UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) DECEMBER 31, 2004
DUANE READE INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
--------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
001-13843 04-3164702
--------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
440 NINTH AVENUE
NEW YORK, NEW YORK 10001
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 273-5700
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION
UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
On December 31, 2004, the registrant leased photo processing
equipment for its stores for a term of 5 years. This equipment replaces similar
equipment which was also leased. The new lease is a capital lease for accounting
purposes; consequently, the registrant will record a capital lease obligation of
$13.5 million in the first quarter of 2005. As was the case in the agreements
relating to the lease of the prior equipment, the lease payments can be
accelerated if the registrant fails to make the required payments under the
lease agreements, files for bankruptcy or fails to properly insure the
equipment.
On January 4, 2005, the registrant borrowed $19.0 million under
the registrant's Credit Agreement, dated as of July 21, 2003 (as amended by a
First Amendment dated as of July 22, 2004), by and among the registrant and
Duane Reade, a New York general partnership, as borrowers, and DRI I Inc., Duane
Reade International, Inc., Duane Reade Realty, Inc. and Duane Reade Holdings,
Inc., all of which are Delaware corporations, as guarantors (the "Revolving
Credit Facility"). For more information regarding the terms of the Revolving
Credit Facility, see the registrant's report on Form 10-Q for the quarterly
period ended September 25, 2004 under "Note 7. Debt - Revolving Credit
Facility".
The $19.0 million of borrowings under the Revolving Credit
Facility were used to make a payment in the amount of $19.0 million to the
registrant's Chief Executive Officer and President, Mr. Anthony J. Cuti, as part
of the amounts payable in connection with the registrant's election to terminate
the registrant's obligation under Mr. Cuti's Supplemental Executive Retirement
Plan ("SERP") as agreed in connection with the acquisition of the registrant by
Oak Hill. Following this payment, the registrant's remaining obligation with
respect to the SERP amounts to $4.0 million, due to be paid to Mr. Cuti on or
before June 30, 2005.
Since 2002, the registrant has maintained a split dollar life
insurance policy designed to fund the obligations under the SERP. As of December
31, 2004, this insurance policy had a cash surrender value of approximately
$14.2 million. This policy must remain in place until the last payment in
connection with the termination of the SERP is made to Mr. Cuti. Accordingly,
the registrant could not use the cash surrender value to partially offset the
$19.0 million payment made to Mr. Cuti on January 4, 2005. Following the final
payment to Mr. Cuti of $4.0 million, which may be funded from additional
borrowings under the Revolving Credit Facility, the registrant anticipates using
the proceeds from the cash surrender value of the policy to reduce the then
current balance of borrowings under the Revolving Credit Facility.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.
On January 21, 2005, Mr. John P. Malfettone was elected as a
member of the board of directors of the registrant to serve in accordance with
the by-laws of the registrant until his successor is appointed and qualified, or
until his earlier resignation or removal.
On January 21, 2005, Messrs. Denis J. Nayden and John P.
Malfettone were elected as members of the board of directors of Duane Reade
Holdings, Inc. ("Holdings"), the sole shareholder of the registrant, to serve in
accordance with the by-laws of Holdings until their successors are appointed and
qualified, or until their earlier resignation or removal.
Mr. Malfettone is the Chief Operating Officer at Oak Hill Capital
Partners, L.P. ("Oak Hill"), which beneficially owns, together with certain
related entities, 100% of the registrant's common equity and 100% of the
outstanding common equity of Holdings. Mr. Nayden is a Managing Director at Oak
Hill.
Under a management services agreement between Oak Hill Capital
Management, Inc. (an affiliate of Oak Hill) and Duane Reade Acquisition Corp.,
Oak Hill Management, Inc. received a fee of $8.0 million at the closing of the
acquisition of the registrant by an investor group led by Oak Hill through the
merger of Duane Reade Acquisition Corp. into the registrant. Oak Hill
Management, Inc. agreed to provide financial advisory and management services to
the registrant as the registrant's Board of Directors may reasonably request
following the acquisition. In consideration of these services, Oak Hill Capital
Management, Inc. receives an annual fee of $1.25 million, paid quarterly.
Holdings is the common parent of an affiliated group of
corporations that includes the registrant and its subsidiaries. Holdings elected
to file consolidated federal income tax returns on behalf of the group.
Accordingly, Holdings, the registrant and its subsidiaries entered into a tax
sharing agreement, under which the registrant and its subsidiaries will make
payments to Holdings. These payments will not be in excess of the registrant's
and its subsidiaries' tax liabilities, if these tax liabilities have been
computed on a stand-alone basis.
A preemptive rights agreement was entered into among certain Oak
Hill entities, Duane Reade Shareholders, LLC, Holdings, the registrant and
Messrs. Anthony J. Cuti, Gary Charboneau, Timothy R. LaBeau, John K. Henry and
Jerry M. Ray. Mr. Cuti is the Chairman, President and Chief Executive Officer of
Holdings and the Chief Executive Officer, President and a Director of the
registrant. Mr. Henry is the Chief Financial Officer of Holdings and the Senior
Vice President and Chief Financial Officer of the registrant. Messrs.
Charboneau, LaBeau and Ray are Senior Vice Presidents of the registrant. The
preemptive rights agreement contains, among other things, certain preemptive
rights for management, providing that certain equity securities issued by Duane
Reade Shareholders, LLC or any of its subsidiaries to the members of Duane Reade
Shareholders, LLC (other than Mr. Cuti) must dilute the interests of all of the
parties to the preemptive rights agreement on a proportionate basis. In
connection with any such issuance of equity securities, each of Messrs. Cuti,
Charboneau, LaBeau, Henry and Ray have the right to purchase from the issuing
entity a percentage of equity securities being issued equal to their percentage
interest (including phantom stock interest) in Holdings as of such time (and, in
the case of Mr. Cuti, taking into account his interest in Duane Reade
Shareholders, LLC at such time).
Of the $195.0 million aggregate principal amount of 9 3/4% Senior
Subordinated Notes due 2011 sold by the registrant on July 30, 2004, $5.0
million aggregate principal amount of the senior subordinated notes was
purchased on behalf of accounts affiliated with Oak Hill Advisors, Inc. at a
discount from the applicable offering price. The purchase on behalf of the Oak
Hill Advisors accounts of the senior subordinated notes was conditioned upon and
closed subsequent to the closing of the resale by the initial purchasers of the
senior subordinated notes purchased by the initial purchasers. The Oak Hill
accounts acquire and actively manage a diverse portfolio of investments.
Of the $160.0 million aggregate principal amount of Senior
Secured Floating Rate Notes due 2010 sold by the registrant on December 20,
2004, $10.0 million aggregate principal amount of the floating rate notes was
purchased on behalf of accounts affiliated with Oak Hill Advisors at a discount
from the applicable offering price. The purchase on behalf of the Oak Hill
Advisors accounts of the floating rate notes was conditioned upon and closed
subsequent to the closing of the resale by the initial purchasers of the
floating rate notes purchased by the initial purchasers.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 8-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: January 26, 2005
DUANE READE INC.
By: /s/ John K. Henry
---------------------------
Name: John K. Henry
Title: Senior Vice President and
Chief Financial Officer