**Exhibit 10.4**

 

**EXECUTION COPY**

 

TAX SHARING AGREEMENT

 

This Tax Sharing agreement is entered into asof July 30, 2004 by and among Duane Reade Holdings, Inc. (“Parent”), theSubsidiaries (as hereinafter defined) of Parent that are signatories hereto,Duane Reade, a New York general partnership, (“DR Partnership”), and anyentities which become parties hereto pursuant to Paragraph 19 hereof.  Parent and its Subsidiaries are hereinaftersometimes referred to as the “Group.”

 

WHEREAS, Parent and the Subsidiaries desire,to the extent permitted by the Internal Revenue Code of 1986, as amended (the“Code”), and the regulations promulgated thereunder (the “TreasuryRegulations”), that the Parent file consolidated Federal income tax returns onbehalf of the Group; and

 

WHEREAS, Parent and the Subsidiaries desirethat the Group participate, to the extent permitted by applicable state orlocal law, to file combined state or local income tax returns (which shall bedeemed for all purposes of this Agreement to include any combined,consolidated, unitary or similar state or local tax return) if so requested byParent; and

 

WHEREAS, Parent and the Subsidiaries, and DRPartnership, wish to allocate and settle among themselves in an equitablemanner the consolidated Federal and combined state and local income taxliability of the Group, for Taxable Periods (as hereinafter defined) governedby this Agreement; and

 

WHEREAS, the Subsidiaries desire to beindemnified by Parent with respect to certain tax liabilities, and Parent is willingto so indemnify the Subsidiaries.

 

----

 

NOW, THEREFORE, in consideration of themutual covenants contained herein, the parties agree as follows:

 

1.                                       Definitions.

 

For purposes of this Agreement, the followingterms shall be defined as follows:

 

(a)                                  “Estimated TaxPayments” for a Taxable Period shall mean, with respect to each Subsidiary,the aggregate payments by the Subsidiary to Parent for such Taxable Periodprovided in Paragraph 3.

 

(b)                                 “FinalDetermination” shall mean a closing agreement with the Internal RevenueService or the relevant state or local taxing authorities, an agreementcontained on Internal Revenue Service Form 870-AD or other comparable form, anagreement that constitutes a determination under Section 1313(a)(4) of theCode, a claim for refund that has been allowed, a deficiency notice withrespect to which the period for filing a petition with the Tax Court or therelevant state or local tribunal has expired or a decision of any court ofcompetent jurisdiction that is not subject to appeal or as to which the timefor appeal has expired.

 

(c)                                  “Separate FederalTaxable Income” for a Taxable Period shall mean, with respect to eachSubsidiary, the Federal taxable income (including, for all purposes of thisAgreement, alternative minimum taxable income) for such Taxable Period that theSubsidiary would have reported if it had not been included in the consolidatedFederal income tax return filed for the Group with respect to such TaxablePeriod but instead had filed its own separate Federal income tax return forsuch Taxable Period.  In computing suchtaxable income, (i) the Subsidiary shall not take into account

 

2

----

 

any amounts paid or payable by the Subsidiary to Parent underParagraphs 2, 3 or 5 hereof with respect to Federal taxes or by Parent to theSubsidiary under Paragraphs 2, 5 or 7 hereof with respect to Federal taxes;(ii) the Subsidiary shall take into account all elections, positions andmethods used in the consolidated Federal income tax return filed for the Groupthat must be applied on a consolidated basis; (iii) the Subsidiary shall beentitled to take into account any carryovers of net operating losses, netcapital losses, excess tax credits, or other tax attributes which could havebeen utilized by such Subsidiary if it had never been included in theconsolidated Federal income tax return filed for the Group; and (iv) theSubsidiary shall not take into account transactions between such Subsidiary andanother Subsidiary or Parent until the first taxable year in which suchtransaction is required to be taken into account pursuant to TreasuryRegulations promulgated under Section 1502 (including taking into accountany income, gains or losses of such Subsidiary on transactions that must betaken into account pursuant to Treasury Regulation Section 1.1502-13 andany income that must be taken into account pursuant to Treasury RegulationSection 1.1502-19).

 

(d)                                 “Separate FederalTax” for a Taxable Period shall mean, with respect to each Subsidiary, the Federal income tax liability or, ifapplicable, the Federal alternative minimum tax liability for such TaxablePeriod that the Subsidiary would have incurred if it had not been included inthe consolidated Federal income tax return filed for the Group with respect tosuch Taxable Period, but had instead filed its own Federal income tax returnfor such Taxable Period; provided, that in computing such tax liabilityfor any Taxable Period, the Subsidiary shall not take into account any amountspaid or payable by the Subsidiary to Parent under Paragraphs 2, 3 or 5 hereof

 

3

----

 

with respect to Federal taxes or by Parent to the Subsidiary underParagraphs 2, 5 or 7 hereof with respect to Federal taxes.  In computing such tax liability, (i) theSubsidiary shall not take into account any amounts paid or payable by theSubsidiary to Parent under Paragraphs 2, 3 or 5 hereof with respect to Federaltaxes or by Parent to the Subsidiary under Paragraphs 2, 5 or 7 hereof withrespect to Federal taxes; (ii) the Subsidiary shall take into account allelections, positions and methods used in the consolidated Federal income taxreturn filed for the Group that must be applied on a consolidated basis; (iii)the Subsidiary shall be entitled to take into account any carryovers of netoperating losses, net capital losses, excess tax credits, or other taxattributes which could have been utilized by such Subsidiary if it had neverbeen included in the consolidated Federal income tax return filed for theGroup; and (iv) the Subsidiary shall not take into account transactions betweensuch Subsidiary and another Subsidiary or Parent until the first taxable yearin which such transaction is required to be taken into account pursuant toTreasury Regulations promulgated under Section 1502 (including taking intoaccount any income, gains or losses of such Subsidiary on transactions thatmust be taken into account pursuant to Treasury RegulationSection 1.1502-13 and any income that must be taken into account pursuantto Treasury Regulation Section 1.1502-19). If the computation of the Separate Federal Tax for a Subsidiary for anyTaxable Period does not result in a positive number, such Subsidiary’s,Separate Federal Tax for such Taxable Period shall be deemed to be zero.

 

(e)                                  “Separate Stateand Local Taxable Income” shall mean, with respect to each Subsidiary, thestate and local taxable income, computed in a manner consistent with thecomputation of the Separate Federal Taxable Income, as defined

 

4

----

 

above, that the Subsidiary would have reported with respect to eachstate or local taxing jurisdiction, for any Taxable Period for which theSubsidiary participates, with Parent or any Subsidiary of Parent (other thanthe Subsidiary), in the filing of a combined state or local income tax returnwith such jurisdiction, if the Subsidiary had filed with such jurisdiction aseparate return.

 

(f)                                    “Separate Stateand Local Tax” shall mean, with respect to each Subsidiary, the aggregatestate and local income tax, computed in a manner consistent with thecomputation of the Separate Federal Tax, as defined above, that the Subsidiarywould have incurred with respect to each relevant state and local taxingjurisdiction, for any Taxable Period for which the Subsidiary participates withParent or any Subsidiary of Parent (other than the Subsidiary) in the filing ofa combined state or local income tax return with such jurisdiction, if the Subsidiaryhad filed with such jurisdiction a separate return.

 

(g)                                 “Subsidiary” asto any entity (the parent corporation) shall mean a corporation that would bean includible corporation that is a member of an affiliated group ofcorporations of which the parent corporation would be the common parent, allwithin the meaning attributable to such terms in Section 1504 of the Codeand Treasury Regulations thereunder or, for purposes of Paragraph 2(b) below,any corresponding provision of state or local income tax law.

 

(h)                                 “Taxable Period”shall mean any taxable year or portion thereof, beginning on or after the datehereof, with respect to which a consolidated Federal income tax return isproperly filed on behalf of the Group; or, in the case of any combined state orlocal return, any such taxable year or portion thereof, with respect to

 

5

----

 

which a combined state or local income tax return is filed by Parent orany Subsidiary of Parent.

 

2.                                       PaymentsBetween Parent and Subsidiaries.

 

(a)                                  For each TaxablePeriod, each Subsidiary shall pay to Parent, an amount equal to the excess, ifany, of the Separate Federal Tax for such Taxable Period of such Subsidiaryover the aggregate amount of the Estimated Tax Payments actually made by theSubsidiary to Parent with respect to Federal income taxes for such TaxablePeriod.  If the aggregate amount of theEstimated Tax Payments actually made to Parent with respect to Federal incometaxes for such Taxable Period exceeds the Separate Federal Tax for such TaxablePeriod of the Subsidiary, Parent shall pay to the Subsidiary, an amount equalto such excess.

 

(b)                                 For each TaxablePeriod with respect to which any Subsidiary participates (or is included) inthe filing of any combined state or local income tax return with Parent or anySubsidiary of Parent (other than such Subsidiary), such Subsidiary shall pay toParent an amount equal to the excess, if any, of the Separate State and LocalTax of such Subsidiary for such Taxable Period over the aggregate amount of theEstimated Tax Payments actually made by such Subsidiary to Parent with respectto such state and local income tax for such Taxable Period.  If the aggregate amount of the Estimated TaxPayments actually made to Parent with respect to such state or local income taxfor such Taxable Period exceeds the Separate State or Local Tax of suchSubsidiary for such Taxable Period, Parent shall pay to such Subsidiary, anamount equal to such excess.

 

6

----

 

3.                                       EstimatedTax Payments.

 

(a)                                  For each TaxablePeriod, each Subsidiary shall pay to Parent, no later than the fifth day priorto the date an estimated Federal income tax payment is due, the amount ofestimated Federal income taxes that such Subsidiary would have been required topay on or before the fifteenth day of such month if such Subsidiary had filedfor such period a separate return.  Suchestimated Federal income tax liability shall be determined consistent with thecalculation of the Separate Federal Tax of such Subsidiary and shall reflectthe estimated tax of such Subsidiary projected for the Taxable Period (withouttaking into account any tax liability shown on a preceding Taxable Period taxreturn) .

 

(b)                                 For every TaxablePeriod with respect to which any Subsidiary participates in the filing of acombined state or local income tax return with Parent or any Subsidiary ofParent (other than such Subsidiary), such Subsidiary shall pay to Parent nolater than the fifth day prior to the date an estimated state or local incometax payment is due, the amount of estimated taxes that such Subsidiary wouldhave been required to pay if such Subsidiary had filed for such period aseparate return.  Such estimated state orlocal income tax liability shall be determined consistent with the calculationof the Separate State and Local Tax for such Subsidiary and, to the extentpermitted by applicable law, shall reflect the estimated tax of such Subsidiaryprojected for such period (without taking into account any tax liability shownon a preceding Taxable Period tax return).

 

7

----

 

4.                                       Timeand Form of Payment.

 

Payments by the Subsidiaries or Parentpursuant to Paragraph 2 hereof shall be made no later than the fifth day priorto the due date of the Group’s consolidated Federal income tax return or anyrelevant combined state or local income tax return for the period for whichsuch a payment is due.  If the due datefor any such return is extended, any amounts due at the time of filing arequest for extension of time to file shall be paid on an estimated basis.  No later than five (5) days prior to theextended due date for such return for such Taxable Period, the payment of eachSubsidiary shall be recalculated, and any difference between (i) the taxliability of such Subsidiary to be reflected on such return and (ii) all priorEstimated Tax Payments made by such Subsidiary with respect to the such TaxablePeriod shall be paid by such fifth day to the party entitled thereto, withinterest from the original due date at the relevant statutory rate.

 

5.                                       Adjustments.

 

(a)                                  Redeterminationsof Tax Liability.  In the event ofany redetermination of the consolidated Federal income tax liability of theGroup for any Taxable Period (or of the combined state or local income taxliability for any Taxable Period for which a combined state or local income taxreturn is filed) as a result of an audit by the Internal Revenue Service (orthe relevant state or local taxing authorities), a claim for refund orotherwise, the Separate Federal Tax (or Separate State and Local Tax) for eachSubsidiary shall be recomputed for such Taxable Period and any prior andsubsequent Taxable Periods to take into account such redetermination, includingany applicable interest, penalties and additions to tax (to the extent actuallyimposed or, in the case of interest, imposed or received), and payments duepursuant to Paragraph 2 hereof

 

8

----

 

shall be appropriately adjusted. Any payment by a Subsidiary to Parent or by Parent to a Subsidiaryrequired by such adjustment shall be paid within ten (10) days after the dateof a Final Determination with respect to such redetermination or as soon assuch adjustment practicably can be calculated.

 

(b)                                 Refund of TaxSharing Payment.  In the event thatthe calculation of the Separate Federal Taxable Income (or Separate State orLocal Taxable Income) for any Subsidiary for any Taxable Period results in aloss, such loss may be carried back and deducted in calculating the SeparateFederal Tax (or Separate State and Local Tax) of such Subsidiary for priorTaxable Periods in the same manner as it would have been carried back anddeducted had it never been included in the consolidated Federal income taxreturn filed for the Group.  In suchcase, the Separate Federal Tax (or Separate State and Local Tax) of suchSubsidiary shall be recomputed for the Taxable Period or Periods to which suchloss is carried and for any subsequent Taxable Periods to take into account thededuction of such loss, including any interest actually received, and paymentsmade pursuant to Paragraph 2 hereof shall be appropriately adjusted.  In the case of any carryback of a losspursuant to this Paragraph 5(b), any payment by Parent to such Subsidiaryrequired by such adjustment shall be paid within seven (7) days after suchrefunds are received by Parent, or, in the case of contested proceedings,within thirty (30) days after the Final Determination with respectthereto.  Excess credits for any TaxablePeriod shall be carried back and otherwise treated in a manner consistent withthe provision of this Paragraph 5.

 

9

----

 

6.                                       Interest onUnpaid Amounts.

 

In the event that any party fails to pay anyamount owed pursuant to this Agreement within ten (10) days after the date whendue, interest shall accrue on any unpaid amount at the “designated rate” fromthe due date until such amounts are fully paid. For purposes of this Agreement, the “designated rate” shall mean a rateequal to such percentage as is provided with respect to tax deficiencies orrefunds charged or credited by the Internal Revenue Service or state or localtaxing authority, as the case may be.

 

7.                                       Indemnification.

 

Parent shall indemnify each Subsidiary on anafter-tax basis (taking into account, when realized, any tax detriment or taxbenefit to such Subsidiary of (x) a payment hereunder or (y) the liability tothe Internal Revenue Service or state, local or foreign taxing authority givingrise to such a payment), with respect to and in the amount of:

 

(a)                                  any liability to theInternal Revenue Service for Federal income tax incurred by such Subsidiary forany Taxable Period with respect to which such Subsidiary is included in aconsolidated Federal income tax return filed on behalf of the Group;

 

(b)                                 any liability forstate or local income tax to a state or local taxing authority incurred by suchSubsidiary with respect to any jurisdiction for any Taxable Period with respectto which such Subsidiary participates in the filing of a combined state orlocal income tax return with Parent or any Subsidiary of Parent (other thansuch Subsidiary);

 

(c)                                  any liability forFederal, state or local income tax to the

 

10

----

 

Internal Revenue Serviceor a state or local taxing authority, as the case may be, incurred by suchSubsidiary, to the extent attributable to any other member of the Group and forwhich such Subsidiary is liable as a result of being included in a consolidatedFederal income tax return of the Group or as a result of participating in thefiling of a combined state or local income tax return with Parent or any otherSubsidiary of Parent; and

 

(d)                                 interest, penaltiesand additions to tax, and costs and expenses in connection with any liabilitiesdescribed in Paragraphs 7(a), (b) or (c) above. Parent shall pay to eachSubsidiary amounts due under Paragraphs 7(a), (b) and (c) and Paragraph 7(d)(to the extent such amounts are related to amounts under Paragraphs 7(a), (b),or (c)) no later than ten (10) days after the date of a Final Determinationwith respect thereto; provided, however, that Parent shall not berequired to pay a Subsidiary if such Subsidiary has failed to timely pay toParent all amounts required to be paid by such Subsidiary to Parent under thisAgreement, unless (i) any such failures are *de minimis* and(ii) any such amounts that have not been paid to Parent reduce the amountsrequired to be paid by Parent to Subsidiary under this Paragraph 7.

 

8.                                       Filing ofReturns, Payment of Tax, Etc.

 

(a)                                  Agent.  Parent and the Subsidiaries agree that Parentshall file consolidated Federal income tax returns for each Taxable Period ofthe Group.  Each Subsidiary herebyappoints Parent as its agent, as long as such Subsidiary is a member of theGroup, for the purpose of filing consolidated Federal income tax returns andfor making any election or application or taking any action in connection therewithon behalf of such Subsidiary consistent with the terms of this Agreement.  Each Subsidiary hereby appoints Parent as itsagent, as long as such Subsidiary is a member of the Group, for the

 

11

----

 

purpose of filing any combined state or local income tax returns thatParent may elect to file or cause to be filed, and for making any election orapplication or taking any action in connection therewith on behalf of suchSubsidiary consistent with the terms of this Agreement.  Each Subsidiary hereby consents to the filingof such returns, and to the making of such elections and applications.  Parent agrees that to the extent the filing ofany combined state or local return by Parent (or a Subsidiary of Parent) withany Subsidiary with such Subsidiary for any period will reduce the state orlocal tax liability of such Subsidiary, without causing an increase in thestate or local tax liability of Parent or any other Subsidiary of Parent insuch period, Parent will file or cause to be filed for such taxable period acombined state or local income tax return with such Subsidiary; provided,however, that such filing is permitted by applicable state or locallaw.  Except as provided in thisParagraph 8, nothing herein shall be construed as requiring Parent or anySubsidiary of Parent to file combined state or local income tax returns onbehalf of any members of the Group for any Taxable Period.

 

(b)                                 Cooperation.   Each Subsidiary shall cooperate with Parentin the filing, to the extent permitted by law, of a consolidated Federal incometax return and such combined state or local income tax returns for members ofthe Group as Parent elects to file or cause to be filed, by maintaining suchbooks and records and providing such information as may be necessary or usefulin the filing of such returns and executing any documents and taking anyactions that Parent may reasonably request in connection therewith.  Parent and each Subsidiary shall provide oneanother with such information concerning such returns and the application ofpayments made under this Agreement as any of such corporations may reasonablyrequest of one another.

 

12

----

 

(c)                                  Payment of Tax.  For each Taxable Period, Parent shall timelypay or discharge, or cause to be timely paid or discharged, the consolidatedFederal income tax liability of the Group for such Taxable Period and thecombined state or local income tax liability shown on any combined state orlocal income tax return that Parent or any Subsidiary elects or is required tofile.

 

9.                                       Resolution ofDisputes.

 

Any dispute concerning the calculation orbasis of determination of any payment provided for hereunder shall be resolvedby the independent certified financial accountants of Parent or by anotherindividual so designated by the independent certified financial accountants ofParent, whose judgment shall be conclusive and binding upon the parties, in theabsence of manifest error.

 

10.                                 Adjudications.

 

In any audit, conference, or other proceedingwith the Internal Revenue Service or the relevant state or local authorities,or in any judicial proceedings concerning the determination of the Federalincome tax liabilities of the Group or the state or local income tax liabilityof any combined group including Parent or any Subsidiary, the relevanttaxpayer(s) shall be represented by persons selected by Parent.  Parent shall undertake any settlement orother action that it is permitted to take pursuant to this Paragraph 10affecting the income tax liability of a Subsidiary or any amount payable by aSubsidiary to or receivable by a Subsidiary from Parent with the same diligenceand care as if such action pertained to an income tax liability of Parent andas if any amount that might be so payable or receivable by such Subsidiary werepayable or receivable by

 

13

----

 

Parent.  Each Subsidiary herebyappoints Parent as its agent for the purpose of proposing and concluding any suchsettlement.

 

11.                                 DRPartnership Joint and Several Liability.

 

Notwithstanding anything to the contraryherein, DR Partnership shall be jointly and severally liable for, and make allpayments with respect to, any obligations of its partners under Paragraphs 2, 3or 5 to the extent attributable to each such partner’s interest in DRPartnership; provided, that it is the parties’ intent that each of thepartners in DR Partnership remains severally liable for all of its obligationsunder this Agreement.

 

12.                                 Binding Effect;Successors.

 

This Agreement shall be binding upon Parentand each Subsidiary that is a signatory hereto, DR Partnership, and eachSubsidiary of Parent that becomes a party hereto pursuant to Paragraph 19hereof.  This Agreement shall inure tothe benefit of, and be binding upon, any successors or assigns of the partieshereto, including, without limitation, any Subsidiary that becomes a partyhereto pursuant to Paragraph 19.  Eachparty hereto may assign its right to receive payments under this Agreement, butmay not assign or delegate its obligations hereunder.

 

13.                                 Interpretation.

 

This Agreement is intended to calculate andallocate certain Federal and state and local income tax liabilities of Parentand the Subsidiaries, and DR Partnership, and any situation or circumstanceconcerning such calculation and allocation that is not specificallycontemplated hereby or provided for herein shall be dealt with in a mannerconsistent with the underlying principles of calculation and allocation in thisAgreement.

 

14

----

 

14.                                 Limitation OnAdditional Tax Agreements; Effect of the Agreement.

 

This Agreement shall determine the liabilityof Parent and the members of the Group and DR Partnership to each other as tothe matters provided for herein, whether or not such determination is effectivefor purposes of the Code or the Treasury Regulations promulgated thereunder orstate or local revenue laws and regulations, financial reporting purposes orother purposes.

 

15.                                 Entire Agreement;Assignment.

 

This Agreement embodies the entireunderstanding among the parties relating to its subject matter and supersedesand terminates all prior agreements and understandings among the parties withrespect to such subject matter.  Any andall prior correspondence, conversations and memoranda are merged herein andshall be without effect hereon.  Nopromises, covenants or representations of any kind, other than those expresslystated herein, have been made to induce any party to enter into thisAgreement.  This Agreement, includingthis provision against oral modification, shall not be modified or terminatedexcept by a writing duly signed by each of the parties hereto, and no waiver ofany provisions of this Agreement shall be effective unless in a writing dulysigned by the party sought to be bound.

 

16.                                 Code References.

 

Any references to the Code or TreasuryRegulations shall be deemed to refer to the relevant provisions of anysuccessor statute or regulation and shall refer to such provisions as in effectfrom time to time.

 

15

----

 

17.                                 Notices.

 

Any payment, notice or communication requiredor permitted to be given under this Agreement shall be in writing (includingtelecopy communication) and mailed, telecopied or delivered:

 

If to Parent:

 

Duane Reade Holdings,Inc.  c/o Oak Hill Capital Partners, L.P. 201 Main StreetFort Worth, TX  76102Facsimile:  (817) 339-7350****Attention:  Ray Pinson

 

with a copy to:

 

Oak Hill Capital Management,Inc.Park Avenue Tower65 East 55th Street, 36 FloorNew York, NY  10022Facsimile:  (212) 758-3572Attention:  John R. Monsky, Esq.

 

and

 

Paul, Weiss, Rifkind, Wharton & GarrisonLLP1285 Avenue of the AmericasNew York, NY  10019-6064Facsimile: (212) 757-3990Attention:  Robert B. Schumer, Esq.

 

If to Subsidiary:

 

c/o Duane Reade Inc.440 Ninth Avenue, 6th FloorNew York, NY  10001Facsimile:  (212) 244-6525

 

If to DR Partnership:

 

c/o Duane Reade Inc.440 Ninth Avenue, 6th FloorNew York, NY  10001Facsimile:  (212) 244-6525

 

16

----

 

or to such other addressas a party shall furnish in writing to the other parties.  All such notices and communications shall beeffective when received.

 

18.                                 Counterparts.

 

This Agreement may be executed in two or morecounterparts, each of which shall be deemed to be an original, but all of whichtogether shall constitute one and the same instrument.

 

19.                                 New Members.

 

Each of the parties to this Agreementrecognizes that from time to time, new Subsidiaries of Parent may be added tothe Group.  Each of the parties to   this Agreement agrees that any newSubsidiary of Parent shall, without the express written consent of the otherparties, become a party to this Agreement for all purposes of this Agreementwith respect to Taxable Periods ending after such Subsidiary was added to theGroup.

 

20.                                 Governing Law.

 

This Agreement shall be governed by the lawsapplicable to contracts entered into and to be fully performed within the Stateof New York.

 

21.                                 Termination.

 

(a)                                  This Agreement shallbe terminated if all of the parties agree in writing to such termination or theGroup fails to file a consolidated Federal income tax return for any tax yearof this Agreement.

 

(b)                                 In the event any partyceases to be affiliated within the Group, this Agreement only terminates withrespect to that member.

 

17

----

 

(c)                                  Notwithstanding thetermination of this Agreement pursuant to this Paragraph 21, the provisions ofthis Agreement shall remain in effect, with respect to any period of timeduring the tax year in which termination occurs, for which the income of theterminating party must be included in the consolidated Federal income taxreturn.

 

(d)                                 Following thetermination of this Agreement pursuant to this Paragraph 21, the obligationsand liabilities of the parties arising under this Agreement with respect to anyTaxable Period prior to the termination date and the indemnification obligationof Parent pursuant to Paragraph 7 shall continue in full force and effect untilall such obligations have been met and all such liabilities have been paid infull, whether by expiration of time, operation of law or otherwise.

 

18

----

 

IN WITNESS WHEREOF, each of the parties hascaused this Agreement to be executed by its respective duly authorized officeras of the date first set forth above.

 
|   | PARENT                     |
|--------|----------------------------|
|   |                       |
|   | DUANE READE HOLDINGS, INC. |
|   |                       |
|   |                       |
|   | By:                        | /s/ Michelle D. Bergman |   |
|   |                       |
|   |                       |
|   | SUBSIDIARY                 |
|   |                       |
|   | DUANE READE INC.           |
|   |                       |
|   |                       |
|   | By:                        | /s/ Michelle D. Bergman |   |
|   |                       |
|   |                       |
|   | SUBSIDIARY                 |
|   |                       |
|   | DRI I INC.                 |
|   |                       |
|   |                       |
|   | By:                        | /s/ Michelle D. Bergman |   |
|   |                       |
|   |                       |
|   | SUBSIDIARY                 |
|   |                       |
|   | DUANE READE INTERNATIONAL  |
|   |                       |
|   |                       |
|   | By:                        | /s/ Michelle D. Bergman |   |
|   |                       |
|   |                       |
|   | SUBSIDIARY                 |
|   |                       |
|   | DUANE READE REALTY         |
|   |                       |
|   |                       |
|   | By:                        | /s/ Michelle D. Bergman |   |

 

19

----

 
|   | DUANE READE                                     |
|--------|-------------------------------------------------|
|   |                                            |
|   |                                            |
|   | By:  DUANE READE INC., a  general  partner |
|   |                                            |
|   |                                            |
|   | By:                                             | /s/ Michelle D. Bergman |   |
|   |                                            |
|   |                                            |
|   |                                            | By:  DRI I INC., a general partner |
|   |                                            |
|   |                                            |
|   | By:                                             | /s/ Michelle D. Bergman |   |

 

20

----