**Exhibit 10.21**

 

OWNERSHIP INTEREST PLEDGE AGREEMENT

 

OWNERSHIPINTEREST PLEDGE AGREEMENT (this “Agreement”) dated as of July 21, 2003by and among Duane Reade Inc., a Delaware corporation (hereinafter, the “Parent”),and DRI I Inc., a Delaware corporation (hereinafter, “DRI I”) (theParent and DRI I, jointly, severally and collectively sometimes are referred toherein as the “Pledgors”), and Fleet Retail Finance Inc., a Delawarecorporation, as collateral agent (in such capacity, the “Collateral Agent”)for the Secured Parties (as defined in the Credit Agreement referred to below),in consideration of the mutual covenants contained herein and benefits to bederived herefrom.

 

WITNESSETH:

 

Reference ismade to: (a) the Credit Agreement dated as of July 21, 2003 (as such may beamended, modified, supplemented or restated hereafter, the “Credit Agreement”)by and between, among others, (i) Duane Reade, a New York general partnership(the “Borrower”), (ii) the Pledgors, (iii) the other Facility Guarantorsnamed therein, (iv) the Lenders named therein, (v) Fleet National Bank, asAdministrative Agent for the Lenders and as Issuing Bank, and (vi) Fleet RetailFinance Inc., as Collateral Agent for the Lenders; and (b) the Guarantee datedas of July 21, 2003 executed by the Pledgors and the other Facility Guarantorsnamed therein in favor of the Collateral Agent, the Lenders and the IssuingBank (as such may be amended, modified, supplemented or restated hereafter, the“Facility Guarantee”).

 

Reference isalso made to the Security Agreement dated as of July 21, 2003 (as such may beamended, modified, supplemented or restated hereafter, the “SecurityAgreement”) by and among the Pledgors, the other Grantors named therein andthe Collateral Agent.  Capitalized termsused herein and not defined herein shall have the meanings assigned to suchterms in the Credit Agreement or the Security Agreement (as applicable).

 

The Lendershave agreed to make Loans to the Borrower, and the Issuing Bank has agreed toissue Letters of Credit for the account of the Borrower, pursuant to, and uponthe terms and subject to the conditions specified in, the CreditAgreement.  The Pledgors have executedthe Facility Guarantee, pursuant to which the Pledgors guarantee theObligations of the Borrower.  Theobligations of the Lenders to make Loans and of the Issuing Bank to issueLetters of Credit are conditioned upon, among other things, the execution anddelivery by the Pledgors of an agreement in the form hereof to secure theObligations.

 

Accordingly,the Pledgors and the Collateral Agent, on behalf of itself and each otherSecured Party (and each of their respective successors or assigns), herebyagree as follows:

 

1.                                       Pledge.  As security for the payment and performance,as the case may be, in full of the Obligations, the Pledgors hereby transfer,grant, bargain, sell, convey, hypothecate, pledge, set over and deliver untothe Collateral Agent, its successors and assigns, and hereby grant to theCollateral Agent, its successors and assigns, for the ratable benefit of theSecured Parties, a security interest in all of the Pledgors’ right, title andinterest in, to and under:

 

(a)                                  the generalpartnership interests in the Borrower owned by the Pledgors and listed on ScheduleI hereto, and any additional partnership interests in the Borrower or anygeneral partnership which is the successor thereof, and the certificates orother securities representing all such partnership interests (if any) (the “PartnershipInterests”);

 

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(b)                                 the shares of capitalstock owned by the Pledgors and listed on Schedule I hereto, andany shares of capital stock or other equity interest of any Subsidiary obtainedin the future by the Pledgors, and the stock certificates or other securitiesrepresenting all such shares or equity interests (the “Ownership Interests”,and together with the Partnership Interests, the “Pledged Securities”);

 

(c)                                  all other InvestmentProperty that may be delivered to, and held by, the Collateral Agent pursuantto the terms hereof;

 

(d)                                 subject toSection 5, all dividends, cash, instruments and other property from timeto time received, receivable or otherwise distributed or distributable, inrespect of, or in exchange for, the Pledged Securities referred to inclauses (a) and (b) above;

 

(e)                                  subject toSection 5, all rights and privileges of the Pledgors with respect to thePledged Securities and other Investment Property referred to inclauses (a), (b), (c) and (d) above; and

 

(f)                                    all proceeds of anyof the foregoing (the items referred to in clauses (a) through(f) being collectively referred to as the “Pledged Collateral”).

 

TO HAVE AND TOHOLD the Pledged Collateral, together with all right, title, interest, powers,privileges and preferences pertaining or incidental thereto, unto theCollateral Agent, its successors and assigns, for the benefit of the SecuredParties, until the Obligations have been paid in full in cash, the Lenders haveno further commitment to lend, the Letter of Credit Outstandings have beenreduced to zero or fully cash collateralized in a manner satisfactory to theIssuing Bank and the Administrative Agent, and the Issuing Bank has no furtherobligation to issue Letters of Credit under the Credit Agreement; subject,however, to the terms, covenants and conditions hereinafter set forth.

 

Upon deliveryto the Collateral Agent pursuant to Section 2 of this Agreement, (a) allstock certificates or other securities now or hereafter included in the PledgedSecurities shall be accompanied by stock powers duly executed in blank or otherinstruments of transfer satisfactory to the Collateral Agent and by such otherinstruments and documents as the Collateral Agent may reasonably request, and(b) all other Investment Property comprising part of the PledgedCollateral shall be accompanied by proper instruments of assignment dulyexecuted by the Pledgors and such other instruments or documents as theCollateral Agent may reasonably request. Each delivery of Pledged Securities shall be accompanied by a scheduledescribing the Pledged Securities theretofore and then being pledged hereunder,which schedule shall be attached hereto as Schedule I and made apart hereof. Each schedule so delivered shall supersede any prior schedules sodelivered.

 

2.                                       Deliveryof the Pledged Collateral. On or before the Closing Date, the Pledgorsshall deliver or cause to be delivered to the Collateral Agent any and allPledged Securities, any and all Investment Property, and any and allcertificates or other instruments or documents representing the PledgedCollateral.

 

3.                                       Representations,Warranties and Covenants.  ThePledgors hereby represent, warrant and covenant, as to themselves and thePledged Collateral pledged by them hereunder, to and with the Collateral Agentthat:

 

(a)                                  the PartnershipInterests represent that percentage of the issued and outstanding partnershipinterests of the issuer with respect thereto as set forth on Schedule I;

 

(b)                                 the OwnershipInterests represent that percentage of the issued and outstanding shares ofeach class of the capital stock or other equity interest of the issuer withrespect thereto as set forth on Schedule I;

 

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(c)                                  except for thesecurity interest granted hereunder, the Pledgors (i) are and will at alltimes continue to be the direct owners, beneficially and of record, of thePledged Securities indicated on Schedule I, (ii) hold the PledgedCollateral free and clear of all Liens, other than Permitted Encumbrances andLiens in favor of the Collateral Agent, (iii) will make no assignment,pledge, hypothecation or transfer of, or create or permit to exist any securityinterest in, or other Lien on, the Pledged Collateral, other than pursuanthereto and other than Permitted Encumbrances, and (iv) subject toSection 5, will cause any and all Pledged Collateral to be forthwithdeposited with the Collateral Agent and pledged or assigned hereunder;

 

(d)                                 the Pledgors(i) have the power and authority to pledge the Pledged Collateral in themanner hereby done or contemplated and (ii) will defend their title orinterest thereto or therein against any and all Liens (other than PermittedEncumbrances and the Lien created by this Agreement or the other LoanDocuments), however arising, of all Persons whomsoever;

 

(e)                                  no consent of anyother Person (including stockholders or creditors of the Pledgors), and noconsent or approval of any Governmental Authority or any securities exchange,was or is necessary to the validity of the pledge effected hereby or to thedisposition of the Pledged Collateral upon an Event of Default in accordancewith the terms of this Agreement;

 

(f)                                    by virtue of theexecution and delivery by the Pledgors of this Agreement, and the delivery bythe Pledgors to the Collateral Agent of the stock certificates or othercertificates or documents representing or evidencing the Pledged Collateral inaccordance with the terms of this Agreement, the Collateral Agent will obtain avalid and perfected first lien upon, and security interest in, the PledgedCollateral as security for the payment and performance of the Obligations;

 

(g)                                 the pledge effectedhereby is effective to vest in the Collateral Agent, on behalf of the SecuredParties, the rights of the Collateral Agent in the Pledged Collateral as setforth herein;

 

(h)                                 all the PledgedSecurities have been duly authorized and validly issued and are fully paid andnonassessable;

 

(i)                                     all informationset forth herein relating to the Pledged Collateral is accurate and complete inall material respects as of the date hereof; and

 

(j)                                     none of thePledged Securities constitutes margin stock, as defined in Regulation U of theBoard of Governors of the Federal Reserve System.

 

4.                                       Registrationin Nominee Name; Copies of Notices. Upon the occurrence and during the continuance of an Event of Default,the Collateral Agent, on behalf of the Secured Parties, shall have the right(in its reasonable discretion and upon written notice to the Pledgors) to holdthe Pledged Securities in its own names as pledgee, the name of its nominee (aspledgee or as sub-agent) or the name of the Pledgors, endorsed or assigned inblank or in favor of the Collateral Agent. The Pledgors will promptly give to the Collateral Agent copies of anynotices or other communications received by them with respect to PledgedSecurities registered in the name of the Pledgors.

 

5.                                       VotingRights; Dividends and Interest, etc.

 

(a)                                  Unless and until anEvent of Default shall have occurred and be continuing:

 

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(i)                                     The Pledgors shallbe entitled to exercise any and all voting and/or other consensual rights andpowers inuring to an owner of the Pledged Securities or any part thereof to theextent, and only to the extent, that such rights are exercised for any purposeconsistent with, and not otherwise in violation of, the terms and conditions ofthis Agreement, the Credit Agreement, the other Loan Documents and ApplicableLaw; provided, however, that the Pledgors will not be entitled toexercise any such right if the result thereof could materially and adverselyaffect the rights inuring to a holder of the Pledged Securities or the rightsand remedies of any of the Secured Parties under this Agreement, the CreditAgreement or any other Loan Document or the ability of the Secured Parties toexercise the same.

 

(ii)                                  The Pledgors shall beentitled to receive and retain any and all cash dividends paid on the PledgedCollateral to the extent, and only to the extent, that such cash dividends arepermitted by, and otherwise paid in accordance with, the terms and conditionsof this Agreement, the Credit Agreement, the other Loan Documents andApplicable Law.  All noncash dividends,and all dividends paid or payable in cash or otherwise in connection with apartial or total liquidation or dissolution, return of capital, capital surplusor paid-in surplus, and all other distributions (other than dividends anddistributions referred to in the preceding sentence) made on or in respect ofthe Pledged Collateral, whether paid or payable in cash or otherwise, whetherresulting from a subdivision, combination or reclassification of theoutstanding capital stock or partnership interests of the issuer of any PledgedSecurities or received in exchange for Pledged Securities or any part thereof,or in redemption thereof, or as a result of any merger, amalgamation,arrangement, consolidation, acquisition or other exchange of assets to whichsuch issuer may be a party or otherwise, shall be and become part of the PledgedCollateral, and, if received by the Pledgors, to the extent required to be paidto the Collateral Agent pursuant to the terms of the Credit Agreement or theother Loan Documents, shall not be commingled by the Pledgors with any of theirother funds or property but shall be held separate and apart therefrom, shallbe held in trust for the benefit of the Collateral Agent and shall be forthwithdelivered to the Collateral Agent in the same form as so received (with anynecessary endorsement).

 

(b)                                 Upon the occurrenceand during the continuance of an Event of Default, all rights of the Pledgorsto dividends that the Pledgors are authorized to receive pursuant toparagraph (a)(ii) above shall cease, and all such rights shall thereuponbecome vested in the Collateral Agent, which shall have the sole and exclusiveright and authority to receive and retain such dividends.  All dividends received by the Pledgorscontrary to the provisions of this Section 5 shall be held in trust forthe benefit of the Collateral Agent, shall be segregated from other property orfunds of the Pledgors and shall be forthwith delivered to the Collateral Agentupon demand in the same form as so received (with any necessary endorsement).Any and all money and other property paid over to or received by the CollateralAgent pursuant to the provisions of this paragraph (b) shall be retainedby the Collateral Agent in an account to be established by the Collateral Agentupon receipt of such money or other property and shall be applied in accordancewith the provisions of Section 7.

 

(c)                                  Upon the occurrenceand during the continuance of an Event of Default, all rights of the Pledgorsto exercise the voting and consensual rights and powers they are entitled toexercise pursuant to paragraph (a)(i) of this Section 5 shall cease,and all such rights shall thereupon become vested in the Collateral Agent,which shall have the sole and exclusive right and authority to exercise suchvoting and consensual rights and powers; provided that the Collateral Agentshall have the right from time to time following and during the continuance ofan Event of Default to permit the Pledgors to exercise such rights.  After all Events of Default have been curedor waived in writing by the Collateral Agent, the Pledgors will have the rightto exercise the voting and consensual rights and powers that they wouldotherwise be entitled to exercise pursuant to the terms ofparagraph (a)(i) above.

 

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6.                                       Remediesupon Default.  Upon the occurrenceof an Event of Default, it is agreed that the Collateral Agent shall have inany jurisdiction in which enforcement hereof is sought, in addition to allother rights and remedies, the rights and remedies of a secured party under theUCC or other Applicable Law.  The rightsand remedies of the Collateral Agent shall include, without limitation, theright to take any of or all the following actions at the same or differenttimes:

 

(a)                                  The Collateral Agentmay sell or otherwise dispose of all or any part of the Pledged Collateral, atpublic or private sale or at any broker’s board or on any securities exchange,for cash, upon credit or for future delivery as the Collateral Agent shall deemappropriate.  Each purchaser at any suchsale shall hold the property sold absolutely, free from any claim or right onthe part of the Pledgors, and, to the extent permitted by Applicable Law, thePledgors hereby waive all rights of redemption, stay, valuation and appraisalwhich the Pledgors now have or may at any time in the future have under anyrule of law or statute now existing or hereafter enacted.

 

(b)                                 The Collateral Agentshall give the Pledgors at least ten (10) days’ prior written notice, byauthenticated record, of the Collateral Agent’s intention to make any sale ofthe Pledged Collateral.  Such notice,(i) in the case of a public sale, shall state the date, time and place for suchsale, (ii) in the case of a sale at a broker’s board or on a securities exchange,shall state the board or exchange at which such sale is to be made and the dayon which the Pledged Collateral, or portion thereof, will first be offered forsale at such board or exchange, and (iii) in the case of a private sale, shallstate the date after which any private sale or other disposition of the PledgedCollateral shall be made.  The Pledgorsagree that such written notice shall satisfy all requirements for notice to thePledgors which are imposed under the UCC with respect to the exercise of theCollateral Agent’s rights and remedies upon default.  The Collateral Agent shall not be obligated to make any sale orother disposition of any Pledged Collateral if it shall determine not to do so,regardless of the fact that notice of sale or other disposition of suchCollateral shall have been given. The Collateral Agent may, without notice orpublication, adjourn any public or private sale or cause the same to beadjourned from time to time by announcement at the time and place fixed forsale, and such sale may, without further notice, be made at the time and placeto which the same was so adjourned.

 

(c)                                  Any public sale shallbe held at such time or times within ordinary business hours and at such placeor places as the Collateral Agent may fix and state in the notice of such sale.

 

(d)                                 At any public (or, tothe extent permitted by Applicable Law, private) sale made pursuant to thisSection 6, the Collateral Agent or any other Secured Party may bid for orpurchase, free (to the extent permitted by Applicable Law) from any right of redemption,stay, valuation or appraisal on the part of the Pledgors (all said rights beingalso hereby waived and released to the extent permitted by Applicable Law), thePledged Collateral or any part thereof offered for sale and may make payment onaccount thereof by using any claim then due and payable to the Collateral Agentor such other Secured Party from the Pledgors on account of the Obligations asa credit against the purchase price, and the Collateral Agent or such otherSecured Party may, upon compliance with the terms of sale, hold, retain anddispose of such property without further accountability to the Pledgorstherefor.

 

(e)                                  For purposes hereof,a written agreement to purchase the Pledged Collateral or any portion thereofshall be treated as a sale thereof.  TheCollateral Agent shall be free to carry out such sale pursuant to suchagreement and the Pledgors shall not be entitled to the return of the PledgedCollateral or any portion thereof subject thereto, notwithstanding the

 

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fact that after the Collateral Agent shallhave entered into such an agreement all Events of Default shall have beenremedied and the Obligations paid in full.

 

(f)                                    As an alternativeto exercising the power of sale herein conferred upon it, the Collateral Agentmay proceed by a suit or suits at law or in equity to foreclose upon thePledged Collateral and to sell the Pledged Collateral or any portion thereofpursuant to a judgment or decree of a court or courts having competentjurisdiction or pursuant to a proceeding by a court-appointed receiver.

 

7.                                       Applicationof Proceeds of Sale.  The proceedsof any sale of Pledged Collateral pursuant to Section 6, as well as anyPledged Collateral consisting of cash, shall be applied by the Collateral Agentas required pursuant to the terms of Section 6.02 of the Security Agreement.

 

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

 

8.                                       Reimbursementof Collateral Agent.

 

(a)                                  Without limiting anyof their obligations under the Credit Agreement or the other Loan Documents,the Pledgors jointly and severally agree to pay all reasonable out-of-pocketexpenses incurred by the Collateral Agent, including the reasonable fees,charges and disbursements of any counsel and any outside consultants for theCollateral Agent, in connection with (i) the administration of thisAgreement, (ii) the custody or preservation of, or the sale of, collectionfrom, or other realization upon, any of the Pledged Collateral, (iii) theexercise, enforcement or protection of any of the Collateral Agent’s Rights andRemedies (as defined below) hereunder or (iv) the failure by the Pledgorsto perform or observe any of the provisions hereof.

 

(b)                                 Without limiting anyof their indemnification obligations under the Credit Agreement or the otherLoan Documents, the Pledgors shall, jointly and severally, indemnify theAgents, the Issuing Bank and each Lender, and each Related Party of any of theforegoing 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 anddocumented fees, charges and disbursements of any counsel for any Indemnitee,incurred by or asserted against any Indemnitee arising out of, in connectionwith, or as a result of, (i) the execution or delivery of this Agreement or anyother Loan Document, the performance by the Pledgors of their obligations underthis Agreement or any other Loan Document, or the consummation of thetransactions contemplated by the Loan Documents or any other transactionscontemplated hereby, or (ii) any actual claim, litigation, investigation orproceeding relating to any of the foregoing or to the Pledged Collateral,whether based on contract, tort or any other theory and regardless of whetherany Indemnitee is a party thereto; provided that such indemnity shallnot, as to any Indemnitee, be available to the extent that such losses, claims,damages, liabilities or related expenses resulted from the gross negligence orwillful misconduct of such Indemnitee or any Affiliate of such Indemnitee (orof any officer, director, employee, advisor or agent of such Indemnitee or anyof such Indemnitee’s Affiliates).

 

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(c)                                  Any amounts payableas provided hereunder shall be additional Obligations secured hereby and by theother Security Documents.  All amountsdue under this Section 8 shall be payable on written demand therefor.

 

9.                                       CollateralAgent Appointed Attorney-in-Fact.

 

(a)                                  Effective upon theoccurrence and during the continuance of any Event of Default, the Pledgorshereby make, constitute and appoint the Collateral Agent (and all officers,employees or agents designated by the Collateral Agent) as the Pledgors’ trueand lawful agent and the attorney-in-fact for the purpose of carrying out theprovisions of this Agreement and taking any action and executing any instrumentthat the Collateral Agent may deems necessary or advisable to accomplish thepurposes hereof, which appointment is irrevocable and coupled with aninterest.  Without limiting thegenerality of the foregoing, the Collateral Agent shall have the right, uponthe occurrence and during the continuance of an Event of Default, with fullpower of substitution either in the Collateral Agent’s name or in the name ofthe Pledgors, (i) to ask for, demand, sue for, collect, receive and giveacquittance for any and all moneys due or to become due under and by virtue ofany Pledged Collateral, (ii) to endorse checks, drafts, orders and other instrumentsfor the payment of money payable to the Pledgors representing any dividend orother distribution payable in respect of the Pledged Collateral or any partthereof or on account thereof and to give full discharge for the same, (iii) tosettle, compromise, compound, adjust, prosecute or defend any action, suit,claim or proceeding relating to any of the Pledged Collateral, and (iv) to use,sell, assign, transfer, pledge, make any agreement with respect to or otherwisedeal with all or any of the Pledged Collateral, and to do all other acts andthings necessary to carry out the purposes of this Agreement, as fully andcompletely as though the Collateral Agent were the absolute owner of thePledged Collateral for all purposes; provided, however, that nothingherein contained shall be construed as requiring or obligating the CollateralAgent or any other Secured Party to make any commitment or to make any inquiryas to the nature or sufficiency of any payment received by the Collateral Agentor any other Secured Party, or to present or file any claim or notice.

 

(b)                                 The Collateral Agentshall not be obligated to do any of the acts or to exercise any of the powersauthorized by subparagraph (a), but if the Collateral Agent elects to do anysuch act or to exercise any of such powers, it shall not be accountable formore than it actually receives as a result of such exercise of power, and shallnot be responsible to the Pledgors for any act or omission to act except forany act or omission to act as to which there is a final determination made in ajudicial proceeding (in which proceeding the Collateral Agent has had anopportunity to be heard) which determination includes a specific finding thatthe subject act or omission to act had been grossly negligent or in actual badfaith.

 

10.                                 Waivers;Amendment.

 

(a)                                  The rights, remedies,powers, privileges, and discretions of the Collateral Agent hereunder and underApplicable Law (herein, the “Collateral Agent’s Rights and Remedies”)shall be cumulative and not exclusive of any rights or remedies which it wouldotherwise have.  No delay or omission bythe Collateral Agent in exercising or enforcing any of the Collateral Agent’sRights and Remedies shall operate as, or constitute, a waiver thereof.  No waiver by the Collateral Agent of anyEvent of Default or of any default under any other agreement shall operate as awaiver of any other default hereunder or under any other agreement.  No single or partial exercise of any of theCollateral Agent’s Rights or Remedies, and no express or implied agreement ortransaction of whatever nature entered into between the Collateral Agent andany Person, at any time, shall preclude the other or further exercise of theCollateral Agent’s Rights and Remedies. No waiver by the Collateral Agent of any of the Collateral Agent’sRights and Remedies on any one occasion shall be

 

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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 ofpreference as the Collateral Agent may determine. The Collateral Agent’s Rightsand Remedies may be exercised without resort or regard to any other source ofsatisfaction of the Obligations.  Nowaiver of any provisions of this Agreement or any other Loan Document orconsent to any departure by the Pledgors therefrom shall in any event beeffective unless the same shall be permitted by paragraph (b) below, andthen such waiver or consent shall be effective only in the specific instanceand for the purpose for which given.  Nonotice to or demand on the Pledgors in any case shall entitle the Pledgors toany other or further notice or demand in similar or other circumstances.

 

(b)                                 Neither this Agreementnor any provision hereof may be waived, amended or modified except pursuant toa written agreement entered into between the Collateral Agent and the Pledgors,subject to any consent required in accordance with Section 9.02 of the CreditAgreement.

 

11.                                 SecuritiesAct, etc.  The Pledgors recognizethat the Collateral Agent may be unable to effect a public sale of the PledgedSecurities by reason of certain prohibitions contained in the Securities Act of1933, as amended (the “Securities Act”), federal banking laws, and otherApplicable Law, but may be compelled to resort to one or more private salesthereof to a restricted group of purchasers. The Pledgors understand that compliance with the Securities Act mightlimit the course of conduct of the Collateral Agent if the Collateral Agent wasto attempt to dispose of all or any part of the Pledged Securities, and mightalso limit the extent to which or the manner in which any subsequent transfereeof any Pledged Securities could dispose of the same.  Similarly, there may be other legal restrictions or limitationsaffecting the Collateral Agent in any attempt to dispose of all or part of thePledged Securities under applicable Blue Sky or other state securities laws orsimilar laws analogous in purpose or effect. The Pledgors recognize that, in light of such restrictions andlimitations, the Collateral Agent may, with respect to any sale of the PledgedSecurities, limit the purchasers to those who will agree, among other things,to acquire such Pledged Securities for their own account, for investment, andnot with a view to the distribution or resale thereof.  The Pledgors acknowledge and agree that, inlight of such restrictions and limitations, the Collateral Agent, in its soleand absolute discretion, (a) may proceed to make such a sale whether ornot a registration statement for the purpose of registering such PledgedSecurities or part thereof shall have been filed under the Securities Act and(b) may approach and negotiate with a single potential purchaser to effectsuch sale.  The Pledgors acknowledge andagree that any such sale might result in prices and other terms less favorableto the seller than if such sale were a public sale without suchrestrictions.  In the event of any suchsale, the Collateral Agent shall incur no responsibility or liability forselling all or any part of the Pledged Securities at a price that theCollateral Agent, in its sole and absolute discretion, may in good faith deemreasonable under the circumstances, notwithstanding the possibility that asubstantially higher price might have been realized if the sale were deferreduntil after registration as aforesaid or if more than a single purchaser wereapproached.  The provisions of thisSection 11 will apply notwithstanding the existence of a public or privatemarket upon which the quotations or sales prices may exceed substantially theprice at which the Collateral Agent sells the Pledged Securities.

 

12.                                 Registration,etc.  If the Collateral Agentreasonably determines that it is necessary to sell any of the PledgedSecurities at a public sale, the Pledgors agree that, upon the occurrence andduring the continuance of an Event of Default hereunder, the Pledgors will, atany time and from time to time, upon the written request of the CollateralAgent, use their reasonable best efforts to take or to cause the issuer of suchPledged Securities to take such action and prepare, distribute and/or file suchdocuments, as are required or advisable in the reasonable opinion of counselfor the Collateral Agent to permit the public sale of such PledgedSecurities.  Without limiting any of itsother indemnification obligations under this Agreement, the Credit Agreement orthe other Loan Documents, the Pledgors agree to indemnify, defend and holdharmless the Collateral Agent, each 

 

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other Secured Party, any underwriter andtheir respective officers, directors, Affiliates and controlling Persons fromand against all loss, liability, expenses, costs of counsel (including thereasonable fees and expenses of legal counsel to the Collateral Agent), andclaims (including the reasonable costs of investigation) that any of them mayincur insofar as such loss, liability, expense or claim arises out of, or isbased upon, any alleged untrue statement of a material fact contained in anyprospectus (or any amendment or supplement thereto) or in any notification oroffering circular, or arises out of or is based upon any alleged omission tostate a material fact required to be stated therein or necessary to make thestatements in any thereof not misleading, except insofar as the same may havebeen caused by any untrue statement or omission based upon informationfurnished in writing to the Pledgors or the issuer of such Pledged Securitiesby the Collateral Agent or any other Secured Party expressly for usetherein.  The Pledgors further agree,upon such written request referred to above, to use their reasonable bestefforts to qualify, file or register, or cause the issuer of such PledgedSecurities to qualify, file or register, any of the Pledged Securities underthe Blue Sky or other securities laws of such states as may be requested by theCollateral Agent and keep effective, or cause to be kept effective, all suchqualifications, filings or registrations. The Pledgors will bear all costs and expenses of carrying out theirobligations under this Section 12. The Pledgors acknowledge that there is no adequate remedy at law forfailure by them to comply with the provisions of this Section 12 and thatsuch failure would not be adequately compensable in damages, and thereforeagree that their agreements contained in this Section 12 may bespecifically enforced.

 

13.                                 SecurityInterest Absolute.  All rights ofthe Collateral Agent hereunder, the grant of a security interest in the PledgedCollateral, and all obligations of the Pledgors hereunder shall be absolute andunconditional irrespective of (a) any lack of validity or enforceabilityof the Credit Agreement, any other Loan Document, any agreement with respect toany of the Obligations or any other agreement or instrument relating to any ofthe 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 amendmentor waiver of or any consent to any departure from the Credit Agreement, anyother Loan Document, or any other agreement or instrument, (c) anyexchange, release or non-perfection of any Lien on other collateral, or anyrelease or amendment or waiver of or consent to or departure from the FacilityGuarantee or any other guarantee, securing or guaranteeing all or any of theObligations, or (d) any other circumstance that might otherwise constitutea defense available to, or a discharge of, the Pledgors or any other Loan Partyin respect of the Obligations or in respect of this Agreement.

 

14.                                 Terminationor Release.

 

(a)                                  This Agreement andthe security interests granted hereby shall terminate when all the Obligationshave been paid in full, the Lenders have no further commitment to lend, theLetter of Credit Outstandings have been reduced to zero or fully cashcollateralized in a manner satisfactory to the Issuing Bank and theAdministrative Agent, and the Issuing Bank has no further obligation to issueLetters of Credit under the Credit Agreement.

 

(b)                                 Upon any sale or othertransfer by the Pledgors of any Pledged Collateral that is permitted under theCredit Agreement to any Person that is not a Loan Party, or, upon theeffectiveness of any written consent to the release of the security interestgranted hereby in any Pledged Collateral pursuant to Section 9.02(b)of the Credit Agreement, the security interest in such Pledged Collateral shallbe automatically released.

 

(c)                                  In connection withany termination or release pursuant to paragraph (a) or (b) above, theCollateral Agent shall execute and deliver to the Pledgors, at the Pledgors’expense, all documents that the Pledgors shall reasonably request to evidencesuch termination or release and shall return the Pledged Securities and allstock powers delivered pursuant hereto. Any execution and delivery of documents pursuant to this Section 14shall be without recourse to, or warranty by, the Collateral Agent.

 

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15.                                 Notices.  All communications and notices hereundershall (except as otherwise expressly permitted herein) be in writing and givenas provided in Section 9.01 of the Credit Agreement.

 

16.                                 FurtherAssurances.  The Pledgors agree todo such further acts and things, and to execute and deliver such additionalconveyances, assignments, agreements and instruments, as the Collateral Agentmay at any time reasonably request in connection with the administration andenforcement of this Agreement or with respect to the Pledged Collateral or anypart thereof or in order better to assure and confirm unto the Collateral Agentits rights and remedies hereunder.

 

17.                                 BindingEffect; Several Agreement; Assignments. Whenever in this Agreement any ofthe parties hereto is referred to, such reference shall be deemed to includethe successors and assigns of such party, and all covenants, promises andagreements by or on behalf of the Pledgors that are contained in this Agreementshall bind and inure to the benefit of their successors and assigns.  This Agreement shall be binding upon thePledgors and the Collateral Agent and their respective successors and assigns,and shall inure to the benefit of the Pledgors, the Collateral Agent and theother Secured Parties and their respective successors and assigns, except thatthe Pledgors shall not have the right to assign or transfer their rights orobligations hereunder or any interest herein or in the Pledged Collateral (andany such attempted assignment or transfer shall be void), except as expresslypermitted by this Agreement or the Credit Agreement.

 

18.                                 Survivalof Agreement; Severability.

 

(a)                                  All covenants,agreements, representations and warranties made by the Pledgors herein and inthe certificates or other instruments prepared or delivered in connection withor pursuant to this Agreement or any other Loan Document shall be considered tohave been relied upon by the Collateral Agent and the other Secured Parties andshall survive the execution and delivery of this Agreement and the other LoanDocuments and the making of any Loans and the issuance of any Letters ofCredit, and shall continue in full force and effect as long as the Obligationsare outstanding and unpaid or the Letter of Credit Outstandings do not equalzero, or are not fully cash collateralized in a manner satisfactory to theIssuing Bank and the Administrative Agent, and as long as the Commitments havenot expired or terminated.

 

(b)                                 In the event any oneor more of the provisions contained in this Agreement should be held invalid,illegal or unenforceable in any respect, the validity, legality andenforceability of the remaining provisions contained herein shall not in anyway be affected or impaired thereby (it being understood that the invalidity ofa particular provision in a particular jurisdiction shall not in and of itselfaffect the validity of such provision in any other jurisdiction).

 

19.                                 GoverningLaw.  THIS AGREEMENT SHALL BEGOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEWYORK.

 

20.                                 Counterparts.  This Agreement may be executed in two ormore counterparts, each of which shall constitute an original, but all ofwhich, when taken together, shall constitute a single contract.  Delivery of an executed counterpart of asignature page to this Agreement by facsimile transmission shall be aseffective as delivery of a manually executed counterpart of this Agreement.

 

21.                                 Rulesof Interpretation.  The rules ofinterpretation specified in Section 1.02 of the Credit Agreement shall beapplicable to this Agreement.  Sectionheadings used herein are for convenience of reference only, are not part ofthis Agreement and are not to affect the construction of, or to be taken intoconsideration in interpreting this Agreement.

 

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22.                                 Jurisdiction;Consent to Service of Process.

 

(a)                                  Each of the Pledgorsagrees that any suit for the enforcement of this Agreement or any other LoanDocument may be brought in any New York state or federal court sitting in theBorough of Manhattan in New York City, as the Collateral Agent may elect in itssole discretion, and consents to the non-exclusive jurisdiction of suchcourts.  Each of the Pledgors herebywaives any objection which it may now or hereafter have to the venue of anysuch suit or any such court or that such suit is brought in an inconvenientforum.  Each of the Pledgors agrees thatany action commenced by any Pledgor asserting any claim or counterclaim arisingunder or in connection with this Agreement shall be brought solely in any NewYork state or federal court sitting in the Borough of Manhattan in New YorkCity, as the Collateral Agent may elect in its sole discretion, and consents tothe exclusive jurisdiction of such courts with respect to any such action.

 

(b)                                 Each party to thisAgreement irrevocably consents to service of process in the manner provided fornotices in Section 15.  Nothing inthis Agreement or any other Loan Document will affect the right of any party tothis Agreement to serve process in any other manner permitted by law.

 

23.                                 Waiverof Jury Trial.  EACH PARTY HERETOHEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TOA JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH ANY PARTY HERETO IS ORBECOMES A PARTY (**WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINSTANY 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 ANYOTHER LOAN DOCUMENT.  EACH PARTY HERETO(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HASREPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THEEVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGESTHAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THISAGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SETFORTH IN THIS SECTION 23.

 

[**SIGNATURE PAGE FOLLOWS**]

 

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

 

 
| **PLEDGORS**:         | DUANE READE  INC.                                |
|-----------------------|--------------------------------------------------|
|                  |
|                  | 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 |
|                  |
|                  |
|                  | DRI I 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., as Collateral  Agent |
|                  |
|                  |
|                  | By:                                              | /s/ Mark  Forti |   |
|                  | Name:                                            | Mark Forti |
|                  | Title:                                           | Director |
|                       |                                                  |  |  |  |  |  |

 

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**SCHEDULE I**

 

None of theissuers has any authorized, issued or outstanding partnership interests of anyclass or any commitments to issue any partnership interests of any class or anysecurities convertible into or exchangeable for any partnership interests ofany class except as otherwise stated in this Schedule I.

 

| **Issuer**  |   | **Record  Owner** |   | **Type of Interest  held by Record  Owner** |   | **Percentage of  Partnership Interests  held by Record  Owner** |   |
|-------------|--------|-------------------|--------|---------------------------------------------|--------|-----------------------------------------------------------------|--------|
| Duane Reade |   | Duane Reade Inc.  |   | General Partnership                         |   | 99.0                                                            | %      |
| Duane Reade |   | DRI I Inc.        |   | General Partnership                         |   | 1.0                                                             | %      |

 

None of theissuers has any authorized, issued or outstanding shares of its capital stockof any class or any commitments to issue any shares of its capital stock of anyclass or any securities convertible into or exchangeable for any shares of itscapital stock of any class except as otherwise stated in this Schedule I.

 

| **Issuer**                      |   | **Record  Owner** |   | **Class of  Shares** |   | **Number  of Shares  held by  Record  Owner** |   | **Number of  Issued and  Outstanding  Shares** |   | **Percentage  of  Shares  held by  Record  Owner** |   |
|---------------------------------|--------|-------------------|--------|----------------------|--------|-----------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------------|--------|
| DRI I Inc.                      |   | Duane Reade  Inc. |   | Common               |   | 1,000                                         |   | 1,000                                          |   | 100.0                                              | %      |
| Duane Reade Realty, Inc.        |   | Duane Reade  Inc. |   | Common               |   | 990                                           |   | 1,000                                          |   | 99.0                                               | %      |
| Duane Reade Realty, Inc.        |   | DRI I Inc.        |   | Common               |   | 10                                            |   | 1,000                                          |   | 1.0                                                | %      |
| Duane Reade International, Inc. |   | Duane Reade  Inc. |   | Common               |   | 990                                           |   | 1,000                                          |   | 99.0                                               | %      |
| Duane Reade International, Inc. |   | DRI I Inc.        |   | Common               |   | 10                                            |   | 1,000                                          |   | 1.0                                                | %      |

 

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