of the Nominees other than Carl M. Pradelli are current members of the
board. There are no family relationships among any of the Company's current
directors, executive officers or the Board's proposed Nominees.
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE SINCE
- -------------------------------------------------- -------- --------
<S> <C> <C>
Anthony J. Cuti............................................. 54 1996
Mr. Cuti has been President and Chief Executive Officer of
the Company since April 1996. Prior to joining the
Company, Mr. Cuti served as President and as a member of
the Board of Directors of Supermarkets General and
Pathmark from 1993 to 1996 and, prior to being named
President of Supermarkets General and Pathmark, Mr. Cuti
was Executive Vice President and Chief Financial Officer
of Supermarkets General. From 1984 to 1990, he was the
Chief Financial Officer of the Bristol-Myers International
Group of the Bristol-Myers Company and prior to that was
employed by the Revlon Corporation.
Nicole S. Arnaboldi......................................... 41 1997
Ms. Arnaboldi is a Managing Director of DLJ Merchant
Banking II, Inc. ("DLJMB"). She joined the DLJ Merchant
Banking Group in March 1993 after six years with The
Sprout Group, the venture capital affiliate of Donaldson
Lufkin & Jenrette Securities Corporation ("DLJ").
David L. Jaffe.............................................. 41 1997
Mr. Jaffe is a Managing Director of DLJMB. Mr. Jaffe
joined DLJ in 1984 and became a Managing Director of DLJMB
in 1995. He currently sits on the Board of Directors of
each of Target Media Partners (Toronto Stock Exchange),
Terra Nova Holdings (New York Stock Exchange), Brand
Scaffold Services, Inc., Shoppers Drug Mart, Inc., and
Wilson Greatbatch, Ltd.
Kevin Roberg................................................ 49 1998
Mr. Roberg is currently a private investor and a General
Partner of Delphi Ventures (a health care venture capital
fund). From 1995 to 1998, Mr. Roberg served as Chief
Executive Officer and President of ValueRx. Prior to
serving in this position, Mr. Roberg served as Chief
Executive Officer and President of Medintell Systems
Corporation, which was acquired by ValueRx in 1995. From
1994 to 1995, Mr. Roberg served as President--Western
Health Plans and President--PRIMExtra, Inc. for EBP Health
Plans, Inc. Mr. Roberg served as Division President and
Chief Operating Officer of Diversified Pharmaceutical
Services (a subsidiary of United HealthCare Corporation)
from 1990 to 1994.
David W. Johnson............................................ 68 1998
Mr. Johnson currently serves as President and Chief
Executive Officer of Campbell Soup Company. Mr. Johnson
previously served as President and Chief Executive Officer
of Campbell Soup Company from 1990 to 1997 and as Chairman
of the Board of Campbell Soup Company from 1993 to 1999.
Mr. Johnson also serves on the Board of Directors of
Colgate Palmolive Company (New York Stock Exchange).
Carl M. Pradelli............................................ 33 N/A
Mr. Pradelli is a Senior Vice Presient of DLJ. He joined
DLJ in 1988. Mr. Pradelli received his B.S. in Business
from New York University and his M.B.A. from the Wharton
School of the University of Pennsylvania.
</TABLE>
ELECTION OF THE NOMINEES REQUIRES THE AFFIRMATIVE VOTE OF OF A MAJORITY OF
THE SHARES OF COMMON STOCK HELD BY HOLDERS PRESENT AT THE 2000 ANNUAL MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE FOREGOING NOMINEES FOR
ELECTION AS DIRECTORS AND URGES EACH STOCKHOLDER TO VOTE "FOR" ALL NOMINEES.
3
<PAGE>
DIRECTOR ATTENDANCE
During the fiscal year ended December 25, 1999, the Board met five times and
acted eight times by unanimous written consent, the Audit Committee met one
time, and the Compensation Committee met one time and acted two times by
unanimous written consent. Each director attended all of the meetings of the
Board and committees of the Board on which the director served during 1999.
Directors meet their responsibilities not only by attending Board and Committee
meetings, but also through communication with the Chairman and Chief Executive
Officer and other members of management on matters affecting the Company.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees of the Company, DLJ or DLJMB or
their respective subsidiaries are not compensated for serving as directors. As
of the date of their election to the Board of Directors, each of Messrs. Roberg
and Johnson received 5,000 options to purchase Common Stock at $21.5625 per
share, and on February 5, 1999, each of Messrs. Roberg and Johnson received
5,000 options to purchase Common Stock at $28.825 per share. The Company plans
to compensate future Directors who are not employees of the Company, DLJ or
DLJMB ("Non-Employee Directors") with option grants for serving in such capacity
and for serving on committees of the Board of Directors and to reimburse
Non-Employee Directors for out-of-pocket expenses incurred in such capacity.
BOARD COMMITTEES
There are two committees of the Board as of the Record Date: an Audit
Committee and a Compensation Committee. Membership as of the record date was as
follows:
<TABLE>
<CAPTION>
AUDIT COMPENSATION
- ----- ------------
<S> <C>
Mr. Johnson Mr. Jaffe
Mr. Roberg Mr. Johnson
Mr. Roberg
</TABLE>
AUDIT COMMITTEE One meeting during 1999
- Recommends to the Board a firm of independent certified public accountants
to serve as the Company's auditors.
- Meets with the Company's independent certified public accountants to
review procedures, fees and scope of annual audit.
- Reviews the audit reports of the Company's auditors and the
recommendations made by them.
- Reviews the financial, investment and accounting procedures and practices
followed by the Company.
Each of the members of the audit committee are "independent" within the
meaning of Sec-
tions 303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing
standards.
COMPENSATION COMMITTEE One meeting during 1999
Two actions by unanimous written consent
- Advises and makes recommendations to the Board regarding annual salary and
bonus determinations of selected officers and senior management of the
Company, including the Chief Executive Officer.
- Advises and makes recommendations to the Board regarding compensation of
directors.
- Reviews and makes recommendations to the Board regarding the performance
standards under the Company's compensation and incentive programs for
directors, officers and senior management.
- Reviews and makes recommendations to the Board regarding grants of Awards
under the Company's Equity Plan.
4
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DLJMB RELATIONSHIPS
In connection with the recapitalization of the equity interests of the
Company, pursuant to which DLJ Merchant Banking Partners II, L.P. ("DLJMBPII")
and certain of its affiliates (the "DLJ Entities") purchased an aggregate of
9,383,420 shares of the Company's Common Stock (the "Recapitalization"). The
aggregate purchase price for the shares acquired by the DLJ Entities was
approximately $78.7 million, or approximately $8.33 per share. Concurrently with
the Recapitalization, each of the DLJ Entities and all other shareholders except
members of management signed the Stockholders and Registration Rights Agreement.
See "Stockholders and Registration Rights Agreement." DLJMB is the managing
general partner of DLJMBPII. Mr. Jaffe and Ms. Arnaboldi, directors of the
Company, are Managing Directors of DLJMB. Mr. Pradelli, a nominee for the board
of directors of the Company, is a Senior Vice President of DLJ.
On March 17 and December 16, 1999 the Company amended and restated its
credit agreement (the "Existing Credit Agreement") in which DLJ Capital
Funding, Inc., an affiliate of DLJMBPII ("DLJ Funding"), acted as the arranger
and syndication agent. In connection with the Existing Credit Agreement, DLJ
Funding received a customary funding fee of approximately $0.7 million. The
Existing Credit Agreement was again amended and restated on March 17, 2000, in
concert with increases in term loan and revolver borrowings for which DLJ
Funding again acted as manager and syndication agent and received a customary
funding fee of approximately $0.7 million.
CUTI LOAN AGREEMENTS
On November 9, 1998, upon unanimous approval of the Board of Directors of
the Company, the Company extended a $2.0 million loan (the "Cuti Loan") to
Mr. Cuti. For so long as the Existing Credit Agreement is outstanding, the Cuti
Loan bears interest at the rate of interest paid by the Company on its revolving
loans outstanding under the Existing Credit Agreement. Thereafter, the Cuti Loan
will bear interest at LIBOR plus 300 basis points. The Cuti Loan becomes due
upon the earliest to occur of (i) the termination of Mr. Cuti's employment with
the Company, (ii) the termination of the Cuti Employment Agreement, (iii) any
sale by Mr. Cuti of 15% or more of the Company's Common Stock held by Mr. Cuti
or (iv) November 9, 2003.
Pursuant to the terms of the Cuti Employment Agreement and a Secured Loan
Agreement and related agreements among Mr. Cuti, the Company and DLJ (the "Loan
Documents"), on November 20, 1997, Mr. Cuti borrowed $1.0 million from DLJ (the
"Loan"). The Loan is secured by Mr. Cuti's pledge to DLJ of his options granted
under the Equity Plan and his option to purchase 496,569 shares of Common Stock,
and all Common Stock and other proceeds payable upon exercise or other
disposition thereof (the "Pledged Security"). The Loan is subject to interest at
the Federal Mid-Term Rate as in effect from time to time and is generally
payable in five equal installments commencing within 30 days after Mr. Cuti has
the ability to receive cash in exchange for any of the Pledged Security. In
addition, the Company may apply any amounts to which Mr. Cuti is entitled upon
termination of employment to repayment of the Loan. The Cuti Employment
Agreement and the Loan Documents further provide that in the event of
termination of Mr. Cuti's employment by reason of termination by the Company
without "cause" or the Company's non-renewal or his resignation without "good
reason" (as such terms are defined in the Cuti Employment Agreement), the
Company will reimburse Mr. Cuti for all interest accrued as of the date of such
termination if the Company has achieved certain specified financial targets for
the year prior to termination and the year of such termination. The Loan
Documents permit DLJ to assign the Loan to certain of its affiliates, including
the Company, and the Company is obligated pursuant to the Cuti Employment
Agreement to assume the Loan from DLJ as soon as practicable after the Company
and DLJ agree that the Company may do so. At December 25, 1999, DLJ had not
exercised such election.
5
<PAGE>
On June 7, 1999, the Company paid to DLJ on behalf of Mr. Cuti $200,000 in
principal and $97,319 in interest on the Loan. On December 30, 1999, the Company
paid to DLJ on behalf of Mr. Cuti $200,000 in principal and $78,583 in interest
on the Loan. For each of these payments made by the Company, Mr. Cuti has
delivered to the Company a promissory note dated when the payments were made.
These promissory notes each bear interest at the Federal Mid-Term Rate. The
principal and all accrued interest are payable in full by Mr. Cuti on
December 19, 2002. In the event of termination of Mr. Cuti's employment by
reason of termination by the Company without "cause" or the Company's
non-renewal or his resignation without "good reason" (as such terms are defined
in the Cuti Employment Agreement), the Company will forgive Mr. Cuti for all
interest accrued on these promissory notes as of the date of such termination if
the Company has achieved certain specified financial targets for the year prior
to termination and the year of such termination.
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, certain of the shareholders of the
Company (the "Initial Shareholders") entered into a Stockholders and
Registration Rights Agreement, pursuant to which the Company has granted the
Initial Shareholders the right to cause the Company to register shares of Common
Stock (the "registrable securities") under the Securities Act. Under the terms
of the Stockholders and Registration Rights Agreement, at any time after
February 10, 1999, the holders of at least a majority of the registrable
securities held by the DLJ Entities can require the Company, subject to certain
limitations, to file a registration statement under the Securities Act covering
all or part of the registrable securities held by the DLJ Entities (a "demand
registration"). Currently, 8,291,762 outstanding shares of Common Stock
constitute registrable securities and therefore are eligible for registration
pursuant to the Stockholders and Registration Rights Agreement. The Company is
obligated to pay all registration expenses (other than underwriting discounts
and commissions and subject to certain limitations) incurred in connection with
demand registrations. In addition, the Stockholders and Registration Rights
Agreement provides the Initial Shareholders with "piggyback" registration
rights, subject to certain limitations, whenever the Company files a
registration statement on a registration form that can be used to register
securities held by such Initial Shareholders.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock (which constitutes the only
class of voting capital stock of the Company) by (i) each person known to the
Company to be the beneficial owner of 5% or more of the Common Stock, (ii) each
director, (iii) each Named Executive Officer and (iv) all executive officers and
directors as a group, based on data as of March 27, 2000.
SHARES BENEFICIALLY OWNED (1)
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT
- ---- ---------------- --------
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors
(2)....................................................... 8,291,762 47.5%
Anthony J. Cuti (3)......................................... 904,125 4.9%
David L. Jaffe (4).......................................... -- --
Nicole S. Arnaboldi (4)..................................... -- --
Carl M. Pradelli............................................ -- --
Gary Charboneau (5)......................................... 419,253 2.4%
Jerry M. Ray (6)............................................ 218,723 1.2%
William J. Tennant (7)...................................... 120,086 *
Kevin Roberg (8)............................................ 12,800 *
David W. Johnson (9)........................................ 11,000 *
John K. Henry............................................... -- --
All executive officers and directors as a group (10
persons)(10).............................................. 1,685,987 9.0%
</TABLE>
- ------------------------
* Less than one percent
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares that such person has the right to acquire within
60 days after the date of this Proxy Statement. For purposes of calculating
the percentage of outstanding shares held by each person named above, any
shares that such person has the right to acquire within 60 days after the
date of this Proxy Statement are deemed to be outstanding, but not for the
purposes of calculating the percentage ownership of any other person.
(2) Consists of shares held directly by the following related investors, each of
whom is affiliated with DLJ: DLJ Merchant Banking Partners II, L.P.
("DLJMBPII"), 5,223,192 shares; DLJ Merchant Banking Partners II-A, L.P.
("DLJMBPII-A"), 208,012 shares; DLJ Offshore Partners II, C.V. ("DLJOPII"),
256,849 shares; DLJ Diversified Partners, L.P. ("DLJDP"), 305,371 shares;
DLJ Diversified Partners-A, L.P. ("DLJDPA"), 113,405 shares; DLJMB Funding
II, Inc. ("DLJMBFII"), 927,352 shares; DLJ Millennium Partners, L.P.
("Millennium"), 84,453 shares; DLJ Millennium Partners-A, L.P.
("Millennium-A"), 16,471 shares; DLJ EAB Partners, L.P. ("DLJEAB"), 23,452
shares; UK Investment Plan 1997 Partners ("UK Investment"), 138,196 shares;
and DLJ First ESC L.P. ("DLJ ESC" and, collectively with the aforementioned
entities, the "DLJMBPII Entities") 995,009 shares. See "Certain
Relationships and Related Transactions--DLJMB Relationships." The address of
each of DLJMBPII, DLJMBIIA, DLJDP, DLJDPA, DLJMBFII, Millennium,
Millennium-A, DLJEAB, and DLJ ESC is 277 Park Avenue, New York, New York
10172. The address of DLJOPII is c/o John B. Gorsiraweg, 14 Willemstad,
Curacao, Netherlands Antilles. The address of UK Investment is 2121 Avenue
of the Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. As a
general partner of each of DLJMBPII, DLJMBIIA, DLJOPII, Millennium and
Millennium-A, DLJMB may be deemed to beneficially own indirectly all of the
shares held directly by DLJMBPII, DLJMBIIA, DLJOPII, Millennium and
Millennium-A, and as the parent of each of DLJMB, DLJMBFII and DLJ LBO Plans
Management Corporation (the general partner of DLJEAB and DLJ ESC),
Donaldson, Lufkin &
7
<PAGE>
Jenrette Inc., the parent of DLJ ("DLJ Inc."), may be deemed to beneficially
own indirectly all of the shares held by DLJMBPII, DLJMBIIA, DLJOPII, DLJDP,
DLJDPA, DLJEAB, Millennium, Millennium-A, DLJMBFII, DLJ ESC and UK
Investment. The address of DLJ Inc. is 277 Park Avenue, New York, New York
10172.
(3) Includes 904,025 shares that could be acquired upon the exercise of
presently exercisable stock options.
(4) Ms. Arnaboldi and Mr. Jaffe are managing directors of DLJMB and DLJ
Diversified Partners, Inc. ("DLJDPI"). DLJMB is the managing general partner
of DLJMBPII, DLJMBPIIA, DLJOPII, Millennium and Millennium-A. DLJDPI is the
managing general partner of DLJDP and DLJDPA. As a result, Ms. Arnaboldi and
Mr. Jaffe may be deemed to beneficially own the shares of Common Stock held
by each of DLJMBPII, DLJMBIIA, DLJOPII, DLJDP, DLJDPA, Millennium and
Millennium-A. Ms. Arnaboldi and Mr. Jaffe expressly disclaim beneficial
ownership of such shares of Common Stock.
(5) Includes 110,516 shares that could be acquired upon the exercise of
presently exercisable stock options.
(6) Includes 178,033 shares that could be acquired upon the exercise of
presently exercisable stock options.
(7) Includes 120,086 shares that could be acquired upon the exercise of
presently exercisable stock options.
(8) Includes 10,000 shares that could be acquired upon the exercise of presently
exercisable stock options.
(9) Includes 10,000 shares that could be acquired upon the exercise of presently
exercisable stock options.
(10) Includes 1,332,660 shares that could be acquired upon the exercise of
presently exercisable stock options.
8
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the current executive officers and key
employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ---------------------------------------------------
<S> <C> <C>
Anthony J. Cuti........................... 54 Chairman, Chief Executive Officer and President
John K. Henry............................. 50 Senior Vice President, Chief Financial Officer,
Secretary
Gary Charboneau........................... 55 Senior Vice President--Sales and Merchandising
Jerry M. Ray.............................. 52 Senior Vice President--Store Operations
William J. Tennant........................ 52 Senior Vice President, Planning & Logistics
</TABLE>
ANTHONY J. CUTI has been Chairman of the Board, President and Chief
Executive Officer of the Company since April 1996. Prior to joining the Company,
Mr. Cuti served as President and as a member of the Board of Directors of
Supermarkets General and Pathmark from 1993 to 1996 and, prior to being named
President of Supermarkets General and Pathmark, Mr. Cuti was Executive Vice
President and Chief Financial Officer of Supermarkets General. From 1984 to
1990, he was the Chief Financial Officer of the Bristol-Myers International
Group of the Bristol-Myers Company and prior to that was employed by the Revlon
Corporation.
JOHN K. HENRY has been Senior Vice President and Chief Financial Officer
since August of 1999. Prior to joining the Company, Mr. Henry was Senior Vice
President and Chief Financial Officer of Global Household Brands from 1998 to
1999, Executive Vice President and Chief Financial Officer of Rickel Home
Centers from 1994 to 1998 and Vice President of Finance of Supermarkets General
Holdings Corporation from 1992 to 1994.
GARY CHARBONEAU has been Senior Vice President in charge of Sales and
Merchandising of the Company since February 1993. Prior to joining the Company,
Mr. Charboneau held various positions at CVS, a retail drugstore chain, from
1978 to February 1993, most recently as Executive Vice President.
JERRY M. RAY has been Senior Vice President in charge of Store Operations
since July 1996 and served as Vice President of Pharmacy Operations from
April 1995 to June 1996. From 1991 to 1994, Mr. Ray served as President and CEO
of Begley Drugstores, Inc.
WILLIAM J. TENNANT has been Senior Vice President--Planning and Logistics
since August of 1999. Prior to that Mr. Tennant was Senior Vice President, Chief
Financial Officer and Secretary of the Company since February 1997. Prior to
joining the Company, Mr. Tennant was Senior Vice President and Chief Financial
Officer of Tops Appliance City, a consumer electronics retailer, from 1993 to
1996. From 1986 to 1993, Mr. Tennant served as Vice President and Controller for
The Great Atlantic & Pacific Tea Company.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the principal components of compensation of
the Chief Executive Officer and the other four highest compensated executive
officers of the Company (the "Named Executive Officers") for the fiscal years
ended December 25, 1999, December 26, 1998 and December 27, 1997. The
compensation set forth below fully reflects compensation for services performed
on behalf of the Company and its subsidiaries. No options were granted during
fiscal 1998 to the Named Executive Officers.
DUANE READE
PROXY STATEMENT--COMPENSATION
<TABLE>
<CAPTION>
L/T COMP.
---------
OTHER ANNUAL STOCK ALL OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- ---- ------------------ -------- -------- ---------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Cuti...... Chief Executive 1999 $650,000 $1,300,000 -- 214,632 $266,940
Officer 1998 $500,000 $1,000,000 -- -- $281,683
1997 $386,000 $ 475,000 -- 496,569 --
Gary Charboneau...... SVP--Sales & 1999 $290,109 $ 360,000 -- 92,316 $138,560
Merchandising 1998 $266,539 $ 324,000 -- -- $146,212
1997 $243,000 $ 121,600 -- 141,877 --
Jerry M. Ray......... SVP--Store 1999 $230,109 $ 240,000 -- 73,853 $ 72,568
Operations 1998 $212,404 $ 215,000 -- -- $ 76,576
1997 $200,000 $ 100,000 -- 118,231 --
William J. Tennant... SVP--Planning & 1999 $198,481 $ 105,000 -- 23,463 $ 55,822
Logistics 1998 $187,404 $ 190,000 -- -- $ 58,905
1997 $151,000(2) $ 61,300 -- 115,393 --
John K. Henry........ SVP--Chief 1999 $ 98,604(3) $ 100,000 -- 50,000 --
Financial Officer 1998 -- -- -- -- --
1997 -- -- -- -- --
</TABLE>
- ------------------------
(1) Reflects amounts consisting of the term and non-term portion of a
split-dollar life insurance program.
(2) Reflects a partial period beginning with the initial date of employment.
Mr. Tennant's employment with the Company began on February 18, 1997.
(3) Reflects a partial period beginning with the initial date of employment.
Mr. Henry's employment with the Company began on August 2, 1999.
AGGREGATE OPTION EXERCISE IN FISCAL YEAR ENDED
DECEMBER 25, 1999 AND FISCAL YEAR-END OPTION VALUES
The following table summarizes the number and value of all unexercised
options held by the Named Executive Officers at the end of fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
SHARES UNDERLYING VALUE --------------------------- ----------------------------
NAME OPTIONS EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Cuti...... -- -- 861,099 214,632 $16,210,891 $ --
Gary Charboneau...... 105,836 $3,091,084 92,054 92,316 $ 1,516,090 $ --
Jerry M. Ray......... -- -- 163,262 73,853 $ 2,886,906 $ --
William J. Tennant... -- -- 115,393 23,463 $ 1,861,204 $ --
John K. Henry........ -- -- -- 50,000 $ -- $ --
</TABLE>
10
<PAGE>
CONTRACTS WITH NAME EXECUTIVE OFFICERS
Effective June 18, 1997, the Company entered into an employment agreement
with Anthony J. Cuti (the "Cuti Employment Agreement"). The Cuti Employment
Agreement was amended effective as of March 13, 2000. Pursuant to the Cuti
Employment Agreement, Mr. Cuti serves as Chairman, President and Chief Executive
Officer of the Company. The Cuti Employment Agreement provides for (i) a base
salary of $425,000 per year, which will increase to $500,000 in 1998 and
$550,000 in 1999 if certain EBITDA (earnings before interest, taxes,
depreciation, amortization, other non-cash items, non-recurring charges and
extraordinary charges) targets (as defined in the Cuti Employment Agreement) are
met (subject to additional increases as determined by the Compensation Committee
of the Board of Directors). Mr. Cuti's salary as determined by the Compensation
Committee for 1999 amounted to $650,000. Under the Cuti Employment Agreement,
commencing July 1, 2001 Mr. Cuti's base salary will increase every 18 months by
not less than the percentage increase in a designated consumer price index for
such 18-month period, (ii) an annual incentive bonus of up to 200% of base
salary based on certain EBITDA targets, (iii) participation in all benefit plans
generally available to executive officers of the Company and (iv) severance
benefits.
Pursuant to the Cuti Employment Agreement and the Equity Plan described
below, on June 18, 1997, Mr. Cuti was granted non-qualified stock options to
purchase an aggregate of 496,569 shares of Common Stock at an exercise price of
$8.33 per share. Subject to Mr. Cuti's continued employment with the Company,
the options generally will become 100% vested on the eighth anniversary of the
date of grant, but may vest sooner based on the Company's achievement of certain
specified financial targets. Furthermore, the vesting of options will accelerate
upon the occurrence of a sale of the Company (as defined in the Cuti Employment
Agreement) on or prior to December 30, 2001, based on the Company's achievement
of specified financial targets prior to the date of any such sale of the
Company.
The Cuti Employment Agreement provides that Mr. Cuti may generally only
transfer up to 10% of his shares of Common Stock in each calendar year while he
is an employee of the Company, except pursuant to certain rights and obligations
(i) to transfer ("put") his shares to the Company upon termination of employment
and (ii) to transfer shares in connection with certain transfers of Common Stock
by DLJMBPII. The Cuti Employment Agreement also provides that Mr. Cuti will be
given the opportunity to invest additional amounts in stock of the Company in
the event that DLJMBPII invests new equity in the Company or creates an
instrument that may be dilutive to Mr. Cuti's equity position relative to
DLJMBPII.
Mr. Cuti's initial term of employment under the Cuti Employment Agreement is
five years and, unless terminated by notice of non-renewal by either the Company
or Mr. Cuti, will continue thereafter for successive one-year periods. Pursuant
to the Cuti Employment Agreement, if the Company terminates Mr. Cuti without
"cause" (as defined in the Cuti Employment Agreement) or by notice of
non-renewal or Mr. Cuti resigns with "good reason" (as defined in the Cuti
Employment Agreement), Mr. Cuti will generally be entitled to receive
substantially equal installment payments over the 24-month period following such
termination in an aggregate amount equal to five times the Earnings Amount
(defined as, for any applicable period, the greater of (a) the sum of base
salary and bonuses earned during such period or (b) an amount determined
pursuant to the formula set forth in the Cuti Employment Agreement) and employee
benefits for a two year period, which, under certain circumstances, including
Mr. Cuti's termination of employment prior to June 18, 2003 and within one year
following a sale of the Company, may be extended by one year. Additionally, the
vesting of Mr. Cuti's options may accelerate upon such a termination of
employment, based on the Company's financial performance prior to such
termination and whether a Sale of the Company has occurred. The Cuti Employment
Agreement also contains certain non-compete, non-solicitation and
confidentiality provisions, as well as provisions for a gross-up payment if
Mr. Cuti is subject to any excise tax relating to certain payments made in
connection with a change of control. In addition, on November 9, 1998 the
Company extended Mr. Cuti a $2.0 million loan. See also "Certain Relationships
and Related Transaction--Cuti Loan Agreements."
11
<PAGE>
The Company has also entered into agreements with Messrs. Charboneau and Ray
and certain other executives that provide for their initial base salary as well
as annual incentive bonuses based on certain EBITDA targets. Mr. Charboneau's
employment agreement provides for an annual base salary of $220,000 and for
additional increases from time to time as the Company may determine. Mr. Ray's
employment agreement provides for an annual base salary of $150,000 and for
additional increases from time to time as the Company may determine. Each of
Messrs. Charboneau and Ray are entitled to severance payments equaling
12 months of their respective salaries if they are terminated without "cause"
(as respectively defined in the agreements).
The Company's agreement with Mr. Tennant provides for payment of an annual
base salary of $175,000 per year as well as for payment of annual incentive
bonuses based upon achievements of certain financial targets. Mr. Tennant's
agreement also provides for the grant of stock options to acquire an aggregate
of 68,101 shares of Common Stock at an exercise price of $7.34 per share. These
options vested on June 18, 1997. The agreement also provides for 12 months of
salary continuation in the event Mr. Tennant is terminated without cause.
The Company's agreement with Mr. Henry provides for payment of an annual
base salary of $245,000 per year as well as for payment of annual incentive
bonuses based upon achievements of certain financial targets. Mr. Henry's
agreement also provides for the grant of stock options to acquire an aggregate
of 50,000 shares of Common Stock at an exercise price of $29.375 per share.
These options were granted under the Equity Plan. The agreement also provides
for 12 months of salary continuation in the event Mr. Henry is terminated
without cause.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has established the Supplemental Executive Retirement Plan
("SERP"), an unfunded retirement plan that provides a lump sum benefit equal to
the actuarial present value of a life annuity commencing at the later of age 65
or termination of employment for any reason other than for "cause." The SERP
benefit is calculated as a percentage of a participant's Earnings Amount
(defined as, for any applicable period, the greater of (a) the sum of base
salary and bonuses earned by the participant during such period or (b) a formula
amount). Currently, Mr. Cuti is the only SERP participant. Mr. Cuti's estimated
SERP benefit, based on the average of his 1996, 1997, 1998, 1999 annualized
includable compensation and upon discount rates effective for termination of
employment in December 1999, is estimated to be $1,047,000, if termination of
employment occurs after 10 years of employment, when Mr. Cuti will be age
60 1/2, or $2,169,000 if termination of employment occurs after 14 1/2 years of
employment, when Mr. Cuti will be age 65. Pursuant to the Cuti Employment
Agreement, the Company is required to set aside funds in a "rabbi trust" to pay
Mr. Cuti's SERP benefit in specified circumstances, including a sale of the
Company, termination without "cause" and resignation for "good reason" (as
respectively defined in the Cuti Employment Agreement). Furthermore, in the
event of his termination without "cause" or by reason of the Company's
non-renewal, his resignation for "good reason," or his death or disability,
Mr. Cuti's SERP benefit will be calculated on the basis of 20 years of
employment regardless of his actual number of years of employment with the
Company (the present value of which was approximately $1,301,000 as of
December 25, 1999.
STOCK OPTIONS
1992 STOCK OPTION PLAN. The Board of Directors adopted and the Company's
stockholders approved the 1992 Stock Option Plan (the "1992 Plan") in
September 1992. Under the 1992 Plan, the Board of Directors may grant to
executive and other key employees of the Company nonqualified stock options to
purchase up to an aggregate of 510,757 shares of Common Stock of the Company at
exercise prices and terms specified by the Board of Directors.
At December 25, 1999, there were outstanding nonqualified stock options
issued under the 1992 Plan to purchase up to an aggregate of 169,692 shares of
Common Stock of the Company at exercise prices ranging from $0.58 to $40.86 per
share. The 1992 Plan was frozen as to the future grants following the
12
<PAGE>
initial public offering of the Company's Common Stock. All options issued under
the 1992 Plan are 100% vested.
1997 EQUITY PARTICIPATION PLAN. As of June 18, 1997, the Board of Directors
and stockholders of the Company approved the 1997 Equity Participation Plan (the
"Equity Plan"), which was approved as amended at the annual meeting of the
stockholders on May 6, 1999. Since consummation of the initial public offering
of the Company's Common Stock, the Equity Plan has been administered by the
Compensation Committee. The Board of Directors is authorized under the Equity
Plan to select the individuals to whom awards will be made (the "Participants")
and determine the terms and conditions of the awards under the Equity Plan. An
aggregate 1,971,181 shares of Common Stock of the Company have been reserved for
issuance under the Equity Plan, subject to certain adjustments reflecting
changes in the Company's capitalization. The Equity Plan provides that no
Participant may receive awards relating to more than 480,429 shares of Common
Stock per year. As of March 27, 2000, options to purchase 1,935,577 shares were
issued and options to purchase 1,825,453 shares were outstanding with respect to
the Equity Plan.
DEFERRED BONUS PLAN
The Company has established a Supplemental Deferred Bonus Plan (the
"Supplemental Bonus Plan") in which approximately 20 key management employees
participate. The Supplemental Bonus Plan provides that a cash bonus payment may
be paid to each participating employee on the fourth anniversary of the plan
(May 6, 2003) in an amount equal to the anticipated appreciation of a quantity
of stock options granted to the employees under the Company's 1997 Equity
Participation Plan. The cash payment will only be made if the actual
appreciation of the stock options during the four year period falls below the
anticipated appreciation. In order to receive payment, the plan participant must
be on the Company's active payroll as an employee in good standing on the
payment date. All of the Named Executive Officers except Mr. Henry are
participants in this plan. The Named Executive Officer participants have agreed
to limit any cash payments to be made to them under this plan to (i) an event of
a change in control of the Company or (ii) in the event that such Named
Executive Officer is terminated by the Company without good cause. The maximum
amount the cash bonuses payable to participating employees under the
Supplemental Bonus Plan ranges from $10,000 to $1,000,000.
13
<PAGE>
REPORT OF COMPENSATION COMMITTEE
In accordance with the rules and regulations of the SEC, the following
report of the Compensation Committee and the performance graph appearing
immediately thereafter shall not be deemed to be "soliciting material" or to be
"filed" with the SEC or subject to Regulations 14A or 14C of the Exchange Act,
or to the liabilities of Section 18 of the Exchange Act and shall not be deemed
to be incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Exchange Act, notwithstanding any general incorporation
by reference of this Proxy Statement into any other filed document.
SCOPE OF THE COMPENSATION COMMITTEE; MEMBERS
In 1999, the Compensation Committee was composed of three non-employee
directors: Messrs. Jaffe, Johnson and Roberg. Within the Compensation Committee,
Messrs. Johnson and Roberg served as the members of the 162(m) Subcommittee. The
162(m) Subcommittee, comprised solely of members who are "outside directors"
under Section 162(m) of the Internal Revenue Code, administers grants under the
Equity Plan to employees and consultants.
The Compensation Committee is required to review and approve all aspects of
the compensation paid to the Company's Chief Executive Officer and the four
other most highly paid executive officers, all salaries and salary increases for
executives whose annual base salary is $180,000 or greater and all agreements
providing for the payment of benefits following a change in control of the
Company or severance following a termination of employment. The Compensation
Committee also reviews and approves the terms of each incentive compensation and
bonus program in effect for employees of the Company who are at or above
management level and the aggregate amounts which can be awarded thereunder each
year. The 162(m) Subcommittee, comprised solely of members who are "outside
directors" under Section 162(m) of the Internal Revenue Code, administers grants
under the Company's Equity Plan to employees and consultants.
EXECUTIVE COMPENSATION FOR FISCAL 1999
The Compensation Committee's philosophy regarding compensation of executive
officers recognizes the need to honor existing employment agreements and the
belief that executives should be compensated at competitive levels that are
sufficient to attract and retain highly talented employees. Inherent in the
compensation philosophy is the emphasis on performance-based compensation. The
Company's executive compensation package currently consists of a mix of salary,
bonus awards and stock option grants as well as benefits plans offered by the
Company. The Company is currently considering implementing other long term
compensation programs and may do so prior to the end of 2000.
SALARY. The level of annual compensation for individual executive officers
is based upon a number of factors. The Compensation Committee took into account
a combination of the individual executive officer's performance and the
performance of the Company and the individual aspect of the Company's business
for which such person was responsible, the scope of such person's
responsibility, and the current compensation package in place for that officer.
Increases in an executive's annual base salary are dependent on such person's
performance, company-wide financial results and on general levels of wages and
price inflation.
BONUSES. In fiscal 1999 performance targets for executives were tied to the
attainment of specified levels of EBITDA, net revenue, operating income and cash
flow. In addition, a portion of each individual's award was granted on a
discretionary basis by his or her division head or the Chief Executive Officer,
or in the case of the four most highly paid executive officers other than the
Chief Executive Officer, whose bonus is determined solely under the Cuti
Employment Agreement, by the Compensation Committee, following an assessment of
each individual's performance.
EQUITY GRANTS. In keeping with the goal of enhancing the Company's
profitability and continuing to build stockholder value, the Company's long-term
compensation programs are designed to reward growth in stockholder value, as
well as to reward long-term service to the Company. Long term incentive rewards
14
<PAGE>
are made under the Equity Plan, based on recommendations submitted to the
Compensation Committee and the 162(m) Subcommittee by the Company's Chief
Executive Officer. In fiscal 1999, awards consisted of grants of stock options
having exercise prices equal to 100% of the fair market value of the Company's
Common Stock on the date of grant. The Equity Plan was amended on May 6, 1999 to
increase the number of shares of Common Stock authorized for issuance over the
term of the Equity Plan from 1,321,181 to 1,971,181.
The future value of these options is directly linked to increases in the
price of the Company's Common Stock, thereby linking long-term compensation to
increased stockholder value and continuing service to the Company. The terms of
options granted under the Equity Plan, including vesting, exercisability and
option term, are determined by the Compensation Committee, based upon relative
position and responsibilities of each executive officer, historical and expected
contributions of each officer of the Company, previous option grants to
executive officers and a review of the competitive equity compensation for
executive officers of similar rank in companies that are comparable to the
Company's industry and size. The value of awards under the Equity Plan is
primarily dependent upon increases in the price of the Company's Common Stock
over a period of up to ten years. Generally, the Equity Plan requires employees
to remain employed by the Company throughout the period in order to receive
their awards.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Tax laws limit the deduction a
publicly held company is allowed for compensation paid to certain executive
officers. Generally, amounts paid in excess of $1.0 million to a covered
executive, other than performance-based compensation, cannot be deducted. The
Compensation Committee considers ways to maximize deductibility of executive
compensation, but the Compensation Committee retains the flexibility it deems
necessary to compensate executive officers in a manner commensurate with
performance and the competitive environment for executive talent regardless of
the ultimate deductibility of such compensation.
CEO COMPENSATION FOR FISCAL 1999
Mr. Cuti's $650,000 base salary represents his salary for serving as the
Company's President and CEO. Mr. Cuti's base salary was determined by the
Compensation Committee of the Board of Directors after consideration of the
strong financial performance of the Company during the period that Mr. Cuti has
served as Chief Executive Officer. The Cuti Employment Agreement sets specific
targeted base EBITDA (the "Base EBITDA Target") for each fiscal year from 1997
through 2001. The Cuti Employment Agreement defines the Company's EBITDA to
include the Company's earnings before interest, income taxes, depreciation,
amortization, extraordinary charges, nonrecurring charges and other non-cash
items, but excluding any costs associated with the Recapitalization and
excluding any extraordinary or unusual expenses associated with the Company's
initial public offering in February 1998. As calculated pursuant to the Cuti
Employment Agreement, the Company's EBITDA for 1999 was $85.8 million, which
exceeded the Base EBITDA Target for 1999.
Mr. Cuti's 1999 bonus was $1,300,000. Pursuant to the Cuti Employment
Agreement, Mr. Cuti's bonus is based on certain EBITDA targets for 1999. If the
Company's 1999 EBITDA equals or exceeds 110% the Base EBITDA Target for 1999 set
forth in the Cuti Employment Agreement, Mr. Cuti is entitled to receive a target
bonus equal to 100% of his base salary and an additional incentive bonus also
equal to 100% of his base salary, or together, $1,300,000. The Company's EBITDA
for 1999 (as calculated pursuant to the Cuti Employment Agreement) was
$85.8 million. Such amount exceeded the Base EBITDA Target by more than 110%.
The Cuti Employment Agreement also dictates the vesting of the non-qualified
stock options to purchase 496,569 shares of the Company's Common Stock granted
to Mr. Cuti under the Cuti Employment Agreement. Such options will not
completely vest until December 30, 2001 unless certain EBITDA targets are met,
in which case vesting of the options will accelerate. The Company's EBITDA for
1998 and 1999 exceeded the Base EBITDA Targets for 1999 and 2000, respectively
which, under the Cuti Employment Agreement, caused the immediate vesting of
options to purchase 269,566 and 170,252 shares of the
15
<PAGE>
Company's Common Stock on December 26, 1998 and December 25, 1999, respectively.
This accelerated vesting along with the annual vesting has resulted in all of
the 496,596 shares being exercisable at December 25, 1999.
In addition, in March 1999, the Company issued to Mr. Cuti options to
purchase 180,000 shares of Common Stock under the Equity Plan. These options
have an exercise price of $25.25 per share, which was the fair market value per
share of the Common Stock on March 23, 1999, the date the options were issued.
These options were issued along with options to the other executive officers of
the company as well as many of the Company's other employees. In May 1999, the
Company issued to Mr. Cuti options to purchase 38,462 shares of Common Stock
under the Equity Plan. These options were issued in connection with the
Company's Deferred Bonus Program. They vest in May 2001, and they have an
exercise price of $28.875 per share, which was the fair market value per share
of the Common Stock on May 7, 1999, the date the options were issued.
The foregoing has been approved by all members of the Compensation
Committee.
DUANE READE INC.
COMPENSATION COMMITTEE
David L. Jaffe
David W. Johnson
Kevin Roberg
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the consummation of its initial public offering, the Company did
not have a compensation committee. Instead, compensation decisions regarding the
Company's executive officers were made by the Board of Directors. Each executive
officer of the Company has an employment agreement with the Company that
establishes his annual compensation. See "--Contracts with Named Executive
Officers."
Mr. Jaffe is a Managing Director of DLJMB. For a description of the
relationship and transactions between the Company and DLJMB and certain of its
affiliates, see "Certain Relationships and Related Transactions" and "Security
Ownership of Certain Owners and Management."
STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return of companies in the
Russell 2000 Index and companies in the S&P Retail (Drug Stores) Index for the
period beginning February 11, 1998 (the date of the Company's initial public
offering) and ending December 31, 1999. The graph assumes that the value of the
investment in the Company and in each index was $100 on February 11, 1998 and
assumes that all dividends were reinvested. Companies in the Russell 2000 Index
have similar market capitalization to the Company, and the Company was one of
the companies included in the Russell 2000 Index during 1998 and 1999. The
Company has also selected the S&P Retail (Drug Stores) Index, which consists of
CVS, Rite Aid, Walgreen and Longs Drugs.
COMPARISON OF 22 MONTH CUMULATIVE TOTAL RETURN(*)
AMONG DUANE READE INC., RUSSELL 2000 INDEX AND S&P RETAIL (DRUG STORES) INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
DUANE READE INC RUSSELL 2000 S&P RETAIL DRUG STORES
2/11/998 100 100 100
3/31/98 155 112 110
6/30/98 182 109 110
9/30/98 230 87 125
12/31/98 233 101 163
3/31/99 169 86 136
6/30/99 185 100 143
9/30/99 183 92 116
12/31/99 167 94 123
</TABLE>
- ------------------------
* $100 invested on February 11, 1998 in stock or on January 31, 1998 in index,
including reinvestment of dividends.
17
<PAGE>
OTHER BUSINESS FOR MEETING
The Board of Directors does not know of any materials that will be presented
for action at the 2000 Annual Meeting other than those described above and
matters incident to the conduct of the meeting. If, however, any other matters
not presently known to management should come before the 2000 Annual Meeting, it
is intended that the shares represented by the accompanying proxy will be voted
on such matters in accordance with the discretion of the holders of such proxy.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP
to audit the accounts of the Company with respect to its operations for the
fiscal year ending on December 30, 2000 and to perform such other services as
may be required. Should the firm be unable to perform these services for any
reason, the Board of Directors will appoint other independent auditors to
perform these services. PricewaterhouseCoopers LLP served as independent
auditors of the Company for the fiscal year ending December 25, 1999.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires directors, officers and persons
who beneficially own more than 10% of a registered class of stock of the Company
to file initial reports of ownership (Form 3) and reports of changes in
beneficial ownership (Forms 4 and 5) with the Commission and the New York Stock
Exchange. Such persons are also required under the rules and regulations
promulgated by the Commission to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms, as amended, furnished
to the Company, the Company believes that its directors, officers and greater
than 10% beneficial owners complied with all applicable Section 16(a) filing
requirements except as follows: Messrs. David Johnson and Kevin Roberg, through
inadvertence, were late by a few days in filing a Form 5 for 1998. The Company
believes that all holdings and transactions of Mr. Johnson and Mr. Roberg have
been properly and timely disclosed in the Company's quarterly and annual
reports.
STOCKHOLDER PROPOSALS FOR 2001
Any stockholder of the Company who wishes to present a proposal at the next
annual meeting of stockholders of the Company, and who wishes to have such
proposal included in the Company's proxy statement for the meeting, must in
accordance with Rule 14a-8 of the Exchange Act, deliver a copy of such proposal
to the Company at 440 Ninth Avenue, New York, New York 10001, Attention:
Secretary, no later than November 30, 2000; however, if next year's annual
meeting of stockholders is held on a date more than 30 days before or after the
corresponding date of the 2000 Annual Meeting, any stockholder who wishes to
have a proposal included in the Company's proxy statement and proxy for that
meeting must deliver a copy of the proposal to the Company within a reasonable
time before the proxy solicitation is made. The Company reserves the right to
decline to include in the Company's proxy statement and proxy any stockholder's
proposal that does not comply with the rules of the Commission and/or the
By-laws for the inclusion therein.
ANNUAL REPORT
The Company's 1999 Annual Report to Stockholders was mailed to stockholders
on April 5, 2000. The 1999 Annual Report to Stockholders does not form any part
of the materials for the solicitation of proxies. Upon written request, the
Company will provide stockholders with a copy of its Annual Report on Form 10-K
for the year ended December 25, 1999 (the "Form 10-K"), as filed with the
Commission, and any amendments thereto, without charge. Please direct written
requests for a copy of the Form 10-K, and any amendments thereto, to: Duane
Reade Inc., 440 Ninth Avenue, New York, New York 10001; Attention: Secretary.
18
<PAGE>
APPENDIX 1
SPECIMEN OF PROXY CARD
DUANE READE INC.
The undersigned hereby appoints Anthony J. Cuti and John K. Henry, each
of them with full power of substitution, to act as proxy and to represent the
undersigned at the 1999 annual meeting of stockholders and to vote all shares
of Common Stock of Duane Reade Inc. that the undersigned is entitled to vote
and would possess if personally present at said meeting to be held at, on May
1, 1999 at 2:00 p.m., Eastern Standard time, and at all postponements or
adjournments thereof upon the following matters:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ON THE
REVERSE SIDE. PROXIES ARE GRANTED THE DISCRETION TO VOTE UPON ALL OTHER
MATTERS THAT MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR ANY POSTPONEMENT
OR ADJOURNMENT THEREOF.
/X/ Please Mark your votes as indicated in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES.
1. Election of Directors
Nominees: Anthony J. Cuti, Nicole S. Arnaboldi, David L. Jaffe,
Carl M. Pradelli, Kevin Roberg, David W. Johnson
FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES
/ / / /
/ / --------------------------------------------------
FOR, except as noted above.
<PAGE>
MARK HERE IF
YOU PLAN TO ATTEND
THE MEETING / /
MARK HERE FOR
ADDRESS CHANGE AND
NOTE AT LEFT / /
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
<TABLE>
<S> <C> <C> <C>
Signature Date Signature Date
--------------------------- ---------------- --------------------------- ----------------
</TABLE>
NOTE: Please sign exactly as name appears on this card. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
