Exhibit 10.20

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT (this “Agreement”) dated as of July 21, 2003 by and among (a)
Duane Reade, a New York general partnership having its principal place of
business at 440 Ninth Avenue, New York, New York 10011 (the “Borrower”), (b)
each of the Persons listed on Schedule I hereto (each such Person, individually,
a “Facility Guarantor” and, collectively, the “Facility Guarantors”) (the
Borrower and the Facility Guarantors are hereinafter referred to, individually,
as a “Grantor” and, collectively, as the “Grantors”), and (c) Fleet Retail
Finance Inc., a Delaware corporation, as collateral agent (in such capacity, the
“Collateral Agent”) for the Secured Parties (as defined herein), in
consideration of the mutual covenants contained herein and benefits to be
derived herefrom.

 

WITNESSETH:

 

Reference is made to: (a) the Credit Agreement dated as of July 21, 2003 (as
such may be amended, modified, supplemented or restated hereafter, the “Credit
Agreement”) by and between, among others, (i) the Borrower, (ii) the Facility
Guarantors, (iii) the Lenders named therein, (iv) Fleet National Bank, as
Administrative Agent for the Lenders and as Issuing Bank, and (v) Fleet Retail
Finance Inc., as Collateral Agent for the Lenders; and (b) the Guarantee dated
as of July 21, 2003 executed by the Facility Guarantors in favor of the Agents,
the Lenders and the Issuing Bank (as such may be amended, modified, supplemented
or restated hereafter, the “Facility Guarantee”). Capitalized terms used herein
and not defined herein shall have the meanings assigned to such terms in the
Credit Agreement.

 

The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank has
agreed to issue Letters of Credit for the account of the Borrower, pursuant to,
and upon the terms and subject to the conditions specified in, the Credit
Agreement.  The Facility Guarantors have executed the Facility Guarantee,
pursuant to which each Facility Guarantor guarantees the Obligations of the
Borrower.  The obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit are each conditioned upon, among other things, the
execution and delivery by the Grantors of an agreement in the form hereof to
secure the Obligations.

 

Accordingly, the Grantors and the Collateral Agent, on behalf of itself and each
other Secured Party (and each of their respective successors or assigns), hereby
agree as follows:

 

I

 

Definitions

 

I.01                             Definition of Terms Used Herein. Unless the
context otherwise requires, all capitalized terms used but not defined herein
shall have the meanings set forth in the Credit Agreement, and all references to
the UCC shall mean the Uniform Commercial Code as in effect from time to time in
the State of New York.

 

I.02                             Definition of Certain Terms Used Herein.  As
used herein, the following terms shall have the following meanings:

 

“Account Debtor” shall have the meaning given that term in the UCC.

 

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“Accounts” shall include, without limitation, “accounts” as defined in the UCC,
and also all:  accounts, accounts receivable, receivables, and rights to payment
(whether or not earned by performance) (i) for property that has been or is to
be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services
rendered or to be rendered, (iii) for a policy of insurance issued or to be
issued, (iv) for a secondary obligation incurred or to be incurred, (v) for
energy provided or to be provided, (vi) for the use or hire of a vessel, (vii)
arising out of the use of a credit or charge card or information contained on or
used with that card, or (viii) for winnings in a lottery or other game of
chance.  The term “Accounts” shall also include Health-Care-Insurance
Receivables.

 

“Chattel Paper” shall have the meaning given that term in the UCC.

 

“Collateral” shall mean all assets of each Grantor, including, without
limitation, all (a) Accounts, (b) Documents, (c) Deposit Accounts (d) Commercial
Tort Claims, (e) Equipment, (f) General Intangibles, (g) Inventory, (h) Goods,
(i) Fixtures, (j) Chattel Paper, (k) Investment Property, (l) Letter-of-Credit
Rights, (m) Payment Intangibles, (n) Supporting Obligations, (o) Instruments,
(p) money, policies and certificates of insurance, deposits, cash, or other
property, (q) all books, records, and information relating to any of the
foregoing (including, without limitation, prescription files) and/or to the
operation of any Grantor’s business, and all rights of access to such books,
records, and information, and all property in which such books, records, and
information are stored, recorded and maintained, (r) all insurance proceeds,
refunds, and premium rebates, including, without limitation, proceeds of fire
and credit insurance, whether any of such proceeds, refunds, and premium rebates
arise out of any of the foregoing ((a) through (q)) or otherwise, (s) all liens,
guaranties, rights, remedies, and privileges pertaining to any of the foregoing
((a) through (r)), including the right of stoppage in transit, and (t) any of
the foregoing whether now owned or now due, or in which any Grantor has an
interest, or hereafter acquired, arising, or to become due, or in which any
Grantor obtains an interest, and all products, Proceeds, substitutions, and
accessions of or to any of the foregoing, but excluding in any case the Excluded
Collateral.

 

“Commercial Tort Claim” shall have the meaning given that term in the UCC.

 

“Credit Agreement” shall have the meaning assigned to such term in the
preliminary statement of this Agreement.

 

“Deposit Account” shall have the meaning given that term in the UCC and shall
also include all demand, time, savings, passbook, or similar accounts maintained
with a bank or other financial institution.

 

“Documents” shall have the meaning given that term in the UCC.

 

“Equipment” shall include, without limitation, “equipment” as defined in the
UCC, and also all furniture, store fixtures, motor vehicles, rolling stock,
machinery, office equipment, plant equipment, tools, dies, molds,  and other
similar goods, property, and assets which are owned by any Grantors and used
and/or purchased for use in the operation or furtherance of any Grantor’s
business, and any and all accessions or additions thereto, and substitutions
therefor.

 

“Excluded Collateral” shall mean (i) all rights to payment under any and all
key-man life insurance policies, split-level insurance policies or similar
policies maintained for the benefit of, and providing retirement or casualty
benefits for, directors and officers of the Borrower, and the spouses, heirs and
direct descendants of such Persons and (ii) all proceeds of, and payments due
and payable with respect to, the foregoing.

 

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“Fixtures” shall have the meaning given that term in the UCC.

 

“General Intangibles” shall include, without limitation, “general intangibles”
as defined in the UCC; and also all: Payment Intangibles; rights to payment for
credit extended; deposits; amounts due to any Grantor; credit memoranda in favor
of any Grantor; warranty claims; tax refunds and abatements; insurance refunds
and premium rebates; all means and vehicles of investment or hedging, including,
without limitation, options, warrants, and futures contracts; records; customer
lists; telephone numbers; goodwill; causes of action; judgments; payments under
any settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of any Grantor to enforce
same; permits, certificates of convenience and necessity, and similar rights
granted by any governmental authority; internet addresses and domain names;
developmental ideas and concepts; proprietary processes; blueprints, drawings,
designs, diagrams, plans, reports, and charts; catalogs; technical data;
computer software programs (including the source and object codes therefor),
computer records, computer software, rights of access to computer record service
bureaus, service bureau computer contracts, and computer data; tapes, disks,
semi-conductors chips and printouts; user, technical reference, and other
manuals and materials; patents, patent applications and patents pending; trade
secret rights, copyrights, copyright applications, mask work rights and
interests, and derivative works and interests; trade names, trademarks,
trademark applications, service marks, and service mark applications, together
with all goodwill connected with and symbolized by any of the foregoing; all
other general intangible property of any Grantor in the nature of intellectual
property; proposals; cost estimates, and reproductions on paper, or otherwise,
of any and all concepts or ideas, and any matter related to, or connected with,
the design, development, manufacture, sale, marketing, leasing, or use of any or
all property produced, sold, or leased, by  or credit extended or services
performed, by any Grantor, whether intended for an individual customer or the
general business of any Grantor, or used or useful in connection with research
by any Grantor.

 

“Goods” shall have the meaning given that term in the UCC, and shall also
include all things movable when a security interest therein attaches and also
all computer programs embedded in Goods and any supporting information provided
in connection with a transaction relating to the program if (i) the program is
associated with the Goods in such manner that it customarily is considered part
of the Goods or (ii) by becoming the owner of the Goods, a Person acquires a
right to use the program in connection with the Goods.

 

“Health-Care-Insurance Receivables” shall have the meaning given that term in
the UCC, and shall also mean an interest in, or claim under, a policy of
insurance or otherwise which is a right to payment of a monetary obligation for
health-care goods or services provided.

 

“Instruments” shall have the meaning given that term in the UCC.

 

“Inventory” shall include, without limitation, “inventory” as defined in the UCC
and also all: (a) Goods which (i) are leased by a Person as lessor, (ii) are
held by a Person for sale or lease or to be furnished under a contract of
service, (iii) are furnished by a Person under a contract of service, or (iv)
consist of raw materials, work in process, or materials used or consumed in a
business; (b) Goods of said description in transit; (c) Goods of said
description which are returned, repossessed and rejected; (d) packaging,
advertising, and shipping materials related to any of the foregoing; (e) all
names, marks, and General Intangibles affixed or to be affixed thereto or
associated therewith; and (f) Documents which represent any of the foregoing.

 

“Investment Property” shall have the meaning given that term in the UCC.

 

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“Letter-of-Credit Right” shall have the meaning given that term in the UCC, and
also shall refer to any right to payment or performance under a Letter of
Credit, whether or not the beneficiary has demanded or is at the time entitled
to demand payment or performance.

 

“Payment Intangible” shall have the meaning given that term in the UCC, and
shall also refer to any General Intangible under which the Account Debtor’s
primary obligation is a monetary obligation.

 

“Perfection Certificate” shall mean a certificate substantially in the form of
Annex 1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer of the Borrower.

 

“Proceeds” shall include, without limitation, “Proceeds” as defined in the UCC
and each type of property described in the definition of Collateral.

 

“Secured Parties” shall mean (a) the Lenders, (b) the Agents and their
Affiliates, (c) the Issuing Bank, (d) the Arranger, (e) the beneficiaries of
each indemnification obligation undertaken by any Grantor under any Loan
Document, (f) any other Person to whom Obligations under the Credit Agreement
and other Loan Documents are owing, and (g) the successors and assigns of each
of the foregoing.

 

“Supporting Obligation” shall have the meaning given that term in the UCC and
shall also refer to a Letter-of-Credit Right or secondary obligation that
supports the payment or performance of an Account, Chattel Paper, a Document, a
General Intangible, an Instrument, or Investment Property.

 

“Security Interest” shall have the meaning assigned to such term in Section 2.1.

 

I.03                             Rules of Interpretation.  The rules of
interpretation specified in Section 1.02 of the Credit Agreement shall be
applicable to this Agreement.

 

ARTICLE II

 

Security Interest

 

II.01                         Security Interest.  As security for the payment or
performance, as the case may be, in full of (i) the Obligations, and (ii) with
respect to the Facility Guarantors, the Facility Guarantee, each Grantor hereby
grants, assigns, mortgages, pledges, hypothecates and transfers to the
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, and hereby grants to the Collateral Agent, its successors and assigns,
for the benefit of the Secured Parties, a security interest in, all of such
Grantor’s right, title and interest in, to and under the Collateral (the
“Security Interest”).  Without limiting the foregoing, each Grantor hereby
designates the Collateral Agent as such Grantor’s true and lawful attorney,
exercisable by the Collateral Agent whether or not an Event of Default exists,
with full power of substitution, at the Collateral Agent’s option, to sign and
file one or more financing statements (including fixture filings), continuation
statements, or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor (each Grantor hereby appointing
the Collateral Agent as such Person’s attorney to sign such Person’s name to any
such instrument or document, whether or not an Event of Default exists), and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party.

 

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II.02                         No Assumption of Liability.  The Security Interest
is granted as security only and shall not subject the Collateral Agent or any
other Secured Party to, or in any way alter or modify, any obligation or
liability of any Grantor with respect to or arising out of the Collateral.

 

ARTICLE III

 

Representations and Warranties

 

The Grantors jointly and severally represent and warrant to the Collateral Agent
and the other Secured Parties that:

 

III.01                     Representations and Warranties Incorporated by
Reference.  Each Grantor hereby makes each of the representations and warranties
set forth in Article III of the Credit Agreement with respect to the Grantor as
a Loan Party.  Each such warranty and representation is incorporated herein by
reference.

 

III.02                     Title and Authority.  Each Grantor has good and valid
rights in, and title to, the Collateral with respect to which it has purported
to grant a Security Interest hereunder and has full power and authority to grant
to the Collateral Agent the Security Interest in such Collateral pursuant hereto
and to execute, deliver and perform its obligations in accordance with the terms
of this Agreement, without the consent or approval of any other Person other
than any consent or approval which has been obtained.

 

III.03                     Filings.  The Perfection Certificate has been duly
prepared, completed and executed, and the information set forth therein is
correct and complete.  UCC financing statements or other appropriate filings,
recordings or registrations containing a description of the Collateral have been
provided to the Collateral Agent for filing in each governmental, municipal or
other office as is necessary to publish notice of and protect the validity of
and to establish a legal, valid and perfected security interest in favor of the
Collateral Agent (for the benefit of the Secured Parties) in respect of all
Collateral in which the Security Interest may be perfected by filing, recording
or registration in the United States (or any political subdivision thereof) and
its territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under Applicable Law with respect to the filing
of continuation statements.

 

III.04                     Validity, Perfection and Priority of Security
Interest.  The Security Interest constitutes (a) a legal and valid security
interest in all of the Collateral securing the payment and performance of the
Obligations and the obligations under the Facility Guarantee, and (b) subject to
the filings described in Section 3.03 above, a perfected security interest in
all of the Collateral.  The Security Interest is and shall be prior to any other
Lien on any of the Collateral, subject only to those Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement.

 

III.05                     Absence of Other Liens.  The Collateral is owned by
the Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement.  The Grantors have not filed
or consented to the filing of (a) any financing statement or analogous document
under the UCC or any other Applicable Law covering any Collateral, (b) any
assignment in which any Grantor assigns any Collateral or any security agreement
or similar instrument covering any Collateral with the United States Patent and
Trademark Office or the United States Copyright Office or (c) any assignment in
which any Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with any foreign governmental, municipal or
other office, which financing statement or analogous document, assignment,
security agreement or similar

 

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instrument is still in effect, except, in each case, for Liens expressly
permitted pursuant to Section 6.02 of the Credit Agreement.

 

III.06                     Bailees, Warehousemen, Etc.  Except as otherwise
disclosed in the Perfection Certificate, no Inventory of any Grantor is in the
care or custody of any third party or stored or entrusted with a bailee or other
third party and none shall hereafter be placed under such care, custody,
storage, or entrustment.

 

III.07                     Consignments.  Other than pharmaceutical Inventory on
consignment from AmerisourceBergen Drug Corporation, no Grantor has, and none
shall have, possession of any material property on consignment.

 

ARTICLE IV

 

Covenants

 

IV.01                  Covenants Incorporated by Reference.  Each Grantor hereby
covenants and agrees that each Grantor shall perform, observe and otherwise
comply with the covenants set forth in Articles V and VI of the Credit Agreement
with respect to such Grantor as a Loan Party.

 

IV.02                     Change of Name; Location of Collateral; Records; Place
of Business.

 

(a)                                  Each Grantor agrees promptly to notify the
Collateral Agent in writing of (i) any change in its corporate name or in any
trade name used to identify it in the conduct of its business or in the
ownership of its properties, (ii) any change in the location of its chief
executive office, its principal place of business, any office in which it
maintains books or records relating to Collateral owned by it, or any office or
facility at which Collateral owned by it is located, including the establishment
of any such new office or facility, (iii) any change in its identity or
corporate structure, (iv) any change in its Federal Taxpayer Identification
Number or organizational number assigned to it by its state of organization, or
(v) the acquisition by any Grantor of any property for which additional filings
or recordings are necessary to perfect and maintain the Collateral Agent’s
Security Interest therein.  Each Grantor agrees not to effect or permit any
change referred to in the preceding sentence unless such Grantor has given to
the Collateral Agent at least ten (10) days prior written notice of any such
change in order to permit the Collateral Agent to make all filings under the UCC
or otherwise that are required in order for the Collateral Agent to continue at
all times following such change to have a valid, legal and perfected first
priority security interest in all of the Collateral.

 

(b)                                 Each Grantor agrees to maintain, at its own
cost and expense, such complete and accurate records with respect to the
Collateral owned by it as is consistent with its current practices and in
accordance with such prudent and standard practices used in industries that are
the same as, or similar to, those in which such Grantor is engaged, but in any
event to include complete accounting records indicating all payments and
proceeds received with respect to any part of the Collateral, and, at such time
or times as the Collateral Agent may reasonably request, promptly to prepare and
deliver to the Collateral Agent a duly certified schedule or schedules in form
and detail reasonably satisfactory to the Collateral Agent showing the identity,
amount and location of any and all Collateral.

 

IV.03                     Periodic Certification.   Each year, at the time of
delivery of annual financial statements with respect to the preceding fiscal
year pursuant to Section 5.01 of the Credit Agreement, the Borrower shall
deliver to the Collateral Agent a certificate executed by a Financial Officer of
the

 

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Borrower (a) setting forth the information required pursuant to Section 2 of the
Perfection Certificate or confirming that there has been no change in such
information since the date of the Perfection Certificate delivered on the
Closing Date or the date of the most recent certificate delivered pursuant to
this Section 4.03 and (b) certifying that all UCC financing statements
(including Fixture filings, as applicable) or other appropriate filings,
recordings or registrations, including all refilings, rerecordings and
reregistrations, containing a description of the Collateral have been filed of
record in each governmental, municipal or other appropriate office in each
jurisdiction to the extent necessary to protect and perfect the Security
Interest.

 

IV.04                     Protection of Security.  Each Grantor shall, at its
own cost and expense, take any and all actions reasonably necessary to defend
title to the Collateral against all Persons and to defend the Security Interest
of the Collateral Agent in the Collateral and the priority thereof against any
Lien not expressly permitted pursuant to Section 6.02 of the Credit Agreement.

 

IV.05                     Further Assurances.  Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with
the execution and delivery of this Agreement, the granting of the Security
Interest and the filing of any financing statements (including Fixture filings)
or other documents in connection herewith or therewith.  If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or instrument shall be
immediately pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.

 

IV.06                     Inspection and Verification.  Subject to, but without
limiting, the terms and conditions of Sections 5.09 and 5.10 of the Credit
Agreement, the Collateral Agent and such Persons as the Collateral Agent may
reasonably designate shall have the right, at the Grantors’ own cost and
expense, to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantors’ affairs with the officers of the
Grantors and their independent accountants and to verify  the validity, amount,
quality, quantity, value, condition and status of, or any other matter relating
to, the Collateral, including, in the case of Accounts or Collateral in the
possession of any third Person, by contacting Account Debtors or the third
Person possessing such Collateral for the purpose of making such a verification.
The Collateral Agent shall have the absolute right to share any information it
gains from such inspection or verification with any Secured Party.

 

IV.07                     Taxes; Encumbrances.  At its option, the Collateral
Agent may discharge material past due taxes, assessments, charges, fees, Liens,
security interests or other encumbrances at any time levied or placed on the
Collateral and not permitted pursuant to Section 6.02 of the Credit Agreement,
and may take any other action which the Collateral Agent may deem necessary to
repair, maintain or preserve any of the Collateral to the extent any Grantor
fails to do so as required by the Credit Agreement or this Agreement, and each
Grantor jointly and severally agrees to reimburse the Collateral Agent on demand
for any payment made or any expense incurred by the Collateral Agent pursuant to
the foregoing authorization; provided, however, that the Collateral Agent shall
not have any obligation to undertake any of the foregoing and shall have no
liability on account of any action so undertaken except where there is a
specific finding in a judicial proceeding (in which the Collateral Agent has had
an opportunity to be heard), from which finding no further appeal is available,
that the Collateral Agent had acted in actual bad faith or in a grossly
negligent manner; and provided further that the making of any such payments or
the taking of any such action by the Collateral Agent shall not be deemed to
constitute a waiver of any Default or Event of Default

 

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arising from the Grantor’s failure to have made such payments or taken such
action.  Nothing in this Section 4.07 shall be interpreted as excusing any
Grantor from the performance of any covenants or other promises of any Grantor
with respect to taxes, assessments, charges, fees, Liens, security interests or
other encumbrances and maintenance as set forth herein or in the other Loan
Documents.

 

IV.08                     Assignment of Security Interest.

 

(a)                                  If at any time any Grantor shall take a
security interest in any property of an Account Debtor or any other Person to
secure payment and performance of an Account, such Grantor shall promptly assign
such security interest to the Collateral Agent.  Such assignment need not be
filed of public record unless necessary to continue the perfected status of the
security interest against creditors of, and transferees from, the Account Debtor
or other Person granting the security interest.

 

(b)                                 To the extent that any Grantor is a
beneficiary under any written letter of credit now or hereafter issued in favor
of such Grantor, such Grantor shall deliver such letter of credit to the
Collateral Agent.  The Collateral Agent shall from time to time, at the request
and expense of such Grantor, make such arrangements with such Grantor as are in
the Collateral Agent’s reasonable judgment necessary and appropriate so that
such Grantor may make any drawing to which such Grantor is entitled under such
letter of credit, without impairment of the Collateral Agent’s perfected
security interest in such Grantor’s rights to proceeds of such letter of credit
or in the actual proceeds of such drawing.  At the Collateral Agent’s request,
such Grantor shall, for any letter of credit, whether or not written, now or
hereafter issued in favor of such Grantor as beneficiary, execute and deliver to
the issuer and any confirmer of such letter of credit an assignment of proceeds
form, in favor of the Collateral Agent and satisfactory to the Collateral Agent
and such issuer or (as the case may be) such confirmer, requiring the proceeds
of any drawing under such letter of credit to be paid directly to the Collateral
Agent.

 

IV.09                     Continuing Obligations of the Grantors.  Each Grantor
shall remain liable to observe and perform all the conditions and obligations to
be observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.

 

IV.10                     Use and Disposition of Collateral.  None of the
Grantors shall make or permit to be made an assignment, pledge or hypothecation
of the Collateral or shall grant any other Lien in respect of the Collateral or
shall grant control (as defined in the UCC) of any Collateral to any third
person, except as expressly permitted by Section 6.02 of the Credit Agreement. 
Except as expressly permitted in Section 6.05 of the Credit Agreement, none of
the Grantors shall make or permit to be made any transfer of the Collateral, and
each Grantor shall remain at all times in possession of the Collateral owned by
it, except that (a) Inventory may be sold in the ordinary course of business and
(b) unless and until the Collateral Agent shall notify the Grantors that an
Event of Default shall have occurred and be continuing and that the Grantors
shall not sell, convey, lease, assign, transfer or otherwise dispose of any
Collateral (which notice may be given by telephone if promptly confirmed in
writing), the Grantors may use and dispose of the Collateral in any lawful
manner not inconsistent with the provisions of this Agreement, the Credit
Agreement or any other Loan Document.

 

IV.11                     Limitation on Modification of Accounts.  None of the
Grantors will, without the Collateral Agent’s prior written consent, grant any
material extension of the time of payment of any of the Accounts, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any Person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, releases, credits,
discounts, compromises or settlements

 

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granted or made in the ordinary course of business and consistent with its
current practices and in accordance with such prudent and standard practices
used in industries that are the same as or similar to those in which such
Grantor is engaged.

 

IV.12                     Insurance.

 

(a)                                  Each Grantor shall (i) maintain or shall
cause to be maintained such insurance as is required pursuant to Section 5.07 of
the Credit Agreement; (ii) maintain such other insurance as may be required by
law; and (iii) furnish to the Collateral Agent, upon written request, full
information as to the insurance carried.

 

(b)                                 The Collateral Agent shall apply to the
Obligations any and all proceeds received by the Collateral Agent on account of
such insurance policies, as provided in Section 2.23 of the Credit Agreement and
Section 6.02 of this Agreement (as applicable).  All such insurance which covers
the Collateral shall include an endorsement in favor of the Collateral Agent,
which endorsement shall provide that the insurance, to the extent of the
Collateral Agent’s interest therein, shall not be impaired or invalidated, in
whole or in part, by reason of any act or neglect of any Grantor or by the
failure of any Grantor to comply with any warranty or condition of the policy.

 

(c)                                  Each Grantor irrevocably makes, constitutes
and appoints the Collateral Agent (and all officers, employees or agents
designated by the Collateral Agent) as such Grantor’s true and lawful agent (and
attorney-in-fact), for the purpose of making, settling and adjusting claims in
respect of Collateral under policies of insurance, endorsing the name of such
Grantor on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and
decisions with respect thereto.  In the event that any Grantor at any time or
times shall fail to obtain or maintain any of the policies of insurance required
hereby or to pay any premium in whole or part relating thereto, the Collateral
Agent may, without waiving or releasing any obligation or liability of the
Grantors hereunder or any Default or Event of Default, in its sole discretion,
obtain and maintain such policies of insurance and pay such premium and take any
other actions with respect thereto as the Collateral Agent deems advisable.  All
sums disbursed by the Collateral Agent in connection with this Section 4.12,
including reasonable attorneys’ fees, court costs, expenses and other charges
relating thereto, shall be payable, upon demand, by the Grantors to the
Collateral Agent and shall be additional Obligations secured hereby.

 

IV.13                     Commercial Tort Claims.  If any Grantor shall at any
time acquire a Commercial Tort Claim, such Grantor shall promptly notify the
Collateral Agent in writing of the details thereof and the Grantors shall take
such actions as the Collateral Agent shall reasonably request in order to grant
to the Collateral Agent, for the ratable benefit of the Secured Parties, a
perfected and first priority security interest therein and in the Proceeds
thereof.

 

IV.14                     Legend.  Upon the written request of the Collateral
Agent, each Grantor shall legend, in form and manner satisfactory to the
Collateral Agent, its Accounts and its books, records and documents evidencing
or pertaining thereto with an appropriate reference to the fact that such
Accounts have been assigned to the Collateral Agent for the benefit of the
Secured Parties and that the Collateral Agent has a security interest therein.

 

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ARTICLE V

 

Collections

 

V.01                         Collections.

 

(a)                                  Each Grantor shall at all times comply with
the Cash Receipts provisions of Section 2.22 of the Credit Agreement including,
without limitation, causing the sweep on each Business Day of all Cash Receipts
into the FRF Concentration Account.

 

(b)                                 Without the prior written consent of the
Collateral Agent, no Grantor shall modify or amend the instructions pursuant to
any of the DDA Notifications, the Credit Card Notifications, or the Blocked
Account Agreements.  Until the Collateral Agent shall have advised the Grantors
to the contrary, each Grantor shall, and the Collateral Agent hereby authorizes
each Grantor to, enforce and collect all amounts owing on the Inventory and
Accounts, for the benefit and on behalf of the Collateral Agent and the other
Secured Parties; provided, however, that such privilege may, at the option of
the Collateral Agent, be terminated upon the occurrence and during the
continuance of any Event of Default.

 

V.02                         Power of Attorney.  Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor’s true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall have
the right, with power of substitution for each Grantor and in each Grantor’s
name or otherwise, for the use and benefit of the Collateral Agent and the other
Secured Parties, (a) at any time, whether or not a Default or Event of Default
has occurred, to take actions required to be taken by the Grantors under
Sections 2.01 and 5.01 of this Agreement, and (b) upon the occurrence and during
the continuance of an Event of Default or as otherwise permitted under the
Credit Agreement, (i) to receive, endorse, assign and/or deliver any and all
notes, acceptances, checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof; (ii) to demand, collect, receive
payment of, give receipt for and give discharges and releases of all or any of
the Collateral; (iii) to sign the name of any Grantor on any invoices, schedules
of Collateral, freight or express receipts, or bills of lading storage receipts,
warehouse receipts or other documents of title relating to any of the
Collateral; (iv) to sign the name of any Grantor on any notice to such Grantor’s
Account Debtors; (v) to sign the name of any Grantor on any Proof of Claim in
bankruptcy against Account Debtors, and on notices of lien, claims of mechanic’s
liens, or assignments or releases of mechanic’s liens securing the Accounts;
(vi) to sign change of address forms to change the address to which each
Grantor’s mail is to be sent to such address as the Collateral Agent shall
designate; (vii) to receive and open each Grantor’s mail, remove any Proceeds of
Collateral therefrom and turn over the balance of such mail either to the
Borrower or to any trustee in bankruptcy or receiver of a Grantor, or other
legal representative of a Grantor whom the Collateral Agent determines to be the
appropriate person to whom to so turn over such mail; (viii) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Collateral or to enforce any rights in respect of any Collateral; (ix) to
settle, compromise, compound, adjust or defend any actions, suits or proceedings
relating to all or any of the Collateral; (x) to take all such action as may be
necessary to obtain the payment of any letter of credit and/or banker’s
acceptance of which any Grantor is a beneficiary; (xi) to repair, manufacture,
assemble, complete, package, deliver, alter or supply goods, if any, necessary
to fulfill in whole or in part the purchase order of any customer of any
Grantor; (xii) to use, license or transfer any or all General Intangibles of any
Grantor; and (xiii) to use, sell, assign, transfer, pledge, make any agreement
with respect to or otherwise deal with all or any of the Collateral, and to do
all other acts and things necessary to carry out the purposes of this Agreement,
as fully and completely as though the Collateral Agent were the absolute owner
of the Collateral for all purposes; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Collateral Agent or
any other Secured Party to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by the Collateral Agent or any
other Secured Party, or to present or file any claim or notice.  It is
understood and agreed that the appointment of the Collateral Agent

 

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as the agent and attorney-in-fact of the Grantors for the purposes set forth
above is coupled with an interest and is irrevocable.

 

V.03                         No Obligation to Act.  The Collateral Agent shall
not be obligated to do any of the acts or to exercise any of the powers
authorized by Section 5.02, but if the Collateral Agent elects to do any such
act or to exercise any of such powers, it shall not be accountable for more than
it actually receives as a result of such exercise of power, and shall not be
responsible to any Grantor for any act or omission to act except for any act or
omission to act as to which there is a final determination made in a judicial
proceeding, which determination includes a specific finding that the subject act
or omission to act had been grossly negligent or in actual bad faith.  The
provisions of Section 5.02 shall in no event relieve any Grantor of any of its
obligations hereunder or under any other Loan Document with respect to the
Collateral or any part thereof or impose any obligation on the Collateral Agent
or any other Secured Party to proceed in any particular manner with respect to
the Collateral or any part thereof, or in any way limit the exercise by the
Collateral Agent or any other Secured Party of any other or further right which
it may have on the date of this Agreement or hereafter, whether hereunder, under
any other Loan Document, by law or otherwise.

 

ARTICLE VI

 

Remedies

 

VI.01                     Remedies upon Default.  Upon the occurrence of an
Event of Default, it is agreed that the Collateral Agent shall have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the UCC or
other Applicable Law.  The rights and remedies of the Collateral Agent shall
include, without limitation, the right to take any of or all the following
actions at the same or different times:

 

(a)                                  With respect to any Collateral consisting
of Accounts, General Intangibles (including Payment Intangibles),
Letter-of-Credit Rights, Instruments, Chattel Paper, Documents, and Investment
Property, the Collateral Agent may collect the Collateral with or without the
taking of possession of any of the Collateral.

 

(b)                                 With respect to any Collateral consisting of
Inventory, Goods, and Equipment, the Collateral Agent may conduct one or more
going out of business sales, in the Collateral Agent’s own right or by one or
more agents and contractors. Such sale(s) may be conducted upon any premises
owned, leased, or occupied by any Grantor.  The Collateral Agent and any such
agent or contractor, in conjunction with any such sale, may augment the
Inventory with other goods (all of which other goods shall remain the sole
property of the Collateral Agent or such agent or contractor).  Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Collateral Agent or such agent or
contractor and neither any Grantor nor any Person claiming under or in right of
any Grantor shall have any interest therein.  Each purchaser at any such going
out of business sale shall hold the property sold absolutely, free from any
claim or right on the part of any Grantor, and, to the extent permitted by
Applicable Law, each Grantor hereby waives all rights of redemption, stay,
valuation and appraisal which such Grantor now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.

 

(c)                                  With or without legal process and with or
without prior notice or demand for performance, the Collateral Agent may enter
upon, occupy, and use any premises owned or occupied by each Grantor, and may
exclude the Grantors from such premises or portion

 

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thereof as may have been so entered upon, occupied, or used by the Collateral
Agent.  The Collateral Agent shall not be required to remove any of the
Collateral from any such premises upon the Collateral Agent’s taking possession
thereof, and may render any Collateral unusable to the Grantors.  In no event
shall the Collateral Agent be liable to any Grantor for use or occupancy by the
Collateral Agent of any premises pursuant to this Section 6.01, nor for any
charge (such as wages for the Grantors’ employees and utilities) incurred in
connection with the Collateral Agent’s exercise of the Collateral Agent’s Rights
and Remedies (as defined herein) hereunder.

 

(d)                                 The Collateral Agent may require any Grantor
to assemble the Collateral and make it available to the Collateral Agent at the
Grantor’s sole risk and expense at a place or places which are reasonably
convenient to both the Collateral Agent and such Grantor.

 

(e)                                  Each Grantor agrees that the Collateral
Agent shall have the right, subject to Applicable Law, to sell or otherwise
dispose of all or any part of the Collateral, at public or private sale, for
cash, upon credit or for future delivery as the Collateral Agent shall deem
appropriate.  Each purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of any Grantor, and, to the
extent permitted by Applicable Law, each Grantor hereby waives all rights of
redemption, stay, valuation and appraisal which such Grantor now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted.

 

(f)                                    Unless the Collateral is perishable or
threatens to decline speedily in value, or is of a type customarily sold on a
recognized market (in which event the Collateral Agent shall provide the
Grantors such notice as may be practicable under the circumstances), the
Collateral Agent shall give the Grantors at least ten (10) days’ prior written
notice, by authenticated record, of the date, time and place of any proposed
public sale, and of the date after which any private sale or other disposition
of the Collateral may be made.  Each Grantor agrees that such written notice
shall satisfy all requirements for notice to that Grantor which are imposed
under the UCC or other Applicable Law with respect to the exercise of the
Collateral Agent’s rights and remedies upon default.  The Collateral Agent shall
not be obligated to make any sale or other disposition of any Collateral if it
shall determine not to do so, regardless of the fact that notice of sale or
other disposition of such Collateral shall have been given.  The Collateral
Agent may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned.

 

(g)                                 Any public sale shall be held at such time
or times within ordinary business hours and at such place or places as the
Collateral Agent may fix and state in the notice of such sale.  At any sale or
other disposition, the Collateral, or portion thereof, to be sold may be sold in
one lot as an entirety or in separate parcels, as the Collateral Agent may (in
its sole and absolute discretion) determine.  If any of the Collateral is sold,
leased, or otherwise disposed of by the Collateral Agent on credit, the
Obligations shall not be deemed to have been reduced as a result thereof unless
and until payment is finally received thereon by the Collateral Agent.

 

(h)                                 At any public (or, to the extent permitted
by Applicable Law, private) sale made pursuant to this Section 6.01, the
Collateral Agent or any other Secured Party may bid for or purchase, free (to
the extent permitted by Applicable Law) from any right of redemption, stay,
valuation or appraisal on the part of any Grantor (all said rights being also

 

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hereby waived and released to the extent permitted by Applicable Law), the
Collateral or any part thereof offered for sale and may make payment on account
thereof by using any claim then due and payable to the Collateral Agent or such
other Secured Party from any Grantor on account of the Obligations as a credit
against the purchase price, and the Collateral Agent or such other Secured Party
may, upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to any Grantor therefor.

 

(i)                                     For purposes hereof, a written agreement
to purchase the Collateral or any portion thereof shall be treated as a sale
thereof.  The Collateral Agent shall be free to carry out such sale pursuant to
such agreement and no Grantor shall be entitled to the return of the Collateral
or any portion thereof subject thereto, notwithstanding the fact that after the
Collateral Agent shall have entered into such an agreement all Events of Default
shall have been remedied and the Obligations paid in full.

 

(j)                                     As an alternative to exercising the
power of sale herein conferred upon it, the Collateral Agent may proceed by a
suit or suits at law or in equity to foreclose upon the Collateral and to sell
the Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.

 

VI.02                     Application of Proceeds.  After the occurrence of an
Event of Default and acceleration of the Obligations, the Collateral Agent shall
apply the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, or any Collateral granted under any other of the
Security Documents as follows:

 

FIRST, to the payment of all reasonable costs and expenses incurred by the
Agents in connection with such collection or sale or otherwise in connection
with this Agreement or any of the Obligations (excluding any of the foregoing
relating to Hedging Agreements or any other transaction with any of the Agents,
or any of their respective Affiliates, which arises out of any cash management,
depository, investment, letter of credit, or other banking or financial services
provided by any such Person), including all court costs and the reasonable fees
and expenses of its agents and legal counsel, the repayment of all advances made
by the Agents hereunder or under any other Loan Document on behalf of any
Grantor and any other reasonable costs or expenses incurred in connection with
the exercise of any right or remedy hereunder or under any other Loan Document;

 

SECOND, to the payment of accrued and unpaid interest on the Loans;

 

THIRD, to the payment of outstanding principal on the Loans;

 

FOURTH, to the Cash Collateral Account as collateral for Letter of Credit
Outstandings up to 103% thereof;

 

FIFTH, to the payment of all fees due to the Administrative Agent and the
Lenders under the Loan Documents;

 

SIXTH, to the payment of all other Obligations of the Grantors (including,
without limitation, any obligations under any Hedging Agreements);

 

SEVENTH, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.

 

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The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement.  Upon any sale or other disposition of the Collateral by the
Collateral Agent (including pursuant to a power of sale granted by statute or
under a judicial proceeding), the receipt of the purchase money by the
Collateral Agent or of the officer making the sale or other disposition shall be
a sufficient discharge to the purchaser or purchasers of the Collateral so sold
or otherwise disposed of and such purchaser or purchasers shall not be obligated
to see to the application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.

 

ARTICLE VII

 

Perfection of Security Interest

 

VII.01                 Perfection by Filing.  This Agreement constitutes an
authenticated record,  and each Grantor hereby authorizes the Collateral Agent,
pursuant to the provisions of Sections 2.01 and 5.02, to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral, in such filing offices as the Collateral Agent shall
deem appropriate, and the Grantors shall deliver to the Collateral Agent such
financing or continuation statements, and amendments thereto, promptly upon the
reasonable request of the Collateral Agent and shall pay the Collateral Agent’s
reasonable costs and expenses incurred in connection therewith.  Each Grantor
hereby further authorizes the Collateral Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of such Grantor, and each Grantor agrees
that a carbon, photographic, or other reproduction of this Agreement or of a
financing statement signed by such Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.

 

VII.02                 Other Perfection, etc.  The Grantors shall at any time
and from time to time take such steps as the Collateral Agent may reasonably
request for the Collateral Agent (a) to obtain an acknowledgment, in form and
substance reasonably satisfactory to the Collateral Agent, of any bailee having
possession of any of the Collateral that the bailee holds such Collateral for
the Collateral Agent, (b) to obtain “control” of any Investment Property,
Deposit Accounts, Letter-of-Credit Rights or electronic Chattel Paper (as such
terms are defined in the UCC), with any agreements establishing control to be in
form and substance satisfactory to the Collateral Agent, and (c) otherwise to
insure the continued perfection of the Collateral Agent’s security interest in
any of the Collateral with the priority described in Section 3.04 and of the
preservation of its rights therein.

 

VII.03                 Savings Clause. Nothing contained in this Article VII
shall be construed to narrow the scope of the Collateral Agent’s Security
Interest in any of the Collateral or the perfection or priority thereof or to
impair or otherwise limit any of the Collateral Agent’s Rights and Remedies
hereunder except (and then only to the extent) as mandated by the UCC.

 

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ARTICLE VIII

 

Miscellaneous

 

VIII.01             Notices.  All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement.

 

VIII.02             Grant of Non-Exclusive License.  Upon an Event of Default,
each Grantor hereby grants to the Collateral Agent a royalty free,
non-exclusive, irrevocable license to use, apply, and affix any trademark, trade
name, logo, or the like in which any Grantor now or hereafter has rights, such
license being with respect to the Collateral Agent’s exercise of the Collateral
Agent’s Rights and Remedies hereunder including, without limitation, in
connection with any completion of the manufacture of Inventory or any sale or
other disposition of Inventory.

 

VIII.03             Security Interest Absolute.  All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document, or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from the
Facility Guarantee or any other guarantee, securing or guaranteeing all or any
of the Obligations, or (d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Grantor in respect of
the Obligations or this Agreement.

 

VIII.04             Survival of Agreement.  All covenants, agreements,
representations and warranties made by the Grantors herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the making of any Loans and the issuance of any Letters of Credit,
and shall continue in full force and effect as long as the Obligations are
outstanding and unpaid or the Letter of Credit Outstandings do not equal zero,
or are not fully cash collateralized in a manner satisfactory to the Issuing
Bank and the Administrative Agent, and as long as the Commitments have not
expired or terminated.

 

VIII.05             Binding Effect; Several Agreement; Assignments.  Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the Grantors that are contained in
this Agreement shall bind and inure to the benefit of each Grantor and its
respective successors and assigns.  This Agreement shall be binding upon each
Grantor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of each Grantor, the Collateral Agent and the
other Secured Parties and their respective successors and assigns, except that
no Grantor shall have the right to assign or transfer its rights or obligations
hereunder or any interest herein or in the Collateral (and any such attempted
assignment or transfer shall be void) except as expressly permitted by this
Agreement or the Credit Agreement.  This Agreement shall be construed as a
separate agreement with respect to each Grantor and may be

 

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amended, modified, supplemented, waived or released with respect to any Grantor
without the approval of any other Grantor and without affecting the obligations
of any other Grantor hereunder.

 

VIII.06             Successors and Assigns.  Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.

 

VIII.07             Collateral Agent’s Fees and Expenses; Indemnification.

 

(a)                                  Without limiting any of their obligations
under the Credit Agreement or the other Loan Documents, the Grantors jointly and
severally agree to pay all reasonable out-of-pocket expenses incurred by the
Collateral Agent, including the reasonable fees, charges and disbursements of
any counsel and any outside consultants for the Collateral Agent, in connection
with (i) the administration of this Agreement, (ii) the custody or preservation
of, or the sale of, collection from or other realization upon any of the
Collateral, (iii) the exercise, enforcement or protection of any of the
Collateral Agent’s Rights and Remedies hereunder or (iv) the failure of any
Grantor to perform or observe any of the provisions hereof.

 

(b)                                 Without limiting any of their
indemnification obligations under the Credit Agreement or the other Loan
Documents, the Grantors shall, jointly and severally, indemnify the Agents, the
Issuing Bank and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an “Indemnitee”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable and documented fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of, (i) the
execution or delivery of this Agreement or any other Loan Document, the
performance by the Grantors of their obligations under this Agreement or any
other Loan Document, or the consummation of the transactions contemplated by the
Loan Documents or any other transactions contemplated hereby, or (ii) any actual
claim, litigation, investigation or proceeding relating to any of the foregoing
or to the Collateral, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the gross
negligence or willful misconduct of such Indemnitee or any Affiliate of such
Indemnitee (or of any officer, director, employee, advisor or agent of such
Indemnitee or any such Indemnitee’s Affiliates).

 

(c)                                  Any such amounts payable as provided
hereunder shall be additional Obligations secured hereby and by the other
Security Documents.  All amounts due under this Section 8.07 shall be payable on
written demand therefor.

 

VIII.08             Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

VIII.09             Waivers; Amendment.

 

(a)                                  The rights, remedies, powers, privileges,
and discretions of the Collateral Agent hereunder and under Applicable Law
(herein, the “Collateral Agent’s Rights and Remedies”) shall be cumulative and
not exclusive of any rights or remedies which it would otherwise have.  No delay
or omission by the Collateral Agent in exercising or enforcing any of the
Collateral Agent’s Rights and Remedies shall operate as, or constitute, a waiver
thereof.  No waiver by the Collateral

 

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Agent of any Event of Default or of any default under any other agreement shall
operate as a waiver of any other default hereunder or under any other
agreement.  No single or partial exercise of any of the Collateral Agent’s
Rights or Remedies, and no express or implied agreement or transaction of
whatever nature entered into between the Collateral Agent and any Person, at any
time, shall preclude the other or further exercise of the Collateral Agent’s
Rights and Remedies.  No waiver by the Collateral Agent of any of the Collateral
Agent’s Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver.  The Collateral
Agent’s Rights and Remedies  may be exercised at such time or times and in such
order of preference as the Collateral Agent may determine. The Collateral
Agent’s Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Obligations.  No waiver of any provisions of
this Agreement or any other Loan Document or consent to any departure by any
Grantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.  No
notice to or demand on any Grantor in any case shall entitle such Grantor or any
other Grantor to any other or further notice or demand in similar or other
circumstances.

 

(b)                                 Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to a written agreement
entered into between the Collateral Agent and the Grantor or Grantors with
respect to whom such waiver, amendment or modification is to apply, subject to
any consent required in accordance with Section 9.02 of the Credit Agreement.

 

VIII.10             WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURY IN ANY TRIAL
OF ANY CASE OR CONTROVERSY IN WHICH ANY PARTY HERETO IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST ANY PARTY HERETO OR
IN WHICH ANY PARTY HERETO, IS JOINED AS A PARTY LITIGANT), WHICH CASE OR
CONTROVERSY ARISES OUT OF OR RELATES TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS SET FORTH IN THIS SECTION 8.10.

 

VIII.11             Severability.  In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).

 

VIII.12             Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute a single contract (subject to Section 8.05). 
Delivery of an executed counterpart of a signature page to this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.

 

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VIII.13             Headings.  Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.

 

VIII.14             Jurisdiction; Consent to Service of Process.

 

(a)                                  Each of the Grantors agrees that any suit
for the enforcement of this Agreement or any other Loan Document may be brought
in any New York state or federal court sitting in the Borough of Manhattan in
New York City, as the Collateral Agent may elect in its sole discretion, and
consents to the non-exclusive jurisdiction of such courts.  Each of the Grantors
hereby waives any objection which it may now or hereafter have to the venue of
any such suit or any such court or that such suit is brought in an inconvenient
forum.  Each of the Grantors agrees that any action commenced by any Grantor
asserting any claim or counterclaim arising under or in connection with this
Agreement shall be brought solely in any New York state or federal court sitting
in the Borough of Manhattan in New York City, as the Collateral Agent may elect
in its sole discretion, and consent to the exclusive jurisdiction of such courts
with respect to any such action.

 

(b)                                 Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in Section
8.01.  Nothing in this Agreement or any other Loan Document will affect the
right of any party to this Agreement to serve process in any other manner
permitted by law.

 

VIII.15             Termination; Release of Collateral.  This Agreement and the
Security Interest shall terminate when all the Obligations have been paid in
full in cash, the Lenders have no further commitment to lend, the Letter of
Credit Outstandings have been reduced to zero or fully cash collateralized in a
manner satisfactory to the Issuing Bank and the Administrative Agent, and the
Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement, at which time the Collateral Agent shall execute and deliver
to the Grantors, at the Grantors’ expense, all UCC termination statements and
similar documents that the Grantors shall reasonably request to evidence such
termination.  Any execution and delivery of termination statements or documents
pursuant to this Section 8.15 shall be without recourse to, or warranty by, the
Collateral Agent.

 

[SIGNATURE PAGES FOLLOW]

 

18

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under
seal as of the day and year first above written.

 

BORROWER:

DUANE READE

 

 

 

By:

Duane Reade Inc., its General Partner

 

 

 

 

 

 

 

By:

/s/ John K. Henry

 

 

Name:

John K. Henry

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Michelle D. Bergman

 

 

Name:

Michelle D. Bergman

 

Title:

Vice President

 

 

 

 

 

 

 

By:

DRI I Inc., its General Partner

 

 

 

 

 

 

 

By:

/s/ John K. Henry

 

 

Name:

John K. Henry

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Michelle D. Bergman

 

 

Name:

Michelle D. Bergman

 

Title:

Vice President

 

 

 

 

 

 

FACILITY GUARANTORS:

DUANE READE INC.

 

 

 

 

 

 

 

By:

/s/ John K. Henry

 

 

Name:

John K. Henry

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Michelle D. Bergman

 

 

Name:

Michelle D. Bergman

 

Title:

Vice President

 

 

 

 

 

 

 

DRI I INC.

 

 

 

 

 

By:

/s/ John K. Henry

 

 

Name:

John K. Henry

 

Title:

Chief Financial Officer

 

19

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By:

/s/ Michelle D. Bergman

 

 

Name:

Michelle D. Bergman

 

Title:

Vice President

 

 

 

 

 

 

 

DUANE READE REALTY, INC.

 

 

 

 

 

By:

/s/ John K. Henry

 

 

Name:

John K. Henry

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Michelle D. Bergman

 

 

Name:

Michelle D. Bergman

 

Title:

Vice President

 

 

 

 

 

 

 

DUANE READE INTERNATIONAL, INC.

 

 

 

 

 

By:

/s/ John K. Henry

 

 

Name:

John K. Henry

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Michelle D. Bergman

 

 

Name:

Michelle D. Bergman

 

Title:

Vice President

 

 

 

 

 

 

COLLATERAL AGENT:

FLEET RETAIL FINANCE INC.

 

 

 

 

 

 

 

By:

/s/ Mark Forti

 

 

Name:

Mark Forti

 

Title:

Director

 

20

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SCHEDULE I

 

 

Facility Guarantors

 

 

Duane Reade Inc.

DRI I Inc.

Duane Reade Realty, Inc.

Duane Reade International, Inc.

 

21

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Annex 1 to the

Security Agreement

 

 

Form of Perfection Certificate

 

22

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