**Exhibit 4.1**

 

**EXECUTION COPY**

 

 

DUANE READE ACQUISITION CORP.

(*to beMerged With and Into*

DUANE READE INC.), as Issuer

 

and

 

U.S. BANK NATIONAL ASSOCIATION, as Trustee

 

 

----

 

INDENTURE

 

Dated as of July 30, 2004

 

----

 

 

$195,000,000

 

9.75% Senior Subordinated Notes due 2011

 

----

 

CROSS-REFERENCE TABLE*

 
| **TRUST  INDENTURE  ACT SECTION** | ** ** | **INDENTURE  SECTION** |
|-----------------------------------|------------|------------------------|
|                              |       |                   |
| 310(a)(1)                         |       | 7.10                   |   |
| (a)(2)                            |       | 7.10                   |   |
| (a)(3)                            |       | N.A.                   |   |
| (a)(4)                            |       | N.A.                   |   |
| (a)(5)                            |       | 7.10                   |   |
| (b)                               |       | 7.10                   |   |
| (c)                               |       | N.A.                   |   |
| 311(a)                            |       | 7.11                   |   |
| (b)                               |       | 7.11                   |   |
| (c)                               |       | N.A.                   |   |
| 312(a)                            |       | 2.06                   |   |
| (b)                               |       | 13.03                  |   |
| (c)                               |       | 13.03                  |   |
| 313(a)                            |       | 7.06                   |   |
| (b)(1)                            |       | N.A.                   |   |
| (b)(2)                            |       | 7.06                   |   |
| (c)                               |       | 13.02                  |   |
| (d)                               |       | 7.06                   |   |
| 314(a)                            |       | 4.04(b)                |   |
| (b)                               |       | N.A.                   |   |
| (c)(1)                            |       | N.A.                   |   |
| (c)(2)                            |       | N.A.                   |   |
| (c)(3)                            |       | N.A.                   |   |
| (d)                               |       | N.A.                   |   |
| (e)                               |       | 13.05                  |   |
| (f)                               |       | N.A.                   |   |
| 315(a)                            |       | N.A.                   |   |
| (b)                               |       | N.A.                   |   |
| (c)                               |       | N.A.                   |   |
| (d)                               |       | N.A.                   |   |
| (e)                               |       | N.A.                   |   |
| 316(a)(last sentence)             |       | N.A.                   |   |
| (a)(1)(A)                         |       | N.A.                   |   |
| (a)(1)(B)                         |       | 6.04                   |   |
| (a)(2)                            |       | N.A.                   |   |
| (b)                               |       | N.A.                   |   |
| (c)                               |       | 13.14(d)               |   |
| 317(a)(1)                         |       | N.A.                   |   |
| (a)(2)                            |       | N.A.                   |   |
| (b)                               |       | N.A.                   |   |
| 318(a)                            |       | N.A.                   |   |
| (b)                               |       | N.A.                   |   |

 

i

----

 
| (c) |   | 13.01 |
|-----|--------|-------|

 

----

N.A. means not applicable.

 

*This Cross-Reference Table is not part of the Indenture.

 

ii

----

 

TABLE OF CONTENTS

 
| CROSS-REFERENCE  TABLE                                 |                                                |
|--------------------------------------------------------|-----------------------------------------------------|
|                                                   |                                                |
| ARTICLE ONE                                            |                                                |
| Definitions  And Incorporation By Reference            |                                                |
|                                                   |                                                |
| Section  1.01.                                         | Definitions.                                        |   |
| Section  1.02.                                         | Other  Definitions.                                 |   |
| Section  1.03.                                         | Incorporation  by Reference of Trust Indenture Act. |   |
| Section  1.04.                                         | Rules  of Construction.                             |   |
|                                                   |                                                |   |
| ARTICLE  TWO                                           |                                                |
| The Notes                                              |                                                |
|                                                   |                                                |   |
| Section  2.01.                                         | Form  and Dating.                                   |   |
| Section  2.02.                                         | Execution  and Authentication.                      |   |
| Section  2.03.                                         | Methods  of Receiving Payments on the Notes.        |   |
| Section  2.04.                                         | Registrar  and Paying Agent.                        |   |
| Section  2.05.                                         | Paying  Agent to Hold Money in Trust.               |   |
| Section  2.06.                                         | Holder  Lists.                                      |   |
| Section  2.07.                                         | Transfer  and Exchange.                             |   |
| Section 2.08.                                          | Replacement Notes.                                  |   |
| Section 2.09.                                          | Outstanding  Notes.                                 |   |
| Section  2.10.                                         | Treasury  Notes.                                    |   |
| Section  2.11.                                         | Temporary  Notes.                                   |   |
| Section  2.12.                                         | Cancellation.                                       |   |
| Section  2.13.                                         | Defaulted  Interest.                                |   |
| Section  2.14.                                         | CUSIP  Numbers.                                     |   |
|                                                   |                                                |   |
| ARTICLE  THREE                                         |                                                |
| Redemption and Prepayment; Satisfaction and  Discharge |                                                |
|                                                   |                                                |   |
| Section  3.01.                                         | Notices  to Trustee.                                |   |
| Section  3.02.                                         | Selection  of Notes to Be Redeemed.                 |   |
| Section  3.03.                                         | Notice  of Redemption.                              |   |
| Section  3.04.                                         | Effect  of Notice of Redemption.                    |   |
| Section  3.05.                                         | Deposit  of Redemption Price.                       |   |
| Section  3.06.                                         | Notes  Redeemed in Part.                            |   |
| Section  3.07.                                         | Optional  Redemption.                               |   |
| Section  3.08.                                         | Mandatory  Redemption.                              |   |
| Section  3.09.                                         | Application  of Trust Money.                        |   |
|                                                   |                                                |   |
| ARTICLE  FOUR                                          |                                                |
| Covenants                                              |                                                |
|                                                   |                                                |
| Section  4.01.                                         | Payment  of Notes.                                  |   |

 

i

----

 
| Section  4.02.        | Maintenance  of Office or Agency.                                           |   |
|-----------------------|-----------------------------------------------------------------------------|--------|
| Section  4.03.        | Reports.                                                                    |   |
| Section  4.04.        | Compliance  Certificate.                                                    |   |
| Section  4.05.        | Taxes.                                                                      |   |
| Section  4.06.        | Stay,  Extension and Usury Laws.                                            |   |
| Section  4.07.        | Incurrence  of Indebtedness and Issuance of Disqualified Stock.             |   |
| Section  4.08.        | Restricted  Payments.                                                       |   |
| Section  4.09.        | Transactions  with Affiliates.                                              |   |
| Section 4.10.         | Liens.                                                                      |   |
| Section 4.11.         | Asset  Sales.                                                               |   |
| Section  4.12.        | Issuances  of Guarantees by New Restricted Subsidiaries.                    |   |
| Section  4.13.        | Dividend  and Other Payment Restrictions Affecting Restricted Subsidiaries. |   |
| Section  4.14.        | Limitation  on Layering Debt.                                               |   |
| Section  4.15.        | Unrestricted  Subsidiaries.                                                 |   |
| Section  4.16.        | Payments  for Consent.                                                      |   |
| Section  4.17.        | Co-Obligor.                                                                 |   |
| Section  4.18.        | Offer  to Repurchase upon a Change of Control.                              |   |
| Section  4.19.        | Corporate  Existence.                                                       |   |
|                  |                                                                        |   |
| ARTICLE FIVE          |                                                                        |
| Successors            |                                                                        |
|                  |                                                                        |   |
| Section  5.01.        | Consolidation,  Merger or Sale of Assets.                                   |   |
|                  |                                                                        |   |
| ARTICLE SIX           |                                                                        |
| Defaults and Remedies |                                                                        |
|                  |                                                                        |   |
| Section  6.01.        | Events of  Default.                                                         |   |
| Section  6.02.        | Acceleration.                                                               |   |
| Section 6.03.         | Other  Remedies.                                                            |   |
| Section  6.04.        | Waiver of  Past Defaults.                                                   |   |
| Section  6.05.        | Control by  Majority.                                                       |   |
| Section 6.06.         | Limitation on Suits.                                                        |   |
| Section  6.07.        | Rights of  Holders of Notes to Receive Payment.                             |   |
| Section  6.08.        | Collection  Suit by Trustee.                                                |   |
| Section  6.09.        | Trustee May  File Proofs of Claim.                                          |   |
| Section  6.10.        | Priorities.                                                                 |   |
| Section  6.11.        | Undertaking  for Costs.                                                     |   |
|                  |                                                                        |   |
| ARTICLE SEVEN         |                                                                        |
| Trustee               |                                                                        |
|                  |                                                                        |   |
| Section  7.01.        | Duties of  Trustee.                                                         |   |
| Section  7.02.        | Certain  Rights of Trustee.                                                 |   |
| Section  7.03.        | Individual  Rights of Trustee.                                              |   |
| Section  7.04.        | Trustee’s  Disclaimer.                                                 |   |

 

ii

----

 
| Section  7.05.                     | Notice of  Defaults.                                                                                   |   |
|------------------------------------|--------------------------------------------------------------------------------------------------------|--------|
| Section  7.06.                     | Reports by  Trustee to Holders of the Notes.                                                           |   |
| Section  7.07.                     | Compensation  and Indemnity.                                                                           |   |
| Section  7.08.                     | Replacement  of Trustee.                                                                               |   |
| Section  7.09.                     | Successor  Trustee by Merger, Etc.                                                                     |   |
| Section  7.10.                     | Eligibility;  Disqualification.                                                                        |   |
| Section  7.11.                     | Preferential  Collection of Claims Against Co-Obligors.                                                |   |
|                               |                                                                                                   |
| ARTICLE EIGHT                      |                                                                                                   |
| Defeasance and Covenant Defeasance |                                                                                                   |
|                               |                                                                                                   |   |
| Section  8.01.                     | Option to  Effect Legal Defeasance or Covenant Defeasance.                                             |   |
| Section  8.02.                     | Legal  Defeasance and Discharge.                                                                       |   |
| Section 8.03.                      | Covenant Defeasance.                                                                                   |   |
| Section  8.04.                     | Conditions to  Legal Defeasance or Covenant Defeasance.                                                |   |
| Section  8.05.                     | Deposited  Money and U.S. Government Obligations to Be Held in Trust; Other  Miscellaneous Provisions. |   |
| Section  8.06.                     | Repayment to  the Co-Obligors.                                                                         |   |
| Section  8.07.                     | Reinstatement.                                                                                         |   |
|                               |                                                                                                   |
| ARTICLE NINE                       |                                                                                                   |
| Amendment, Supplement and Waiver   |                                                                                                   |
|                               |                                                                                                   |   |
| Section  9.01.                     | Without  Consent of Holders of Notes.                                                                  |   |
| Section  9.02.                     | With Consent  of Holders of Notes.                                                                     |   |
| Section  9.03.                     | Compliance  with Trust Indenture Act.                                                                  |   |
| Section  9.04.                     | Revocation  and Effect of Consents.                                                                    |   |
| Section 9.05.                      | Notation on  or Exchange of Notes.                                                                     |   |
| Section  9.06.                     | Trustee to  Sign Amendments, Etc.                                                                      |   |
|                               |                                                                                                   |
| ARTICLE TEN                        |                                                                                                   |
| Subordination                      |                                                                                                   |
|                               |                                                                                                   |   |
| Section  10.01.                    | Agreement to  Subordinate.                                                                             |   |
| Section 10.02.                     | Liquidation; Dissolution; Bankruptcy.                                                                  |   |
| Section  10.03.                    | Default on  Designated Senior Indebtedness.                                                            |   |
| Section  10.04.                    | Acceleration  of Notes.                                                                                |   |
| Section  10.05.                    | When  Distribution Must Be Paid Over.                                                                  |   |
| Section  10.06.                    | Notice by  the Co-Obligors.                                                                            |   |
| Section 10.07.                     | Subrogation.                                                                                           |   |
| Section 10.08.                     | Relative  Rights.                                                                                      |   |
| Section  10.09.                    | Subordination  May Not Be Impaired by the Co-Obligors.                                                 |   |
| Section  10.10.                    | Distribution  or Notice to Representative.                                                             |   |
| Section  10.11.                    | Rights of  Trustee and Paying Agent.                                                                   |   |
| Section  10.12.                    | Authorization  to Effect Subordination.                                                                |   |
| Section  10.13.                    | Reliance by  Holders of Senior Indebtedness on Subordination.                                          |   |

 

iii

----

 
| ARTICLE  ELEVEN            |                                                                                                   |
|----------------------------|--------------------------------------------------------------------------------------------------------|
| Guarantees                 |                                                                                                   |
|                       |                                                                                                   |   |
| Section  11.01.            | Guarantee.                                                                                             |   |
| Section  11.02.            | Subordination  of Guarantee.                                                                           |   |
| Section  11.03.            | Limitation  on Guarantor Liability.                                                                    |   |
| Section  11.04.            | Execution  and Delivery of Guarantee.                                                                  |   |
| Section  11.05.            | Releases of  Guarantors.                                                                               |   |
|                       |                                                                                                   |
| ARTICLE  TWELVE            |                                                                                                   |
| Satisfaction and Discharge |                                                                                                   |
|                       |                                                                                                   |   |
| Section  12.01.            | Satisfaction  and Discharge.                                                                           |   |
| Section  12.02.            | Deposited  Money and U.S. Government Obligations to be held in Trust; Other  Miscellaneous Provisions. |   |
| Section  12.03.            | Repayment to  the Company.                                                                             |   |
|                       |                                                                                                   |
| ARTICLE  THIRTEEN          |                                                                                                   |
| Miscellaneous              |                                                                                                   |
|                       |                                                                                                   |   |
| Section  13.01.            | Trust  Indenture Act Controls.                                                                         |   |
| Section  13.02.            | Notices.                                                                                               |   |
| Section  13.03.            | Communication  by Holders of Notes with Other Holders of Notes.                                        |   |
| Section  13.04.            | Certificate  and Opinion as to Conditions Precedent.                                                   |   |
| Section  13.05.            | Statements  Required in Certificate or Opinion.                                                        |   |
| Section  13.06.            | Rules by  Trustee and Agents.                                                                          |   |
| Section  13.07.            | No Personal  Liability of Directors, Officers, Employees and Stockholders.                             |   |
| Section  13.08.            | Governing  Law.                                                                                        |   |
| Section  13.09.            | No Adverse  Interpretation of Other Agreements.                                                        |   |
| Section  13.10.            | Successors.                                                                                            |   |
| Section  13.11.            | Severability.                                                                                          |   |
| Section  13.12.            | Counterpart  Originals.                                                                                |   |
| Section  13.13.            | Acts of  Holders.                                                                                      |   |
| Section  13.14.            | Benefit of  Indenture.                                                                                 |   |
| Section  13.15.            | Table of  Contents, Headings, Etc.                                                                     |   |
| Section  13.16.            | Trustee Not  Fiduciary for Holders of Senior Indebtedness.                                             |   |
|                       |                                                                                                   |   |
| Exhibits:                  |                                                                                                   |   |
|                       |                                                                                                   |   |
| Exhibit A1                 | FORM OF NOTE                                                                                           |   |
|                       |                                                                                                   |   |
| Exhibit A2                 | FORM OF REGULATION S TEMPORARY GLOBAL NOTE                                                             |   |
|                       |                                                                                                   |   |
| Exhibit B                  | FORM OF CERTIFICATE OF TRANSFER                                                                        |   |
|                       |                                                                                                   |   |
| Exhibit C                  | FORM OF CERTIFICATE OF EXCHANGE                                                                        |   |
|                       |                                                                                                   |   |
| Exhibit D                  | FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR                                     |   |

 

iv

----

 
| Exhibit E | FORM OF NOTATION OF GUARANTEE                                                 |   |
|-----------|-------------------------------------------------------------------------------|--------|
|      |                                                                          |   |
| Exhibit F | FORM OF GUARANTOR SUPPLEMENTAL INDENTURE TO BE DELIVERED BY  GUARANTORS       |   |
|      |                                                                          |   |
| Exhibit G | FORM OF SUCCESSOR SUPPLEMENTAL INDENTURE TO BE DELIVERED BY DUANE  READE INC. |   |
|      |                                                                          |   |
| Exhibit H | FORM OF CO-OBLIGOR SUPPLEMENTAL INDENTURE TO BE DELIVERED BY DUANE  READE GP  |   |

 

v

----

 

INDENTURE (this “Indenture”), dated asof July 30, 2004, among Duane Reade Acquisition Corp., a Delaware corporation(which will be merged with and into Duane Reade Inc., a Delaware corporation (“DuaneReade”), upon consummation of the Acquisition (as defined herein) withDuane Reade as the survivor in the Acquisition) (the “Company”) and U.S.Bank National Association, as Trustee (the “Trustee”).

 

Upon the consummation of the Acquisition, (1)Duane Reade will be required to execute a supplemental indenture to thisIndenture, substantially in the form attached hereto as Exhibit G (the “SuccessorSupplemental Indenture”), pursuant to which it will assume all theobligations of the Company under the Notes (as defined below) and thisIndenture as successor in the Acquisition, (2) Duane Reade, a New York generalpartnership and subsidiary of Duane Reade (“Duane Reade GP” and,together with the Company, the “Co-Obligors”) will be required toexecute a supplemental indenture to this Indenture, substantially in the formattached hereto as Exhibit H (the “Co-Obligor Supplemental Indenture”),pursuant to which it will agree to become a co-obligor with Duane Reade of allthe obligations under the Notes and this Indenture, and (3) DRI I Inc., aDelaware corporation, Duane Reade International, Inc., a Delaware corporationand Duane Reade Realty, Inc., a Delaware corporation (collectively, the “InitialGuarantors”) will be required to execute a supplemental indenture to thisIndenture, substantially in the form attached hereto as Exhibit F (the “GuarantorSupplemental Indenture” and, together with the Successor SupplementalIndenture and the Co-Obligor Supplemental Indenture, the “SupplementalIndentures”), pursuant to which each of the Initial Guarantors willguarantee all the obligations of Duane Reade and Duane Reade GP under the Notesand this Indenture.

 

The Company and the Trustee (as definedbelow) agree as follows for the benefit of each other and for the equal andratable benefit of the Holders (as defined below) of the 9.75% SeniorSubordinated Notes due 2011 (the “Initial Notes” and, together with anyExchange Notes and Additional Notes, each as defined herein, the “Notes”):

 

# **ARTICLE ONE**Definitions And IncorporationBy Reference

 

Section 1.01.  Definitions.

 

“144A Global Note” means a global notesubstantially in the form of Exhibit A1 hereto bearing the Global Note Legendand the Private Placement Legend and deposited with or on behalf of, andregistered in the name of, the Depositary or its nominee that shall be issuedin a denomination equal to the outstanding principal amount at maturity of theNotes sold in reliance on Rule 144A.

 

“Acquired Indebtedness” meansIndebtedness of a Person (1) existing at the time such Person becomes aRestricted Subsidiary or (2) assumed in connection with the acquisition ofassets from such Person, in each case, other than Indebtedness incurred inconnection with, or in contemplation of, such Person becoming a RestrictedSubsidiary or such acquisition, as the case may be. Acquired Indebtedness shallbe deemed to be incurred on the date of the related acquisition of assets fromany Person or the date the acquired Person becomes a Restricted Subsidiary, asthe case may be.

 

----

 

“Acquisition” means the transactionscontemplated by the Agreement and Plan of Merger, as it may be amended ormodified to the Issue Date.

 

“Acquisition Closing Date” means thedate and time at which the Acquisition is consummated.

 

“Additional Notes” means any furtherNotes (other than the Initial Notes issued on the date of this Indenture)issued under this Indenture in accordance with the terms of this Indenture,including Sections 2.02 and 4.07 hereof, as part of the same series as theInitial Notes issued on the date hereof, ranking equally with those InitialNotes and having identical terms and conditions to the Initial Notes (in allrespects other than the payment of interest accruing prior to the issue date ofsuch Additional Notes or except, in any such case, at the option of theCompany, for the first payment of interest following the issue date of suchAdditional Notes), subject to compliance with Section 4.07 hereof.  The Initial Notes and any Additional Notessubsequently issued under this Indenture shall be treated as a single class forall purposes under this Indenture, including, without limitation, waivers,amendments, redemptions and offers to purchase.

 

“Advisory Agreement” means theadvisory agreement entered into in connection with the Acquisition, as amended,restated or modified from time to time, *provided*that such amendment, restatement or modification is not materially moreadverse, taken as a whole, to the Company and its Restricted Subsidiaries thanthe Advisory Agreement in effect or entered into on the Acquisition ClosingDate.

 

“Affiliate” means, with respect to anyspecified Person: (1) any other Person directly or indirectly controlling orcontrolled by or under direct or indirect common control with such specifiedPerson; (2) any other Person that owns, directly or indirectly, 10% or more ofany class or series of such specified Person’s Voting Stock; or (3) any otherPerson 10% or more of the Voting Stock of which is beneficially owned or helddirectly or indirectly by such specified Person. For the purposes of thisdefinition, “control” when used with respect to any specified Person means thepower to direct the management and policies of such Person, directly or indirectly,whether through ownership of voting securities, by contract or otherwise; andthe terms “controlling” and “controlled” have meanings correlative to theforegoing.

 

“Agent” means any Registrar, PayingAgent or co-registrar.

 

“Agreement and Plan of Merger” meansthe agreement and plan of merger dated December 22, 2003, as amended byAmendment No. 1 on June 10, 2004, Amendment No. 2 on June 13, 2004 andAmendment No. 3 on June 18, 2004, among DRS LLC, Duane Reade Acquisition Corp.,a Delaware corporation and a wholly owned Subsidiary of DRS LLC, and DuaneReade Inc.

 

“Applicable Procedures” means, withrespect to any transfer or exchange of or for beneficial interests in anyGlobal Note, the rules and procedures of the Depositary, Euroclear andClearstream that apply to such transfer or exchange.

 

“Asset Sale” means any sale, issuance,conveyance, transfer, lease or other disposition (including, withoutlimitation, by way of merger, consolidation or sale and leaseback

 

2

----

 

transaction)(collectively, a “transfer”), directly or indirectly, in one or a series ofrelated transactions, of:

 

###### (1)           anyCapital Stock of any Restricted Subsidiary;

######  

###### (2)           allor substantially all of the properties and assets of any division or line ofbusiness of the Company or any Restricted Subsidiary; or

######  

###### (3)           anyother properties, assets or rights of the Company or any Restricted Subsidiaryother than in the ordinary course of business.

######  

For the purposes of this definition, the term“Asset Sale” shall not include any transfer of properties and assets:

 

(A)          thatis governed by Section 5.01 hereof,

 

(B)           thatis by the Company to any Wholly Owned Restricted Subsidiary, or by anyRestricted Subsidiary to the Company or any Wholly Owned Restricted Subsidiaryin accordance with the terms of this Indenture,

 

(C)           thatwould be a Restricted Payment, Permitted Payment or Permitted Investment,

 

(D)          thatis a disposition of Capital Stock of an Unrestricted Subsidiary,

 

(E)           thatis of damaged, worn-out or obsolete equipment in the ordinary course ofbusiness,

 

(F)           thatconsists of cash or Cash Equivalents,

 

(G)           pursuantto an Interest Rate Agreement, Currency Hedging Agreement or Commodity PriceAgreement,

 

(H)          thatconsists of the granting of a Lien not prohibited by this Indenture,

 

(I)            thatis a sale or lease of equipment, inventory or accounts receivable in theordinary course of business,

 

(J)            thatis a conversion of or foreclosure on any mortgage or note, but only if theCompany or a Restricted Subsidiary receives the real property underlying themortgage or note,

 

(K)          thatis a surrender or waiver of contract rights or the settlement, release orsurrender of contract, tort or other claims of any kind,

 

(L)           thatis the sale, lease, conveyance, disposition or other transfer of any Investmentin any Unrestricted Subsidiary,

 

3

----

 

(M)         thatis a lease, license or sublease to third persons not interfering in anymaterial respect with the business of the Company or a Restricted Subsidiary,or

 

(N)          theFair Market Value of which in the aggregate does not exceed $5 million in anytransaction or series of related transactions.

 

“Average Life to Stated Maturity”means, as of the date of determination with respect to any Indebtedness, thequotient obtained by dividing (1) the sum of the products of (a) the number ofyears from the date of determination to the date or dates of each successivescheduled principal payment of such Indebtedness multiplied by (b) the amountof each such principal payment by (2) the sum of all such principal payments.

 

“Bankruptcy Law” means Title 11,United States Bankruptcy Code of 1978, as amended, or any similar United Statesfederal or state law or foreign law relating to bankruptcy, insolvency,receivership, winding up, liquidation, reorganization or relief of debtors orany amendment to, succession to or change in any such law.

 

“Beneficial Owner” has the meaningassigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act,except that in calculating the beneficial ownership of any particular “person”(as that term is used in Section 13(d)(3) of the Exchange Act), such “person”shall be deemed to have beneficial ownership of all securities that such“person” has the right to acquire by conversion or exercise of othersecurities, whether such right is currently exercisable or is exercisable onlyupon the occurrence of a subsequent condition. The terms “Beneficially Owns” and “Beneficially Owned”shall have a corresponding meaning.

 

“Board of Directors” means, withrespect to any Person, the board of directors, management committee or otherequivalent management entity of such Person or any committee thereof dulyauthorized to act on behalf of such board or, in the case of a Person that is apartnership that has no such management entity, one or more general partners ofsuch Person.

 

“Board Resolution” means, with respectto a Board of Directors, a copy of a resolution certified by the Secretary oran Assistant Secretary of the Person or, in the case of a Person that is apartnership that has no such officers, the Secretary or an Assistant Secretaryof a general partner of such Person, to have been duly adopted by such Board ofDirectors and to be in full force and effect on the date of such certification,and delivered to the Trustee.

 

“Broker-Dealer” has the meaning setforth in the Registration Rights Agreement.

 

“Business Day” means each Monday,Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutionsin New York or the city in which the Trustee has its Corporate Trust Office areauthorized or obligated by law or executive order to close.

 

“Capital Lease Obligation” of anyPerson means any obligation of such Person and its Restricted Subsidiaries on aConsolidated basis under any capital lease of (or other agreement conveying theright to use) real or personal property which, in accordance with GAAP, isrequired to be capitalized on a balance sheet.

 

4

----

 

“Capital Stock” of any Person meansany and all shares, interests, participations, rights in or other equivalents(however designated) of such Person’s capital stock, other equity interestswhether now outstanding or issued after the date of this Indenture, partnershipinterests (whether general or limited), limited liability company interests,any other interest or participation that confers on a Person that right toreceive a share of the profits and losses of, or distributions of assets of, theissuing Person, including any Preferred Stock, and any rights (other than debtsecurities convertible into Capital Stock), warrants or options exchangeablefor or convertible into such Capital Stock.

 

“Cash Equivalents” means

 

### (a)           any evidence of Indebtedness issuedor directly and fully guaranteed or insured by the United States or any agencyor instrumentality thereof,

###  

### (b)           deposits, time deposit accounts,certificates of deposit, money market deposits or acceptances of any financialinstitution having capital and surplus in excess of $500 million that is amember of the Federal Reserve System and whose senior unsecured debt is ratedat least “A-1” by S&P, or at least “P-1” by Moody’s,

###  

### (c)           commercial paper with a maturity of365 days or less issued by a corporation (other than an Affiliate or Subsidiaryof the Company) organized and existing under the laws of the United States ofAmerica, any state thereof or the District of Columbia and rated at least “A-1”by S&P or at least “P-1” by Moody’s,

###  

### (d)           repurchase agreements and reverserepurchase agreements relating to marketable direct obligations issued orunconditionally guaranteed by the United States or issued by any agency thereofand backed by the full faith and credit of the United States maturing within365 days from the date of acquisition, and

###  

### (e)           money market funds which investsubstantially all of their assets in securities described in the precedingclauses (a) through (d).

###  

“Change of Control” means theoccurrence of any of the following events:

 

### (a)           any “person” or “group” (as suchterms are used in Sections 13(d) and 14(d) of the Exchange Act), other than oneor more Permitted Holders, is or becomes the “beneficial owner” (as defined inRules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of morethan 50% of the total outstanding Voting Stock of the Company or any of itsdirect or indirect parent companies (measured by voting power rather than thenumber of shares);

###  

### (b)           during any period of two consecutiveyears, individuals who at the beginning of such period constituted the Board ofDirectors of the Company or of any of its direct or indirect parent companies(together with any new directors whose election to such board or whosenomination for election by the stockholders or members, as the case may be, ofthe Company or of any of its direct or indirect parent companies was approvedby a vote of a majority of the directors then still in office who were eitherdirectors at the beginning of such period or whose election or nomination forelection was previously so approved), cease for any

 

5

----

 

### reason to constitute a majority of such Boardof Directors of the Company or of any of its direct or indirect parentcompanies then in office;

###  

### (c)           the Company or any of its direct orindirect parent companies consolidates with or merges with or into any Personother than a Person controlled by a Permitted Holder or sells, assigns,conveys, transfers, leases or otherwise disposes of all or substantially all ofits assets to any such Person, or any such Person consolidates with or mergesinto or with the Company or any of its direct or indirect parent companies inany such event pursuant to a transaction in which the outstanding Voting Stockof the Company or any of its direct or indirect parent companies is convertedinto or exchanged for cash, securities or other property, other than any suchtransaction where

###  

#### (i)            the Voting Stock ofthe Company or any of its direct or indirect parent companies outstandingimmediately prior to such transaction is changed into or exchanged for VotingStock (other than Disqualified Capital Stock) of the surviving corporationconstituting a majority of the outstanding shares of such Voting Stock(measured by voting power rather than the number of shares) of such survivingcorporation (immediately after giving effect to such issuance) and

####  

#### (ii)           immediately aftersuch transaction, no “person” or “group” (as such terms are used in Sections13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders,is the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under theExchange Act), directly or indirectly, of more than 50% of the totaloutstanding Voting Stock (measured by voting power rather than the number ofshares) of the surviving corporation; or

####  

### (d)           the Company or any of its direct orindirect parent companies is liquidated or dissolved or adopts a plan ofliquidation or dissolution other than in a transaction which complies withSection 5.01 hereof.

###  

Notwithstandingthe foregoing, (A) a Person shall not be deemed to have beneficial ownership ofsecurities subject to a stock purchase agreement, merger agreement or similaragreement until the consummation of the transactions contemplated by suchagreement; (B) any holding company whose only significant asset is CapitalStock of the Company or any of its direct or indirect parent companies shallnot itself be considered a “person” or “group” for purposes of clause (a) or(c) above; and (C) the term “Change of Control” shall not include a merger orconsolidation of the Company with or the sale, assignment, conveyance,transfer, lease or other disposition of all or substantially all of theCompany’s assets to, an Affiliate incorporated or organized solely for thepurpose of reincorporating or reorganizing the Company in another jurisdictionand/or for the sole purpose of forming a holding company.

 

For purposes ofthis definition, any transfer of an equity interest of an entity that wasformed for the purpose of acquiring voting stock of the Company will be deemedto be a transfer of such portion of such voting stock as corresponds to theportion of the equity of such entity that has been so transferred.

 

“Clearstream” means ClearstreamBanking, societe anonyme, Luxembourg.

 

6

----

 

“Commission” means the Securities andExchange Commission, as from time to time constituted, created under theExchange Act, or if at any time after the execution of this Indenture suchCommission is not existing and performing the duties now assigned to it underthe Securities Act, Exchange Act and Trust Indenture Act then the bodyperforming such duties at such time.

 

“Commodity Price Agreement” means anyforward contract, commodity swap, commodity option or other similar financialagreement or arrangement relating to, or the value which is dependent upon,fluctuations in commodity prices.

 

“Company” means Duane ReadeAcquisition Corp. (prior to the Acquisition Closing Date) and Duane Reade Inc.(on or after the Acquisition Closing Date), in each case, a corporationincorporated under the laws of Delaware, until a successor Person shall havebecome such pursuant to the applicable provisions of this Indenture, andthereafter “Company” shall mean such successor Person.

 

“Company Request” or “Company Order”means a written request or order signed in the name of the Company by itsChairman, its Chief Executive Officer, its Chief Financial Officer, its ChiefOperating Officer, its President, any Vice President, its Treasurer or anAssistant Treasurer, and delivered to the Trustee.

 

“Consolidated Fixed Charge Coverage Ratio”of any Person means, for any period, the ratio of

 

### (a)           without duplication, the sum ofConsolidated Net Income (Loss), and in each case to the extent deducted incomputing Consolidated Net Income (Loss) for such period, (1) ConsolidatedInterest Expense, (2) Consolidated Income Tax Expense, (3) ConsolidatedNon-cash Charges, (4) expenses and charges related to any Equity Offering orincurrence of Indebtedness permitted to be incurred pursuant to this Indenture,(5) restructuring costs and acquisition integration costs and fees, includingcash severance payments made in connection with restructurings andacquisitions, or other types of special charges or reserves, (6) payments underthe Advisory Agreement, and (7) any non-recurring losses, for such period, ofsuch Person and its Restricted Subsidiaries on a Consolidated basis, alldetermined in accordance with GAAP, less all non-cash items increasingConsolidated Net Income for such period and less all cash payments during suchperiod relating to non-cash charges that were added back to Consolidated NetIncome in determining the Consolidated Fixed Charge Coverage Ratio in any priorperiod to

###  

### (b)           without duplication, the sum ofConsolidated Interest Expense for such period and any cash and non-cashdividends (other than those paid in the form of Qualified Capital Stock) paidon any Disqualified Capital Stock or Preferred Stock, of such Person and itsRestricted Subsidiaries during such period,

###  

in each caseafter giving *pro forma* effect to,without duplication

 

(1)           theincurrence of the Indebtedness giving rise to the need to make such calculationand (if applicable) the application of the net proceeds therefrom, including to

 

7

----

 

refinance other Indebtedness, as if such Indebtedness was incurred, andthe application of such proceeds occurred, on the first day of such period;

 

(2)           theincurrence, repayment or retirement of any other Indebtedness by the Companyand its Restricted Subsidiaries since the first day of such period as if suchIndebtedness was incurred, repaid or retired at the beginning of such period(except that, in making such computation, the amount of Indebtedness under anyrevolving credit facility shall be computed based upon the average dailybalance of such Indebtedness during such period);

 

(3)           inthe case of Acquired Indebtedness or any acquisition occurring at the time ofthe incurrence of such Indebtedness, the related acquisition, assuming suchacquisition had been consummated on the first day of such period;

 

(4)           anyacquisition or disposition by such Person and its Restricted Subsidiaries ofany company or any business or any assets out of the ordinary course ofbusiness, whether by merger, stock purchase or sale or asset purchase or sale,or any related repayment of Indebtedness, in each case since the first day ofsuch period, assuming such acquisition or disposition had been consummated onthe first day of such period;

 

(5)           alladjustments to “EBITDA” for such period used to calculate “Adjusted EBITDA” forsuch period that are disclosed in the “Summary Unaudited Pro Forma FinancialInformation and Statistical Data” section included in the Offering Memorandum;and

 

(6)           ProForma Cost Savings;

 

*provided*that:

 

### (a)           any such computation shall be setforth in an Officers’ Certificate;

###  

### (b)           in making such computation, theConsolidated Interest Expense attributable to interest on any Indebtednesscomputed on a *pro forma* basis and(x) bearing a floating interest rate shall be computed as if the rate in effecton the date of computation had been the applicable rate for the entire periodand (y) which was not outstanding during the period for which the computationis being made but which bears, at the option of such Person, a fixed orfloating rate of interest, shall be computed by applying at the option of suchPerson either the fixed or floating rate; and

###  

### (c)           in making such computation, theConsolidated Interest Expense of such Person attributable to interest on anyIndebtedness under a revolving credit facility computed on a *pro forma* basis shall be computed basedupon the average balance at the end of each fiscal month of such Indebtednessduring the applicable period.

###  

“Consolidated Income Tax Expense” ofany Person means, for any period, the provision for federal, state, local andforeign income taxes of such Person and its Consolidated RestrictedSubsidiaries for such period as determined in accordance with GAAP.

 

“Consolidated Interest Expense” of anyPerson means, without duplication, for any period, the sum of

 

8

----

 

### (a)           the interest expense, less interestincome, of such Person and its Restricted Subsidiaries for such period, on aConsolidated basis, including, without limitation,

###  

#### (i)            amortization ofdebt discount,

####  

#### (ii)           the net cash costsassociated with Interest Rate Agreements, Currency Hedging Agreements and CommodityPrice Agreements (including amortization of discounts),

####  

#### (iii)          the interestportion of any deferred payment obligation,

####  

#### (iv)          all commissions,discounts and other fees and charges owed with respect to letters of credit andbankers acceptance financing and

####  

#### (v)           accrued interest,plus

####  

### (b)           (i)            the interest component of theCapital Lease Obligations paid, accrued and/or scheduled to be paid or accruedby such Person and its Restricted Subsidiaries during such period and

###  

#### (ii)           all capitalizedinterest of such Person and its Restricted Subsidiaries, plus

####  

### (c)           the interest expense under anyGuaranteed Debt of such Person and any Restricted Subsidiary to the extent notincluded under any other clause hereof only to the extent actually paid by suchPerson or its Restricted Subsidiaries, plus

###  

### (d)           dividend requirements of the Companywith respect to Disqualified Capital Stock and of any Restricted Subsidiarywith respect to Preferred Stock (except, in either case, dividends payablesolely in shares of Qualified Capital Stock of the Company or such RestrictedSubsidiary, as the case may be),

###  

### *less*, to the extentincluded in such total interest expense, (A) the amortization during suchperiod of capitalized financing costs, (B) any charges resulting from the applicationof Statement of Financial Accounting Standards No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity” withrespect to Qualified Stock, and (C) any charges resulting from the applicationof Statement of Financial Accounting Standards No. 145, “Rescission of FASBStatements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and TechnicalCorrections.”

###  

“Consolidated Net Income (Loss)” ofany Person means, for any period, the Consolidated net income (or loss) of suchPerson and its Restricted Subsidiaries for such period on a Consolidated basisas determined in accordance with GAAP, adjusted, to the extent included incalculating such net income (or loss), by excluding, without duplication,

 

###### (1)           allextraordinary or nonrecurring gains (or extraordinary losses or nonrecurring,non-cash losses), together with any related provision for taxes on any suchextraordinary or nonrecurring gain (and the tax effect of any suchextraordinary loss or

 

9

----

 

###### nonrecurring, non-cash loss), realized by the Company or any RestrictedSubsidiary during such period;

######  

###### (2)           theportion of net income (or loss) of such Person and its Restricted Subsidiarieson a Consolidated basis allocable to minority interests in unconsolidatedPersons or Unrestricted Subsidiaries to the extent that cash dividends ordistributions have not actually been received by such Person or one of itsConsolidated Restricted Subsidiaries,

######  

###### (3)           anynon-cash impact attributable to the application of the purchase method ofaccounting in accordance with GAAP,

######  

###### (4)           anygain or loss realized upon the termination of any employee pension benefitplan, together with any related provision for taxes on any such termination (orthe tax effect of any such termination),

######  

###### (5)           gainsor losses in respect of dispositions of assets other than in the ordinarycourse of business (including, without limitation, dispositions pursuant tosale and leaseback transactions), together with any related provision for taxeson any such disposition (or the tax effect of any such disposition),

######  

###### (6)           (a)for purposes of Section 4.07 hereof, the net income of any RestrictedSubsidiary that is not a Guarantor, and (b) for purposes of Section 4.08 hereof,the net income of any Restricted Subsidiary, to the extent that, in the case ofeach of clauses (a) and (b), the declaration of dividends or similardistributions by that Restricted Subsidiary of that income is not at the timepermitted, directly or indirectly, by operation of the terms of its charter orany agreement, instrument, judgment, decree, order, statute, rule orgovernmental regulation applicable to that Restricted Subsidiary or itsstockholders,

######  

###### (7)           anyrestoration to net income of any contingency reserve, except to the extentprovision for such reserve was made out of income accrued at any time followingthe Acquisition Closing Date,

######  

###### (8)           anynet gain or loss arising from the acquisition of any securities orextinguishment, under GAAP, of any Indebtedness of such Person or itsRestricted Subsidiaries,

######  

###### (9)           anyexpenses or charges incurred in connection with the Transactions and alldeferred financing costs amortized or written off, and premiums and prepaymentpenalties paid, in connection with the Transactions and the financings thereofor any early extinguishment of Indebtedness,

######  

###### (10)         anycharges resulting from the application of Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets,” or No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets,”

######  

###### (11)         deferredrental expense which is in excess of the amount of cash rental expense actuallypaid in such relevant period, *provided*that any amounts excluded in any

 

10

----

 

###### period pursuant to this clause (11) shall be deducted from ConsolidatedNet Income in the period for which the cash payments in respect of suchdeferred rental expense are paid,

######  

###### (12)         unrealizedgains and losses associated with Interest Rate Agreements, Currency HedgingAgreements and Commodity Price Agreements,

######  

###### (13)         non-cashcompensation charges or other non-cash expenses or charges arising from thegrant of or issuance or repricing of Capital Stock or other equity-based awardsor any amendment or substitution of any such Capital Stock or otherequity-based awards,

######  

###### (14)         non-cashcharges or expenses relating to recording inventory on a LIFO basis, *provided* that any amounts excluded in anyperiod pursuant to this clause (14) shall be deducted from Consolidated NetIncome in the period for which the cash payments in respect of such charges orexpenses are paid,

######  

###### (15)         solong as the Company and its Restricted Subsidiaries file a Consolidated taxreturn, or are part of a Consolidated group for tax purposes, with Holdings orany other holding company, the excess of (a) the Consolidated Income TaxExpense of the Company and its Restricted Subsidiaries for such period over (b)all tax payments payable for such period (whether paid in such period or at anytime prior to such period) by the Company and its Restricted Subsidiaries toHoldings or such other holding company under a tax sharing agreement orarrangement, provided that any amounts excluded in any period pursuant to thisclause (15) must be deducted from Consolidated Net Income in the period forwhich the cash payments in respect of such taxes are paid,

######  

###### (16)         thecumulative effect of a change in accounting principles, or

######  

###### (17)         anydeferred financing costs amortized or written off and premiums and prepaymentpenalties paid in connection with the refinancing of any Qualified CapitalStock.

######  

“Consolidated Net Tangible Assets”means the aggregate amount of assets of the Company (less applicable reservesand other properly deductible items) after deducting therefrom (to the extentotherwise included therein) (a) all current liabilities (other than theobligations under this Indenture or current maturities of long-termIndebtedness), and (b) all goodwill, trade names, trademarks, patents, unamortizeddebt discount and expense and other like intangibles, all as set forth on thebooks and records of the Company and the Restricted Subsidiaries on aconsolidated basis and in accordance with GAAP.

 

“Consolidated Non-cash Charges” of anyPerson means, for any period, the aggregate depreciation, amortization andwrite-downs, write-offs and other non-cash charges of such Person and itsSubsidiaries on a Consolidated basis for such period, as determined inaccordance with GAAP (excluding any non-cash charge which requires an accrualor reserve for cash charges for any future period).

 

“Consolidation” means, with respect toany Person, the consolidation of the accounts of such Person and each of itsSubsidiaries if and to the extent the accounts of such

 

11

----

 

Person andeach of its Subsidiaries would normally be consolidated with those of suchPerson, all in accordance with GAAP. The term “Consolidated” shall havea correlative meaning.

 

“Convertible Notes” means theCompany’s 2.1478% Senior Convertible Notes due April 16, 2022.

 

“Co-Obligors” has the meaning setforth in the preamble hereto.

 

“Co-Obligor Supplemental Indenture”has the meaning set forth in the preamble hereto.

 

“Corporate Trust Office of the Trustee”shall be at the address of the Trustee specified in Section 13.02 hereof orsuch other address as to which the Trustee may give notice under Section 13.02to the Company.

 

“Credit Agreement” means the CreditAgreement, dated as of July 21, 2003, as amended by Amendment No. 1 thereto,dated July 22, 2004, among Duane Reade GP, as borrower, the Company, DRI Inc.,Duane Reade International, Inc. and Duane Reade Realty, Inc., as facilityguarantors, Fleet National Bank, as administrative agent and issuing bank,Fleet Retail Finance Inc., as collateral agent, Congress Financial Corporation,as documentation agent, General Electric Capital Corporation, as syndicationagent, Fleet Securities Inc., as arranger, certain lenders party thereto, andcertain other agents party thereto, as such agreement, in whole or in part, inone or more instances, may be amended, renewed, extended, substituted,refinanced, restructured, replaced, supplemented or otherwise modified fromtime to time (including, without limitation, any successive renewals,extensions, substitutions, refinancings, restructurings, replacements,supplementations or other modifications of the foregoing and including, withoutlimitation, any amendment increasing the amount of Indebtedness incurred oravailable to be borrowed thereunder, extending the maturity of any Indebtednessincurred thereunder or contemplated thereby or deleting, adding or substitutingone or more parties thereto (whether or not such added or substituted partiesare banks or other institutional lenders)), including into one or more debtfacilities, commercial paper facilities or other debt instruments, indenturesor agreements, providing for revolving credit loans, term loans, letters ofcredit or other debt obligations, whether any such extension, replacement orrefinancing (1) occurs simultaneously or not with the termination or repaymentof a prior Credit Agreement or (2) occurs on one or more separate occasions.

 

“Currency Hedging Agreements” meansone or more of the following agreements which shall be entered into by one ormore financial institutions:  foreignexchange contracts, currency swap agreements or other similar agreements orarrangements designed to manage fluctuations in currency values.

 

“Custodian” means the Trustee, ascustodian with respect to the Notes in global form, or any successor entitythereto.

 

“Default” means any event which is, orafter notice or passage of time or both would be, an Event of Default.

 

12

----

 

“Definitive Note” means a certificatedNote registered in the name of the Holder thereof and issued in accordance withSection 2.07 hereof, substantially in the form of Exhibit A1 hereto, exceptthat such Note shall not bear the Global Note Legend and shall not have the“Schedule of Exchanges of Interests in the Global Note” attached thereto.

 

“Depositary” means, with respect tothe Notes issuable or issued in whole or in part in global form, the Personspecified in Section 2.04 hereof as the Depositary with respect to the Notes,and any and all successors thereto appointed as depositary hereunder and havingbecome such pursuant to the applicable provisions of this Indenture.

 

“Designated Senior Indebtedness” means(i) all Senior Indebtedness under the Credit Agreement and the Term Loan and(ii) any other Senior Indebtedness which at the time of determination has anaggregate principal amount outstanding of at least $25 million and which isspecifically designated in the instrument evidencing such Senior Indebtednessor the agreement under which such Senior Indebtedness arises as “DesignatedSenior Indebtedness” by the Company or Duane Reade GP.

 

“Disinterested Director” means, withrespect to any transaction or series of related transactions, a member of theBoard of Directors of the Company who does not have any material direct orindirect financial interest in or with respect to such transaction or series ofrelated transactions.

 

“Disqualified Capital Stock” means anyCapital Stock that, either by its terms or by the terms of any security intowhich it is convertible or exchangeable or otherwise, is or upon the happeningof an event or passage of time would be, required to be redeemed prior to thefinal Stated Maturity of the principal of the Notes or is redeemable at theoption of the holder thereof at any time prior to such final Stated Maturity(other than upon a change of control of or sale of assets by the Company incircumstances where the Holders of the Notes would have similar rights), or isconvertible into or exchangeable for debt securities at any time prior to suchfinal Stated Maturity at the option of the holder thereof; *provided, however*, that any class ofCapital Stock of the Company that, by its terms, authorizes the Company tosatisfy in full its obligations with respect to the payment of dividends orupon maturity, redemption (pursuant to a sinking fund or otherwise) orrepurchase thereof or otherwise by the delivery of Qualified Capital Stock andthat is not convertible into, puttable or exchangeable for Disqualified CapitalStock, will not be deemed to be Disqualified Capital Stock so long as theCompany satisfies its obligations with respect thereto solely by the deliveryof Qualified Capital Stock.

 

“DRS LLC” means Duane Reade Shareholders,LLC, a limited liability company formed under the laws of Delaware, and itssuccessors and assigns which is a holding company that, as of the AcquisitionClosing Date, directly owns all of the equity interests in Holdings, other thanequity interests held by management.

 

“Duane Reade” has the meaning setforth in the preamble hereto.

 

“Duane Reade GP” has the meaning setforth in the preamble hereto.

 

“Equity Investors” means Oak HillCapital Partners, L.P. and Oak Hill Capital Management Partners, L.P. (andcertain of their Affiliates) and other investors in DRS LLC.

 

13

----

 

“Equity Offering” means (x) a PublicEquity Offering or (y) a private placement of Capital Stock (other thanDisqualified Capital Stock) of the Company or any of its direct or indirectparent companies, as the case may be, pursuant to an exemption from theregistration requirements of the Securities Act, to a Person (other than anAffiliate of the Company) in either case (x) or (y) with gross proceeds to theCompany or any of its direct or indirect parent companies of at least $50million that are promptly contributed to the Company on a non-recourse basis.

 

“Exchange Act” means the SecuritiesExchange Act of 1934, as amended, or any successor statute, and the rules andregulations promulgated by the Commission thereunder.

 

“Exchange Notes” means the Notesissued in an Exchange Offer in accordance with Section 2.07(f) hereof.

 

“Exchange Offer” means the exchangeoffer that may be effected pursuant to the Registration Rights Agreement.

 

“Exchange Offer Registration Statement”means the Exchange Offer Registration Statement that may be filed pursuant tothe Registration Rights Agreement.

 

“Fair Market Value” means, withrespect to any asset or property, the sale value that would be obtained in anarm’s-length free market transaction between an informed and willing sellerunder no compulsion to sell and an informed and willing buyer under nocompulsion to buy. Fair Market Value of an asset in excess of $5.0 millionshall be determined by the Board of Directors of the Company acting in goodfaith and shall be evidenced by a resolution of the Board of Directors.

 

“Generally Accepted Accounting Principles”or “GAAP” means generally accepted accounting principles set forth inthe opinions and pronouncements of the Accounting Principles Board of theAmerican Institute of Certified Public Accountants and statements andpronouncements of the Financial Accounting Standards Board, the Public CompanyAccounting Oversight Board or in such other statements by such other entity ashave been approved by a significant segment of the accounting profession, whichare in effect on the Issue Date.

 

“Global Note Legend” means the legendset forth in Section 2.07(g)(ii), which is required to be placed on all GlobalNotes issued under this Indenture.

 

“Global Notes” means, individually andcollectively, each of the Restricted Global Notes and the Unrestricted GlobalNotes, substantially in the form of Exhibit A1 or A2 hereto, as appropriate,issued in accordance with Section 2.01, 2.07(b)(iii), 2.07(b)(iv), 2.07(d)(i),2.07(d)(ii), 2.07(d)(iii) or 2.07(f) of this Indenture.

 

“Guarantee” means the guarantee by anyGuarantor of the Company’s Indenture Obligations.

 

“Guaranteed Debt” of any Person means,without duplication, all Indebtedness of any other Person referred to in thedefinition of Indebtedness below guaranteed directly or

 

14

----

 

indirectly inany manner by such Person, or in effect guaranteed directly or indirectly bysuch Person through an agreement:

 

### (a)           to pay or purchase such Indebtednessor to advance or supply funds for the payment or purchase of such Indebtedness,

###  

### (b)           to purchase, sell or lease (as lesseeor lessor) property, or to purchase or sell services, primarily for the purposeof enabling the debtor to make payment of such Indebtedness or to assure theholder of such Indebtedness against loss,

###  

### (c)           to supply funds to, or in any othermanner invest in, the debtor (including any agreement to pay for property orservices without requiring that such property be received or such services berendered),

###  

### (d)           to maintain working capital or equitycapital of the debtor, or otherwise to maintain the net worth, solvency orother financial condition of the debtor or to cause such debtor to achievecertain levels of financial performance or

###  

### (e)           otherwise to assure a creditoragainst loss;

###  

*provided* that the term “guarantee” shall notinclude endorsements for collection or deposit, in either case in the ordinarycourse of business.

 

“Guarantor” means the InitialGuarantors and any other Subsidiary which is a guarantor of the Notes,including any Person that is required after the date of this Indenture toexecute a guarantee of the Notes pursuant to Section 4.12 hereof until asuccessor replaces such party pursuant to the applicable provisions of thisIndenture and, thereafter, shall mean such successor.

 

“Guarantor Supplemental Indenture” hasthe meaning set forth in the preamble hereto.

 

“Holder” means the Person in whosename a Note is, at the time of determination, registered on the Registrar’sbooks.

 

“Holdings” means Duane Reade Holdings,Inc., a corporation formed under the laws of Delaware, and its successors and assigns,which is a holding company that, as of the Acquisition Closing Date, directlyowns all of the equity interests in the Company.

 

“IAI Global Note” means the globalNote substantially in the form of Exhibit A1 hereto bearing the Global NoteLegend and the Private Placement Legend and deposited with or on behalf of andregistered in the name of the Depositary or its nominee that will be issued ina denomination equal to the outstanding principal amount of the Notes sold toInstitutional Accredited Investors.

 

“Indebtedness” means, with respect toany Person, without duplication,

 

15

----

 

### (a)           all indebtedness of such Person forborrowed money or for the deferred purchase price of property or services,excluding any trade payables and other accrued current liabilities arising inthe ordinary course of business, but including, without limitation, allobligations, contingent or otherwise, of such Person in connection with anyletters of credit issued under letter of credit facilities, acceptancefacilities or other similar facilities,

###  

### (b)           all obligations of such Personevidenced by bonds, notes, debentures or other similar instruments,

###  

### (c)           all indebtedness created or arisingunder any conditional sale or other title retention agreement with respect toproperty acquired by such Person (even if the rights and remedies of the selleror lender under such agreement in the event of default are limited torepossession or sale of such property), but excluding trade payables andaccrued expenses arising in the ordinary course of business,

###  

### (d)           all obligations under Interest RateAgreements, Currency Hedging Agreements or Commodity Price Agreements of suchPerson,

###  

### (e)           all Capital Lease Obligations of suchPerson,

###  

### (f)            all Indebtedness referred to inclauses (a) through (e) above of other Persons and all dividends of otherPersons, to the extent the payment of such Indebtedness or dividends is securedby (or for which the holder of such Indebtedness has an existing right, contingentor otherwise, to be secured by) any Lien, upon or with respect to property(including, without limitation, accounts and contract rights) owned by suchPerson, even though such Person has not assumed or become liable for thepayment of such Indebtedness,

###  

### (g)           all Guaranteed Debt of such Person,

###  

### (h)           all Disqualified Capital Stock issuedby such Person, and

###  

### (i)            Preferred Stock of any RestrictedSubsidiary of the Company.

###  

The amount ofany Indebtedness outstanding as of any date will be:

 

###### (1)           the accreted value of theIndebtedness, in the case of any Indebtedness issued with original issuediscount, and

######  

###### (2)           the principal amount of theIndebtedness, together with any interest on the Indebtedness that is more than30 days past due, in the case of any other Indebtedness.

######  

Notwithstanding the foregoing, Indebtedness shall not include:

 

(1)           tradeaccounts payable and other accrued liabilities arising in the ordinary courseof business;

 

(2)           obligationsof such Person other than principal; or

 

16

----

 

(3)           anyliability for federal, state or local taxes or other taxes of such Person.

 

“Indenture” means this Indenture, as amended or supplementedfrom time to time.

 

“IndentureObligations” means the obligations of the Company, Duane Reade GPand any other obligor under this Indenture or under the Notes, including anyGuarantor, to pay principal of, premium, if any, and interest when due andpayable, and all other amounts due or to become due under or in connection withthis Indenture, the Notes and the performance of all other obligations to theTrustee and the holders under this Indenture and the Notes, according to therespective terms thereof.

 

“Indirect Participant” means a Personwho holds a beneficial interest in a Global Note through a Participant.

 

“Initial Guarantors” has the meaningset forth in the preamble hereto.

 

“Initial Notes” has the meaning statedin the third paragraph of this Indenture and means Notes other than ExchangeNotes and Additional Notes issued under this Indenture.

 

“Initial Purchasers” means (i) Banc ofAmerica Securities LLC, Citigroup Global Markets Inc., Credit Suisse FirstBoston LLC, and UBS Securities LLC, as initial purchasers under the PurchaseAgreement dated July 23, 2004, among the Company and the Initial Purchasers and(ii) with respect to any Additional Notes issued subsequent to the Issue Date,any investment bank acting as initial purchaser in connection with the issuanceand sale of such Additional Notes.

 

“Institutional Accredited Investor”means an institution that is an “accredited investor” as described inRule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not alsoQIBs.

 

“Interest Rate Agreements” means oneor more of the following agreements which shall be entered into by one or morefinancial institutions: interest rate protection agreements (including, withoutlimitation, interest rate swaps, caps, floors, captions, collars and similaragreements) and /or other types of interest rate hedging agreements from timeto time.

 

“Investment” means, with respect toany Person, directly or indirectly, any advance, loan (including guarantees),or other extension of credit or capital contribution to (by means of anytransfer of cash or other property to others or any payment for property orservices for the account or use of others), or any purchase, acquisition orownership by such Person of any Capital Stock, bonds, notes, debentures orother securities issued or owned by any other Person and all other items that wouldbe classified as investments on a balance sheet prepared in accordance withGAAP. “Investment” shall exclude direct or indirect advances to customers orsuppliers in the ordinary course of business that are, in conformity with GAAP,recorded as accounts receivable, prepaid expenses or deposits on the Company’sor any Restricted Subsidiary’s balance sheet, endorsements for collection ordeposit arising in the ordinary course of business, extensions of trade crediton commercially reasonable terms in accordance with normal trade practices, andinvestments in payroll, travel and similar advances made in the

 

17

----

 

ordinarycourse of business. If the Company or any Restricted Subsidiary of the Companysells or otherwise disposes of any Capital Stock of any direct or indirectRestricted Subsidiary of the Company such that, after giving effect to any suchsale or disposition, such Person is no longer a Subsidiary of the Company(other than the sale of all of the outstanding Capital Stock of suchSubsidiary), the Company will be deemed to have made an Investment on the dateof such sale or disposition equal to the Fair Market Value of the Company’sInvestments in such Subsidiary that were not sold or disposed of in an amountdetermined as provided in Section 4.08 hereof.

 

“Issue Date” means the original issuedate of the Initial Notes under this Indenture.

 

“Letter of Transmittal” means theletter of transmittal to be prepared by the Company and sent to all Holders ofthe Notes for use by such Holders in connection with an Exchange Offer.

 

“Lien” means any mortgage or deed oftrust, charge, pledge, lien (statutory or otherwise), privilege, securityinterest, assignment, deposit, arrangement, easement, hypothecation, claim,preference, priority or other encumbrance upon or with respect to any propertyof any kind (including any conditional sale, capital lease or other titleretention agreement, any leases in the nature thereof, and any agreement togive any security interest), real or personal, movable or immovable, now ownedor hereafter acquired. A Person will be deemed to own subject to a Lien anyproperty which it has acquired or holds subject to the interest of a vendor orlessor under any conditional sale agreement, Capital Lease Obligation or othertitle retention agreement.

 

“Liquidated Damages” means allliquidated damages then owing pursuant to an applicable Registration RightsAgreement.

 

“Maturity” means, when used withrespect to the Notes, the date on which the principal of the Notes becomes dueand payable as therein provided or as provided in this Indenture, whether atStated Maturity, the Asset Sale Offer Date or the redemption date and whetherby declaration of acceleration, Asset Sale Offer in respect of Excess Proceeds,Change of Control Offer in respect of a Change of Control, call for redemptionor otherwise.

 

“Moody’s” means Moody’s InvestorsService, Inc. and any successor thereof.

 

“Net Cash Proceeds” means

 

### (a)           with respect to any Asset Sale by anyPerson, the proceeds thereof (without duplication in respect of all AssetSales) in the form of cash, Cash Equivalents or Qualified Non-cash Proceedsincluding payments in respect of deferred payment obligations when received inthe form of, or stock or other assets when disposed of for, cash or CashEquivalents (except to the extent that such obligations are financed or soldwith recourse to the Company or any Restricted Subsidiary) net of

###  

#### (i)            brokeragecommissions and other fees and expenses (including, without limitation, feesand expenses of counsel, accountants, consultants, agents and investmentbankers) related to such Asset Sale,

 

18

----

 

#### (ii)           provisions for alltaxes payable as a result of such Asset Sale,

####  

#### (iii)          payments made toretire Indebtedness where payment of such Indebtedness is secured by the assetsor properties the subject of such Asset Sale,

####  

#### (iv)          payments ofunassumed liabilities (not constituting Indebtedness) relating to the assetssold at the time of, or within 30 days after the date of, such Asset Sale;

####  

#### (v)           amounts required tobe paid to any Person (other than the Company or any Restricted Subsidiary)owning a beneficial interest in the assets subject to the Asset Sale or havinga Lien thereon and

####  

#### (vi)          appropriate amountsto be provided by the Company or any Restricted Subsidiary, as the case may be,as a reserve, in accordance with GAAP, against any liabilities associated withsuch Asset Sale and retained by the Company or any Restricted Subsidiary, asthe case may be, after such Asset Sale, including, without limitation, pensionand other post-employment benefit liabilities, liabilities related toenvironmental matters and liabilities under any indemnification obligationsassociated with such Asset Sale, all as reflected in an Officers’ Certificatedelivered to the Trustee and

####  

### (b)           with respect to any issuance or saleof Capital Stock or options, warrants or rights to purchase Capital Stock, ordebt securities or Capital Stock that have been converted into or exchanged forCapital Stock as referred to under Section 4.08 hereof, the proceeds of suchissuance or sale in the form of cash or Cash Equivalents including payments inrespect of deferred payment obligations when received in the form of, or stockor other assets when disposed of for, cash or Cash Equivalents (except to theextent that such obligations are financed or sold with recourse to the Companyor any Restricted Subsidiary), net of attorney’s fees, accountant’s fees andbrokerage, consultation, underwriting and other fees and expenses actuallyincurred in connection with such issuance or sale and net of taxes paid orpayable as a result thereof.

###  

“Non-U.S. Person” means a Person whois not a U.S. Person.

 

“Notes” has the meaning stated in thethird paragraph of this Indenture and more particularly means any Notesauthenticated and delivered under this Indenture.  For all purposes of this Indenture:  (a) the term “Notes” shall include anyExchange Notes to be issued and exchanged for any Notes pursuant to anapplicable Registration Rights Agreement and this Indenture, and (b) (i) allExchange Notes that are issued and exchanged for the Initial Notes and (ii) allAdditional Notes issued hereunder and Exchange Notes that are issued andexchanged for such Additional Notes, shall be treated as a single class.

 

“Obligations” means any principal,interest, penalties, fees, indemnifications, reimbursements, damages and otherliabilities payable under the documentation governing any Indebtedness.

 

“Offering” means the offering of theNotes by the Company.

 

19

----

 

“Offering Memorandum” means theOffering Memorandum relating to the issuance and sale of the Notes and theGuarantees, together with the supplement thereto distributed therewith, datedJuly 23, 2004, prepared by the Company and Duane Reade.

 

“Officer” means, with respect to anyPerson, the Chairman of the Board, the Chief Executive Officer, the President,the Chief Operating Officer, the Chief Financial Officer, the Treasurer, anyAssistant Treasurer, the Controller, the Secretary, any Assistant Secretary orany Vice-President of such Person, or in the case of a Person that is apartnership that has no such officers, any such officer of a general partner ofsuch Person.

 

“Officers’ Certificate” means acertificate signed on behalf of the Company by at least two Officers of theCompany, one of whom must be the principal executive officer, the principalfinancial officer, the treasurer or the principal accounting officer of theCompany, that meets the requirements of Section 13.05 hereof.

 

“Opinion of Counsel” means an opinionfrom legal counsel who is reasonably acceptable to the Trustee that meets therequirements of Section 13.05 hereof, which may be corporate counsel to theCompany.

 

“Pari Passu Indebtedness” means (a)any Indebtedness of the Company or Duane Reade GP that is equal in right ofpayment to the Notes and (b) with respect to any Guarantee, Indebtedness whichranks equal in right of payment to such Guarantee.

 

“Participant” means, with respect tothe Depositary, Euroclear or Clearstream, a Person who has an account with theDepositary, Euroclear or Clearstream, respectively (and with respect to DTC,shall include Euroclear and Clearstream).

 

“Permitted Business” means (x) thelines of business conducted by the Company and its Restricted Subsidiaries onthe Acquisition Closing Date and business reasonably related, complementary orancillary thereto, including reasonably related extensions or expansionsthereof and (y) any unrelated business, to the extent that it is not materialin size.

 

“Permitted Holders” means Oak HillCapital Partners, L.P. and Oak Hill Capital Management Partners, L.P. and anyof their Affiliates.

 

“Permitted Investment” means

 

(1)           Investments in any RestrictedSubsidiary or any Person which, as a result of such Investment, (a) becomes aRestricted Subsidiary or (b) is merged or consolidated with or into, ortransfers or conveys substantially all of its assets to, or is liquidated into,the Company or any Restricted Subsidiary;

 

(2)           Indebtedness of the Company or aRestricted Subsidiary described under clauses (4), (5) and (6) of thedefinition of “Permitted Indebtedness”;

 

(3)           Investments in any of the Notes, anySenior Indebtedness or any Pari Passu Indebtedness;

 

20

----

 

(4)           Investments in cash and CashEquivalents;

 

(5)           Investments acquired by the Companyor any Restricted Subsidiary in connection with an Asset Sale permitted underSection 4.11 hereof to the extent such Investments are permitted or requiredunder such Section;

 

(6)           Investments in existence on theAcquisition Closing Date;

 

(7)           Investments acquired in exchange forthe issuance of Capital Stock (other than Disqualified Capital Stock of theCompany or a Restricted Subsidiary or Preferred Stock of a RestrictedSubsidiary) or acquired with the Net Cash Proceeds received by the Companyafter the Acquisition Closing Date from the issuance and sale of Capital Stock(other than Disqualified Stock of the Company or a Restricted Subsidiary orPreferred Stock of a Restricted Subsidiary); *provided*that such Net Cash Proceeds are used to make such Investment within 60 days ofthe receipt thereof and the amount of all such Net Cash Proceeds will beexcluded from clause (3)(B) of Section 4.08(a);

 

(8)           Investments in prepaid expenses,negotiable instruments held for collection and lease, utility and worker’scompensation, performance and other similar deposits provided to third partiesin the ordinary course of business;

 

(9)           any Investments received in goodfaith in settlement or compromise of obligations of trade creditors orcustomers that were incurred in the ordinary course of business, includingpursuant to any plan of reorganization or similar arrangement upon thebankruptcy or insolvency of any trade creditor or customer;

 

(10)         loans and advances to employees of theCompany or a Restricted Subsidiary in an aggregate amount not to exceed $2million outstanding at any time;

 

(11)         Investments consisting of the licensingor contribution of intellectual property pursuant to joint marketingarrangement with other Persons;

 

(12)         Investments in lease, utility and othersimilar deposits in the ordinary course of business;

 

(13)         Investments made by the Company or aRestricted Subsidiary for consideration consisting only of Qualified CapitalStock of the Company;

 

(14)         Investments in stock, obligations orsecurities received in settlement of debts created in the ordinary course ofbusiness and owing to the Company or a Restricted Subsidiary or in satisfactionof judgments; and

 

(15)         other Investments in the aggregateamount outstanding at any one time of up to $15 million.

 

In connectionwith any assets or property contributed or transferred to any Person as anInvestment, such property and assets shall be equal to the Fair Market Value atthe time of Investment.

 

21

----

 

“Permitted Lien” means:

 

(1)           banker’sLiens, rights of setoff and Liens to secure the performance of bids, tenders,trade or government contracts (other than for borrowed money), leases,licenses, statutory obligations, surety or appeal bonds, performance bonds orother obligations of a like nature incurred in the ordinary course of business;

 

(2)           Liensto secure Indebtedness (including Capital Lease Obligations) permitted bySection 4.07(b)(7) hereof covering only the assets acquired, leased,constructed or improved with such Indebtedness or permitted pursuant to Section4.07(b)(6) hereof;

 

(3)           Liensexisting or entered into on the Issue Date and Liens in favor of the Company,Duane Reade GP or any Guarantor;

 

(4)           (A)carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’sor other like Liens arising in the ordinary course of business, (B) Liens fortaxes, assessments or governmental charges or claims, in each case, that arenot yet due or delinquent or that are bonded or that are being contested ingood faith and by appropriate proceedings; provided that any reserve or otherappropriate provision shall be required in conformity with GAAP shall have beenmade therefor, and (C) any lease or sublease to a third party;

 

(5)           Liens,pledges or deposits in connection with (A) workmen’s compensation, obligationsand general liability exposure of the Company and its Restricted Subsidiariesand (B) unemployment insurance and other social security legislation, includingany Lien securing letters of credit issued in the ordinary course of businessin connection therewith, or to secure the performance of tenders, statutoryobligations, surety and appeal bonds, bids, leases, government contracts,performance and return-of-money bonds and other similar obligations (exclusiveof obligations for the payment of borrowed money);

 

(6)           Lienson goods (and the proceeds thereof) and documents of title and the propertycovered thereby securing Indebtedness in respect of commercial letters ofcredit and Liens securing reimbursement obligations with respect to commercialletters of credit which encumber documents and other property relating to suchletters of credit and products and proceeds thereof;

 

(7)           minorsurvey exceptions, minor encumbrances, easements or reservations of, or rightsof others for, licenses, rights-of-way, sewers, electric lines, telegraph andtelephone lines and other similar purposes, or zoning or other restrictions asto the use of real property or Liens incidental to the conduct of business ofsuch Person or to the ownership of its properties which were not Incurred inconnection with Indebtedness and which do not in the aggregate materiallyadversely affect the value of said properties or materially impair their use inthe operation of the business of such Person;

 

(8)           Liensarising by reason of a judgment, decree or court order, to the extent nototherwise resulting in an Event of Default, and any Liens that are required toprotect or enforce any rights in any administrative, arbitration or other courtproceedings in the ordinary course of business;

 

22

----

 

(9)           Lienssecuring Refinancing Indebtedness otherwise permitted to be incurred under thisIndenture where the Indebtedness being refinanced was secured by a Lien, oramendments or renewals of Liens that were permitted to be incurred; *provided*, in each case, that such Liens donot extend to any additional property or asset of the Company or a RestrictedSubsidiary of the Company;

 

(10)         Liensencumbering deposits made to secure obligations arising from statutory,regulatory or contractual requirements of the Company or a RestrictedSubsidiary, including rights of offset and setoff;

 

(11)         Lienswith respect to Indebtedness that does not exceed $1 million at any one timeoutstanding; and

 

(12)         anyextension, renewal or replacement, in whole or in part, of any Lien describedin the foregoing clauses (1) through (11) provided that the Lien so extended,renewed or replaced does not extend to any additional property or assets.

 

“Person” means any individual,corporation, limited liability company, partnership, joint venture,association, joint-stock company, trust, unincorporated organization orgovernment or any agency or political subdivision thereof.

 

“Preferred Stock” means, with respectto any Person, any Capital Stock of any class or classes (however designated)which is preferred as to the payment of dividends or distributions, or as tothe distribution of assets upon any voluntary or involuntary liquidation ordissolution of such Person, over the Capital Stock of any other class in suchPerson.

 

“Private Placement Legend” means thelegend set forth in Section 2.07(g)(i) to be placed on all Notes issued underthis Indenture except where otherwise permitted by the provisions of thisIndenture.

 

“Pro Forma Cost Savings” means, withrespect to any period, the reductions in costs that occurred during such periodthat are (1) directly attributable to an asset acquisition and calculated on abasis that is consistent with Article 11 of Regulation S-X under the SecuritiesAct or (2) implemented, committed to be implemented or the commencement ofimplementation of which has begun in good faith by the business that was thesubject of any such asset acquisition within six months of the date of theasset acquisition and that are supportable and quantifiable by the underlyingrecords of such business, as if, in the case of each of clauses (1) and (2),all such reductions in costs had been effected as of the beginning of suchperiod, decreased by any incremental expenses incurred or to be incurred duringsuch period in order to achieve such reduction in costs.

 

“Public Equity Offering” means anunderwritten public offering of common stock (other than Disqualified CapitalStock) of the Company or any of its direct or indirect parent companies, as thecase may be, with gross proceeds to the Company or any of its direct orindirect parent companies of at least $50 million, pursuant to a registrationstatement that has been declared effective by the Commission pursuant to theSecurities Act (other than a registration statement on Form S-4 (or anysuccessor form covering substantially the same transactions), Form S-8 (or anysuccessor form covering substantially the same transactions) or

 

23

----

 

otherwiserelating to equity securities issuable under any employee benefit plan of theCompany or any of its direct or indirect parent companies, as the case may be).

 

“Purchase Money Obligations” meansIndebtedness of the Company or any Restricted Subsidiary incurred for thepurpose of financing all or any part of the purchase price of property, plantor equipment used in the business of the Company or any Restricted Subsidiaryor the cost of installation, construction or improvement thereof, and thepayment of any sales or other taxes associated therewith; *provided, however*, that (1) the amount ofsuch Indebtedness shall not exceed such purchase price or cost and payment plusapplicable taxes, and (2) such Indebtedness shall be incurred within one yearof such acquisition of such asset by the Company or such Restricted Subsidiaryor such installation, construction or improvement.

 

“QIB” means a “qualified institutionalbuyer” as defined in Rule 144A.

 

“Qualified Capital Stock” of anyPerson means any and all Capital Stock of such Person other than DisqualifiedCapital Stock.

 

“Qualified Non-cash Proceeds” meansany of the following or any combination of the following:

 

(1)           assetsthat are used or usable in the Permitted Business, and

 

(2)           CapitalStock of any Person engaged primarily in the Permitted Business if, inconnection with the receipt by the Company or any Restricted Subsidiary of suchCapital Stock (a) such Person becomes a Restricted Subsidiary or (b) suchPerson is merged, consolidated or amalgamated with or into, or transfers orconveys substantially all of its assets to, or is liquidated into, the Companyor any Restricted Subsidiary.

 

“Registration Rights Agreement” means(i) the Registration Rights Agreement among the Company and the InitialPurchasers named therein, dated as of July 30, 2004, relating to the InitialNotes, and (ii) with respect to any Additional Notes issued subsequent to theIssue Date, any registration rights agreement entered into for the benefit ofthe holders of such Additional Notes, if any.

 

“Regulation S” means Regulation Spromulgated under the Securities Act.

 

“Regulation S Global Note” means aRegulation S Temporary Global Note or a Regulation S Permanent Global Note, asappropriate.

 

“Regulation S Permanent Global Note”means a permanent global Note in the form of Exhibit A1 hereto bearing theGlobal Note Legend and the Private Placement Legend and deposited with or onbehalf of and registered in the name of the Depositary or its nominee, issuedin a denomination equal to the outstanding principal amount at maturity of theRegulation S Temporary Global Note upon expiration of the Restricted Period.

 

“Regulation S Temporary Global Note”means a temporary global Note in the form of Exhibit A2 hereto bearing theGlobal Note Legend, the Private Placement Legend and the Temporary Regulation SLegend and deposited with or on behalf of and registered in the

 

24

----

 

name of theDepositary or its nominee, issued in a denomination equal to the outstandingprincipal amount at maturity of the Notes initially sold in reliance on Rule903 of Regulation S.

 

“Representative” means the trustee,agent or representative for any Senior Indebtedness or Designated SeniorIndebtedness, as the case may be, or, in the absence thereof, the holders of amajority in principal amount of such Senior Indebtedness or Designated SeniorIndebtedness, as the case may be.

 

“Responsible Officer,” when used withrespect to the Trustee, means any officer within the corporate trust departmentof the Trustee (or any successor group of the Trustee) or any other officer ofthe Trustee customarily performing functions similar to those performed by anyof the above designated officers and also means, with respect to a particularcorporate trust matter, any other officer to whom such matter is referredbecause of his or her knowledge of and familiarity with the particular subject.

 

“Restricted Definitive Note” means aDefinitive Note bearing the Private Placement Legend.

 

“Restricted Global Note” means aGlobal Note bearing the Private Placement Legend.

 

“Restricted Period” means the 40-daydistribution compliance period, as defined in Rule 902(f) of Regulation S.

 

“Restricted Subsidiary” means anySubsidiary of the Company that has not been designated by the Board ofDirectors of the Company by a Board Resolution delivered to the Trustee as anUnrestricted Subsidiary pursuant to and in compliance with Section 4.15 hereof.

 

“Rule 144” means Rule 144 promulgatedunder the Securities Act.

 

“Rule 144A” means Rule 144Apromulgated under the Securities Act.

 

“Rule 903” means Rule 903 promulgatedunder the Securities Act.

 

“Rule 904” means Rule 904 promulgated underthe Securities Act.

 

“Securities Act” means the SecuritiesAct of 1933, as amended, or any successor statute, and the rules andregulations promulgated by the Commission thereunder.

 

“Senior Indebtedness” means theprincipal of, premium, if any, and interest (including interest accruing afterthe filing of a petition initiating any proceeding under any Bankruptcy Law,whether or not allowed or allowable as a claim in any such proceeding) on, anyof the Company’s, Duane Reade GP’s or a Guarantor’s Indebtedness (other than asotherwise provided in this definition), whether outstanding on the Issue Dateor thereafter created, incurred or assumed, and whether at any time owing,actually or contingent, unless, in the case of any particular Indebtedness, theinstrument creating or evidencing the same or pursuant to which the same isoutstanding expressly provides that such Indebtedness shall not be senior inright of payment to the Notes or the Guarantor’s Guarantee, as the case may be.Notwithstanding the

 

25

----

 

foregoing,“Senior Indebtedness” shall include all obligations arising under the CreditAgreement and the Term Loan, or any security or other collateral documentsrelating thereto, all amounts that may be or become available for drawingsunder all letters of credit outstanding under the Credit Agreement, all fees,expenses, indemnities and other amounts payable from time to time under theCredit Agreement or the Term Loan and any other security or collateraldocuments therefor and all obligations arising under Currency HedgingAgreements, Interest Rate Agreements and Commodity Price Agreements.Notwithstanding anything to the contrary in this definition, “SeniorIndebtedness” shall not include:

 

(1)           Indebtednessthat is subordinate or junior in right of payment to any of the Company’s,Duane Reade GP’s or a Guarantor’s Indebtedness;

 

(2)           Indebtednesswhich when incurred and without respect to any election under Section 1111(b)of Title 11 United States Code, is without recourse to the Co-Obligors;

 

(3)           Indebtednesswhich is represented by Disqualified Capital Stock;

 

(4)           anyliability for foreign, federal, state, local or other taxes owed or owing bythe Company to the extent such liability constitutes indebtedness;

 

(5)           Indebtednessof the Company, Duane Reade GP or a Guarantor to (x) a Subsidiary of theCompany or (y) any other Affiliate of the Company or any of such Affiliate’sSubsidiaries if such Affiliate or Subsidiary of such Affiliate holds at least amajority of such Indebtedness;

 

(6)           tothe extent they might constitute Indebtedness, amounts owing for goods,materials or services purchased in the ordinary course of business orconsisting of trade accounts payable owed or owing by the Company, Duane ReadeGP or a Guarantor, and amounts owed by the Company, Duane Reade GP or aGuarantor for compensation to employees or services rendered to the Company,Duane Reade GP or a Guarantor;

 

(7)           Indebtednessunder the Convertible Notes;

 

(8)           thatportion of any Indebtedness which at the time of incurrence is incurred inviolation of this Indenture; and

 

(9)           Indebtednessevidenced by any guarantee of any Subordinated Indebtedness or Pari PassuIndebtedness.

 

Obligations constituting Senior Indebtednessshall continue to constitute Senior Indebtedness for all purposes,notwithstanding that such Senior Indebtedness or any claim in respect thereofmay be disallowed, avoided or subordinated pursuant to any Bankruptcy Law (i)as a claim for unmatured interest, (ii) as a fraudulent transfer or conveyanceor (iii) otherwise.

 

“S&P” means Standard & Poor’sRatings Group, a division of The McGraw-Hill Companies, Inc., and any successorthereof.

 

26

----

 

“Shelf Registration Statement” meansthe Shelf Registration Statement that may be filed pursuant to the RegistrationRights Agreement.

 

“Significant Subsidiary” means anyRestricted Subsidiary that would be a “significant subsidiary” of the Companywithin the meaning of Rule 1-02 under Regulation S-X promulgated by theCommission as in effect on the Issue Date.

 

“Stated Maturity” means, when usedwith respect to any Indebtedness or any installment of interest thereon, thedates specified in such Indebtedness as the fixed date on which the principalof such Indebtedness or such installment of interest, as the case may be, isdue and payable.

 

“Stockholders and Registration RightsAgreement” means the stockholders and registration rights agreement enteredinto in connection with the Acquisition, as amended, restated or modified fromtime to time, *provided* that suchamendment, restatement or modification is not materially more adverse, taken asa whole, to the Company and its Restricted Subsidiaries than the Stockholdersand Registration Rights Agreement in effect or entered into on the AcquisitionClosing Date.

 

“Subordinated Indebtedness” meansIndebtedness of the Company, Duane Reade GP or a Guarantor subordinated inright of payment to the Notes or a Guarantee, as the case may be.

 

“Subsidiary” of a Person means

 

### (a)           any corporation more than 50% of theoutstanding voting power of the Voting Stock of which is owned or controlled,directly or indirectly, by such Person or by one or more other Subsidiaries ofsuch Person, or by such Person and one or more other Subsidiaries thereof, or

###  

### (b)           any limited partnership of which suchPerson or any Subsidiary of such Person is a general partner, or

###  

### (c)           any other Person in which suchPerson, or one or more other Subsidiaries of such Person, or such Person andone or more other Subsidiaries, directly or indirectly, has more than 50% ofthe outstanding partnership or similar interests or has the power, by contractor otherwise, to direct or cause the direction of the policies, management andaffairs thereof.

###  

“Successor Supplemental Indenture” hasthe meaning set forth in the preamble hereto.

 

“Supplemental Indentures” has themeaning set forth in the preamble hereto.

 

“Tax Sharing Agreement” means the TaxSharing Agreement dated as of the Acquisition Closing Date and among DRS LLCand its Subsidiaries as amended, restated or modified from time to time,provided that such amendment, restatement or modification is not materiallymore adverse, taken as a whole, to the Company and its Restricted Subsidiariesthan the Tax Sharing Agreement in effect or entered into on the AcquisitionClosing Date.

 

27

----

 

“Term Loan” means the Senior SecuredTerm Credit Agreement, to be entered into on the Acquisition Closing Date,among the Company and Duane Reade GP, as co-borrowers thereto, the Company’sSubsidiaries which are guarantors thereof, Banc of America Securities LLC andCredit Suisse First Boston, as joint lead arrangers, Banc of America SecuritiesLLC, Credit Suisse First Boston and Citigroup Global Markets Inc. as joint bookrunning managers, Bank of America Bridge LLC, as second lien administrative andcollateral agent, certain lenders party thereto, and certain agents partythereto, as such facility, in whole or in part, in one or more instances, maybe amended, renewed, extended, substituted, refinanced, restructured, replaced,supplemented or otherwise modified from time to time (including, withoutlimitation, any successive renewals, extensions, substitutions, refinancings,restructurings, replacements, supplementations or other modifications of theforegoing and including without limitation any amendment increasing the amountof Indebtedness incurred or available to be borrowed thereunder, extending thematurity of any Indebtedness incurred thereunder or contemplated thereby ordeleting, adding or substituting one or more parties thereto (whether or notsuch added or substituted parties are banks or other institutional lenders)),including into one or more debt facilities, commercial paper facilities orother debt instruments, indentures or agreements, providing for revolvingcredit loans, term loans, letters of credit or other debt obligations, whetherany such extension, replacement or refinancing (1) occurs simultaneously or notwith the termination or repayment of a prior Term Loan or (2) occurs on one ormore separate occasions.

 

“Temporary Regulation S Legend” meansthe legend set forth in Section 2.07(h) hereof, which is required to be placedon the Regulation S Temporary Global Note.

 

“Transactions” means the Acquisitionand all financing and other transactions related thereto, including, withoutlimitation, the issuance of the Notes and the Exchange Notes, the transactionscontemplated by the Registration Rights Agreement, the transactionscontemplated by the Credit Agreement and the Term Loan and the repurchase ofthe Convertible Notes.

 

“Trust Indenture Act” or “TIA”means the Trust Indenture Act of 1939, as amended, or any successor statute.

 

“Trustee” means U.S. Bank NationalAssociation until a successor replaces it in accordance with the applicableprovisions of this Indenture and thereafter means the successor servinghereunder.

 

“Unrestricted Definitive Note” meansone or more Definitive Notes that do not bear and are not required to bear thePrivate Placement Legend.

 

“Unrestricted Global Note” means apermanent Global Note substantially in the form of Exhibit A1 attached heretothat bears the Global Note Legend and that has the “Schedule of Exchanges ofInterests in the Global Note” attached thereto, and that is deposited with oron behalf of and registered in the name of the Depositary, representing aseries of Notes that do not bear the Private Placement Legend.

 

28

----

 

“Unrestricted Subsidiary” means anySubsidiary of the Company (other than Duane Reade GP or a Guarantor) designatedas such pursuant to and in compliance with Section 4.15 hereof.

 

“Unrestricted Subsidiary Indebtedness”of any Unrestricted Subsidiary means Indebtedness of such UnrestrictedSubsidiary

 

### (a)           as to which neither the Company nor anyRestricted Subsidiary is directly or indirectly liable (by virtue of theCompany or any such Restricted Subsidiary being the primary obligor on, guarantorof, or otherwise liable in any respect to, such Indebtedness), exceptGuaranteed Debt of the Company or any Restricted Subsidiary to any Affiliate ofthe Company, in which case (unless the incurrence of such Guaranteed Debtresulted in a Restricted Payment at the time of incurrence) the Company shallbe deemed to have made a Restricted Payment equal to the principal amount ofany such Indebtedness to the extent guaranteed at the time such Affiliate isdesignated an Unrestricted Subsidiary and

###  

### (b)           which, upon the occurrence of adefault with respect thereto, does not result in, or permit any holder of anyIndebtedness of the Company or any Restricted Subsidiary to declare, a defaulton such Indebtedness of the Company or any Restricted Subsidiary or cause thepayment thereof to be accelerated or payable prior to its Stated Maturity;

###  

### *provided* thatnotwithstanding the foregoing, any Unrestricted Subsidiary may guarantee theNotes.

###  

“U.S. Government Obligations” means(i) securities that are (a) direct obligations of the United States of Americafor the payment of which the full faith and credit of the United States ofAmerica is pledged or (b) obligations of a Person controlled or supervised byand acting as an agency or instrumentality of the United States of America thepayment of which is unconditionally guaranteed as a full faith and creditobligation by the United States of America, which, in either case, are notcallable or redeemable at the option of the issuer thereof; and (ii) depositaryreceipts issued by a bank (as defined in Section 3(a)(2) of the Securities Act)as custodian with respect to any U.S. Government Obligation which is specifiedin clause (i) above and held by such bank for the account of the holder of suchdepositary receipt, or with respect to any specific payment of principal orinterest on any U.S. Government Obligation which is so specified and held, *provided* that (except as required by law)such custodian is not authorized to make any deduction from the amount payableto the holder of such depositary receipt from any amount received by thecustodian in respect of the U.S. Government Obligation or the specific paymentof principal or interest of the U.S. Government Obligation evidenced by suchdepositary receipt.

 

“U.S. Person” means a U.S. person asdefined in Rule 902(k) under the Securities Act.

 

“Voting Stock” of a Person meansCapital Stock of such Person of the class or classes pursuant to which theholders thereof have the general voting power under ordinary circumstances toelect at least a majority of the Board of Directors, managers or trustees ofsuch

 

29

----

 

Person(irrespective of whether or not at the time Capital Stock of any other class orclasses shall have or might have voting power by reason of the happening of anycontingency).

 

“Wholly Owned Restricted Subsidiary”means a Restricted Subsidiary all the Capital Stock of which is owned by theCompany or another Wholly Owned Restricted Subsidiary (other than directors’qualifying shares).

 

30

----

 

Section 1.02.  Other Definitions.

 
| **TERM**                                      | ** ** | **DEFINED  IN  SECTION** |
|-----------------------------------------------|------------|--------------------------|
| “Act”                               |       | 13.13                    |
| “Asset Sale Offer”                  |       | 4.11                     |
| “Asset Sale Offer Date”             |       | 4.11                     |
| “Asset Sale Offer Price”            |       | 4.11                     |
| “Authentication Order”              |       | 2.02                     |
| “Change of Control Offer”           |       | 4.18                     |
| “Change of Control Purchase Date”   |       | 4.18                     |
| “Change of Control Purchase Notice” |       | 4.18                     |
| “Change of Control Purchase Price”  |       | 4.18                     |
| “Company Authentication Order”      |       | 2.02                     |
| “Co-Obligor Authentication Order”   |       | 2.02                     |
| “Covenant Defeasance”               |       | 8.03                     |
| “Defeasance Redemption Date”        |       | 8.04                     |
| “Designation”                       |       | 4.15                     |
| “Designation Amount”                |       | 4.15                     |
| “DTC”                               |       | 2.01                     |
| “Event of Default”                  |       | 6.01                     |
| “Excess Proceeds”                   |       | 4.11                     |
| “Funds in Trust”                    |       | 8.04                     |
| “incur”                             |       | 4.07                     |
| “Legal Defeasance”                  |       | 8.02                     |
| “Liquidated Damages Notice”         |       | 4.20                     |
| “Non-Payment Event of Default”      |       | 10.03                    |
| “Offer”                             |       | 4.10                     |
| “Offer Date”                        |       | 4.10                     |
| “Paying Agent”                      |       | 2.04                     |
| “Payment Blockage Notice”           |       | 10.03                    |

 

31

----

 
| “Payment Event of Default”    |   | 10.03 |
|-----------------------------------------|--------|-------|
| “Permitted Indebtedness”      |   | 4.07  |
| “Permitted Junior Securities” |   | 10.02 |
| “Permitted Payment”           |   | 4.08  |
| “refinancing”                 |   | 4.07  |
| “Refinancing Indebtedness”    |   | 4.07  |
| “Registrar”                   |   | 2.04  |
| “Required Filing Date”        |   | 4.03  |
| “Restricted Payments”         |   | 4.08  |
| “Revocation”                  |   | 4.15  |
| “Surviving Entity”            |   | 5.01  |
| “Surviving Guarantor Entity”  |   | 5.01  |
| “Trustee”                     |   | 8.05  |

 

Section 1.03.  Incorporation by Reference of TrustIndenture Act.

 

Whenever this Indenture refers to a provisionof the TIA, the provision is incorporated by reference in and made a part ofthis Indenture.

 

All terms used in this Indenture that aredefined by the TIA, defined by TIA reference to another statute or defined byCommission rule under the TIA have the meanings so assigned to them.

 

Section 1.04.  Rules of Construction.

 

Unless the context otherwise requires:

 

#### (i)            a term has themeaning assigned to it;

####  

#### (ii)           an accounting termnot otherwise defined has the meaning assigned to it in accordance with GAAP;

####  

#### (iii)          words in thesingular include the plural, and in the plural include the singular;

####  

#### (iv)          references tosections of or rules under the Securities Act shall be deemed to includesubstitute, replacement of successor sections or rules adopted by theCommission from time to time; and

####  

#### (v)           all referencesherein to “interest” include the Liquidated Damages.

 

32

----

 

# **ARTICLE TWO**The Notes

 

Section 2.01.  Form and Dating.

 

### (a)           General.  The Notes and the Trustee’s certificate ofauthentication shall be substantially in the form of Exhibit A1 or A2 hereto.  The Notes may have notations, legends orendorsements required by law, stock exchange rule or usage.  Each Note shall be dated the date of itsauthentication.  The Notes shall beissued in registered, global form without interest coupons and only shall be inminimum denominations of $5,000 and integral multiples of $1,000 in excessthereof.

###  

The terms and provisions contained in theNotes shall constitute, and are hereby expressly made, a part of this Indentureand the Co-Obligors, any Guarantors and the Trustee, by their execution anddelivery of this Indenture, expressly agree to such terms and provisions and tobe bound thereby.  However, to the extentany provision of any Note conflicts with the express provisions of thisIndenture, the provisions of this Indenture shall govern and be controlling.

 

### (b)           Global Notes.  Notes issued in global form shall besubstantially in the form of Exhibit A1 or A2 attached hereto (including theGlobal Note Legend thereon and the “Schedule of Exchanges of Interests in theGlobal Note” attached thereto).  Notesissued in definitive form shall be substantially in the form of Exhibit A1attached hereto (but without the Global Note Legend thereon and without the“Schedule of Exchanges of Interests in the Global Note” attached thereto).  Each Global Note shall represent such of theoutstanding Notes as shall be specified therein and each shall provide that itshall represent the aggregate principal amount of outstanding Notes from timeto time endorsed thereon and that the aggregate principal amount of outstandingNotes represented thereby may from time to time be reduced or increased, asappropriate, to reflect exchanges and redemptions.  Any endorsement of a Global Note to reflectthe amount of any increase or decrease in the aggregate principal amount ofoutstanding Notes represented thereby shall be made by the Trustee inaccordance with instructions given by the Holder thereof as required by Section2.07 hereof.

###  

### (c)           Temporary Global Notes.  Notes offered and sold in reliance onRegulation S shall be issued initially in the form of the Regulation STemporary Global Note, which shall be deposited on behalf of the purchasers ofthe Notes represented thereby with the Trustee, as custodian for The DepositoryTrust Company (“DTC”) in New York, New York, and registered in the nameof the Depositary or the nominee of the Depositary for the accounts ofdesignated agents holding on behalf of Euroclear or Clearstream, duly executedby the Co-Obligors and authenticated by the Trustee as hereinafterprovided.  The Restricted Period shall beterminated upon the receipt by the Trustee of (i) a written certificate fromEuroclear and Clearstream certifying that they have received certification ofnon-United States Beneficial Ownership of 100% of the aggregate principalamount at maturity of the Regulation S Temporary Global Note (except to theextent of any Beneficial Owners thereof who acquired an interest therein duringthe Restricted Period pursuant to another exemption from registration under theSecurities Act and who shall take delivery of a Beneficial Ownership interestin a 144A Global Note bearing a Private Placement Legend, all as contemplatedby Section 2.07(a)(ii) hereof), and (ii) an Officers’ Certificate from theCo-Obligors.  Following the

 

33

----

 

### termination of the Restricted Period,beneficial interests in the Regulation S Temporary Global Note shall beexchanged for beneficial interests in Regulation S Permanent Global Notespursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent GlobalNotes, the Trustee shall cancel the Regulation S Temporary Global Note.  The aggregate principal amount of theRegulation S Temporary Global Note and the Regulation S Permanent Global Notesmay from time to time be increased or decreased by adjustments made on therecords of the Trustee and the Depositary or its nominee, as the case may be,in connection with transfers of interest as hereinafter provided.

###  

### (d)           Euroclear and ClearstreamProcedures Applicable.  Theprovisions of the “Operating Procedures of the Euroclear System” and “Terms andConditions Governing Use of Euroclear” and the “General Terms and Conditions ofCedel Bank” and “Customer Handbook” of Clearstream shall be applicable totransfers of beneficial interests in the Regulation S Temporary Global Note andthe Regulation S Permanent Global Notes that are held by Participants throughEuroclear or Clearstream.

###  

### (e)           Additional Notes.  Notwithstanding anything else herein, withrespect to any Additional Notes issued subsequent to the date of thisIndenture, when the context requires, (1) all references in Article Two hereinand elsewhere in this Indenture to a Registration Rights Agreement shall be tothe registration rights agreement entered into with respect to such AdditionalNotes, (2) any references in this Indenture to the Exchange Offer, ExchangeOffer Registration Statement, Shelf Registration Statement, Initial Purchasers,and any other term related thereto shall be to such terms as they are definedin such registration rights agreement entered into with respect to suchAdditional Notes, (3) all time periods described in the Notes with respect tothe registration of such Additional Notes shall be as provided in suchRegistration Rights Agreement entered into with respect to such AdditionalNotes, (4) any Liquidated Damages or penalty interest, if set forth in suchRegistration Rights Agreement, may be paid to the holders of the Additional Notesimmediately prior to the making or the consummation of the Exchange Offerregardless of any other provisions regarding record dates herein and (5) allprovisions of this Indenture shall be construed and interpreted to permit theissuance of such Additional Notes and to allow such Additional Notes to becomefungible and interchangeable with the Initial Notes originally issued underthis Indenture (and Exchange Notes issued in exchange therefor).

 

Section 2.02.  Execution and Authentication.

 

### (a)           On the Issue Date, one or moreOfficers of the Company shall sign the Notes (the “DRAC Notes”) for the Companyby manual or facsimile signature.  TheTrustee shall, upon a written order of the Company signed by one or more Officersof the Company (a “Company Authentication Order”) delivered to theTrustee from time to time, authenticate Notes for original issue without limitas to the aggregate principal amount thereof, subject to compliance withSection 4.07, of which $195 million will be issued on the date of thisIndenture.

###  

### (b)           Upon consummation of the Acquisition,the DRAC Notes shall be surrendered by the Holder thereof to the Company, andthe Company shall surrender such DRAC Notes to the Trustee for cancellation, inaccordance with the terms of this Indenture and in lieu thereof, upon executionof the Successor Supplemental Indenture and Co-Obligor

 

34

----

 

### Supplemental Indenture, one ormore Officers of each of (i) Duane Reade, as the Surviving Entity (as defined inSection 5.01 hereof) in the Acquisition and (ii) Duane Reade GP, as co-obligorof this Indenture and the Notes, shall sign replacement Notes of a like tenorand principal amount for the Co-Obligors by manual or facsimile signature.

###  

Upon consummation of the Acquisition, theTrustee shall, upon a written order of the Co-Obligors signed by one or moreOfficers of each of the Co-Obligors (a “Co-Obligor Authentication Order”and, together with a Company Authentication Order, an “Authentication Order”)delivered to the Trustee from time to time, authenticate Notes for originalissue without limit as to the aggregate principal amount thereof, subject tocompliance with Section 4.07, of which $195 million of replacement Notes,executed by the Co-Obligors pursuant to the immediately preceding sentence,will be issued upon consummation of the Acquisition.

 

Upon authentication of such replacement Notesin accordance with the preceding paragraph, the DRAC Notes shall automaticallybe deemed to have been canceled in accordance with the terms of this Indenture,and none of the Company, the Co-Obligors or the Guarantors shall be deemed tohave any obligations whatsoever under such canceled DRAC Notes.

 

### (c)           Upon receipt of an AuthenticationOrder, the Trustee shall authenticate for original issue (i) Exchange Notes inexchange for Initial Notes in an aggregate principal amount not to exceed $195million or (ii) Exchange Notes in exchange for Additional Notes; *provided* that such Exchange Notes shall beissuable only upon the valid surrender for cancellation of Initial Notes issuedon the date hereof or Additional Notes, as the case may be, of a like aggregateprincipal amount in accordance with an Exchange Offer pursuant to an applicableRegistration Rights Agreement.

###  

### (d)           If an Officer whose signature is on aNote no longer holds that office at the time a Note is authenticated, the Noteshall nevertheless be valid.

###  

### (e)           A Note shall not be valid untilauthenticated by the manual signature of the Trustee.  Such signature shall be conclusive evidencethat the Note has been authenticated under this Indenture.

###  

### (f)            The aggregate principal amount ofNotes which may be authenticated and delivered under this Indenture isunlimited.

###  

### (g)           The Trustee may appoint anauthenticating agent acceptable to the Company or the Co-Obligors, as the casemay be, to authenticate Notes.  Anauthenticating agent may authenticate Notes whenever the Trustee may doso.  Each reference in this Indenture toauthentication by the Trustee includes authentication by such agent.  An authenticating agent has the same rightsas an Agent to deal with Holders or an Affiliate of the Company.

###  

Section 2.03.  Methods of Receiving Payments on theNotes.

 

If a Holder of Notes has given wire transferinstructions to the Paying Agent at least 10 Business Days before payment isdue, the Co-Obligors shall pay all principal, interest and premium, if any, onthat Holder’s Notes in accordance with those instructions.  All other payments on Notes shall be made atthe office or agency of the Paying Agent and Registrar

 

35

----

 

within theCity and State of New York unless the Co-Obligors elect to make interestpayments by check mailed to the Holders at their addresses set forth in the registerof Holders.  Payments of interest to theTrustee as Paying Agent, if the Trustee then acts as Paying Agent, with respectto any Interest Payment Date (as defined in the Notes) shall be made by theCo-Obligors in immediately available funds for receipt by the Trustee oneBusiness Day prior to the such Interest Payment Date (or in no event later than12:30 p.m. Eastern Time on such Interest Payment Date).

 

Section 2.04.  Registrar and Paying Agent.

 

### (a)           The Co-Obligors shall maintain anoffice or agency where Notes may be presented for registration of transfer orfor exchange (“Registrar”) and an office or agency where Notes may bepresented for payment (“Paying Agent”). The Registrar shall keep a register of the Notes and of their transferand exchange.  The Co-Obligors mayappoint one or more co-registrars and one or more additional payingagents.  The term “Registrar” includesany co-registrar and the term “Paying Agent” includes any additional payingagent.  The Co-Obligors may change anyPaying Agent or Registrar without prior notice to any Holder.  The Co-Obligors shall notify the Trustee inwriting of the name and address of any Agent not a party to thisIndenture.  If the Co-Obligors fail toappoint or maintain another entity as Registrar or Paying Agent, the Trusteeshall act as such.  The Company or any ofits Subsidiaries may act as Paying Agent or Registrar.

###  

### (b)           The Co-Obligors initially appoint DTCto act as Depositary with respect to the Global Notes.

###  

### (c)           The Co-Obligors initially appoint theTrustee to act as the Registrar and Paying Agent and to act as Custodian withrespect to the Global Notes.

###  

Section 2.05.  Paying Agent to Hold Money in Trust.

 

The Co-Obligors shall require each PayingAgent other than the Trustee to agree in writing that the Paying Agent shallhold in trust for the benefit of the Holders or the Trustee all money held bythe Paying Agent for the payment of principal or premium, if any, or intereston the Notes, and shall notify the Trustee of any default by the Co-Obligors inmaking any such payment.  While any suchdefault continues, the Trustee may require a Paying Agent to pay all money heldby it to the Trustee.  The Co-Obligors atany time may require a Paying Agent to pay all money held by it to theTrustee.  Upon payment over to theTrustee, the Paying Agent (if other than the Company or one of itsSubsidiaries) shall have no further liability for the money.  If the Company or any of its Subsidiariesacts as Paying Agent, it shall segregate and hold in a separate trust fund forthe benefit of the Holders all money held by it as Paying Agent.  Upon any bankruptcy or reorganizationproceedings relating to the Company or Duane Reade GP, the Trustee shall serveas Paying Agent for the Notes.

 

Section 2.06.  Holder Lists.

 

The Trustee shall preserve in as current aform as is reasonably practicable the most recent list available to it of thenames and addresses of all Holders and shall otherwise comply with TIA Section312(a).  If the Trustee is not theRegistrar, the Co-Obligors shall

 

36

----

 

furnish to theTrustee at least seven Business Days before each interest payment date and atsuch other times as the Trustee may request in writing, a list in such form andas of such date as the Trustee may reasonably require of the names andaddresses of the Holders of Notes and the Co-Obligors shall otherwise complywith TIA Section 312(a).

 

Section 2.07.  Transfer and Exchange.

 

### (a)           Transfer and Exchange of GlobalNotes.  A Global Note may not betransferred as a whole except by the Depositary to a nominee of the Depositary,by a nominee of the Depositary to the Depositary or to another nominee of theDepositary, or by the Depositary or any such nominee to a successor Depositaryor a nominee of such successor Depositary. All Global Notes shall be exchanged by the Co-Obligors for DefinitiveNotes if (i) the Co-Obligors deliver to the Trustee notice from the Depositarythat it is unwilling or unable to continue to act as Depositary or that it isno longer a clearing agency registered under the Exchange Act and, in eithercase, a successor Depositary is not appointed by the Co-Obligors within 90 daysafter the date of such notice from the Depositary; (ii) the Co-Obligors intheir sole discretion determine that the Global Notes (in whole but not inpart) should be exchanged for Definitive Notes and deliver a written notice tosuch effect to the Trustee; providedthat in no event shall the Regulation S Temporary Global Note be exchanged by theCo-Obligors for Definitive Notes prior to (x) the expiration of the RestrictedPeriod and (y) the receipt by the Registrar of any certificates requiredpursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or (iii) thereshall have occurred and be continuing a Default or Event of Default withrespect to the Notes.  Upon theoccurrence of any of the preceding events in (i), (ii) or (iii) above,Definitive Notes shall be issued in such names as the Depositary shall instructthe Trustee.  Global Notes also may beexchanged or replaced, in whole or in part, as provided in Sections 2.02, 2.08and 2.11 hereof.  Every Noteauthenticated and delivered in exchange for, or in lieu of, a Global Note orany portion thereof, pursuant to this Section 2.07 or Section 2.02, 2.08 or2.11 hereof, shall be authenticated and delivered in the form of, and shall be,a Global Note.  Beneficial interests in aGlobal Note may be transferred and exchanged as provided in Section 2.07(b),(c) or (f) hereof.

###  

### (b)           Transfer and Exchange ofBeneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notesshall be effected through the Depositary, in accordance with the provisions ofthis Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject torestrictions on transfer comparable to those set forth herein to the extentrequired by the Securities Act. Transfers of beneficial interests in the Global Notes also shall requirecompliance with either subparagraph (i) or (ii) below, as applicable, as wellas one or more of the other following subparagraphs, as applicable:

###  

#### (i)            Transfer ofBeneficial Interests in the Same Global Note.  Beneficial interests in any Restricted GlobalNote may be transferred to Persons who take delivery thereof in the form of abeneficial interest in the same Restricted Global Note in accordance with thetransfer restrictions set forth in the Private Placement Legend; *provided*, *however*, thatprior to the expiration of the Restricted Period, transfers of beneficialinterests in the Regulation S Temporary Global Note may not be made to aU.S.  Person or for the account orbenefit of a U.S.  Person (other than anInitial Purchaser).  Beneficial interestsin any

 

37

----

 

#### UnrestrictedGlobal Note may be transferred to Persons who take delivery thereof in the formof a beneficial interest in an Unrestricted Global Note.  No written orders or instructions shall berequired to be delivered to the Registrar to effect the transfers described inthis Section 2.07(b)(i).

####  

#### (ii)           All OtherTransfers and Exchanges of Beneficial Interests in Global Notes.  In connection with all transfers andexchanges of beneficial interests that are not subject to Section 2.07(b)(i)above, the transferor of such beneficial interest must deliver to the Registrareither (A) (1) a written order from a Participant or an Indirect Participantgiven to the Depositary in accordance with the Applicable Procedures directingthe Depositary to credit or cause to be credited a beneficial interest inanother Global Note in an amount equal to the beneficial interest to betransferred or exchanged and (2) instructions given in accordance with theApplicable Procedures containing information regarding the Participant accountto be credited with such increase or (B) (1) a written order from a Participantor an Indirect Participant given to the Depositary in accordance with theApplicable Procedures directing the Depositary to cause to be issued aDefinitive Note in an amount equal to the beneficial interest to be transferredor exchanged and (2) instructions given by the Depositary to the Registrarcontaining information regarding the Person in whose name such Definitive Noteshall be registered to effect the transfer or exchange referred to in (1)above; provided that in noevent shall Definitive Notes be issued upon the transfer or exchange ofbeneficial interests in the Regulation S Temporary Global Note prior to (x) theexpiration of the Restricted Period and (y) the receipt by the Registrar of anycertificates required pursuant to Rule 903(b)(3)(ii)(B) under the SecuritiesAct.  Upon consummation of an ExchangeOffer by the Company in accordance with Section 2.07(f) hereof, therequirements of this Section 2.07(b)(ii) shall be deemed to have been satisfiedupon receipt by the Registrar of the instructions contained in the Letter ofTransmittal delivered by the Holder of such beneficial interests in theRestricted Global Notes.  Uponsatisfaction of all of the requirements for transfer or exchange of beneficialinterests in Global Notes contained in this Indenture and the Notes orotherwise applicable under the Securities Act, the Trustee shall adjust theprincipal amount at maturity of the relevant Global Notes pursuant to Section2.07(i) hereof.

####  

#### (iii)          Transfer ofBeneficial Interests to Another Restricted Global Note.  A beneficial interest in any RestrictedGlobal Note may be transferred to a Person who takes delivery thereof in theform of a beneficial interest in another Restricted Global Note if the transfercomplies with the requirements of Section 2.07(b)(ii) above and the Registrarreceives the following:

####  

(A)          if the transferee shall take deliveryin the form of a beneficial interest in the 144A Global Note, then thetransferor must deliver a certificate in the form of Exhibit B hereto,including the certifications in item (1) thereof; and

 

38

----

 

(B)           if the transferee shall take deliveryin the form of a beneficial interest in the Regulation S Temporary Global Noteor Regulation S Permanent Global Note, then the transferor must deliver acertificate in the form of Exhibit B hereto, including the certifications initem (2) thereof.

 

#### (iv)          Transfer andExchange of Beneficial Interests in a Restricted Global Note for BeneficialInterests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged byany Holder thereof for a beneficial interest in an Unrestricted Global Note ortransferred to a Person who takes delivery thereof in the form of a beneficialinterest in an Unrestricted Global Note if the exchange or transfer complieswith the requirements of Section 2.07(b)(ii) above and:

####  

(A)          such exchange or transfer is effectedpursuant to an Exchange Offer in accordance with an applicable RegistrationRights Agreement and the Holder of the beneficial interest to be transferred,in the case of an exchange, or the transferee, in the case of a transfer,certifies in the applicable Letter of Transmittal that it is not (1) aBroker-Dealer, (2) a Person participating in the distribution of the ExchangeNotes or (3) a Person who is an affiliate (as defined in Rule 144) of theCompany;

 

(B)           such transfer is effected pursuant toa Shelf Registration Statement in accordance with an applicable RegistrationRights Agreement;

 

(C)           such transfer is effected by aBroker-Dealer pursuant to an Exchange Offer Registration Statement inaccordance with an applicable Registration Rights Agreement; or

 

(D)          the Registrar receives the following:

 

(1)           if the Holder of such beneficialinterest in a Restricted Global Note proposes to exchange such beneficialinterest for a beneficial interest in an Unrestricted Global Note, acertificate from such Holder in the form of Exhibit C hereto, including thecertifications in item (1)(a) thereof; or

 

(2)           if the Holder of such beneficialinterest in a Restricted Global Note proposes to transfer such beneficialinterest to a Person who shall take delivery thereof in the form of abeneficial interest in an Unrestricted Global Note, a certificate from suchHolder in the form of Exhibit B hereto, including the certifications in item(4) thereof;

 

and, in each such case set forth in thissubparagraph (D), if the Registrar so requests or if the Applicable Proceduresso require, an Opinion of

 

39

----

 

Counsel in form reasonably acceptable to theRegistrar to the effect that such exchange or transfer is in compliance withthe Securities Act and that the restrictions on transfer contained herein andin the Private Placement Legend are no longer required in order to maintaincompliance with the Securities Act.

 

If any such transfer is effected pursuant tosubparagraph (B) or (D) above at a time when an Unrestricted Global Note hasnot yet been issued, the Company shall issue and, upon receipt of anAuthentication Order in accordance with Section 2.02 hereof, the Trustee shallauthenticate one or more Unrestricted Global Notes in an aggregate principalamount equal to the aggregate principal amount of beneficial intereststransferred pursuant to subparagraph (B) or (D) above.

 

Beneficial interests in an UnrestrictedGlobal Note cannot be exchanged for, or transferred to Persons who takedelivery thereof in the form of, a beneficial interest in a Restricted GlobalNote.

 

### (c)           Transfer or Exchange of BeneficialInterests for Definitive Notes.

###  

#### (i)            BeneficialInterests in Restricted Global Notes to Restricted Definitive Notes.  If any Holder of a beneficial interest in aRestricted Global Note proposes to exchange such beneficial interest for aRestricted Definitive Note or to transfer such beneficial interest to a Personwho takes delivery thereof in the form of a Restricted Definitive Note, then,upon receipt by the Registrar of the following documentation:

####  

(A)          if the Holder of such beneficialinterest in a Restricted Global Note proposes to exchange such beneficialinterest for a Restricted Definitive Note, a certificate from such Holder inthe form of Exhibit C hereto, including the certifications in item (2)(a)thereof;

 

(B)           if such beneficial interest is beingtransferred to a QIB in accordance with Rule 144A under the Securities Act, acertificate to the effect set forth in Exhibit B hereto, including thecertifications in item (1) thereof;

 

(C)           if such beneficial interest is beingtransferred to a Non-U.S.  Person in anoffshore transaction in accordance with Rule 903 or Rule 904 under the SecuritiesAct, a certificate to the effect set forth in Exhibit B hereto, including thecertifications in item (2) thereof;

 

(D)          if such beneficial interest is beingtransferred pursuant to an exemption from the registration requirements of theSecurities Act in accordance with Rule 144 under the Securities Act, acertificate to the effect set forth in Exhibit B hereto, including thecertifications in item (3)(a) thereof;

 

40

----

 

(E)           if such beneficial interest is beingtransferred to an Institutional Accredited Investor in reliance on an exemptionfrom the registration requirements of the Securities Act other than thoselisted in subparagraphs (B) through (D) above, a certificate to the effect setforth in Exhibit B hereto, including the certifications, certificates andOpinion of Counsel required by item (3) thereof, if applicable;

 

(F)           if such beneficial interest is beingtransferred to the Company or any of its Subsidiaries, a certificate to theeffect set forth in Exhibit B hereto, including the certifications in item(3)(b) thereof; or

 

(G)           if such beneficial interest is beingtransferred pursuant to an effective registration statement under theSecurities Act, a certificate to the effect set forth in Exhibit B hereto,including the certifications in item (3)(c) thereof,

 

the Trusteeshall cause the aggregate principal amount of the applicable Global Note to bereduced accordingly pursuant to Section 2.07(i) hereof, and the Co-Obligorsshall execute and the Trustee shall authenticate and deliver to the Persondesignated in the instructions a Definitive Note in the appropriate principalamount.  Any Definitive Note issued inexchange for a beneficial interest in a Restricted Global Note pursuant to thisSection 2.07(c) shall be registered in such name or names and in suchauthorized denomination or denominations as the Holder of such beneficialinterest shall instruct the Registrar through instructions from the Depositaryand the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whosenames such Notes are so registered.  AnyDefinitive Note issued in exchange for a beneficial interest in a RestrictedGlobal Note pursuant to this Section 2.07(c)(i) shall bear the PrivatePlacement Legend and shall be subject to all restrictions on transfer containedtherein.

 

#### (ii)           BeneficialInterests in Regulation S Temporary Global Note to Definitive Notes.  Notwithstanding Sections 2.07(c)(i)(A) and(C) hereof, a beneficial interest in the Regulation S Temporary Global Note maynot be exchanged for a Definitive Note or transferred to a Person who takesdelivery thereof in the form of a Definitive Note prior to (x) the expirationof the Restricted Period and (y) the receipt by the Registrar of anycertificates required pursuant to Rule 903(b)(3)(ii)(B) under the SecuritiesAct, except in the case of a transfer pursuant to an exemption from theregistration requirements of the Securities Act other than Rule 903 or Rule904.

####  

#### (iii)          BeneficialInterests in Restricted Global Notes to Unrestricted Definitive Notes.  A Holder of a beneficial interest in aRestricted Global Note may exchange such beneficial interest for anUnrestricted Definitive Note or may transfer such beneficial interest to aPerson who takes delivery thereof in the form of an Unrestricted DefinitiveNote only if:

 

41

----

 

(A)          such exchange or transfer is effectedpursuant to an Exchange Offer in accordance with an applicable RegistrationRights Agreement and the Holder of such beneficial interest, in the case of anexchange, or the transferee, in the case of a transfer, certifies in theapplicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) aPerson participating in the distribution of the Exchange Notes or (3) a Personwho is an affiliate (as defined in Rule 144) of the Company;

 

(B)           such transfer is effected pursuant toa Shelf Registration Statement in accordance with an applicable RegistrationRights Agreement;

 

(C)           such transfer is effected by aBroker-Dealer pursuant to an Exchange Offer Registration Statement inaccordance with an applicable Registration Rights Agreement; or

 

(D)          the Registrar receives the following:

 

(1)           if the Holder of such beneficial interestin a Restricted Global Note proposes to exchange such beneficial interest for aDefinitive Note that does not bear the Private Placement Legend, a certificatefrom such Holder in the form of Exhibit C hereto, including the certificationsin item (1)(b) thereof; or

 

(2)           if the Holder of such beneficialinterest in a Restricted Global Note proposes to transfer such beneficialinterest to a Person who shall take delivery thereof in the form of aDefinitive Note that does not bear the Private Placement Legend, a certificatefrom such Holder in the form of Exhibit B hereto, including the certificationsin item (4) thereof;

 

and, in each such case set forth in thissubparagraph (D), if the Registrar so requests or if the Applicable Proceduresso require, an Opinion of Counsel in form reasonably acceptable to theRegistrar to the effect that such exchange or transfer is in compliance withthe Securities Act and that the restrictions on transfer contained herein andin the Private Placement Legend are no longer required in order to maintaincompliance with the Securities Act.

 

#### (iv)          BeneficialInterests in Unrestricted Global Notes to Unrestricted Definitive Notes.  If any Holder of a beneficial interest in anUnrestricted Global Note proposes to exchange such beneficial interest for aDefinitive Note or to transfer such beneficial interest to a Person who takesdelivery thereof in the form of a Definitive Note, then, upon satisfaction ofthe conditions set forth in Section 2.07(b)(ii) hereof, the Trustee shall causethe aggregate principal amount of the applicable Global Note to be reducedaccordingly pursuant to Section 2.07(i)

 

42

----

 

#### hereof, andthe Co-Obligors shall execute and the Trustee shall authenticate and deliver tothe Person designated in the instructions a Definitive Note in the appropriateprincipal amount.  Any Definitive Noteissued in exchange for a beneficial interest pursuant to this Section2.07(c)(iv) shall be registered in such name or names and in such authorizeddenomination or denominations as the Holder of such beneficial interest shallinstruct the Registrar through instructions from the Depositary and theParticipant or Indirect Participant.  TheTrustee shall deliver such Definitive Notes to the Persons in whose names suchNotes are so registered.  Any DefinitiveNote issued in exchange for a beneficial interest pursuant to this Section2.07(c)(iv) shall not bear the Private Placement Legend.

####  

### (d)           Transfer and Exchange of DefinitiveNotes for Beneficial Interests.

###  

#### (i)            RestrictedDefinitive Notes to Beneficial Interests in Restricted Global Notes.  If any Holder of a Restricted Definitive Noteproposes to exchange such Note for a beneficial interest in a Restricted GlobalNote or to transfer such Restricted Definitive Notes to a Person who takesdelivery thereof in the form of a beneficial interest in a Restricted GlobalNote, then, upon receipt by the Registrar of the following documentation:

####  

(A)          if the Holder of such RestrictedDefinitive Note proposes to exchange such Note for a beneficial interest in aRestricted Global Note, a certificate from such Holder in the form of Exhibit Chereto, including the certifications in item (2)(b) thereof;

 

(B)           if such Restricted Definitive Note isbeing transferred to a QIB in accordance with Rule 144A under the SecuritiesAct, a certificate to the effect set forth in Exhibit B hereto, including thecertifications in item (1) thereof;

 

(C)           if such Restricted Definitive Note isbeing transferred to a Non-U.S. Person in an offshore transaction in accordancewith Rule 903 or Rule 904 under the Securities Act, a certificate to the effectset forth in Exhibit B hereto, including the certifications in item (2)thereof;

 

(D)          if such Restricted Definitive Note is beingtransferred pursuant to an exemption from the registration requirements of theSecurities Act in accordance with Rule 144 under the Securities Act, acertificate to the effect set forth in Exhibit B hereto, including thecertifications in item (3)(a) thereof;

 

(E)           if such Restricted Definitive Note isbeing transferred to an Institutional Accredited Investor in reliance on anexemption from the registration requirements of the Securities Act other thanthose listed in subparagraphs (B) through (D) above, a certificate to theeffect set forth in Exhibit B hereto, including the certifications,certificates and Opinion of Counsel required by item (3) thereof, ifapplicable;

 

43

----

 

(F)           if such Restricted Definitive Note isbeing transferred to the Company or any of its Subsidiaries, a certificate tothe effect set forth in Exhibit B hereto, including the certifications in item(3)(b) thereof; or

 

(G)           if such Restricted Definitive Note isbeing transferred pursuant to an effective registration statement under theSecurities Act, a certificate to the effect set forth in Exhibit B hereto,including the certifications in item (3)(c) thereof,

 

the Trustee shall cancel the RestrictedDefinitive Note, increase or cause to be increased the aggregate principalamount of, in the case of clause (A) above, the appropriate Restricted GlobalNote, in the case of clause (B) above, the 144A Global Note, and in the case ofclause (C) above, the Regulation S Global Note and in all other cases the IAIGlobal Note.

 

#### (ii)           RestrictedDefinitive Notes to Beneficial Interests in Unrestricted Global Notes.  A Holder of a Restricted Definitive Note mayexchange such Note for a beneficial interest in an Unrestricted Global Note ortransfer such Restricted Definitive Note to a Person who takes delivery thereofin the form of a beneficial interest in an Unrestricted Global Note only if:

####  

(A)          such exchange or transfer is effectedpursuant to an Exchange Offer in accordance with an applicable RegistrationRights Agreement and the Holder, in the case of an exchange, or the transferee,in the case of a transfer, certifies in the applicable Letter of Transmittalthat it is not (1) a Broker-Dealer, (2) a Person participating in thedistribution of the Exchange Notes or (3) a Person who is an affiliate (asdefined in Rule 144) of the Company;

 

(B)           such transfer is effected pursuant toa Shelf Registration Statement in accordance with an applicable RegistrationRights Agreement;

 

(C)           such transfer is effected by aBroker-Dealer pursuant to an Exchange Offer Registration Statement inaccordance with an applicable Registration Rights Agreement; or

 

(D)          the Registrar receives the following:

 

(1)           if the Holder of such DefinitiveNotes proposes to exchange such Notes for a beneficial interest in theUnrestricted Global Note, a certificate from such Holder in the form of ExhibitC hereto, including the certifications in item (1)(c) thereof; or

 

(2)           if the Holder of such DefinitiveNotes proposes to transfer such Notes to a Person who shall take deliverythereof in the form of a beneficial interest in the Unrestricted Global Note, a

 

44

----

 

certificate from such Holder in the form ofExhibit B hereto, including the certifications in item (4) thereof;

 

and, in each such case set forth in thissubparagraph (D), if the Registrar so requests or if the Applicable Proceduresso require, an Opinion of Counsel in form reasonably acceptable to theRegistrar to the effect that such exchange or transfer is in compliance withthe Securities Act and that the restrictions on transfer contained herein andin the Private Placement Legend are no longer required in order to maintaincompliance with the Securities Act.

 

Upon satisfaction of the conditions of any ofthe subparagraphs in this Section 2.07(d)(ii), the Trustee shall cancel theDefinitive Notes and increase or cause to be increased the aggregate principalamount of the Unrestricted Global Note.

 

#### (iii)          UnrestrictedDefinitive Notes to Beneficial Interests in Unrestricted Global Notes.  A Holder of an Unrestricted Definitive Notemay exchange such Note for a beneficial interest in an Unrestricted Global Noteor transfer such Definitive Notes to a Person who takes delivery thereof in theform of a beneficial interest in an Unrestricted Global Note at any time.  Upon receipt of a request for such anexchange or transfer, the Trustee shall cancel the applicable UnrestrictedDefinitive Note and increase or cause to be increased the aggregate principalamount of one of the Unrestricted Global Notes.

####  

If any such exchange or transfer from a Definitive Note to a beneficialinterest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) aboveat a time when an Unrestricted Global Note has not yet been issued, theCo-Obligors shall issue and, upon receipt of an Authentication Order inaccordance with Section 2.02 hereof, the Trustee shall authenticate one or moreUnrestricted Global Notes in an aggregate principal amount equal to theprincipal amount of Definitive Notes so transferred.

 

### (e)           Transfer and Exchange ofDefinitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder’scompliance with the provisions of this Section 2.07(e), the Registrar shallregister the transfer or exchange of Definitive Notes.  Prior to such registration of transfer orexchange, the requesting Holder shall present or surrender to the Registrar theDefinitive Notes duly endorsed or accompanied by a written instruction oftransfer in form satisfactory to the Registrar duly executed by such Holder orby its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additionalcertifications, documents and information, as applicable, required pursuant tothe following provisions of this Section 2.07(e).

###  

#### (i)            RestrictedDefinitive Notes to Restricted Definitive Notes.  Any Restricted Definitive Note may betransferred to and registered in the name of Persons who take delivery thereofin the form of a Restricted Definitive Note if the Registrar receives thefollowing:

 

45

----

 

(A)          if the transfer shall be made pursuantto Rule 144A under the Securities Act, then the transferor must deliver acertificate in the form of Exhibit B hereto, including the certifications initem (1) thereof;

 

(B)           if the transfer shall be madepursuant to Rule 903 or Rule 904, then the transferor must deliver acertificate in the form of Exhibit B hereto, including the certifications initem (2) thereof; and

 

(C)           if the transfer shall be madepursuant to any other exemption from the registration requirements of theSecurities Act, then the transferor must deliver a certificate in the form ofExhibit B hereto, including the certifications, certificates and Opinion ofCounsel required by item (3) thereof, if applicable.

 

#### (ii)           RestrictedDefinitive Notes to Unrestricted Definitive Notes.  Any Restricted Definitive Note may beexchanged by the Holder thereof for an Unrestricted Definitive Note ortransferred to a Person or Persons who take delivery thereof in the form of anUnrestricted Definitive Note if:

####  

(A)          such exchange or transfer is effectedpursuant to an Exchange Offer in accordance with an applicable RegistrationRights Agreement and the Holder, in the case of an exchange, or the transferee,in the case of a transfer, certifies in the applicable Letter of Transmittalthat it is not (1) a Broker-Dealer, (2) a Person participating in thedistribution of the Exchange Notes or (3) a Person who is an affiliate (asdefined in Rule 144) of the Company;

 

(B)           any such transfer is effectedpursuant to a Shelf Registration Statement in accordance with an applicableRegistration Rights Agreement;

 

(C)           any such transfer is effected by a Broker-Dealerpursuant to an Exchange Offer Registration Statement in accordance with anapplicable Registration Rights Agreement; or

 

(D)          the Registrar receives the following:

 

(1)           if the Holder of such RestrictedDefinitive Notes proposes to exchange such Notes for an Unrestricted DefinitiveNote, a certificate from such Holder in the form of Exhibit C hereto, includingthe certifications in item (1)(d) thereof; or

 

(2)           if the Holder of such RestrictedDefinitive Notes proposes to transfer such Notes to a Person who shall takedelivery thereof in the form of an Unrestricted Definitive Note, a certificatefrom such Holder in the form of Exhibit B hereto, including the certificationsin item (4) thereof;

 

46

----

 

and, in each such case set forth in thissubparagraph (D), if the Registrar so requests, an Opinion of Counsel in formreasonably acceptable to the Company to the effect that such exchange ortransfer is in compliance with the Securities Act and that the restrictions ontransfer contained herein and in the Private Placement Legend are no longerrequired in order to maintain compliance with the Securities Act.

 

#### (iii)          UnrestrictedDefinitive Notes to Unrestricted Definitive Notes.  A Holder of Unrestricted Definitive Notes maytransfer such Notes to a Person who takes delivery thereof in the form of anUnrestricted Definitive Note.  Uponreceipt of a request to register such a transfer, the Registrar shall registerthe Unrestricted Definitive Notes pursuant to the instructions from the Holderthereof.

####  

### (f)            Exchange Offer.  Upon the occurrence of an Exchange Offer inaccordance with an applicable Registration Rights Agreement, the Co-Obligorsshall issue and, upon receipt of an Authentication Order in accordance withSection 2.02, the Trustee shall authenticate (i) one or more UnrestrictedGlobal Notes in an aggregate principal amount equal to the principal amount ofthe beneficial interests in the Restricted Global Notes tendered for acceptanceby Persons that certify in the applicable Letters of Transmittal that (x) theyare not Broker-Dealers, (y) they are not participating in a distribution of theExchange Notes and (z) they are not affiliates (as defined in Rule 144) of theCompany, and accepted for exchange in such Exchange Offer and (ii) DefinitiveNotes in an aggregate principal amount equal to the principal amount of theRestricted Definitive Notes accepted for exchange in such Exchange Offer.  Concurrently with the issuance of such Notes,the Trustee shall cause the aggregate principal amount of the applicableRestricted Global Notes to be reduced accordingly, and the Co-Obligors shallexecute and the Trustee shall authenticate and deliver to the Personsdesignated by the Holders of Definitive Notes so accepted Definitive Notes inthe appropriate principal amount.  AnyNotes that remain outstanding after the consummation of an Exchange Offer, andExchange Notes issued in connection with an Exchange Offer, shall be treated asa single class of securities under this Indenture.

###  

### (g)           Legends.  The following legends shall appear on theface of all Global Notes and Definitive Notes issued under this Indentureunless specifically stated otherwise in the applicable provisions of thisIndenture.

###  

#### (i)            Private PlacementLegend.  Except as permitted below,each Global Note and each Definitive Note (and all Notes issued in exchangetherefor or substitution thereof) shall bear the legend in substantially thefollowing form:

####  

THIS NOTE AND THE GUARANTEES ENDORSED HEREONHAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIESACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST ORPARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION ORUNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT

 

47

----

 

TO THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT.  THE HOLDER OF THIS NOTEAND THE GUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCE HEREOF, AGREES NOT TOOFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT THAT THE NOTES ANDGUARANTEES MAY BE TRANSFERRED (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C)FOR SO LONG AS THE NOTES AND THE GUARANTEES ENDORSED THEREON ARE ELIGIBLE FORRESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TOA PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINEDIN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AQUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER ISBEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TONON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN OFFSHORE TRANSACTIONSWITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TOANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANYSUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S UNDERTHE SECURITIES ACT OR PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF ANOPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACHOF THEM, AND (2) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATEOF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BYTHE TRANSFEROR TO THE TRUSTEE.

 

Notwithstanding the foregoing, any GlobalNote or Definitive Note issued pursuant to subparagraph (b)(iv), (c)(iii),(c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.07 (andall Notes issued in exchange therefor or substitution thereof) (and any notenot required by law to have such a legend), shall not bear the PrivatePlacement Legend.

 

#### In addition, the foregoing legend may beadjusted for future issuances in accordance with applicable law.

####  

#### (ii)           Global NoteLegend.  Each Global Note shall beara legend in substantially the following form:

####  

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY(AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FORTHE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY 

 

48

----

 

PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT(1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TOSECTION 2.07 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLEBUT NOT IN PART PURSUANT TO SECTION 2.07(a) OF THE INDENTURE, (3) THIS GLOBALNOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSORDEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

 

### (h)           Regulation S Temporary Global NoteLegend.  The Regulation S TemporaryGlobal Note shall bear a legend in substantially the following form:

###  

THE RIGHTSATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS ANDPROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS SPECIFIED IN THEINDENTURE (AS DEFINED HEREIN).

 

### (i)            Cancellation and/or Adjustment ofGlobal Notes.  At such time as allbeneficial interests in a particular Global Note have been exchanged forDefinitive Notes or a particular Global Note has been redeemed, repurchased orcanceled in whole and not in part, each such Global Note shall be returned toor retained and canceled by the Trustee in accordance with Section 2.12hereof.  At any time prior to suchcancellation, if any beneficial interest in a Global Note is exchanged for ortransferred to a Person who shall take delivery thereof in the form of abeneficial interest in another Global Note or for Definitive Notes, theprincipal amount of Notes represented by such Global Note shall be reducedaccordingly and an endorsement shall be made on such Global Note by the Trusteeor by the Depositary at the direction of the Trustee to reflect such reduction;and if the beneficial interest is being exchanged for or transferred to aPerson who shall take delivery thereof in the form of a beneficial interest inanother Global Note, such other Global Note shall be increased accordingly and anendorsement shall be made on such Global Note by the Trustee or by theDepositary at the direction of the Trustee to reflect such increase.

###  

### (j)            General Provisions Relating toTransfers and Exchanges.

###  

#### (i)            To permitregistrations of transfers and exchanges, the Co-Obligors shall execute and theTrustee shall authenticate Global Notes and Definitive Notes upon theCo-Obligors’ order or at the Registrar’s request.

####  

#### (ii)           No service chargeshall be made to a Holder of a beneficial interest in a Global Note or to aHolder of a Definitive Note for any registration of transfer or exchange, butthe Co-Obligors may require payment of a sum sufficient to cover any transfertax or similar governmental charge payable in connection therewith (other thanany such transfer taxes or similar governmental charge payable upon exchange ortransfer pursuant to Sections 2.11, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

 

49

----

 

#### (iii)          The Registrar shallnot be required to register the transfer of or exchange any Note selected forredemption in whole or in part, except the unredeemed portion of any Note beingredeemed in part.

####  

#### (iv)          All Global Notes andDefinitive Notes issued upon any registration of transfer or exchange of GlobalNotes or Definitive Notes shall be the valid and legally binding obligations ofthe Co-Obligors, evidencing the same debt, and entitled to the same benefitsunder this Indenture, as the Global Notes or Definitive Notes surrendered uponsuch registration of transfer or exchange.

####  

#### (v)           The Co-Obligorsshall not be required (A) to issue, to register the transfer of or to exchangeany Notes during a period beginning at the opening of business 15 days beforethe day of any selection of Notes for redemption under Section 3.02 hereof andending at the close of business on the day of selection, (B) to register thetransfer of or to exchange any Note so selected for redemption in whole or inpart, except the unredeemed portion of any Note being redeemed in part or (C)to register the transfer of or to exchange a Note between a record date and thenext succeeding interest payment date.

####  

#### (vi)          Prior to duepresentment for the registration of a transfer of any Note, the Trustee, anyAgent and the Co-Obligors may deem and treat the Person in whose name any Noteis registered as the absolute owner of such Note for the purpose of receivingpayment of principal of and interest on such Notes and for all other purposes,and none of the Trustee, any Agent or the Co-Obligors shall be affected bynotice to the contrary.

####  

#### (vii)         The Trustee shallauthenticate Global Notes and Definitive Notes in accordance with theprovisions of Section 2.02 hereof.

####  

#### (viii)        All certifications,certificates and Opinions of Counsel required to be submitted to the Registrarpursuant to this Section 2.07 to effect a registration of transfer or exchangemay be submitted by facsimile with the original to follow by first class mail.

####  

Section 2.08.  Replacement Notes.

 

### (a)           If any mutilated Note is surrenderedto the Trustee or the Co-Obligors and the Trustee receives evidence to theirsatisfaction of the destruction, loss or theft of any Note, the Co-Obligorsshall issue and the Trustee, upon receipt of an Authentication Order, shallauthenticate a replacement Note if the Trustee’s requirements are met.  If required by the Trustee or theCo-Obligors, an indemnity bond must be supplied by the Holder that issufficient in the judgment of the Trustee and the Co-Obligors to protect theCo-Obligors, the Trustee, any Agent and any authenticating agent from any lossthat any of them may suffer if a Note is replaced.  The Co-Obligors may charge for their expensesin replacing a Note.

###  

### (b)           Every replacement Note is anadditional obligation of the Co-Obligors and shall be entitled to all of thebenefits of this Indenture equally and proportionately with all other Notesduly issued hereunder.

 

50

----

 

Section 2.09.  Outstanding Notes.

 

### (a)           The Notes outstanding at any time areall the Notes authenticated by the Trustee except for those canceled by it,those delivered to it for cancellation, those reductions in the interest in aGlobal Note effected by the Trustee in accordance with the provisions hereof,and those described in this Section as not outstanding.  Except as set forth in Section 2.10 hereof, aNote does not cease to be outstanding because the Company or an Affiliate ofthe Company holds the Note.

###  

### (b)           If a Note is replaced pursuant toSection 2.08 hereof, it ceases to be outstanding unless the Trustee receivesproof satisfactory to it that the replaced Note is held by a protectedpurchaser.

###  

### (c)           If the principal amount of any Noteis considered paid under Section 4.01 hereof, it ceases to be outstanding andinterest on it ceases to accrue.

###  

### (d)           If the Paying Agent (other than theCompany, a Subsidiary of the Company or an Affiliate of any of the foregoing)holds, on a redemption date or maturity date, money sufficient to pay Notespayable on that date, then on and after that date such Notes shall be deemed tobe no longer outstanding and shall cease to accrue interest.

###  

Section 2.10.  Treasury Notes.

 

In determining whether the Holders of therequired principal amount of Notes have concurred in any direction, waiver orconsent, Notes owned by the Company, or by any Person directly or indirectlycontrolling or controlled by or under direct or indirect common control withthe Company, shall be considered as though not outstanding, except that for thepurposes of determining whether the Trustee shall be protected in relying onany such direction, waiver or consent, only Notes that the Trustee knows are soowned shall be so disregarded.

 

Section 2.11.  Temporary Notes.

 

### (a)           Until certificates representing Notesare ready for delivery, the Co-Obligors may prepare and the Trustee, uponreceipt of an Authentication Order, shall authenticate temporary Notes.  Temporary Notes shall be substantially in theform of Definitive Notes but may have variations that the Co-Obligors considerappropriate for temporary Notes and as shall be reasonably acceptable to theTrustee.  Without unreasonable delay, theCo-Obligors shall prepare and the Trustee shall authenticate Definitive Notesin exchange for temporary Notes.

###  

### (b)           Holders of temporary Notes shall beentitled to all of the benefits of this Indenture.

###  

Section 2.12.  Cancellation.

 

The Co-Obligors at any time may deliver Notesto the Trustee for cancellation.  TheRegistrar and Paying Agent shall forward to the Trustee any Notes surrenderedto them for registration of transfer, exchange or payment.  The Trustee and no one else shall cancel allNotes 

 

51

----

 

surrenderedfor registration of transfer, exchange, payment, replacement or cancellationand shall dispose of canceled Notes in accordance with its procedures for thedisposition of canceled securities in effect as of the date of such disposition(subject to the record retention requirement of the Exchange Act).  Certification of the disposition of allcanceled Notes shall be delivered to the Co-Obligors.  The Co-Obligors may not issue new Notes toreplace Notes that they have paid or that have been delivered to the Trusteefor cancellation.

 

Section 2.13.  Defaulted Interest.

 

If the Co-Obligors default in a payment ofinterest on the Notes, they shall pay the defaulted interest in any lawfulmanner plus, to the extent lawful, interest payable on the defaulted interest,to the Persons who are Holders on the record date for the interest payment or asubsequent special record date, in each case at the rate provided in the Notesand in Section 4.01 hereof.  TheCo-Obligors shall notify the Trustee in writing of the amount of defaultedinterest proposed to be paid on each Note and the date of the proposed payment.  The Co-Obligors shall fix or cause to befixed each such special record date and payment date, *provided* that no such special record dateshall be less than 10 days prior to the related payment date for such defaultedinterest.  At least 15 days before thespecial record date, the Co-Obligors (or, upon the written request of theCo-Obligors, the Trustee in the name and at the expense of the Co-Obligors)shall mail or cause to be mailed to Holders a notice that states the specialrecord date, the related payment date and the amount of such interest to bepaid.

 

Section 2.14.  CUSIP Numbers.

 

The Co-Obligors in issuing the Notes may use“CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use“CUSIP” numbers in notices of redemption as a convenience to Holders; *provided* that any such notice may statethat no representation is made as to the correctness of such numbers either asprinted on the Notes or as contained in any notice of a redemption and thatreliance may be placed only on the other identification numbers printed on theNotes, and any such redemption shall not be affected by any defect in oromission of such numbers.  TheCo-Obligors shall promptly notify the Trustee of any change in the “CUSIP”numbers.

 

# **ARTICLE THREE**Redemption and Prepayment;Satisfaction and Discharge

 

Section 3.01.  Notices to Trustee.

 

If theCo-Obligors elect to redeem Notes pursuant to the optional redemptionprovisions of Section 3.07 hereof, they shall furnish to the Trustee, at least30 days but not more than 90 days before a redemption date, an Officers’Certificate setting forth (i) the clause of this Indenture pursuant to whichthe redemption shall occur, (ii) the redemption date, (iii) the principalamount of Notes to be redeemed and (iv) the redemption price.

 

52

----

 

Section 3.02.  Selection of Notes to Be Redeemed.

 

### (a)           If less than all of the Notes are tobe redeemed or purchased in an offer to purchase at any time, the Trustee shallselect the Notes to be redeemed or purchased among the Holders of the Notes notmore than 90 days prior to the redemption date, or otherwise in compliance withthe requirements of the principal national securities exchange, if any, onwhich the Notes are listed or, if the Notes are not so listed, on a *pro rata* basis, by lot or in accordancewith any other method the Trustee considers fair and reasonable.  In the event of partial redemption by lot,the particular Notes to be redeemed shall be selected, unless otherwiseprovided herein, not less than 30 nor more than 90 days prior to the redemptiondate by the Trustee from the outstanding Notes not previously called forredemption.

###  

### (b)           The Trustee shall promptly notify theCo-Obligors in writing of the Notes selected for redemption and, in the case ofany Note selected for partial redemption, the principal amount at maturitythereof to be redeemed.  No Notes inamounts of $5,000 or less shall be redeemed in part.  The Trustee may select for redemptionportions of the principal of Notes that have denominations larger than$5,000.  Notes and portions of Notesselected shall be in amounts of $5,000 or whole multiples of $1,000 in excessthereof; except that if all of the Notes of a Holder are to be redeemed, theentire outstanding amount of Notes held by such Holder, even if not a multipleof $1,000, shall be redeemed.  Except asprovided in the preceding sentence, provisions of this Indenture that apply toNotes called for redemption also apply to portions of Notes called forredemption.  Redemptions pursuant toSection 3.07(b) hereof shall be made on a *prorata* basis or on as nearly a *prorata* basis as practicable (subject to the provisions of DTC or otherdepositary).

###  

Section 3.03.  Notice of Redemption.

 

### (a)           At least 30 days but not more than 90days before a redemption date, the Co-Obligors shall mail or cause to bemailed, by first class mail, a notice of redemption to each Holder whose Notesare to be redeemed at its registered address and send a copy to the Trustee atthe same time.

###  

The notice shall identify the Notes(including CUSIP number(s)) to be redeemed and shall state:

 

#### (i)            theredemption date;

####  

#### (ii)           theredemption price;

####  

#### (iii)          ifany Note is being redeemed in part, the portion of the principal amount atmaturity of such Note to be redeemed and that, after the redemption date uponsurrender of such Note, a new Note or Notes in principal amount equal to theunredeemed portion of the original Note shall be issued in the name of theHolder thereof upon cancellation of the original Note;

####  

#### (iv)          thename and address of the Paying Agent;

 

53

----

 

#### (v)           thatNotes called for redemption must be surrendered to the Paying Agent to collectthe redemption price and become due on the date fixed for redemption;

####  

#### (vi)          that,unless the Co-Obligors default in making such redemption payment, interest, ifany, on Notes called for redemption ceases to accrue on and after theredemption date;

####  

#### (vii)         theparagraph of the Notes and/or section of this Indenture pursuant to which theNotes called for redemption are being redeemed; and

####  

#### (viii)        thatno representation is made as to the correctness or accuracy of the CUSIPnumber, if any, listed in such notice or printed on the Notes.

####  

### (b)           At the Co-Obligors’ request, theTrustee shall give the notice of redemption in the Co-Obligors’ name and at itsexpense; *provided*, *however*,that the Co-Obligors shall have delivered to the Trustee, at least 31 daysprior to the redemption date (unless the Trustee shall have agreed to a shorterperiod), an Officers’ Certificate requesting that the Trustee give such noticeand setting forth the information to be stated in such notice as provided inthe preceding paragraph.  The notice, ifmailed in the manner provided herein shall be presumed to have been given,whether or not the Holder receives such notice.

###  

Section 3.04.  Effect of Notice of Redemption.

 

Once notice ofredemption is mailed in accordance with Section 3.03 hereof, Notes called forredemption become irrevocably due and payable on the redemption date at theredemption price.  A notice of redemptionmay not be conditional other than in the case of a Change of Control Offerpursuant to Section 4.18 herein.

 

Section 3.05.  Deposit of Redemption Price.

 

### (a)           One Business Day prior to theredemption date, the Co-Obligors shall deposit with the Trustee or with thePaying Agent money sufficient to pay the redemption price of and accruedinterest on all Notes to be redeemed on that date.  The Trustee or the Paying Agent shallpromptly return to the Co-Obligors any money deposited with the Trustee or thePaying Agent by the Co-Obligors in excess of the amounts necessary to pay theredemption price of, and accrued interest on, all Notes to be redeemed.

###  

### (b)           If the Co-Obligors comply with theprovisions of the preceding paragraph, on and after the redemption date,interest shall cease to accrue on the Notes or the portions of Notes called forredemption.  If a Note is redeemed on orafter an interest record date but on or prior to the related interest paymentdate, then any accrued and unpaid interest shall be paid to the Holder in whosename such Note was registered at the close of business on such recorddate.  If any Note called for redemptionshall not be so paid upon surrender for redemption because of the failure ofthe Co-Obligors to comply with the preceding paragraph, interest shall be paidon the unpaid principal, from the redemption date until such principal is paid,and to the extent lawful on any interest not paid on such unpaid principal, ineach case at the rate provided in the Notes and in Section 4.01 hereof.

 

54

----

 

Section 3.06.  Notes Redeemed in Part.

 

Upon surrenderof a Note that is redeemed in part, the Co-Obligors shall issue and the Trusteeshall authenticate for the Holder at the expense of the Co-Obligors a new Noteequal in principal amount to the unredeemed portion of the Notesurrendered.  No Notes in denominationsof $5,000 or less shall be redeemed in part.

 

Section 3.07.  Optional Redemption.

 

### (a)           After August 1, 2008, theCo-Obligors, on one or more occasions, may redeem for cash all or a portion ofthe Notes, on not less than 30 nor more than 90 days’ prior notice, in amountsof $5,000 or whole multiples of $1,000 in excess thereof at the followingredemption prices (expressed as percentages of principal amount) set forthbelow plus accrued and unpaid interest and additional interest, if any,thereon, to the applicable redemption date, if redeemed during the twelve-monthperiod beginning on August 1 of the years indicated below:

###  

| **Year**            | ** ** | **Redemption Price** | ** ** |
|---------------------|------------|----------------------|------------|
|                |       |                 |       |
| 2008                |       | 104.875              | %          |
| 2009                |       | 102.438              | %          |
| 2010 and thereafter |       | 100.000              | %          |

###  

### (b)           At any time after the AcquisitionClosing Date and prior to August 1, 2007, the Company, DRS LLC or Holdings, atthe Company’s option, may use the net proceeds of one or more Equity Offeringsto redeem on one or more occasions up to an aggregate of 35% of the aggregateprincipal amount of Notes issued under this Indenture (including the principalamount of any Additional Notes issued under this Indenture but withoutduplication with respect to Exchange Notes) at a redemption price equal to109.75% of the aggregate principal amount of the Notes redeemed, plus accruedand unpaid interest, if any, to the redemption date (subject to the rights ofholders of record on relevant record dates to receive interest due on aninterest payment date); *provided*that this redemption provision shall not be applicable with respect to anytransaction that results in a Change of Control; *provided, further*, that if the proceeds of an EquityOffering are used for redemption, all of such proceeds are first contributed tothe equity capital of the Company on a non-recourse basis. At least 65% of theaggregate principal amount of Notes (including the principal amount of anyAdditional Notes issued under this Indenture but without duplication withrespect to Exchange Notes) must remain outstanding immediately after theoccurrence of such redemption. In order to effect this redemption, the Company,DRS LLC or Holdings, as the case may be, must complete such redemption within90 days after the closing of the Equity Offering.

###  

### (c)           Any redemption pursuant to thisSection 3.07 shall be made pursuant to the provisions of Sections 3.01 through3.06 hereof.

###  

Section 3.08.  Mandatory Redemption.

 

Except as set forth in Section 4.11 and 4.18hereof, the Co-Obligors are not required to make mandatory redemption orsinking fund payments with respect to the Notes.

 

55

----

 

Section 3.09.  Application of Trust Money.

 

All money deposited with the Trustee pursuantto Section 12.02 shall be held in trust and applied by it, in accordance withthe provisions of the Notes and this Indenture, to the payment, either directlyor through any Paying Agent (including the Company acting as its own PayingAgent) as the Trustee may determine, to the Persons entitled thereto, of theprincipal (and premium, if any) and interest for whose payment such money hasbeen deposited with the Trustee; but such money need not be segregated fromother funds except to the extent required by law.

 

# **ARTICLE FOUR**Covenants

 

Section 4.01.  Payment of Notes.

 

### (a)           The Co-Obligors shall pay or cause tobe paid the principal of, premium, if any, and interest on the Notes on the datesand in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on thedate due if the Paying Agent, if other than the Company or one of itsSubsidiaries, holds as of 1:00 p.m. New York Time on the due date moneydeposited by the Co-Obligors in immediately available funds and designated forand sufficient to pay all principal, premium, if any, and interest on the Notesthen due.  The Co-Obligors shall pay allLiquidated Damages, if any, in the same manner on the dates and in the amountsset forth in the Registration Rights Agreement. If a payment date is not a Business Day, payment may be made on the nextsucceeding day that is a Business Day, and no interest shall accrue on suchpayment for the intervening period.

###  

### (b)           The Co-Obligors shall pay interest(including post-petition interest in any proceeding under any Bankruptcy Law)on overdue principal at the rate equal to the then applicable interest rate onthe Notes to the extent lawful; they shall pay interest (includingpost-petition interest in any proceeding under any Bankruptcy Law) on overdueinstallments of interest (without regard to any applicable grace period) at thesame rate to the extent lawful.

###  

Section 4.02.  Maintenance of Office or Agency.

 

### (a)           The Co-Obligors shall maintain in theBorough of Manhattan, The City of New York, an office or agency (which may bean office of the Trustee or an agent of the Trustee, Registrar or co-registrar)where Notes may be surrendered for registration of transfer or for exchange andwhere notices and demands to or upon the Co-Obligors in respect of the Notesand this Indenture may be served.  TheCo-Obligors shall give prompt written notice to the Trustee of the location, andany change in the location, of such office or agency.  If at any time the Co-Obligors shall fail tomaintain any such required office or agency or shall fail to furnish theTrustee with the address thereof, such presentations, surrenders, notices and demandsmay be made or served at the Corporate Trust Office of the Trustee.

###  

### (b)           The Co-Obligors may also from time totime designate one or more other offices or agencies where the Notes may bepresented or surrendered for any or all such purposes and may from time to timerescind such designations; *provided, however*,that no such designation or 

 

56

----

 

### rescission shall in any mannerrelieve the Co-Obligors of their obligation to maintain an office or agency inthe Borough of Manhattan, The City of New York for such purposes.  The Co-Obligors shall give prompt writtennotice to the Trustee of any such designation or rescission and of any changein the location of any such other office or agency.

###  

### (c)           The Co-Obligors hereby designate theoffice of U.S. Bank Trust National Association at 100 Wall Street, Suite 1600,New York, New York  10005

###  

### (d)           as one such office or agency of theCo-Obligors in accordance with Section 2.04 of this Indenture.

###  

Section 4.03.  Reports.

 

### (a)           Whether or not the Company is subjectto Section 13(a) or 15(d) of the Exchange Act, the Company, Duane Reade GP andany Guarantor shall (following the Exchange Offer or the effectiveness of aShelf Registration Statement and for so long as any Notes remain outstanding),to the extent permitted under the Exchange Act, file with the Commission theannual reports, quarterly reports and other documents which the Company, DuaneReade GP and such Guarantor would have been required to file with theCommission pursuant to Sections 13(a) or 15(d) of the Exchange Act (givingeffect to Rule 12h-5 under the Exchange Act) if the Company, Duane Reade GP orsuch Guarantor were so subject, such documents to be filed with the Commissionon or prior to the date (the “Required Filing Date”) by which the Company,Duane Reade GP and such Guarantor would have been required so to file suchdocuments if the Company, Duane Reade GP and such Guarantor were so subject.

###  

### (b)           If at any time the Notes areGuaranteed by a direct or indirect parent of the Company and such company hascomplied with the reporting requirements of Section 13 or 15(d) of the ExchangeAct, if applicable, and has furnished the Holders of Notes, or filedelectronically with the Commission’s Electronic Data Gathering, Analysis andRetrieval System (or any successor system), the reports described herein withrespect to such company, as applicable (including any financial informationrequired by Regulation S-X under the Securities Act relating to the Company,Duane Reade GP and the Guarantors), the Company, Duane Reade GP and theGuarantors shall be deemed to be in compliance with the provisions of thisSection 4.03.

###  

### (c)           The Company, Duane Reade GP and anyGuarantor shall also in any event (1) within 15 days after each Required FilingDate (A) transmit by mail to all Holders, as their names and addresses appearin the security register, without cost to such Holders and (B) file with theTrustee copies of the annual reports, quarterly reports and other documentswhich the Company, Duane Reade GP and such Guarantor would have been requiredto file with the Commission pursuant to Sections 13(a) or 15(d) of the ExchangeAct (giving effect to Rule 12h-5 under the Exchange Act) if the Company, DuaneReade GP and such Guarantor were subject to either of such Sections and (2) iffiling such documents by the Company, Duane Reade GP and such Guarantor withthe Commission is not permitted under the Exchange Act or prior to the ExchangeOffer or the effectiveness of a Shelf Registration Statement, promptly upon writtenrequest and payment of the reasonable cost of duplication and delivery, supplycopies of such documents to any prospective holder at the Company’s cost.

 

57

----

 

(d)           If Duane Reade GP’sor any Guarantor’s or secured party’s financial statements would be required tobe included in the financial statements filed or delivered pursuant to thisIndenture if the Company were subject to Section 13(a) or 15(d) of the ExchangeAct, the Company shall include such financial statements in any filing ordelivery pursuant to this Indenture.

### (e)           So long as any of the Notes remainoutstanding, the Co-Obligors shall make available to any prospective purchaserof Notes or beneficial owner of Notes in connection with any sale thereof theinformation required by Rule 144A(d)(4) under the Securities Act, until theearlier of (x) such time as the Company and Duane Reade GP have exchanged theNotes for the Exchange Notes and (y) such time as the Holders thereof havedisposed of such Notes pursuant to an effective registration statement underthe Securities Act.

###  

Section 4.04.  Compliance Certificate.

 

### (a)           The Co-Obligors and each Guarantor(to the extent that such Guarantor is so required under the TIA) shall deliverto the Trustee, within 120 days after the end of each fiscal year, an Officers’Certificate stating that a review of the activities of the Company and itsSubsidiaries during the preceding fiscal year has been made under thesupervision of the signing Officers with a view to determining whether theCo-Obligors have kept, observed, performed and fulfilled their obligationsunder this Indenture, without regard to notice or grace periods, and furtherstating, as to each such Officer signing such certificate, that to the best ofhis or her knowledge, the Co-Obligors have kept, observed, performed andfulfilled their obligations under this Indenture and are not in default in theperformance or observance of any of the material terms, provisions andconditions of this Indenture (or, if a Default or Event of Default shall haveoccurred and be continuing, describing all such Defaults or Events of Defaultof which he or she may have knowledge and what action the Co-Obligors aretaking or propose to take with respect thereto) and that to the best of his orher knowledge no event has occurred and remains in existence by reason of whichpayments on account of the principal of or interest, if any, on the Notes isprohibited or if such event has occurred, a description of the event and whataction the Co-Obligors are taking or proposes to take with respect thereto.

###  

### (b)           If required under Section 314(a) ofthe Trust Indenture Act, the year-end financial statements delivered pursuantto Section 4.03(a) above shall be accompanied by a written statement of theCo-Obligors’ independent public accountants (which shall be a firm ofestablished national reputation) that in making the examination necessary forcertification of such financial statements, nothing has come to their attentionthat would lead them to believe that the Co-Obligors have violated anyprovisions of this Article Four or Article Five hereof or, if any suchviolation has occurred, specifying the nature and period of existence thereof,it being understood that such accountants shall not be liable directly orindirectly to any Person for any failure to obtain knowledge of any suchviolation.

###  

### (c)           The Co-Obligors shall, so long as anyof the Notes are outstanding, deliver to the Trustee, within five Business Daysafter any Officer becomes aware of any Default or Event of Default, anOfficers’ Certificate specifying such Default or Event of Default and whataction the Co-Obligors are taking or propose to take with respect thereto.

 

58

----

 

Section 4.05.  Taxes.

 

The Co-Obligors shall pay, and shall causeeach of their respective Subsidiaries to pay, prior to delinquency, anymaterial taxes, assessments, and governmental levies except such as arecontested in good faith and by appropriate proceedings or where the failure toeffect such payment would not reasonably be expected to have a material adverseeffect on the Company and its Restricted Subsidiaries, taken as a whole.

 

Section 4.06.  Stay, Extension and Usury Laws.

 

The Co-Obligors and each of the Guarantorscovenant (to the extent that they may lawfully do so) that they shall not atany time insist upon, plead, or in any manner whatsoever claim or take thebenefit or advantage of, any stay, extension or usury law wherever enacted, nowor at any time hereafter in force, that may affect the covenants or theperformance of this Indenture; and the Co-Obligors and each of the Guarantors(to the extent that they may lawfully do so) hereby expressly waive all benefitor advantage of any such law, and covenant that they shall not, by resort toany such law, hinder, delay or impede the execution of any power herein grantedto the Trustee, but shall suffer and permit the execution of every such poweras though no such law has been enacted.

 

Section 4.07.  Incurrence of Indebtedness and Issuance ofDisqualified Stock.

 

(a)           The Company shall not, and shall notcause or permit any of its Restricted Subsidiaries to, create, issue, incur,assume, guarantee or otherwise in any manner become directly or indirectlyliable for the payment of or otherwise incur, contingently or otherwise(collectively, “incur”), any Indebtedness (including any Acquired Indebtednessand the issuance of Disqualified Stock), unless such Indebtedness is incurredby the Company, Duane Reade GP or any Guarantor and, in each case, theCompany’s Consolidated Fixed Charge Coverage Ratio for the most recent fourfull fiscal quarters for which financial statements are available immediatelypreceding the incurrence of such Indebtedness taken as one period is at leastequal to or greater than 2:1.

 

(b)           Notwithstanding the foregoing, theCompany and, to the extent specifically set forth below, the RestrictedSubsidiaries may incur on or after the Acquisition Closing Date each and all ofthe following (collectively, the “Permitted Indebtedness”):

 

(1)           Indebtednessof the Company or Duane Reade GP (and guarantees by Guarantors of suchIndebtedness) under the Credit Agreement or the Term Loan in an aggregateprincipal amount at any one time outstanding not to exceed the greater of (i)$405.0 million and (ii) $155.0 million plus (x) 85% of accounts receivable ofthe Company and its Restricted Subsidiaries as of the end of the most recentlyended fiscal quarter for which consolidated financial statements are available,plus (y) 80% of inventory of the Company and its Restricted Subsidiaries as ofthe end of the most recently ended fiscal quarter for which consolidatedfinancial statements are available, less, in the case of clause (i) and clause(ii), without duplication, the amount of any permanent repayments thereof orpermanent reductions in commitments thereunder from the proceeds of one or moreAsset Sales which are used to prepay

 

59

----

 

or repay the CreditAgreement or the Term Loan, as the case may be, pursuant to clause (b)(i) ofSection 4.11 hereof;

 

(2)           Indebtednessof the Company, Duane Reade GP or any Guarantor pursuant to (a) the Notes(excluding any Additional Notes) and any Guarantee of the Notes (excluding anyAdditional Notes), and (b) any Exchange Notes issued in exchange for the Notes(excluding any Additional Notes) pursuant to the Registration Rights Agreementand any Guarantee of the Exchange Notes;

 

(3)           Indebtednessof the Company, Duane Reade GP or any Guarantor outstanding on the AcquisitionClosing Date and not otherwise referred to in this definition of “PermittedIndebtedness;”

 

(4)           theincurrence by the Company or any of its Restricted Subsidiaries of intercompanyIndebtedness between or among the Company and any of its RestrictedSubsidiaries; *provided, however*,that:

 

(a)           if the Company,Duane Reade GP or any Guarantor is the obligor on such Indebtedness, suchIndebtedness must be expressly subordinated to the prior payment in full incash of all obligations with respect to the Notes, in the case of the Companyor Duane Reade GP, or the Guarantee, in the case of a Guarantor; and

 

(b)           (i) any subsequentissuance or transfer of Capital Stock that results in any such Indebtedness beingheld by a Person other than the Company or a Restricted Subsidiary thereof and(ii) any disposition, pledge or other transfer to a Person (other than adisposition, pledge or transfer to the Company or a Restricted Subsidiary or adisposition, pledge or transfer under the Credit Agreement or Term Loan) of anysuch Indebtedness, shall be deemed, in each case, to constitute an incurrenceof such Indebtedness by the Company or such Restricted Subsidiary, as the casemay be, that was not permitted by this clause (4);

 

(5)           guaranteesof any Guarantor or Duane Reade GP of Indebtedness of the Company, Duane ReadeGP or any of the Guarantors which is permitted to be incurred under thisIndenture;

 

(6)           obligationsof the Company, Duane Reade GP, or any Guarantor not entered into forspeculative purposes

 

(a)           pursuant to InterestRate Agreements designed to manage interest rates in respect of Indebtedness ofthe Company, Duane Reade GP or any Guarantor as long as the notional amounts ofsuch obligations do not exceed the aggregate principal amount of suchIndebtedness then outstanding,

 

(b)           under any CurrencyHedging Agreements, relating to (1) Indebtedness of the Company, Duane Reade GPor any Guarantor and/or (2) obligations to purchase or sell assets orproperties, in each case, incurred in the ordinary course of business of theCompany, Duane Reade GP or any Guarantor; *provided,however*, that such Currency Hedging Agreements do not increase theIndebtedness or other obligations

 

60

----

 

of the Company, Duane Reade GP or anyGuarantor outstanding other than as a result of fluctuations in foreigncurrency exchange rates or by reason of fees, indemnities and compensationpayable thereunder or

 

(c)           under any CommodityPrice Agreements which do not increase the amount of Indebtedness or otherobligations of the Company, Duane Reade GP or any Guarantor outstanding otherthan as a result of fluctuations in commodity prices or by reason of fees,indemnities and compensation payable thereunder;

 

(7)           Indebtednessof the Company or any Restricted Subsidiary represented by Capital LeaseObligations (whether or not incurred pursuant to sale and leasebacktransactions) or Purchase Money Obligations or other Indebtedness incurred orassumed in connection with the acquisition or development of real or personal,movable or immovable, property in each case incurred for the purpose offinancing or refinancing all or any part of the purchase price or cost ofconstruction or improvement of property used in the business of the Company orany Restricted Subsidiary, in an aggregate principal amount pursuant to thisclause (7), together with any Refinancing Indebtedness incurred in respectthereof, not to exceed the greater of (x) $15 million and (y) 6% ofConsolidated Net Tangible Assets, outstanding at any time;

 

(8)           Indebtednessof the Company or any Restricted Subsidiary arising from the honoring by a bankor other financial institution of a check, draft or similar instrumentinadvertently (except in the case of daylight overdrafts) drawn againstinsufficient funds in the ordinary course of business; *provided, however*, that such Indebtednessis extinguished within five Business Days after incurrence;

 

(9)           Indebtednessof the Company or any Restricted Subsidiary to the extent the net proceedsthereof are promptly deposited to defease the Notes as described below underArticle Eight or Article Twelve hereof;

 

(10)         Indebtednessof the Company or any Restricted Subsidiary arising from agreements for indemnificationor purchase price adjustment obligations or similar obligations, earn-outs orother similar obligations or from guarantees or letters of credit, surety bondsor performance bonds securing any obligation of the Company or a RestrictedSubsidiary pursuant to such an agreement, in each case, incurred or assumed inconnection with the acquisition or disposition of any business, assets orCapital Stock of a Restricted Subsidiary; *provided*that the maximum assumable liability in respect of all such obligations shallat no time exceed the gross proceeds actually paid or received by the Companyand any Restricted Subsidiary, including the Fair Market Value of non-cashproceeds;

 

(11)         anyrenewals, extensions, substitutions, refundings, refinancings or replacements(collectively, “Refinancing Indebtedness”) of any Indebtedness, including anyDisqualified Stock, incurred pursuant to paragraph (a) of this Section 4.07 andclauses (2) and (3) of this paragraph (b) of this definition of “PermittedIndebtedness,” including any successive refinancings so long as the borrowerunder such refinancing is the Company (which may be a borrower together withDuane Reade GP or one or more co-obligors which are also Guarantors) or, if notthe Company, one or more Guarantors or Duane Reade GP if the Indebtedness beingrefinanced is of a Guarantor or Duane Reade GP, and the aggregate principalamount of 

 

61

----

 

Indebtednessrepresented thereby (or if such Indebtedness provides for an amount less thanthe principal amount thereof to be due and payable upon a declaration ofacceleration of the maturity thereof, the original issue price of suchIndebtedness plus any accreted value attributable thereto since the originalissuance of such Indebtedness) is not increased by such refinancing plus theamount of premium or other payment actually paid at such time to refinance theIndebtedness, plus, in either case, the amount of expenses of the Companyincurred in connection with such refinancing and (1) in the case of anyrefinancing of Indebtedness that is Subordinated Indebtedness, such newIndebtedness is made subordinated in right of payment to the Notes orGuarantee, as the case may be, at least to the same extent as the Indebtedness beingrefinanced and (2) in the case of Pari Passu Indebtedness or SubordinatedIndebtedness, as the case may be, such refinancing does not reduce the AverageLife to Stated Maturity or the Stated Maturity of such Indebtedness or has aStated Maturity later than that of the Notes;

 

(12)         Indebtednessin respect of bid, performance, surety bonds and workers’ compensation claims,self-insurance obligations and bankers acceptances issued for the account ofthe Company or any Restricted Subsidiary in the ordinary course of business,including guarantees or obligations of the Company or any Restricted Subsidiarywith respect to letters of credit supporting such bid, performance, suretybonds and workers’ compensation claims, self-insurance obligations and bankers acceptances;*provided* that, in each casecontemplated by this clause (12), upon the drawing of such instrument, suchobligations are reimbursed within 30 days following such drawing;

 

(13)         AcquiredIndebtedness, if (x) the Company’s Consolidated Fixed Charge Coverage Ratio forthe most recent four full fiscal quarters for which financial statements areavailable after giving *pro forma*effect to the relevant acquisition and incurrence of such Acquired Indebtednessas of the beginning of such four quarter period would be not less than (y) theCompany’s Consolidated Fixed Charge Coverage Ratio for such four quarter periodas of immediately prior to such acquisition and incurrence of such AcquiredIndebtedness, and any refundings or refinancings of such Acquired Indebtedness,including additional Indebtedness incurred to pay premiums and fees inconnection therewith, *provided, however*,that such refinancing Indebtedness: (a) does not reduce the Average Life toStated Maturity or the Stated Maturity of such Indebtedness, (b) in the case ofany refinancing of Indebtedness that is Subordinated Indebtedness, is madesubordinated in right of payment to the Notes or Guarantee, as the case may be,at least to the same extent as the Indebtedness being refinanced; (c) shall notbe in a principal amount in excess of the principal amount of, premium, if any,accrued interest on, and related fees and expenses of, the Indebtedness beingrefunded or refinanced; and (d) where the Indebtedness being refunded orrefinanced bears a fixed rate of interest, shall not bear interest at a fixedrate greater than the fixed rate of interest borne by the Indebtedness beingrefunded or refinanced;

 

(14)         Indebtednessarising in connection with endorsement of instruments for deposit in the ordinarycourse of business; and

 

(15)         Indebtednessof the Company or any Restricted Subsidiary in addition to that described inclauses (1) through (14) above, and any renewals, extensions, substitutions,refinancings or replacements of such Indebtedness, so long as the aggregateprincipal amount of all such Indebtedness shall not exceed $25 millionoutstanding at any one time in the aggregate.

 

62

----

 

(c)           For purposes of determiningcompliance with this Section 4.07, in the event that an item of Indebtedness orportion thereof meets the criteria of more than one of the types ofIndebtedness permitted by this Section 4.07, the Company in its sole discretionshall classify or reclassify such item of Indebtedness or portion thereof asone or more of such types; *provided*that Indebtedness under the Credit Agreement and the Term Loan which is inexistence on the Acquisition Closing Date in an amount not in excess of theamount permitted to be incurred pursuant to clause (1) of paragraph (b) above,shall be deemed to have been incurred pursuant to clause (1) of paragraph (b)above rather than paragraph (a) above.

 

(d)           Indebtedness permitted by thisSection 4.07 need not be permitted solely by reference to one provision permittingsuch Indebtedness but may be permitted in part by one such provision and inpart by one or more other provisions of this Section 4.07 permitting suchIndebtedness.

 

(e)           Accrual of interest, accretion oramortization of original issue discount and the payment of interest on anyIndebtedness in the form of additional Indebtedness with the same terms, andthe accretion or payment of dividends on any Disqualified Capital Stock orPreferred Stock in the form of additional shares of the same class of DisqualifiedCapital Stock or Preferred Stock will not be deemed to be an incurrence ofIndebtedness for purposes of this Section 4.07; *provided*, in each such case, that the amount thereof asaccrued is included in the calculation of the Consolidated Fixed ChargeCoverage Ratio of the Company.

 

(f)            For purposes of determiningcompliance with any dollar-denominated restriction on the incurrence ofIndebtedness denominated in a foreign currency, the dollar-equivalent principalamount of such Indebtedness incurred pursuant thereto shall be calculated basedon the relevant currency exchange rate in effect on the date that suchIndebtedness was incurred.

 

(g)           If Indebtedness is secured by aletter of credit that serves only to secure such Indebtedness, then the totalamount deemed incurred shall be equal to the greater of (x) the principal ofsuch Indebtedness and (y) the amount that may be drawn under such letter ofcredit.

 

Section 4.08.  Restricted Payments.

 

### (a)           The Company shall not, and shall notcause or permit any Restricted Subsidiary to, directly or indirectly:

###  

#### (i)            declareor pay any dividend on, or make any distribution to holders of, any shares ofthe Company’s Capital Stock (other than dividends or distributions payablesolely in shares of its Qualified Capital Stock or in options, warrants orother rights to acquire shares of such Qualified Capital Stock);

####  

#### (ii)           purchase,redeem, defease or otherwise acquire or retire for value, directly orindirectly, the Company’s Capital Stock or any Capital Stock of any direct orindirect parent of the Company or any Subsidiary of such direct or indirectparent or the Company (other than Capital Stock of any Restricted Subsidiary ofthe Company) or options, warrants or other rights to acquire such CapitalStock;

 

63

----

 

#### (iii)          makeany principal payment on, or repurchase, redeem, defease, retire or otherwiseacquire for value, prior to any scheduled principal payment, sinking fundpayment or maturity, any Subordinated Indebtedness, except a purchase,repurchase, redemption, defeasance or retirement within 90 days of finalmaturity thereof;

 

#### (iv)          declareor pay any dividend or distribution on any Capital Stock of any RestrictedSubsidiary to any Person (other than (a) to the Company or any of its WhollyOwned Restricted Subsidiaries or (b) dividends or distributions made by aRestricted Subsidiary on a *pro rata*basis to all stockholders of such Restricted Subsidiary); or

####  

#### (v)           makeany Investment in any Person (other than any Permitted Investments);

####  

(any of theforegoing actions described in clauses (i) through (v) above, other than anysuch action that is a Permitted Payment (as defined below), collectively, “RestrictedPayments”) (the amount of any such Restricted Payment, if other than cash,shall be the Fair Market Value of the assets proposed to be transferred), unless

 

(1)           immediatelyafter giving effect to such proposed Restricted Payment on a *pro forma* basis, no Default or Event ofDefault shall have occurred and be continuing;

 

(2)           immediatelybefore and immediately after giving effect to such Restricted Payment on a *pro forma* basis, the Company could incur$1.00 of additional Indebtedness (other than Permitted Indebtedness) underparagraph (a) of Section 4.07; and

 

(3)           aftergiving effect to the proposed Restricted Payment, the aggregate amount of allsuch Restricted Payments declared or made after the date of this Indenture andall Designation Amounts does not exceed the sum of:

 

(A)          50%of the aggregate Consolidated Net Income of the Company accrued on a cumulativebasis during the period beginning on the first day of the Company’s fiscalquarter beginning after the Acquisition Closing Date and ending on the last dayof the Company’s last fiscal quarter ending prior to the date of the RestrictedPayment (or, if such aggregate cumulative Consolidated Net Income shall be aloss, minus 100% of such loss);

 

(B)           theaggregate Net Cash Proceeds received after the Acquisition Closing Date by theCompany either (1) as capital contributions in the form of common equity to theCompany or (2) in respect of the issuance or sale (other than to any of itsSubsidiaries) of Qualified Capital Stock of the Company or any options,warrants or rights to purchase such Qualified Capital Stock of the Company(except, in each case, to the extent such proceeds are used to purchase, redeemor otherwise retire Capital Stock or Subordinated Indebtedness as set forthbelow in clause (2) or (3) of paragraph (b) below) (and excluding the Net CashProceeds from the issuance of Qualified Capital Stock financed, directly orindirectly, using funds borrowed from the Company or any Subsidiary until andto the extent such borrowing is repaid);

 

64

----

 

(C)           theaggregate Net Cash Proceeds received after the Acquisition Closing Date by theCompany (other than from any of its Subsidiaries) upon the exercise of anyoptions, warrants or rights to purchase Qualified Capital Stock of the Company(and excluding the Net Cash Proceeds from the exercise of any options, warrantsor rights to purchase Qualified Capital Stock financed, directly or indirectly,using funds borrowed from the Company or any Subsidiary until and to the extentsuch borrowing is repaid);

 

(D)          theaggregate Net Cash Proceeds received after the Acquisition Closing Date by theCompany from the conversion or exchange, if any, of debt securities orDisqualified Capital Stock of the Company or its Restricted Subsidiaries intoor for Qualified Capital Stock of the Company plus, to the extent such debtsecurities or Disqualified Capital Stock were issued after the AcquisitionClosing Date, the aggregate of Net Cash Proceeds received from their originalissuance (and excluding the Net Cash Proceeds from the conversion or exchangeof debt securities or Disqualified Capital Stock financed, directly orindirectly, using funds borrowed from the Company or any Subsidiary until andto the extent such borrowing is repaid);

 

(E)           (i)            inthe case of the disposition or repayment of any Investment constituting aRestricted Payment (including any Investment in an Unrestricted Subsidiary)made after the Acquisition Closing Date, an amount (to the extent not includedin Consolidated Net Income) equal to the lesser of the return of capital withrespect to such Investment and the initial amount of such Investment, *provided* that any amount in excess of thelesser of the return on capital with respect to such Investment and the initialamount of such Investment may be added to the amounts otherwise available underthis paragraph (a) to make Investments (but not other Restricted Payments)pursuant to this paragraph (a); and

 

(ii)           inthe case of the designation of an Unrestricted Subsidiary as a RestrictedSubsidiary, the Fair Market Value of the Company’s interest in such Subsidiaryprovided that such amount shall not in any case exceed the sum of (x) theamount of the Restricted Payment deemed made at the time the Subsidiary wasdesignated as an Unrestricted Subsidiary and (y) the amount of any Investmentsmade in such Subsidiary thereafter; *provided*that any amount in excess of the sum of (x) the amount of the RestrictedPayment deemed made at the time the Subsidiary was designated an UnrestrictedSubsidiary and (y) the amount of any Investments made in such Subsidiarythereafter may be added to the amounts otherwise available under this paragraph(a) to make Investments (but not other Restricted Payments) pursuant to thisparagraph (a); and

 

(F)           anyamount which previously qualified as a Restricted Payment on account of anyGuarantee entered into by the Company or any Restricted Subsidiary; *provided* that such Guarantee has not beencalled upon and the obligation arising under such Guarantee no longer exists.

 

65

----

 

### (b)           Notwithstanding the foregoing, and inthe case of clauses (6)(B), (6)(D), (6)(E), (8), (9), (11) and (12) below, solong as no Default or Event of Default is continuing or would arise therefrom,the foregoing provisions shall not prohibit the following actions after theAcquisition Closing Date (each of clauses (1) through (5), (6)(A), (6)(B),(6)(C), (6)(D), (7), (8) and (10) through (12) being referred to as a “PermittedPayment”):

###  

(1)           thepayment of any dividend within 60 days after the date of declaration thereof,if at such date of declaration such payment was permitted by the provisions ofparagraph (a) of this Section 4.08 and such payment shall have been deemed tohave been paid on such date of declaration and shall not have been deemed a“Permitted Payment” for purposes of the calculation required by paragraph (a)of this Section 4.08;

 

(2)           thepurchase, repurchase, redemption, or other acquisition or retirement for valueof any shares of any class of Capital Stock of the Company in exchange for(including any such exchange pursuant to the exercise of a conversion right orprivilege in connection with which cash is paid in lieu of the issuance offractional shares or scrip), or out of the Net Cash Proceeds of an issuance andsale for cash (other than to a Subsidiary of the Company) of, other shares ofQualified Capital Stock of the Company, which issuance or sale occurssubstantially concurrently with, or within 60 days of, such purchase,repurchase or other acquisition or retirement; *provided*that the Net Cash Proceeds from the issuance of such shares of QualifiedCapital Stock are excluded from clause (3)(B) of paragraph (a) of this Section4.08;

 

(3)           thepurchase, repurchase, redemption, defeasance, satisfaction and discharge,retirement or other acquisition for value or payment of principal of anySubordinated Indebtedness in exchange for, or in an amount not in excess of theNet Cash Proceeds of, an issuance and sale for cash (other than to anySubsidiary of the Company) of any Qualified Capital Stock of the Company, whichissuance or sale occurs substantially concurrently with, or within 60 days of,such purchase, repurchase or other acquisition or retirement; *provided* that the Net Cash Proceeds fromthe issuance of such shares of Qualified Capital Stock are excluded from clause(3)(B) of paragraph (a) of this Section 4.08;

 

(4)           thepurchase, repurchase, redemption, defeasance, satisfaction and discharge,retirement, refinancing, other acquisition for value or payment of principal ofany Subordinated Indebtedness (other than Disqualified Capital Stock) from theproceeds of Indebtedness incurred as a renewal, extension, substitution,refunding, refinancing or replacement of such Subordinated Indebtedness inaccordance with the terms of Section 4.07 hereof, which purchase, repurchase,redemption, defeasance, satisfaction and discharge, retirement, refinancing,other acquisition for value or payment of principal occurs substantiallyconcurrently with, or within 60 days of, the incurrence of such Indebtedness;

 

(5)           thepurchase, repurchase, redemption, or other acquisition or retirement for valueof Disqualified Capital Stock of the Company made by exchange for, or out ofthe proceeds of the sale of within 60 days of Disqualified Capital Stock; *provided* that any such new DisqualifiedCapital Stock is issued in accordance with paragraph (a) of 

 

66

----

 

Section 4.07 hereof and has an aggregateliquidation preference that does not exceed the aggregate liquidationpreference of the amount so refinanced plus the amount of premium or otherpayment actually paid at such time to refinance such Disqualified Capital Stockand the amount of expenses of the Company incurred in connection with such refinancing;

 

(6)           anypayment of dividends, other distributions or other amounts by the Company orany of its Restricted Subsidiaries for the purposes set forth in clauses (A)through (D) below (in each case, directly or indirectly through intermediateholding companies, if any):

 

(A)          toDRS LLC or Holdings, as the case may be, in amounts equal to the amountsrequired for DRS LLC or Holdings, as the case may be, to pay franchise taxes,accounting, legal and other fees required to maintain its corporate existenceand to provide for other operating costs, in each case related to the Company;

 

(B)           toDRS LLC or Holdings, as the case may be, in an amount not to exceed $1.25million per fiscal year required by DRS LLC or Holdings, as the case may be, topay to the Equity Investors for management, consulting or financial advisoryservices;

 

(C)           to DRS LLC orHoldings pursuant to the Tax Sharing Agreement;

 

(D)          toDRS LLC or Holdings in order to enable DRS LLC or Holdings to pay customary andreasonable costs and expenses of a proposed offering of securities orincurrence of Indebtedness of DRS LLC or Holdings that is not consummated;

 

(E)           toDRS LLC or Holdings, as the case may be, in amounts equal to amounts expendedby DRS LLC or Holdings, as the case may be, to purchase, repurchase, redeem,retire or otherwise acquire for value Capital Stock of DRS LLC or Holdings, asthe case may be, owned by employees, former employees, directors or formerdirectors, consultants or foreign consultants of the Company or any of itsSubsidiaries (or permitted transferees of such employees, former employees,directors or former directors, consultants or foreign consultants); *provided, however*, that the aggregateamount paid, loaned or advanced to DRS LLC or Holdings, as the case may be,pursuant to this clause (E) will not, in the aggregate, exceed $2 million perfiscal year, plus any amounts contributed by DRS LLC or Holdings, as the casemay be, as equity capital to the Company as a result of sales of shares ofCapital Stock to employees, directors and consultants, plus the net proceeds ofany key person life insurance received by the Company after the AcquisitionClosing Date;

 

(7)           anytransaction in connection with the Acquisition as described in the OfferingMemorandum;

 

67

----

 

(8)           paymentsof intercompany Subordinated Indebtedness, the incurrence of which waspermitted under clause (4) of paragraph (b) of Section 4.07 hereof;

 

(9)           followingthe first Public Equity Offering after the Issue Date, the declaration orpayment of dividends on such common stock in an amount not to exceed 6% perannum of the Net Cash Proceeds actually received by the Company (whetherdirectly or through DRS LLC or Holdings) in such Public Equity Offering;

 

(10)         repurchaseof Capital Stock deemed to occur upon the cashless exercise of stock optionsand warrants;

 

(11)         thedeclaration and payment of dividends and distributions to holders of any classor series of Disqualified Stock of the Company or a Restricted Subsidiaryissued or incurred in accordance with Section 4.07 hereof, which dividendsand/or distributions are included in the calculation of Consolidated InterestExpense for the relevant period;

 

(12)         anypurchase, redemption, retirement, defeasance or other acquisition for value ofany Subordinated Indebtedness pursuant to the provisions of such SubordinatedIndebtedness upon a Change of Control or an Asset Sale after the Company shallhave complied with the provisions of Section 4.11 or Section 4.18 hereof, asthe case may be; and

 

(13)         RestrictedPayments not exceeding $5 million in the aggregate.

 

(c)           For purposes of determiningcompliance with this Section 4.08, in the event that a proposed RestrictedPayment (or portion thereof) meets the criteria of more than one of thecategories of Restricted Payments described in clauses (1) through (13) inparagraph (b) above, or is entitled to be incurred pursuant to paragraph (a)above, the Company will be entitled to classify such Restricted Payment (orportion thereof) on the date of its payment in any manner that complies withthis Section 4.08.

 

Section 4.09.  Transactions with Affiliates.

 

(a)           The Company shall not, and shall notcause or permit any of its Restricted Subsidiaries to, directly or indirectly,enter into any transaction or series of related transactions (including,without limitation, the sale, purchase, exchange or lease of assets, propertyor services) with or for the benefit of any Affiliate of the Company (otherthan the Company or a Restricted Subsidiary) unless:

 

(1)           suchtransaction or series of related transactions is entered into in good faith onterms that are no less favorable to the Company or such Restricted Subsidiary,as the case may be, than those that would be available in a comparabletransaction in arm’s-length dealings with a party who is not an Affiliate ofthe Company;

 

(2)           withrespect to any transaction or series of related transactions involvingaggregate value in excess of $5 million,

 

68

----

 

(a)           thematerial terms of the transaction or series of related transactions are setforth in writing, and the Company delivers an Officers’ Certificate to theTrustee certifying that such transaction or series of related transactionscomplies with clause (1) above, and

 

(b)           (i)such transaction or series of related transactions has been approved by amajority of the Disinterested Directors of the Board of Directors of theCompany, (ii) or in the event there is only one Disinterested Director, suchtransaction or series of related transactions has been approved by suchDisinterested Director, or (iii) in the event there are no DisinterestedDirectors, the Company delivers to the Trustee a written opinion of like tenoras that described in clause (3) below; and

 

(3)           withrespect to any transaction or series of related transactions involvingaggregate value in excess of $25 million, the material terms of the transactionor series of related transactions are set forth in writing, and the Company deliversto the Trustee a written opinion of an investment banking firm of nationalstanding or other recognized independent expert with experience appraising theterms and conditions of the type of transaction or series of relatedtransactions for which an opinion is required stating that either the financialterms of the transaction or series of related transactions are fair to theCompany or such Restricted Subsidiary from a financial point of view or thetransaction or series of related transactions are on terms not less favorableto the Company or such Restricted Subsidiary than could reasonably be expectedto be obtained at the time in an arm’s length transaction with a Person who wasnot an Affiliate of the Company;

 

(b)           However, paragraph (a) above shallnot apply to:

 

(1)           employeebenefit arrangements (including for the payment of reasonable fees andcompensation) with any employee, consultant, officer or director of theCompany, including under any stock option or stock incentive plans, andcustomary indemnification arrangements with such persons, in each case enteredinto in the ordinary course of business or approved by the Board of Directorsof the Company;

 

(2)           anyPermitted Payment or Restricted Payment made in compliance with Section 4.08hereof and any Permitted Investment (other than a Permitted Investmentpermitted by clause (15) of the definition of “Permitted Investment”);

 

(3)                                  anyissuance of Qualified Capital Stock;

 

(4)           transactionsinvolving the Company or any of its Restricted Subsidiaries on the one hand,and the Equity Investors or any of their Affiliates, on the other hand, inconnection with (x) the Acquisition and transactions related thereto, (y) theCredit Agreement, the Term Loan and any amendment, modification, supplement,extension, refinancing, replacement, work-out, restructuring and othertransactions related to any of the foregoing, or (z) any management, financialadvisory, financing, underwriting or placement services or any other investmentbanking, banking or similar services, that are 

 

69

----

 

either disclosed in the Offering Memorandumor approved by a majority of the Disinterested Directors of the Board ofDirectors of the Company;

 

(5)           anytransactions undertaken pursuant to any contracts in existence on theAcquisition Date (as in effect on the Acquisition Date) and any renewals,replacements or modifications of such contracts (pursuant to new transactionsor otherwise) on terms no less favorable to the Holders of the Notes than thosein effect on the Acquisition Date;

 

(6)           loansor advances to employees in the ordinary course of business in accordance withthe past practices of the Company or its Restricted Subsidiaries or otherwiseapproved by the Board of Directors, but in any event not to exceed $2 millionin the aggregate outstanding at any one time;

 

(7)           anymerger, consolidation or reorganization of the Company with an Affiliate of theCompany solely for the purposes of (x) reorganizing to facilitate an initialpublic offering of securities of the Company or any direct or indirect parentof the Company, (y) forming a holding company or (z) reincorporating theCompany in a new jurisdiction;

 

(8)           anytransaction with a joint venture entity in which the Company, any RestrictedSubsidiary or any direct or indirect parent entity of the Company holds anequity interest but as to which each of the other equity holders of such jointventure entity is not an Affiliate of the Company;

 

(9)           transactionspursuant to any registration rights agreement with the stockholders of theCompany or any direct or indirect parent of the Company, on customary terms, orthe Tax Sharing Agreement or the Advisory Agreement; and

 

(10)         transactionspursuant to the Stockholders and Registration Rights Agreement as in effect onthe Acquisition Closing Date as the same may be amended from time to time inany manner not materially less favorable taken as a whole to the Holders of theNotes.

 

Section 4.10.  Liens.

 

(a)           The Company shall not, and shall not causeor permit any Restricted Subsidiary to, directly or indirectly, create, incuror affirm any Lien (other than Permitted Liens) of any kind securing any PariPassu Indebtedness or Subordinated Indebtedness (including any assumption,guarantee or other liability with respect thereto by any Restricted Subsidiary)upon any property or assets (including any intercompany notes) of the Companyor any Restricted Subsidiary owned on the Acquisition Closing Date or acquiredafter the Acquisition Closing Date, or assign or convey any right to receiveany income or profits therefrom, unless the Notes (or a Guarantee in the caseof Liens of a Guarantor) are directly secured equally and ratably with (or, inthe case of Subordinated Indebtedness, prior or senior thereto, with the samerelative priority as the Notes shall have with respect to such SubordinatedIndebtedness) the obligation or liability secured by such Lien except for Liens

 

70

----

 

(1)           securingany Indebtedness which became Indebtedness pursuant to a transaction permittedunder Section 5.01 hereof or securing Acquired Indebtedness which was createdprior to (and not created in connection with, or in contemplation of) suchtransaction or acquisition (including any assumption, guarantee or otherliability with respect thereto by any Restricted Subsidiary) and whichIndebtedness is permitted under Section 4.07 hereof, or

 

(2)           securingany Indebtedness incurred in connection with any refinancing, renewal,substitution or replacement of any such Indebtedness described in clause (1)above, so long as the aggregate principal amount of Indebtedness representedthereby (or if such Indebtedness provides for an amount less than the principalamount thereof to be due and payable upon a declaration of acceleration of thematurity thereof, the original issue price of such Indebtedness plus anyaccreted value attributable thereto since the original issuance of suchIndebtedness) is not increased by such refinancing by an amount greater thanthe amount of premium or other payment actually paid at such time to refinancethe Indebtedness, plus the amount of expenses of the Company incurred inconnection with such refinancing,

 

*provided, however*, that any such Lien onlyextends to the assets that were subject to such Lien securing such Indebtednessprior to the related acquisition by the Company or its Restricted Subsidiaries.

 

(b)           Notwithstanding the foregoing, anyLien securing the Notes or a Guarantee granted pursuant to this Section 4.10shall be automatically and unconditionally released and discharged upon

 

###### (1)           therelease by the holders of the Pari Passu Indebtedness or SubordinatedIndebtedness described above of their Lien on the property or assets of theCompany or any Restricted Subsidiary (including any deemed release upon paymentin full of all obligations under such Indebtedness), at such time as theholders of all such Pari Passu Indebtedness or Subordinated Indebtedness alsorelease their Lien on the property or assets of the Company or such RestrictedSubsidiary,

######  

###### (2)           anysale, exchange or transfer to any Person other than the Company or anyRestricted Subsidiary of the property or assets secured by such Lien, or of allof the Capital Stock held by the Company or any Restricted Subsidiary in, orall or substantially all the assets of, any Restricted Subsidiary creating suchLien in accordance with the terms of this Indenture,

######  

###### (3)           inthe case of a Lien on assets of a Guarantor securing a Guarantee, upon therelease of such Guarantee in accordance with the terms of this Indenture,

######  

###### (4)           paymentin full of the principal of, and accrued interest and premium on the Notes, or

######  

###### (5)           adefeasance or discharge of the Notes in accordance with the procedures ofArticle Eight or Article Twelve hereof, as the case may be.

 

71

----

 

Section 4.11.  Asset Sales.

 

### (a)           The Company shall not, and shall notcause or permit any of its Restricted Subsidiaries to, directly or indirectly,consummate an Asset Sale unless (1) at least 75% of the consideration from suchAsset Sale is received in cash or Cash Equivalents and (2) the Company or suchRestricted Subsidiary receives consideration at the time of such Asset Sale atleast equal to the Fair Market Value of the shares or assets subject to suchAsset Sale.

###  

For purposes of paragraph (a)(1) above, thefollowing shall be deemed to be cash: (A) the amount of any Senior Indebtednessof the Company or any Restricted Subsidiary that is actually assumed by the transfereein such Asset Sale and from which the Company and the Restricted Subsidiariesare fully and unconditionally released, (B) the amount of any notes, securitiesor other similar obligations received by the Company or any RestrictedSubsidiary from such transferee that are immediately converted, sold orexchanged (or are converted, sold or exchanged within 90 days of the relatedAsset Sale) by the Company or the Restricted Subsidiaries into cash or CashEquivalents in an amount equal to the net cash proceeds realized upon suchconversion, sale or exchange and (C) Qualified Non-cash Proceeds.

 

### (b)           All or a portion of the Net CashProceeds of any Asset Sale may be applied by the Company or a RestrictedSubsidiary, to the extent the Company or such Restricted Subsidiary elects (oris required by the terms of any Indebtedness under the Credit Agreement, theTerm Loan or other Senior Indebtedness) to:

###  

###### (1)           prepaypermanently or repay permanently any Indebtedness under the Credit Agreement,the Term Loan or any other Senior Indebtedness then outstanding (and in thecase of any such Indebtedness under a revolving credit facility, effect apermanent reduction in the availability under such revolving credit facility);

######  

###### (2)           repayany Indebtedness which was secured by the assets sold in such Asset Sale;and/or

######  

###### (3)           (A)invest in the purchase of assets (other than securities) to be used by theCompany or any Restricted Subsidiary in a Permitted Business, (B) acquireEquity Interests in a Person that is a Restricted Subsidiary or in a Personengaged in a Permitted Business that shall become a Restricted Subsidiaryimmediately upon the consummation of such acquisition or (C) a combination of(A) and (B); *provided* that anyNet Cash Proceeds received in the form of Qualified Non-Cash Proceeds shall bedeemed an application of such Net Cash Proceeds in accordance with this clause(3); *provided, further*, that theCompany or such Restricted Subsidiary shall be deemed to have applied Net CashProceeds in accordance with this clause (3) within such 365-day period if,within such 365-day period, it has entered into a binding commitment oragreement to invest such Net Cash Proceeds and continues to use all reasonableefforts to so apply such Net Cash Proceeds as soon as practicable thereafter,and that upon any abandonment or termination of such commitment or agreementafter such 365-day period, the Net Cash Proceeds not applied will constituteExcess Proceeds (as defined below). In addition, following the entering into ofa binding agreement with respect to an Asset Sale and prior to the consummationthereof, cash (whether or not actual Net Cash Proceeds of such 

 

72

----

 

###### Asset Sale) used for the purposes described in subclauses (A), (B) and(C) of this clause (3) that are designated as uses in accordance with thisclause (3), and not previously or subsequently so designated in respect of anyother Asset Sale, shall be deemed to be Net Cash Proceeds applied in accordancewith this clause (3).

######  

The amount of such Net Cash Proceeds not usedor invested in accordance with the preceding clauses (1), (2) or (3) within 365days after the Asset Sale constitutes “Excess Proceeds.”

 

### (c)           When the aggregate amount of ExcessProceeds exceeds $10.0 million, the Co-Obligors will make an offer (an “AssetSale Offer”) to all Holders of Notes and all holders of Pari PassuIndebtedness containing provisions similar to those set forth in this Section4.11 to purchase the maximum principal amount of Notes and such other PariPassu Indebtedness that may be purchased out of the Excess Proceeds. The offerprice (the “Asset Sale Offer Price”) in any Asset Sale Offer will beequal to 100% of principal amount plus accrued and unpaid interest andLiquidated Damages, if any, to the date of purchase (the “Asset Sale OfferDate”), and will be payable in cash. If any Excess Proceeds remain afterconsummation of an Asset Sale Offer, the Co-Obligors may use such ExcessProceeds for any purposes not otherwise prohibited by this Indenture. If theaggregate principal amount of Notes and such other Pari Passu Indebtednesstendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, theNotes and such other Pari Passu Indebtedness to be purchased shall be purchasedon a *pro rata* basis based on theaggregate principal amount of Notes and such other Pari Passu Indebtednesstendered. Upon completion of each Asset Sale Offer, the amount of ExcessProceeds shall be reset at zero.

###  

### (d)           Pending application of Net Cash Proceedspursuant to this Section 4.11, such Net Cash Proceeds may be invested in CashEquivalents or applied to temporarily reduce Senior Indebtedness of theCompany, Duane Reade GP or any Guarantor or any Indebtedness of any RestrictedSubsidiary that is not a Guarantor.

###  

### (e)           If the Co-Obligors become obligatedto make an Asset Sale Offer pursuant to paragraph (c) above, the Notes and thePari Passu Indebtedness shall be purchased by the Co-Obligors, at the option ofthe holders thereof, in whole or in part in integral multiples of $1,000, on adate that is not earlier than 30 days and not later than 60 days from the datethe notice of the Asset Sale Offer is given to holders, or such later date asmay be necessary for the Co-Obligors to comply with the requirements under theExchange Act.

###  

### (f)            The Co-Obligors shall comply withthe applicable tender offer rules, including Rule 14e-1 under the Exchange Act,and any other applicable securities laws or regulations in connection with anAsset Sale Offer.  To the extent that theprovisions of any securities laws or regulations conflict with this Section4.11, the Co-Obligors shall comply with the applicable securities laws andregulations and shall not be deemed to have breached their obligations underthis Section 4.11 by virtue thereof.

###  

### (g)           Subject to paragraph (f) above,within 30 days after the date on which the amount of Excess Proceeds exceeds$10.0 million, the Co-Obligors shall send or cause to be sent by first-classmail, postage prepaid, to the Trustee and to each Holder, at his addressappearing in the Security Register, a notice stating or including:

 

73

----

 

###### (1)           thatthe Holder has the right to require the Co-Obligors to repurchase, subject toproration, such Holder’s Notes at the Asset Sale Offer Price;

######  

###### (2)           theAsset Sale Offer Date;

######  

###### (3)           theinstructions a Holder must follow in order to have his or her Notes purchasedin accordance with paragraph (c) above;

######  

###### (4)           theAsset Sale Offer Price;

######  

###### (5)           thenames and addresses of the Paying Agent and the offices or agencies referred toin Section 4.02;

######  

###### (6)           thatNotes must be surrendered prior to the Asset Sale Offer Date to the PayingAgent at the office of the Paying Agent or to an office or agency referred toin Section 4.02 to collect payment;

######  

###### (7)           thatany Notes not tendered will continue to accrue interest and that unless theCo-Obligors default in the payment of the Asset Sale Offer Price, any Noteaccepted for payment pursuant to the Asset Sale Offer shall cease to accrueinterest on and after the Asset Sale Offer Date;

######  

###### (8)           theprocedures for withdrawing a tender; and

######  

###### (9)           thatthe Asset Sale Offer Price for any Note which has been properly tendered andnot withdrawn and which has been accepted for payment pursuant to the AssetSale Offer will be paid promptly following the Asset Sale Offer Date.

######  

### (h)           Holders electing to have Notespurchased hereunder will be required to surrender such Notes at the addressspecified in the notice prior to the Asset Sale Offer Date.  Holders will be entitled to withdraw theirelection to have their Notes purchased pursuant to this Section 4.11 if theCo-Obligors receive, not later than one Business Day prior to the Asset SaleOffer Date, a telegram, telex, facsimile transmission or letter setting forth(1) the name of the Holder, (2) the certificate number of the Note in respectof which such notice of withdrawal is being submitted, (3) the principal amountof the Note (which shall be $1,000 or an integral multiple thereof) deliveredfor purchase by the Holder as to which his election is to be withdrawn, (4) astatement that such Holder is withdrawing his election to have such principalamount of such Note purchased, and (5) the principal amount, if any, of suchNote (which shall be $1,000 or an integral multiple thereof) that remainssubject to the original notice of the Asset Sale Offer and that has been orwill be delivered for purchase by the Co-Obligors.

###  

### (i)            The Co-Obligors shall (i) not laterthan the Asset Sale Offer Date, accept for payment Notes or portions thereoftendered pursuant to the Asset Sale Offer, (ii) not later than 10:00 a.m. (NewYork time) on the Asset Sale Offer Date, deposit with the Trustee or with aPaying Agent an amount of money in same day funds sufficient to pay theaggregate Asset Sale Offer Price of all the Notes or portions thereof which areto be purchased on that date and (iii) not later than 10:00 a.m. (New Yorktime) on the Asset Sale Offer Date, deliver to the Paying Agent an Officers’Certificate stating the Notes or portions thereof accepted for payment by the 

 

74

----

 

### Co-Obligors.  The Paying Agent shall promptly mail ordeliver to Holders of Notes so accepted payment in an amount equal to the AssetSale Offer Price of the Notes purchased from each such Holder, and theCo-Obligors shall execute and the Trustee shall promptly authenticate and mailor deliver to such Holders a new Note equal in principal amount to anyunpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by thePaying Agent at the Co-Obligors’ expense to the Holder thereof.  For purposes of this Section 4.11, theCo-Obligors shall choose a Paying Agent which shall not be the Company or DuaneReade GP.

###  

Subject to applicable escheat laws, the Trustee and the Paying Agentshall return to the Co-Obligors any cash that remains unclaimed, together withinterest, if any, thereon (subject to Section 7.01(f)), held by them for thepayment of the Asset Sale Offer Price; *provided,however,* that (x) to the extent that the aggregate amount of cashdeposited by the Co-Obligors with the Trustee in respect of an Asset Sale Offerexceeds the aggregate Asset Sale Offer Price of the Notes or portions thereofto be purchased, then the Trustee shall hold such excess for the Co-Obligorsand (y) unless otherwise directed by the Co-Obligors in writing, promptly afterthe Business Day following the Asset Sale Offer Date the Trustee shall returnany such excess to the Co-Obligors together with interest or dividends, if any,thereon (subject to Section 7.01(f)).

 

### (j)            Notes to be purchased shall, on theAsset Sale Offer Date, become due and payable at the Asset Sale Offer Price andfrom and after such date (unless the Co-Obligors shall default in the paymentof the Asset Sale Offer Price) such Notes shall cease to bear interest.  Such Asset Sale Offer Price shall be paid tosuch Holder promptly following the later of the Asset Sale Offer Date and thetime of delivery of such Note to the relevant Paying Agent at the office ofsuch Paying Agent by the Holder thereof in the manner required.  Upon surrender of any such Note for purchasein accordance with the foregoing provisions, such Note shall be paid by theCo-Obligors at the Asset Sale Offer Price; *provided*, *however*, that installments of interest whoseStated Maturity is on or prior to the Asset Sale Offer Date shall be payable tothe Person in whose name the Notes are registered as such on the relevantrecord dates according to the terms and the provisions of Section 2.04; *provided*, *further*, that Notes to be purchased are subject to prorationin the event the Excess Proceeds are less than the aggregate Asset Sale OfferPrice of all Notes tendered for purchase, with such adjustments as may beappropriate by the Trustee so that only Notes in denominations of $1,000 orintegral multiples thereof, shall be purchased. If any Note tendered for purchase shall not be so paid upon surrenderthereof by deposit of funds with the Trustee or a Paying Agent in accordancewith paragraph (i) above, the principal thereof (and premium, if any, thereon)shall, until paid, bear interest from the Asset Sale Offer Date at the rateborne by such Note.  Any Note that is tobe purchased only in part shall be surrendered to a Paying Agent at the officeof such Paying Agent (with, if the Company, the Registrar or the Trustee sorequires, due endorsement by, or a written instrument of transfer in formsatisfactory to the Company and the Registrar or the Trustee duly executed by,the Holder thereof or such Holder’s attorney duly authorized in writing), andthe Co-Obligors shall execute and the Trustee shall authenticate and deliver tothe Holder of such Note, without service charge, one or more new Notes of anyauthorized denomination as requested by such Holder in an aggregate principalamount equal to, and in exchange for, the portion of the principal amount ofthe Note so surrendered that is not purchased. The Company shall publicly announce the results of the Asset Sale Offeron or as soon as practicable after the Asset Sale Offer Date.

 

75

----

 

Section 4.12.  Issuances of Guarantees by New RestrictedSubsidiaries.

 

#### The Company shall provide to the Trustee,within 30 days following the date that any Person other than Duane Reade GPbecomes a Restricted Subsidiary, a supplemental indenture to this Indenturesubstantially in the form attached hereto as Exhibit E, executed by such newRestricted Subsidiary, providing for a full and unconditional guarantee on asenior subordinated basis by such new Restricted Subsidiary of the Company’sobligations under the Notes and this Indenture to the same extent as that setforth in Article Eleven hereof, unless such Restricted Subsidiary is not aguarantor or obligor in respect of any Indebtedness of the Company or any otherRestricted Subsidiary (other than Indebtedness that is permitted to be incurredby Restricted Subsidiaries that are not Guarantors under Section 4.07 hereof); *provided, however*, that if such RestrictedSubsidiary becomes a guarantor or obligor in respect of any Indebtedness of theCompany or any other Restricted Subsidiary (other than Indebtedness that ispermitted to be incurred by Restricted Subsidiaries that are not Guarantorsunder Section 4.07 hereof), the Company shall cause such Restricted Subsidiaryto enter into a supplemental indenture to this Indenture, substantially in theform attached hereto as Exhibit E, providing for a full and unconditionalGuarantee.

####  

Section 4.13.  Dividend and Other Payment RestrictionsAffecting Restricted Subsidiaries.

 

(a)           TheCompany shall not, and shall not cause or permit any of its RestrictedSubsidiaries to, directly or indirectly, create or otherwise cause to exist orbecome effective any consensual encumbrance or restriction on the ability ofany Restricted Subsidiary to:

 

(1)           paydividends or make any other distribution on its Capital Stock,

 

(2)           payany Indebtedness owed to the Company or any other Restricted Subsidiary,

 

(3)           makeany loans or advances to the Company or any other Restricted Subsidiary, or

 

(4)                                  transferany of its properties or assets to the Company or any other RestrictedSubsidiary.

 

(b)  However, paragraph (a) above shall not prohibitany:

 

(1)           encumbranceor restriction pursuant to (x) an agreement (including the Credit Agreement andthe Term Loan) in effect or entered into on the Acquisition Closing Date, (y)any agreement governing Indebtedness permitted to be incurred by clause (b)(1)of Section 4.07 hereof, and (z) any amendments, modifications, restatements,renewals, supplements, refundings, replacements or refinancings of theforegoing agreements pursuant to clause (x) or (y); *provided* that such agreements (pursuant to clause (y) above)and such amendments, modifications, restatements, renewals, supplements,refundings, replacements or refinancings (pursuant to clause (z) above) are notmaterially more restrictive, taken as a whole, with respect to such provisionsthan those contained in those agreements in effect or entered into on theAcquisition Closing Date;

 

76

----

 

(2)           encumbranceor restriction with respect to a Restricted Subsidiary that is not a RestrictedSubsidiary of the Company on the Acquisition Closing Date, in existence at thetime such Person becomes a Restricted Subsidiary of the Company and notincurred in connection with, or in contemplation of, such Person becoming aRestricted Subsidiary, provided that such encumbrances and restrictions are notapplicable to the Company or any Restricted Subsidiary or the properties orassets of the Company or any Restricted Subsidiary other than such Subsidiarywhich is becoming a Restricted Subsidiary;

 

(3)           encumbranceor restriction pursuant to any agreement governing any Indebtedness permittedby clause (7) of the definition of Permitted Indebtedness as to the assetsfinanced with the proceeds of such Indebtedness;

 

(4)           encumbranceor restriction contained in any Acquired Indebtedness, Capital Stock or otheragreement of any entity or related to assets acquired by or merged into orconsolidated with the Company or any Restricted Subsidiaries, so long as suchencumbrance or restriction (A) was not entered into in contemplation of theacquisition, merger or consolidation transaction, and (B) is not applicable toany Person, or the properties or assets of any Person, other than the Person,or the property or assets of the Person, so acquired, so long as the agreementcontaining such restriction does not violate any other provision of thisIndenture;

 

(5)           encumbranceor restriction existing under applicable law or any requirement of anyregulatory body;

 

(6)           encumbranceor restriction pursuant to the security documents evidencing any Lien securingIndebtedness otherwise permitted to be incurred under the provisions of Section4.10 hereof, including Permitted Liens;

 

(7)           encumbranceor restriction pursuant to customary non-assignment provisions in leases,licenses or contracts;

 

(8)           customaryrestrictions contained in (A) asset sale agreements permitted to be incurredunder Section 4.11 hereof that limit the transfer of such assets or otherwiseimpose limitations pending the closing of such sale and (B) any other agreementfor the sale or other disposition of a Restricted Subsidiary that restrictsthat Restricted Subsidiary pending its sale or other disposition;

 

(9)           restrictionscontained in any other credit facility governing Indebtedness of the Company,Duane Reade GP or any Guarantor that are not (in the view of the Board ofDirectors of the Company as expressed in a Board Resolution thereof) materiallymore restrictive, taken as a whole, than those contained in the CreditAgreement;

 

(10)         encumbrancepursuant to the subordination provisions of any Indebtedness permitted to beincurred by clause (b)(4) of Section 4.07 hereof;

 

(11)         encumbranceor restriction pursuant to customary provisions in partnership agreements,limited liability company organizational governance documents,

 

77

----

 

joint venture, asset sale and stock saleagreements and other similar agreements entered into in the ordinary course ofbusiness that restrict the transfer of ownership interests in such partnership,limited liability company, joint venture or similar Person;

 

(12)         restrictionson cash or other deposits or net worth imposed by suppliers or landlords undercontracts entered into in the ordinary course of business;

 

(13)         encumbrancesor restrictions under any agreement, amendment, modification, restatement,renewal, supplement, refunding, replacement or refinancing that extends,renews, refinances or replaces the agreements containing the encumbrances orrestrictions in the foregoing clauses (1) through (12), or in this clause (13),*provided* that the terms andconditions of any such encumbrances or restrictions are no more restrictive inany material respect taken as a whole than those under or pursuant to theagreement, amendment, modification, restatement, renewal, supplement,refunding, replacement or refinancing evidencing the Indebtedness so extended,renewed, refinanced or replaced.

 

Section 4.14.  Limitation on Layering Debt.

 

Notwithstanding the provisions of Section4.07 hereof, each of the Company and Duane Reade GP shall not incur, create,issue, assume, guarantee or otherwise become liable for any Indebtedness thatis subordinate or junior in right of payment to any of its Indebtedness andsenior in right of payment to the Notes. In addition, no Guarantor shall incur, create, issue, assume, guaranteeor otherwise become liable for any Indebtedness of such Guarantor that issubordinate or junior in right of payment to any Indebtedness of such Guarantorand senior in right of payment to the Guarantee of such Guarantor.  For purposes of the foregoing, for theavoidance of doubt, no Indebtedness shall be deemed to be subordinated in rightof payment to any other Indebtedness solely by virtue of being unsecured orsecured by a junior priority Lien or by virtue of the fact that the holders ofsuch Indebtedness have entered into intercreditor agreements or otherarrangements giving one or more of such holders priority over the other holdersin the collateral held by them.

 

Section 4.15.  Unrestricted Subsidiaries.

 

(a)           The Company may designate, after theIssue Date, any Subsidiary (other than Duane Reade GP) as an “UnrestrictedSubsidiary” under this Indenture (a “Designation”) only if:

 

(1)           noDefault or Event of Default shall occur and be continuing as a result of givingeffect to such Designation;

 

(2)           (A)the Company would be permitted by this Indenture to make an Investment at thetime of Designation (assuming the effectiveness of such Designation) in anamount (the “Designation Amount”) equal to the Fair Market Value of theCompany’s interest in such Subsidiary as determined in good faith by theCompany’s Board of Directors, or (B) the Designation Amount is less than$1,000;

 

78

----

 

(3)           suchUnrestricted Subsidiary does not own any Capital Stock in any RestrictedSubsidiary of the Company which is not simultaneously being designated anUnrestricted Subsidiary; and

 

(4)           suchUnrestricted Subsidiary is not liable, directly or indirectly, with respect toany Indebtedness other than Unrestricted Subsidiary Indebtedness, *provided* that an Unrestricted Subsidiarymay provide a Guarantee for the Notes.

 

(b)           In the event of any such Designation,the Company shall be deemed to have made an Investment constituting a PermittedInvestment or a Restricted Payment pursuant to Section 4.08 hereof for allpurposes of this Indenture in the Designation Amount.

 

(c)           The Company shall not and shall notcause or permit any Restricted Subsidiary to at any time

 

(1)           providecredit support for, guarantee or subject any of its property or assets (otherthan the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of,any Indebtedness of any Unrestricted Subsidiary (including any undertaking,agreement or instrument evidencing such Indebtedness) (other than PermittedInvestments in Unrestricted Subsidiaries) or

 

(2)           bedirectly or indirectly liable for any Indebtedness of any UnrestrictedSubsidiary.

 

(d)           For purposes of the foregoing, theDesignation of a Subsidiary of the Company as an Unrestricted Subsidiary shallbe deemed to be the Designation of all of the Subsidiaries of such Subsidiaryas Unrestricted Subsidiaries. Unless so designated as an UnrestrictedSubsidiary, any Person that becomes a Subsidiary of the Company shall be classifiedas a Restricted Subsidiary.

 

(e)           The Company may revoke anyDesignation of a Subsidiary as an Unrestricted Subsidiary (a “Revocation”)if:

 

(1)           noDefault shall occur and be continuing as a result of giving effect to suchRevocation;

 

(2)           allLiens and Indebtedness of such Unrestricted Subsidiary outstanding immediatelyfollowing such Revocation would, if incurred at such time, have been permittedto be incurred by a Restricted Subsidiary for all purposes of this Indenture;and

 

(3)           unlesssuch redesignated Subsidiary shall not have any Indebtedness outstanding (otherthan Indebtedness that is simultaneously with such redesignation beingdesignated as Permitted Indebtedness), immediately after giving effect to suchproposed Revocation, and after giving *proforma* effect to the incurrence of any such Indebtedness of suchredesignated Subsidiary as if such Indebtedness was incurred on the date of theRevocation, the Company could incur $1.00 of additional Indebtedness (otherthan Permitted Indebtedness) pursuant to paragraph (a) of Section 4.07 hereof.

 

79

----

 

(f)            All Designations and Revocationsmust be evidenced by a Board Resolution of the Board of Directors of theCompany delivered to the Trustee certifying compliance with the foregoingprovisions of this Section 4.15.

 

Section 4.16.  Payments for Consent.

 

Neither theCompany nor any of its Restricted Subsidiaries shall, directly or indirectly,pay or cause to be paid any consideration, whether by way of interest, fee orotherwise, to any Holder for or as an inducement to any consent, waiver oramendment of any of the terms or provisions of this Indenture or the Notesunless such consideration is offered to be paid or is paid to all Holders orall Holders that consent, waive or agree to amend in the time frame set forthin the solicitation documents relating to such consent, waiver or agreement.

 

Section 4.17.  Co-Obligor.

 

Upon theAcquisition Closing Date, the Company shall cause Duane Reade GP to execute theCo-Obligor Supplemental Indenture.

 

Section 4.18.  Offer to Repurchase upon a Change ofControl.

 

### (a)           If a Change of Control occurs, eachHolder of Notes shall have the right to require that the Co-Obligors purchaseall or any part (in integral multiples of $1,000) of such Holder’s Notespursuant to the offer described below (the “Change of Control Offer”).  In the Change of Control Offer, theCo-Obligors shall offer to purchase all of the Notes, at a purchase price (the“Change of Control Purchase Price”) in cash in an amount equal to 101%of the principal amount of such Notes, plus accrued and unpaid interest, ifany, to the date the Change of Control Offer closes (the “Change of ControlPurchase Date”) (subject to the rights of holders of record on relevantrecord dates to receive interest due on an interest payment date).

###  

### (b)           Within 30 days after any Change ofControl or, at the Company’s option, prior to such Change of Control but afterit is publicly announced, the Company must notify the Trustee and give writtennotice of the Change of Control (the “Change of Control Purchase Notice”)to each Holder of Notes, by first-class mail, postage prepaid, at his addressappearing in the security register. The Change of Control Purchase Notice muststate, among other things,

###  

###### (1)           thata Change of Control has occurred or will occur and the date of such event;

######  

###### (2)           theChange of Control Purchase Price and the Change of Control Purchase Date, whichshall be fixed by the Company on a Business Day (which may be immediately afterthe Change of Control occurs) no earlier than 30 days nor later than 60 daysfrom the date the Change of Control Purchase Notice is mailed, or such laterdate as is necessary to comply with requirements under the Exchange Act; *provided* that the Change of ControlPurchase Date may not occur prior to the Change of Control;

######  

###### (3)           thatany Note not tendered will continue to accrue interest;

 

80

----

 

###### (4)           that,unless the Co-Obligors default in the payment of the Change of Control PurchasePrice, any Notes accepted for payment pursuant to the Change of Control Offershall cease to accrue interest after the Change of Control Purchase Date; and

######  

###### (5)           otherprocedures that a Holder of Notes must follow to accept a Change of ControlOffer or to withdraw acceptance of the Change of Control Offer.

######  

###### (b)           Upon receipt by the Co-Obligors ofthe proper tender of Notes, the Holder of the Note in respect of which suchproper tender was made shall (unless the tender of such Note is properlywithdrawn) thereafter be entitled to receive solely the Change of ControlPurchase Price with respect to such Notes. Upon surrender of any such Note for purchase in accordance with theforegoing provisions, such Note shall be paid by the Co-Obligors at the Changeof Control Purchase Price; *provided*,*however*, that installments ofinterest whose Stated Maturity is on or prior to the Change of Control PurchaseDate shall be payable to the Holders of such Notes, registered as such on therelevant Regular Record Dates according to the terms and the provisions ofSection 2.03.  If any Note tendered forpurchase in accordance with the provisions of this Section 4.18 shall not be sopaid upon surrender thereof, the principal thereof (and premium, if any,thereon) shall, until paid, bear interest from the Change of Control PurchaseDate at the rate borne by such Note. Holders electing to have Notes purchased will be required to surrendersuch Notes to the Paying Agent at the address specified in the Change ofControl Purchase Notice at least one Business Day prior to the Change ofControl Purchase Date.  Any Note that isto be purchased only in part shall be surrendered to a Paying Agent at theoffice of such Paying Agent (with, if the Co-Obligors, the Registrar or theTrustee so require, due endorsement by, or a written instrument of transfer inform satisfactory to the Co-Obligors and the Registrar or the Trustee, as thecase may be, duly executed by, the Holder thereof or such Holder’s attorneyduly authorized in writing), and the Co-Obligors shall execute and the Trusteeshall authenticate and deliver to the Holder of such Note, without servicecharge, one or more new Notes of any authorized denomination as requested bysuch Holder in an aggregate principal amount equal to, and in exchange for, theportion of the principal amount of the Note so surrendered that is notpurchased.

 

### (c)           The Co-Obligors shall (i) notlater than the Change of Control Purchase Date, accept for payment Notes orportions thereof tendered pursuant to the Change of Control Offer,(ii) not later than 10:00 a.m. (New York time) on the Business Dayfollowing the Change of Control Purchase Date, deposit with the Trustee or witha Paying Agent an amount of money in same day funds sufficient to pay theaggregate Change of Control Purchase Price of all the Notes or portions thereofwhich have been so accepted for payment and (iii) not later than 10:00a.m. (New York time) on the Business Day following the Change of Control PurchaseDate, deliver to the Paying Agent an Officers’ Certificate stating the Notes orportions thereof accepted for payment by the Co-Obligors.  The Paying Agent shall promptly mail ordeliver to Holders of Notes so accepted payment in an amount equal to theChange of Control Purchase Price of the Notes purchased from each such Holder,and the Co-Obligors shall execute and the Trustee shall promptly authenticateand mail or deliver to such Holders a new Note equal in principal amount to anyunpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by thePaying Agent at the Co-Obligors’ expense to the Holder thereof.  The Co-Obligors will publicly announce theresults of the Change of Control Offer on 

 

81

----

 

### the Change of Control PurchaseDate.  For purposes of this Section 4.18,the Co-Obligors shall choose a Paying Agent which shall not be the Company orDuane Reade GP.

 

### (d)           A tender made in response to a Changeof Control Purchase Notice may be withdrawn if the Co-Obligors receive, notlater than one Business Day prior to the Change of Control Purchase Date, atelegram, telex, facsimile transmission or letter, specifying, as applicable:

 

###### (1)           thename of the Holder;

######  

###### (2)           thecertificate number of the Note in respect of which such notice of withdrawal isbeing submitted;

######  

###### (3)           theprincipal amount of the Note (which shall be $1,000 or an integral multiplethereof) delivered for purchase by the Holder as to which such notice ofwithdrawal is being submitted;

######  

###### (4)           astatement that such Holder is withdrawing his election to have such principalamount of such Note purchased; and

######  

###### (5)           theprincipal amount, if any, of such Note (which shall be $1,000 or an integralmultiple thereof) that remains subject to the original Change of ControlPurchase Notice and that has been or will be delivered for purchase by theCo-Obligors.

######  

### (e)           Subject to applicable escheat laws,the Trustee and the Paying Agent shall return to the Co-Obligors any cash thatremains unclaimed, together with interest or dividends, if any, thereon(subject to Section 7.01(f) hereof), held by them for the payment of the Changeof Control Purchase Price; *provided*,*however*, that (x) to theextent that the aggregate amount of cash deposited by the Co-Obligors pursuantto clause (ii) of paragraph (c) above exceeds the aggregate Change of ControlPurchase Price of the Notes or portions thereof to be purchased, then theTrustee shall hold such excess for the Co-Obligors and (y) unlessotherwise directed by the Co-Obligors in writing, promptly after the BusinessDay following the Change of Control Purchase Date the Trustee shall return anysuch excess to the Co-Obligors together with interest, if any, thereon (subjectto Section 7.01(f) hereof).

###  

### (f)            The Co-Obligors shall comply withthe applicable tender offer rules, including Rule 14e-1 under the Exchange Act,and any other applicable securities laws or regulations in connection with aChange of Control Offer.  To the extentthat the provisions of any securities laws or regulations conflict with thisSection 4.18, the Co-Obligors shall comply with the applicable securities lawsand regulations and shall not be deemed to have breached their obligationsunder this Section 4.18 by virtue thereof.

###  

### (g)           Notwithstanding the foregoing, theCo-Obligors will not be required to make a Change of Control Offer upon aChange of Control if a third party makes the Change of Control Offer, in themanner, at the times and otherwise in compliance with the requirements setforth in this Indenture applicable to a Change of Control Offer made by theCo-Obligors and purchases all Notes validly tendered and not withdrawn undersuch Change of Control Offer.

 

82

----

Section 4.19.  Corporate Existence.

 

Subject toArticle Five, the Company shall do or cause to be done all things necessary topreserve and keep in full force and effect the corporate existence, rights(charter and statutory) and franchises of the Company and each Subsidiary; *provided* that the Company shall not berequired to preserve any such right or franchise if the Board of Directors ofthe Company shall determine that the preservation thereof is no longerdesirable in the conduct of the business of the Company and its RestrictedSubsidiaries as a whole and that the loss thereof would not reasonably beexpected to have a material adverse effect on the Company and its RestrictedSubsidiaries, taken as a whole.

 

# **ARTICLE FIVE**Successors

 

Section 5.01.  Consolidation, Merger or Sale of Assets.

 

### (a)           Each of the Company and Duane ReadeGP will not, in a single transaction or through a series of relatedtransactions, consolidate with or merge with or into any other Person or sell,assign, convey, transfer, lease or otherwise dispose of all or substantiallyall of its properties and assets to any Person or group of Persons, or permitany of its Restricted Subsidiaries to enter into any such transaction or seriesof transactions, if such transaction or series of transactions, in theaggregate, would result in a sale, assignment, conveyance, transfer, lease ordisposition of all or substantially all of the properties and assets of theCompany and its Restricted Subsidiaries on a Consolidated basis to any otherPerson or group of Persons (other than the Company, Duane Reade GP or aGuarantor), unless at the time and after giving effect thereto

###  

###### (1)           either(a) the Company or Duane Reade GP, as the case may be, will be the continuingentity or (b) the Person (if other than the Company or Duane Reade GP, as thecase may be) formed by such consolidation or into which the Company or DuaneReade GP, as the case may be, is merged or the Person which acquires by sale,assignment, conveyance, transfer, lease or disposition all or substantially allof the properties and assets of the Company and its Restricted Subsidiaries ona Consolidated basis (the “Surviving Entity”) will be an entity dulyorganized and validly existing under the laws of the United States of America,any state thereof or the District of Columbia and such Person expresslyassumes, by a supplemental indenture, in a form reasonably satisfactory to theTrustee, all the obligations of the Company or Duane Reade GP, as the case maybe, under the Notes and this Indenture and the Registration Rights Agreement,as the case may be;

######  

###### (2)           immediatelyafter giving effect to such transaction on a *proforma* basis (and treating any Indebtedness not previously anobligation of the Company or any of its Restricted Subsidiaries which becomesthe obligation of the Company or any of its Restricted Subsidiaries as a resultof such transaction as having been incurred at the time of such transaction),no Default or Event of Default will have occurred and be continuing;

 

83

----

 

###### (3)           either(i) immediately before and immediately after giving effect to such transactionon a *pro forma* basis (on theassumption that the transaction occurred on the first day of the four-quarterperiod for which financial statements are available ending immediately prior tothe consummation of such transaction with the appropriate adjustments withrespect to the transaction being included in such *pro forma* calculation), the Company (or the Surviving Entityif the Company is not the continuing obligor under this Indenture) could incur$1.00 of additional Indebtedness (other than Permitted Indebtedness) underparagraph (a) of Section 4.07 hereof or (ii) (x) the Company’s ConsolidatedFixed Charge Coverage Ratio for the most recent four full fiscal quarters forwhich financial statements are available after giving *pro forma* effect to such transaction as ofthe beginning of such four quarter period would be not less than (y) theCompany’s Consolidated Fixed Charge Coverage Ratio for such four quarter periodimmediately prior to such transaction;

######  

###### (4)           atthe time of the transaction, each Guarantor, if any, unless it is the otherparty to the transactions described above, will have by supplemental indentureconfirmed that its Guarantee shall apply to such Person’s obligations underthis Indenture and the Notes; and

######  

###### (5)           atthe time of the transaction, the Company or Duane Reade GP, as the case may be,or the Surviving Entity will have delivered, or caused to be delivered, to theTrustee, in form and substance reasonably satisfactory to the Trustee, anOfficers’ Certificate and an Opinion of Counsel, each to the effect that suchconsolidation, merger, transfer, sale, assignment, conveyance, transfer, leaseor other transaction and the supplemental indenture in respect thereof complywith this Indenture and that all conditions precedent therein provided forrelating to such transaction have been complied with.

######  

### (b)           Except as provided by Section 11.05hereof, each Guarantor will not, and the Company will not permit a Guarantorto, in a single transaction or through a series of related transactions,consolidate with or merge with or into any other Person (other than the Companyor any Guarantor), unless at the time and after giving effect thereto

###  

###### (1)           either(a) the Guarantor will be the continuing corporation in the case of aconsolidation or merger involving the Guarantor or (b) the Person (if otherthan the Guarantor) formed by such consolidation or into which such Guarantoris merged (the “Surviving Guarantor Entity”) will be a corporation,limited liability company, limited liability partnership, partnership or trustduly organized and validly existing under the laws of the United States ofAmerica, any state thereof or the District of Columbia and such Personexpressly assumes, by a supplemental indenture, in a form reasonablysatisfactory to the Trustee, all the obligations of such Guarantor under itsGuarantee of the Notes and this Indenture and the Registration Rights Agreement;

######  

###### (2)           immediatelyafter giving effect to such transaction on a *proforma* basis, no Default or Event of Default will have occurred andbe continuing; and

 

84

----

 

###### (3)           atthe time of the transaction such Guarantor or the Surviving Guarantor Entitywill have delivered, or caused to be delivered, to the Trustee, in form andsubstance reasonably satisfactory to the Trustee, an Officers’ Certificate andan Opinion of Counsel, each to the effect that such consolidation, merger,transfer, sale, assignment, conveyance, lease or other transaction and thesupplemental indenture in respect thereof comply with this Indenture and thatall conditions precedent therein provided for relating to such transaction havebeen complied with;

######  

###### *provided,however*, that this paragraph (b) shall not apply toany Guarantor whose Guarantee of the Notes is unconditionally released anddischarged in accordance with Section 11.05 hereof.

######  

### (c)           In the event of any transaction(other than a lease) described in and complying with the conditions listed inparagraphs (a) and (b) above in which the Company, Duane Reade GP or anyGuarantor, as the case may be, is not the continuing corporation, the successorPerson formed or remaining or to which such transfer is made shall succeed to,and be substituted for, and may exercise every right and power of, the Company,Duane Reade GP or such Guarantor, as the case may be, and the Company, DuaneReade GP or any Guarantor, as the case may be, would be discharged from allobligations and covenants under this Indenture and the Notes or its Guarantee,as the case may be, and the Registration Rights Agreement.

###  

### (d)           Notwithstanding the foregoing, theCompany may merge with, or sell, issue, convey, transfer, lease, assign orotherwise dispose of all or substantially all of its assets to, an Affiliateincorporated or organized solely for the purpose of reincorporating orreorganizing the Company in another jurisdiction and/or for the purpose offorming a holding company, and any Guarantor or Duane Reade GP may merge with,or sell, issue, convey, transfer, lease, assign or otherwise dispose of all orsubstantially all of its assets to, an Affiliate as part of any internalcorporate reorganization of the Company.

###  

# **ARTICLE SIX**Defaults and Remedies

#  

Section 6.01.  Events of Default.

 

An Event ofDefault will occur under this Indenture (whatever the reason for such Event ofDefault and whether it shall be voluntary or involuntary or be effected byoperation of law or pursuant to any judgment, decree or order of any court orany order, rule or regulation of any administrative or governmental body) if:

 

###### (1)           thereshall be a default in the payment of any interest on any Note when it becomesdue and payable, and such default shall continue for a period of 30 days(whether or not such payment is prohibited by the provisions described underArticle Ten hereof);

######  

###### (2)           thereshall be a default in the payment of the principal of (or premium, if any, on)any Note at its Maturity (upon acceleration, optional or mandatory redemption,if any, required repurchase or otherwise) (whether or not such payment isprohibited by the provisions described under Article Ten hereof);

 

85

----

 

###### (3)           (a)there shall be a default in the performance, or breach, of any covenant oragreement of the Company, Duane Reade GP or any Guarantor under this Indentureor any Guarantee (other than a default in the performance, or breach, of acovenant or agreement which is specifically dealt with in clause (1), (2) aboveor in clause (b) or (c) of this clause (3)) and such default or breach shallcontinue for a period of 60 days (or 30 days if the Company and Duane Reade GPshall have failed to make or consummate an Asset Sale Offer in accordance withSection 4.11 hereof) after written notice has been given, by certified mail,(i) to the Company by the Trustee or (ii) to the Company and the Trustee by theHolders of at least 25% in aggregate principal amount of the then outstandingNotes; (b) there shall be a default in the performance or breach of theprovisions of Section 5.01 or (c) the Company and Duane Reade GP shall havefailed to make or consummate a Change of Control Offer in accordance withSection 4.18 hereof;

######  

###### (4)           oneor more defaults shall have occurred under any of the agreements, indentures orinstruments under which the Company, Duane Reade GP, any Guarantor or anyRestricted Subsidiary then has outstanding Indebtedness in excess of $15million, individually or in the aggregate, and either (a) such default resultsfrom the failure to pay the principal amount of such Indebtedness at its statedfinal maturity or (b) such default or defaults have resulted in theacceleration of the maturity of such Indebtedness;

######  

###### (5)           anyGuarantee of any Significant Subsidiary shall for any reason cease to be, orany Guarantee shall for any reason be asserted in writing by any Guarantor, theCompany or Duane Reade GP not to be, in full force and effect and enforceablein accordance with its terms, except to the extent contemplated by thisIndenture and any such Guarantee;

######  

###### (6)           oneor more judgments or orders of any court of competent jurisdiction for thepayment of money in excess of $15 million (net of amounts covered by insuranceor bonded), either individually or in the aggregate, shall be rendered againstthe Company, Duane Reade GP, any Guarantor or any Restricted Subsidiary or anyof their respective properties and shall not be discharged and there shall havebeen a period of 60 consecutive days during which a stay of enforcement of suchjudgment or order, by reason of an appeal or otherwise, shall not be in effect;

######  

###### (7)           theentry of a decree or order by a court having jurisdiction in the premisesadjudging the Company or any Significant Subsidiary bankrupt or insolvent, orapproving as properly filed a petition seeking reorganization, arrangement,adjustments or composition of or in respect of the Company or any SignificantSubsidiary under any Bankruptcy Law, or appointing a receiver, liquidator,assignee, trustee, sequestrator (or other similar official) of the Company orany Significant Subsidiary or of substantially all of its assets, or orderingthe winding up or liquidation of its affairs, and the continuance of any suchdecree or order unstayed and in effect for a period of 90 consecutive days; or

######  

###### (8)           theinstitution by the Company or any Significant Subsidiary of proceedings to beadjudicated bankrupt or insolvent, or the consent by it to the institution ofbankruptcy or insolvency proceedings against it, or the filing by it of apetition or answer or consent seeking reorganization or relief under anyBankruptcy Law, or the 

 

86

----

 

###### consent by it to the filing of any such petition or to the appointmentof a receiver, liquidator, assignee, trustee, sequestrator (or other similarofficial) of the Company or any Significant Subsidiary or of substantially allof its assets, or the making by it of a general assignment for the benefit ofcreditors, or the admission by it in writing of its inability to pay its debtsgenerally as they become due.

######  

Section 6.02.  Acceleration.

 

### (a)           If an Event of Default (other than asspecified in Sections 6.01(7) or (8) above) shall occur and be continuing with respectto this Indenture, the Trustee or the Holders of not less than 25% in aggregateprincipal amount of the Notes then outstanding may, and the Trustee at therequest of such Holders shall, declare all unpaid principal of, premium, ifany, and accrued interest on all Notes to be due and payable immediately, by anotice in writing to the Company (and to the Trustee if given by the Holders ofthe Notes) and upon any such declaration, such principal, premium, if any, andinterest shall become due and payable immediately; *provided, however*, that so long as any Indebtednesspermitted to be incurred under the Credit Agreement or the Term Loan isoutstanding, that acceleration shall not be effective until the earlier of (1)an acceleration of Indebtedness under the Credit Agreement or the Term Loan or(2) five Business Days after receipt by the Company and the representatives ofthe lenders under the Credit Agreement and the Term Loan of written notice ofthe acceleration of the Notes (and such Event of Default is then continuing).If an Event of Default specified in Sections 6.01(7) or (8) above occurs and iscontinuing, then all the Notes shall *ipsofacto* become and be due and payable immediately in an amount equalto the principal amount of the Notes, together with accrued and unpaidinterest, if any, to the date the Notes become due and payable, without anydeclaration or other act on the part of the Trustee or any Holder. Thereupon,the Trustee may, at its discretion, proceed to protect and enforce the rightsof the Holders of Notes by appropriate judicial proceedings.

###  

(b)           After a declarationof acceleration, but before a judgment or decree for payment of the money duehas been obtained by the Trustee, the Holders of a majority in aggregateprincipal amount of Notes outstanding by written notice to the Company and theTrustee, may rescind and annul such declaration and its consequences if:

 

(1)           the Company has paid or deposited with the Trustee a sumsufficient to pay (A) all sums paid or advanced by the Trustee under thisIndenture and the reasonable compensation, expenses, disbursements and advancesof the Trustee, its agents and counsel, (B) all overdue interest on all Notesthen outstanding, (C) the principal of, and premium, if any, on any Notes thenoutstanding which have become due otherwise than by such declaration ofacceleration and interest thereon at the rate borne by the Notes and (D) to theextent that payment of such interest is lawful, interest upon overdue interestat the rate borne by the Notes;

 

(2)           the rescission would not conflict with any judgment ordecree of a court of competent jurisdiction; and

 

87

----

 

(3)           all Events of Default, other than the non-payment ofprincipal of, premium, if any, and interest on the Notes which have become duesolely by such declaration of acceleration, have been cured or waived asprovided in this Indenture.

 

No such rescission shall affect any subsequent default or impair anyright consequent thereon.

 

Section 6.03.  Other Remedies.

 

### (a)           If an Event of Default occurs and iscontinuing, the Trustee may pursue any available remedy to collect the paymentof principal, premium, if any, or interest on the Notes or to enforce theperformance of any provision of the Notes or this Indenture.

###  

### (b)           The Trustee may maintain a proceedingeven if it does not possess any of the Notes or does not produce any of them inthe proceeding.  A delay or omission bythe Trustee or any Holder of a Note in exercising any right or remedy accruingupon and during the continuance of an Event of Default shall not impair theright or remedy or constitute a waiver of or acquiescence in the Event ofDefault.  All remedies are cumulative tothe extent permitted by law.

###  

Section 6.04.  Waiver of Past Defaults.

 

The Holders ofnot less than a majority in aggregate principal amount of the Notes outstandingmay on behalf of the Holders of all outstanding Notes waive any past Default orEvent of Default under this Indenture and its consequences, except a Default orEvent of Default (1) in the payment of the principal of, premium, if any, orinterest on any Note (which may only be waived with the consent of each Holderof Notes affected) or (2) in respect of a covenant or provision which underthis Indenture cannot be modified or amended without the consent of the Holderof each Note affected by such modification or amendment.  The Company shall deliver to the Trustee anOfficers’ Certificate stating that the requisite percentage of Holders haveconsented to such waiver and attaching copies of such consents.  In case of any such waiver, the Company, theTrustee and the Holders shall be restored to their former positions and rightshereunder and under the Notes, respectively. This Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIAand such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from thisIndenture and the Notes, as permitted by the TIA.  Upon any such waiver, such Default shallcease to exist, and any Event of Default arising therefrom shall be deemed tohave been cured for every purpose of this Indenture; but no such waiver shallextend to any subsequent or other Default or impair any right consequentthereon.

 

Section 6.05.  Control by Majority.

 

Holders of amajority in principal amount of the then outstanding Notes may direct the time,method and place of conducting any proceeding for exercising any remedyavailable to the Trustee or exercising any trust or power conferred on it.  However, the Trustee may refuse to follow anydirection that conflicts with law or this Indenture, that the Trusteedetermines may be unduly prejudicial to the rights of other Holders of Notes orthat may involve the Trustee in personal liability.  The Trustee may withhold from Holders of theNotes notice of 

 

88

----

 

any continuing Default or Eventof Default (except a Default or Event of Default relating to the payment ofprincipal or interest) if it determines that withholding notice is in theirinterest.

 

Section 6.06.  Limitation on Suits.

 

### (a)           A Holder has a right to institute anyproceeding with respect to this Indenture, or the Notes or any Guarantees, onlyif:

###  

###### (1)           theHolder gives to the Trustee written notice of a continuing Event of Default;

######  

###### (2)           theHolders of at least 25% in principal amount of the then outstanding Notes makea written request to the Trustee to pursue the remedy;

######  

###### (3)           suchHolder of a Note or Holders of Notes offer and, if requested, provide to theTrustee reasonable indemnity against any loss, liability or expense that mightbe incurred by it in connection with the request or direction;

######  

###### (4)           theTrustee does not comply with the request within 60 days after receipt of therequest and the offer and, if requested, the provision of indemnity; and

######  

###### (5)           duringsuch 60-day period the Holders of a majority in principal amount of the thenoutstanding Notes do not give the Trustee a direction inconsistent with thewritten request.

######  

### (b)           A Holder of a Note may not use thisIndenture to prejudice the rights of another Holder of a Note or to obtain apreference or priority over another Holder of a Note.

###  

Section 6.07.  Rights of Holders of Notes to ReceivePayment.

 

Notwithstandingany other provision of this Indenture, the right of any Holder of a Note toreceive payment of principal, premium, if any, or interest on such Note, on orafter the respective due dates expressed in such Note (including in connectionwith an offer to purchase), or to bring suit for the enforcement of any suchpayment on or after such respective dates, shall not be impaired or affectedwithout the consent of such Holder.

 

Section 6.08.  Collection Suit by Trustee.

 

If an Event ofDefault specified in Section 6.01 (1) or (2) above occurs and is continuing,the Trustee is authorized to recover judgment in its own name and as trustee ofan express trust against the Co-Obligors for the whole amount of principal of,premium, if any, interest remaining unpaid on the Notes and interest on overdueprincipal and premium, if any, and, to the extent lawful, interest and suchfurther amount as shall be sufficient to cover the costs and expenses ofcollection, including the reasonable compensation, expenses, disbursements andadvances of the Trustee, its agents and counsel.

 

89

----

 

Section 6.09.  Trustee May File Proofs of Claim.

 

The Trustee isauthorized to file such proofs of claim and other papers or documents as may benecessary or advisable in order to have the claims of the Trustee (includingany claim for the reasonable compensation, expenses, disbursements and advancesof the Trustee, its agents and counsel) and the Holders of the Notes allowed inany judicial proceedings relative to the Co-Obligors or any Guarantor (or anyother obligor upon the Notes), its creditors or its property and shall beentitled and empowered to collect, receive and distribute any money or othersecurities or property payable or deliverable on any such claims and anycustodian in any such judicial proceeding is hereby authorized by each Holderto make such payments to the Trustee, and in the event that the Trustee shallconsent to the making of such payments directly to the Holders, to pay to theTrustee any amount due to it for the reasonable compensation, expenses,disbursements and advances of the Trustee, its agents and counsel, and anyother amounts due the Trustee under Section 7.07 hereof.  To the extent that the payment of any suchcompensation, expenses, disbursements and advances of the Trustee, its agentsand counsel, and any other amounts due the Trustee under Section 7.07 hereofout of the estate in any such proceeding, shall be denied for any reason,payment of the same shall be secured by a Lien on, and shall be paid out of,any and all distributions, dividends, money, securities and other propertiesthat the Holders may be entitled to receive in such proceeding whether inliquidation or under any plan of reorganization or arrangement orotherwise.  Nothing herein containedshall be deemed to authorize the Trustee to authorize or consent to or acceptor adopt on behalf of any Holder any plan of reorganization, arrangement,adjustment or composition affecting the Notes or the rights of any Holder, orto authorize the Trustee to vote in respect of the claim of any Holder in anysuch proceeding.

 

Section 6.10.  Priorities.

 

### (a)           If the Trustee collects any moneypursuant to this Article Six, it shall pay out the money in the followingorder:

###  

First:  to the Trustee, its agents and attorneys foramounts due under Section 7.07 hereof, including payment of all compensation,expense and liabilities incurred, and all advances made, by the Trustee and thecosts and expenses of collection;

 

Second:  to Holders of Notes for amounts due andunpaid on the Notes for principal, premium, if any, interest ratably, withoutpreference or priority of any kind, according to the amounts due and payable onthe Notes for principal, premium, if any, and interest, respectively; and

 

Third:  to the Company or to such party as a court ofcompetent jurisdiction shall direct.

 

### (b)           The Trustee may fix a record date andpayment date for any payment to Holders of Notes pursuant to this Section 6.10.

 

90

----

 

Section 6.11.  Undertaking for Costs.

 

In any suitfor the enforcement of any right or remedy under this Indenture or in any suitagainst the Trustee for any action taken or omitted by it as a Trustee, a courtin its discretion may require the filing by any party litigant in the suit ofan undertaking to pay the costs of the suit, and the court in its discretionmay assess reasonable costs, including reasonable attorneys’ fees and expenses,against any party litigant in the suit, having due regard to the merits andgood faith of the claims or defenses made by the party litigant.  This Section does not apply to a suit by theTrustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or asuit by Holders of more than ten percent in principal amount of the thenoutstanding Notes.

 

# **ARTICLESEVEN**Trustee

#  

Section 7.01.  Duties of Trustee.

 

### (a)           If an Event of Default has occurredand is continuing, and is actually known to the Trustee, the Trustee shallexercise such of the rights and powers vested in it by this Indenture, and usethe same degree of care and skill in its exercise, as a prudent person wouldexercise or use under the circumstances in the conduct of such person’s ownaffairs.

###  

### (b)           Except during the continuance of anEvent of Default:

###  

#### (i)            the duties of theTrustee shall be determined solely by the express provisions of this Indentureand the Trustee need perform only those duties that are specifically set forthin this Indenture and no others, and no implied covenants or obligations shallbe read into this Indenture against the Trustee; and

####  

#### (ii)           in the absence ofbad faith on its part, the Trustee may conclusively rely, as to the truth ofthe statements and the correctness of the opinions expressed therein, uponcertificates or opinions furnished to the Trustee and conforming to therequirements of this Indenture.  However,the Trustee shall examine the certificates and opinions to determine whether ornot they conform on their face to the requirements of this Indenture.

####  

### (c)           The Trustee may not be relieved fromliabilities for its own negligent action, its own negligent failure to act, orits own willful misconduct, except that:

###  

#### (i)            this paragraph doesnot limit the effect of paragraph (b) of this Section 7.01;

####  

#### (ii)           the Trustee shallnot be liable for any error of judgment made in good faith by a ResponsibleOfficer, unless it is proved that the Trustee was negligent in ascertaining thepertinent facts; and

####  

#### (iii)          the Trustee shallnot be liable with respect to any action it takes or omits to take in goodfaith in accordance with a direction received by it pursuant to Section 6.05hereof.

 

91

----

 

### (d)           Whether or not therein expressly soprovided, every provision of this Indenture that in any way relates to theTrustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.

###  

### (e)           No provision of this Indenture shallrequire the Trustee to expend or risk its own funds or incur anyliability.  The Trustee shall be under noobligation to exercise any of the rights or powers vested in it by thisIndenture unless such Holders shall have offered to the Trustee security orindemnity reasonably satisfactory to it against the costs, expenses andliabilities that might be incurred by it in compliance with such request ordirection.

###  

### (f)            Money held in trust by the Trusteeneed not be segregated from other funds and need not be held in aninterest-bearing account, in each case except to the extent required by law orby any other provision of this Indenture. The Trustee (acting in any capacity hereunder) shall not be liable forinterest on any money received by it hereunder unless the Trustee otherwiseagrees in writing with the Company.

 

Section 7.02.  Certain Rights of Trustee.

 

### (a)           The Trustee may conclusively relyupon any document believed by it to be genuine and to have been signed orpresented by the proper Person.  TheTrustee need not investigate any fact or matter stated in the document.

###  

### (b)           Before the Trustee acts or refrainsfrom acting, it may require an Officers’ Certificate or an Opinion of Counselor both.  The Trustee shall not be liablefor any action it takes or omits to take in good faith in reliance on suchOfficers’ Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel orany Opinion of Counsel shall be full and complete authorization and protectionfrom liability in respect of any action taken, suffered or omitted by ithereunder in good faith and in reliance thereon.

###  

### (c)           The Trustee may act through itsattorneys and agents and shall not be responsible for the misconduct ornegligence of any agent appointed with due care.

###  

### (d)           The Trustee shall not be liable forany action it takes or omits to take in good faith that it believes to beauthorized or within the rights or powers conferred upon it by this Indenture.

###  

### (e)           Unless otherwise specificallyprovided in this Indenture, any demand, request, direction or notice fromeither Co-Obligor shall be sufficient if signed by an Officer of suchCo-Obligor.

###  

### (f)            The Trustee shall be under noobligation to exercise any of the rights or powers vested in it by thisIndenture unless such Holders shall have offered to the Trustee security orindemnity reasonably satisfactory to it against the costs, expenses andliabilities that might be incurred by it in compliance with such request ordirection.

###  

### (g)           The Trustee shall not be deemed tohave notice of any Default or Event of Default unless a Responsible Officer ofthe Trustee has actual knowledge thereof or unless

 

92

----

 

### written notice of such event is sent to the Trustee in accordance withSection 13.02 hereof, and such notice references the Notes.

###  

### (h)           Subject to Section 7.01(b)(ii)hereof, the Trustee shall not be bound to make any investigation into the factsor matters stated in any resolution, certificate, statement, instrument,opinion, report, notice, request, direction, consent, order, bond, debenture,note, other evidence of indebtedness or other paper or document, but the Trustee,in its discretion, may make such further inquiry or investigation into suchfacts or matters as it may see fit, and, if the Trustee shall determine to makesuch further inquiry or investigation, it shall be entitled to examine thebooks, records, and premises of the Company, personally or by agent or attorneyat the sole cost of the Company and shall incur no liability or additionalliability of any kind by reasons of such inquiry or investigation.

###  

### (i)            The rights, privileges, protections,immunities and benefits given to the Trustee, including, without limitation,its right to be indemnified, are extended to, and shall be enforceable by, theTrustee in each of its capacities hereunder, and to each agent, custodian andother Person employed to act hereunder.

###  

Section 7.03.  Individual Rights of Trustee.

 

The Trustee inits individual or any other capacity may become the owner or pledgee of Notesand may become a creditor of, or otherwise deal with, the Company or any of itsAffiliates with the same rights it would have if it were not Trustee.  However, in the event that the Trusteeacquires any conflicting interest as described in the Trust Indenture Act, itmust eliminate such conflict within 90 days, apply to the Commission forpermission to continue as trustee or resign. Any Agent may do the same with like rights and duties.  The Trustee is also subject to Sections 7.10and 7.11 hereof.

 

Section 7.04.  Trustee’s Disclaimer.

 

The Trusteeshall not be responsible for and makes no representation as to the validity oradequacy of this Indenture, it shall not be accountable for the Co-Obligors’use of the proceeds from the Notes or any money paid to the Co-Obligors or uponthe Co-Obligor’s direction under any provision of this Indenture, it shall notbe responsible for the use or application of any money received by any PayingAgent other than the Trustee, and it shall not be responsible for any statementor recital herein or any statement in the Notes or any other document inconnection with the sale of the Notes or pursuant to this Indenture other thanits certificate of authentication.

 

Section 7.05.  Notice of Defaults.

 

If a Defaultor Event of Default occurs and is continuing and if it is known to the Trustee,the Trustee shall mail to Holders of Notes a notice of the Default or Event ofDefault within 45 days after it occurs. Except in the case of a Default or Event of Default in payment ofprincipal of, premium or interest on any Note, the Trustee may withhold the noticeif and so long as a committee of its Responsible Officers in good faithdetermines that withholding the notice is in the interests of the Holders ofthe Notes.

 

93

----

 

Section 7.06.  Reports by Trustee to Holders of theNotes.

 

### (a)           Within 60 days after each May 15beginning with the May 15 following the date hereof, and for so long as Notesremain outstanding, the Trustee shall mail to the Holders of the Notes a briefreport dated as of such reporting date that complies with TIA Section 313(a) (butif no event described in TIA Section 313(a) has occurred within the twelvemonths preceding the reporting date, no report need be transmitted).  The Trustee also shall comply with TIASection 313(b)(2).  The Trustee shallalso transmit by mail all reports as required by TIA Section 313(c).

###  

### (b)           A copy of each report at the time ofits mailing to the Holders of Notes shall be mailed to the Co-Obligors andfiled with the Commission and each stock exchange on which the Notes are listedin accordance with TIA Section 313(d). The Co-Obligors shall promptly notify the Trustee when the Notes arelisted on any stock exchange or any delisting thereof.

###  

Section 7.07.  Compensation and Indemnity.

 

### (a)           The Co-Obligors shall pay to theTrustee (in its capacity as Trustee, and, to the extent it has been appointedas such, as Paying Agent and Registrar) from time to time reasonablecompensation for its acceptance of this Indenture and services hereunder inaccordance with a written schedule provided by the Trustee to theCo-Obligors.  The Trustee’s compensationshall not be limited by any law on compensation of a trustee of an expresstrust.  The Co-Obligors shall reimbursethe Trustee promptly upon request for all reasonable and customarydisbursements, advances and reasonable out-of-pocket expenses incurred or madeby it in addition to the compensation for its services, except those resultingfrom its own negligent action, negligent failure to act or willfulmisconduct.  Such expenses shall includethe reasonable and customary compensation, disbursements and expenses of theTrustee’s agents and counsel.

###  

### (b)           The Co-Obligors shall indemnify theTrustee against any and all losses, liabilities or reasonable out-of-pocketexpenses incurred by it arising out of or in connection with the acceptance oradministration of its duties under this Indenture, including the costs andexpenses of enforcing this Indenture against the Co-Obligors (including thisSection 7.07) or any Guarantor and defending itself against any claim (whetherasserted by either of the Co-Obligors or any Holder or any other person) orliability in connection with the exercise or performance of any of its powersor duties hereunder, except to the extent any such loss, liability or expensemay be attributable to its negligence or bad faith.  The Trustee shall notify the Co-Obligorspromptly of any claim for which it may seek indemnity.  Failure by the Trustee to so notify theCo-Obligors shall not relieve the Co-Obligors of their obligationshereunder.  The Co-Obligors shall defendthe claim and the Trustee shall cooperate in the defense.  The Trustee may have separate counsel and theCo-Obligors shall pay the reasonable and customary fees and expenses of suchcounsel.  The Co-Obligors need not payfor any settlement made without its consent, which consent shall not beunreasonably withheld.

###  

### (c)           The obligations of the Co-Obligorsunder this Section 7.07 shall survive the satisfaction and discharge of thisIndenture.

 

94

----

 

### (d)                                 Tosecure the Co-Obligors’ payment obligations in this section, the Trustee shallhave a Lien prior to the Notes on all money or property held or collected bythe Trustee, except that held in trust to pay principal and interest onparticular Notes.  Such Lien shallsurvive the satisfaction and discharge of this Indenture.

 

### (e)                                  Whenthe Trustee incurs expenses or renders services after an Event of Defaultspecified in Section 6.01(7) or (8) hereof occurs, the expenses and thecompensation for the services (including the fees and expenses of its agentsand counsel) are intended to constitute expenses of administration under anyBankruptcy Law.

 

Section 7.08.                             Replacementof Trustee.

 

### (a)                                  Aresignation or removal of the Trustee and appointment of a successor Trusteeshall become effective only upon the successor Trustee’s acceptance ofappointment as provided in this Section 7.08.

###  

### (b)                                 TheTrustee may resign in writing at any time and be discharged from the trusthereby created by so notifying the Co-Obligors. The Holders of a majority in principal amount of the then outstandingNotes may remove the Trustee by so notifying the Trustee and the Co-Obligors inwriting.  The Co-Obligors may remove theTrustee if:

###  

#### (i)                                     the Trustee failsto comply with Section 7.10 hereof;

####  

#### (ii)                                  the Trustee isadjudged a bankrupt or an insolvent or an order for relief is entered withrespect to the Trustee under any Bankruptcy Law;

####  

#### (iii)                               a custodian or publicofficer takes charge of the Trustee or its property; or

####  

#### (iv)                              the Trustee becomesincapable of acting.

####  

### (c)                                  Ifthe Trustee resigns or is removed or if a vacancy exists in the office ofTrustee for any reason, the Co-Obligors shall promptly appoint a successorTrustee.  Within one year after thesuccessor Trustee takes office, the Holders of a majority in principal amountof the then outstanding Notes may appoint a successor Trustee to replace thesuccessor Trustee appointed by the Co-Obligors.

###  

### (d)                                 Ifa successor Trustee does not take office within 30 days after the retiringTrustee resigns or is removed, the retiring Trustee, the Co-Obligors, or theHolders of Notes of at least 10% in principal amount of the then outstandingNotes may petition at the expense of the Co-Obligors any court of competentjurisdiction for the appointment of a successor Trustee.

###  

### (e)                                  Ifthe Trustee, after written request by any Holder who has been a Holder for atleast three months, fails to comply with Section 7.10, such Holder may petitionany court of competent jurisdiction for the removal of the Trustee and theappointment of a successor Trustee.

 

95

----

 

### (f)                                    Asuccessor Trustee shall deliver a written acceptance of its appointment to theretiring Trustee and to the Co-Obligors. Thereupon, the resignation or removal of the retiring Trustee shallbecome effective, and the successor Trustee shall have all the rights, powersand duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession toHolders.  The retiring Trustee shallpromptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to theTrustee hereunder have been paid and subject to the Lien provided for inSection 7.07 hereof.  Notwithstandingreplacement of the Trustee pursuant to this Section 7.08, the Co-Obligors’obligations under Section 7.07 hereof shall continue for the benefit of theretiring Trustee.

 

Section 7.09.                             SuccessorTrustee by Merger, Etc.

 

If the Trusteeconsolidates, merges or converts into, or transfers all or substantially all ofits corporate trust business to, another Person, the successor Person withoutany further act shall be the successor Trustee.

 

Section 7.10.                             Eligibility;Disqualification.

 

There shall atall times be a Trustee hereunder that is a corporation organized and doingbusiness under the laws of the United States of America or of any state thereofthat is authorized under such laws to exercise corporate trustee power, that issubject to supervision or examination by federal or state authorities and thathas (or its corporate parent shall have) a combined capital and surplus of atleast $100.0 million as set forth in its most recent published annual report ofcondition.

 

This Indentureshall always have a Trustee who satisfies the requirements of TIA Section310(a)(1), (2) and (5).  The Trustee issubject to TIA Section 310(b).

 

Section 7.11.                             PreferentialCollection of Claims Against Co-Obligors.

 

The Trustee issubject to TIA Section 311(a), excluding any creditor relationship listed inTIA Section 311(b).  A Trustee who hasresigned or been removed shall be subject to TIA Section 311(a) to the extentindicated therein.  The Trustee herebywaives any right to set-off any claim that it may have against the Co-Obligorsin any capacity (other than as Trustee and Paying Agent) against any of theassets of the Co-Obligors held by the Trustee; *provided*,*however*, that if the Trustee isor becomes a lender of any other Indebtedness permitted hereunder to be paripassu with the Notes, then such waiver shall not apply to the extent of suchIndebtedness.

 

# **ARTICLEEIGHT**Defeasance and Covenant Defeasance

 

Section 8.01.                             Optionto Effect Legal Defeasance or Covenant Defeasance.

 

TheCo-Obligors may, at the option of their Boards of Directors evidenced by aBoard Resolution set forth in an Officers’ Certificate, at any time, elect tohave either Section 8.02 or 8.03 hereof be applied to all outstanding Notesupon compliance with the conditions set forth below in this Article Eight.

 

96

----

 

Section 8.02.                             LegalDefeasance and Discharge.

 

Upon theCo-Obligors’ exercise of the option applicable to this Section 8.02, theCo-Obligors shall, subject to the satisfaction of the conditions set forth inSection 8.04 hereof, be deemed to have been discharged from their obligationswith respect to all outstanding Notes and all obligations of the Guarantorsshall be deemed to have been discharged with respect to their obligations underthe Guarantees on the date the conditions set forth below are satisfied(hereinafter, “Legal Defeasance”). For this purpose, Legal Defeasance means that the Co-Obligors and theGuarantors shall be deemed to have paid and discharged the entire Indebtednessrepresented by the outstanding Notes and Guarantees, respectively, which shallthereafter be deemed to be “outstanding” only for the purposes of Section 8.05hereof and the other Sections of this Indenture referred to in clauses (a) and(b) below, and to have satisfied all of their other obligations under suchNotes and this Indenture (and the Trustee, on demand of and at the expense ofthe Co-Obligors, shall execute proper instruments acknowledging the same),except for the following provisions which shall survive until otherwiseterminated or discharged hereunder:  (a)the rights of Holders of outstanding Notes to receive solely from Funds inTrust (as defined in Section 8.04 hereof and as more fully set forth in suchSection) payments in respect of the principal of, premium, if any, and intereston such Notes when such payments are due, (b) the Co-Obligors’ obligations withrespect to such Notes under Article Two and Section 4.02 hereof, (c) therights, powers, trusts, duties and immunities of the Trustee hereunder and theCo-Obligors’ obligations in connection therewith and (d) this ArticleEight.  Subject to compliance with thisArticle Eight, the Co-Obligors may exercise their option under this Section8.02 notwithstanding the prior exercise of their option under Section 8.03 hereof.

 

Section 8.03.                             CovenantDefeasance.

 

Upon theCo-Obligors’ exercise under Section 8.01 hereof of the option applicable tothis Section 8.03, the Co-Obligors shall, subject to the satisfaction of theconditions set forth in Section 8.04 hereof, be released from theirobligations, and each Restricted Subsidiary shall be released from itsobligations, under the covenants contained in Sections 4.03, 4.04(a) (to theextent not required by the TIA), 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,4.13, 4.14, 4.15, 4.18, 4.19 and 5.01 hereof with respect to the outstandingNotes on and after the date the conditions set forth in Section 8.04 aresatisfied (hereinafter, “Covenant Defeasance”), and the Notes shallthereafter be deemed not “outstanding” for the purposes of any direction,waiver, consent or declaration or act of Holders (and the consequences of anythereof) in connection with such covenants, but shall continue to be deemed“outstanding” for all other purposes hereunder (it being understood that such Notesshall not be deemed outstanding for accounting purposes).  For this purpose, Covenant Defeasance meansthat, with respect to the outstanding Notes, the Co-Obligors and eachRestricted Subsidiary may omit to comply with and shall have no liability in respectof any term, condition or limitation set forth in any such covenant, whetherdirectly or indirectly, by reason of any reference elsewhere herein to any suchcovenant or by reason of any reference in any such covenant to any otherprovision herein or in any other document and such omission to comply shall notconstitute a Default or an Event of Default under Section 6.01 hereof, but,except as specified above, the remainder of this Indenture and such Notes shallbe unaffected thereby.  In addition, uponthe Co-Obligors’ exercise under Section 8.01 hereof of the option applicable tothis Section 8.03, subject to the satisfaction of the conditions set forth inSection 8.04 hereof, Sections 6.01(3) through (6) shall not constitute Eventsof Default.

 

97

----

 

Section 8.04.                             Conditionsto Legal Defeasance or Covenant Defeasance.

 

The followingshall be the conditions to the application of either Section 8.02 or 8.03hereof to the outstanding Notes:

 

### (a)                                  theCo-Obligors must irrevocably deposit or cause to be deposited with the Trustee,in trust, specifically pledged as security for, and dedicated solely to, thebenefit of the Holders of the Notes cash in United States dollars, U.S.Government Obligations, or a combination thereof (“Funds in Trust”), insuch amounts as, in the aggregate, will be sufficient, in the opinion of anationally recognized firm of independent public accountants or a nationallyrecognized investment banking firm, to pay and discharge the principal of,premium, if any, and interest on the outstanding Notes on the Stated Maturity(or on any date after August 1, 2008 (such date being referred to as the “DefeasanceRedemption Date”), if at or prior to electing either Legal Defeasance orCovenant Defeasance, the Co-Obligors have delivered to the Trustee anirrevocable notice to redeem all of the outstanding Notes on the DefeasanceRedemption Date);

###  

### (b)                                 inthe case of Legal Defeasance, the Co-Obligors shall have delivered to theTrustee an opinion of independent counsel in the United States stating that (A)the Co-Obligors have received from, or there has been published by, theInternal Revenue Service a ruling or (B) since the date of this Indenture,there has been a change in the applicable federal income tax law, in eithercase to the effect that, and based thereon such opinion of independent counselin the United States shall confirm that, the Holders of the outstanding Noteswill not recognize income, gain or loss for federal income tax purposes as aresult of such Legal Defeasance and will be subject to federal income tax onthe same amounts, in the same manner and at the same times as would have beenthe case if such Legal Defeasance had not occurred;

###  

### (c)                                  inthe case of Covenant Defeasance, the Co-Obligors shall have delivered to theTrustee an opinion of independent counsel in the United States to the effectthat the Holders of the outstanding Notes will not recognize income, gain orloss for federal income tax purposes as a result of such Covenant Defeasanceand will be subject to federal income tax on the same amounts, in the samemanner and at the same times as would have been the case if such CovenantDefeasance had not occurred;

###  

### (d)                                 noDefault or Event of Default shall have occurred and be continuing on the dateof such deposit (other than any such Default resulting solely from theborrowing of funds to be applied to the Funds in Trust);

###  

### (e)                                  suchLegal Defeasance or Covenant Defeasance shall not result in a breach orviolation of, or constitute a Default under, this Indenture or any othermaterial agreement or instrument to which the Company, Duane Reade GP, anyGuarantor or any Restricted Subsidiary is a party or by which any of them isbound (other than any such Default resulting solely from the borrowing of fundsto be applied to the Funds in Trust);

###  

### (f)                                    theCo-Obligors shall have delivered to the Trustee an Officers’ Certificatestating that the deposit was not made by the Co-Obligors with the intent ofpreferring the holders of the Notes or any Guarantee over the other creditorsof the Company, Duane Reade GP or any 

 

98

----

 

### Guarantor with the intent ofdefeating, hindering, delaying or defrauding creditors of the Company, DuaneReade GP, any Guarantor or others; and

###  

### (g)                                 theCo-Obligors will have delivered to the Trustee an Officers’ Certificate and anopinion of independent counsel, each stating that all conditions precedentprovided for relating to either the Legal Defeasance or the CovenantDefeasance, as the case may be, have been complied with.

###  

Section 8.05.                             DepositedMoney and U.S.  Government Obligations toBe Held in Trust; Other Miscellaneous Provisions.

 

### (a)                                  Subjectto Section 8.06 hereof, all money and non-callable U.S. Government Obligations(including the proceeds thereof) deposited with the Trustee (or otherqualifying trustee, collectively for purposes of this Section 8.05, the “Trustee”)pursuant to Section 8.04 hereof in respect of the outstanding Notes shall beheld in trust and applied by the Trustee, in accordance with the provisions ofsuch Notes and this Indenture, to the payment, either directly or through anyPaying Agent (including the Company acting as Paying Agent) as the Trustee maydetermine, to the Holders of such Notes of all sums due and to become duethereon in respect of principal, premium and interest, but such money need notbe segregated from other funds except to the extent required by law.

###  

### (b)                                 TheCo-Obligors shall pay and indemnify the Trustee against any tax, fee or othercharge imposed on or assessed against the cash or non-callable U.S. GovernmentObligations deposited pursuant to Section 8.04 hereof or the principal andinterest received in respect thereof other than any such tax, fee or othercharge which by law is for the account of the Holders of the outstanding Notes.

###  

### (c)                                  Anythingin this Article Eight to the contrary notwithstanding, the Trustee shalldeliver or pay to the Co-Obligors from time to time upon the request of theCo-Obligors any money or non-callable U.S. Government Obligations held by it asprovided in Section 8.04 hereof which, in the opinion of a nationallyrecognized firm of independent public accountants, investment bank, orappraisal firm expressed in a written certification thereof delivered to theTrustee (which may be the opinion delivered under Section 8.04(a) hereof), arein excess of the amount thereof that would then be required to be deposited toeffect an equivalent Legal Defeasance or Covenant Defeasance.

###  

Section 8.06.                             Repaymentto the Co-Obligors.

 

Any moneydeposited with the Trustee or any Paying Agent, or then held by the Company orDuane Reade GP, in trust for the payment of the principal of, premium, if any,or interest on any Note and remaining unclaimed for two years after suchprincipal, and premium, if any, or interest has become due and payable shall bepaid to the Co-Obligors upon their request or (if then held by either of theCo-Obligors) shall be discharged from such trust; and the Holder of such Noteshall thereafter look only to the Co-Obligors for payment thereof, and allliability of the Trustee or such Paying Agent with respect to such trust money,and all liability of the Co-Obligors as trustee thereof, shall thereupon cease;*provided*, *however*, that the Trustee or such PayingAgent, before being required to make any such repayment, shall at the expenseof the Co-

 

99

----

 

Obligors causeto be published once, in the New York Times and The Wall Street Journal (nationaledition), notice that such money remains unclaimed and that, after a datespecified therein, which shall not be less than 30 days from the date of suchnotification or publication, any unclaimed balance of such money then remainingshall be repaid to the Co-Obligors.

 

Section 8.07.                             Reinstatement.

 

If the Trusteeor Paying Agent is unable to apply any United States dollars or non-callableU.S. Government Obligations in accordance with Section 8.02 or 8.03 hereof, asthe case may be, by reason of any order or judgment of any court orgovernmental authority enjoining, restraining or otherwise prohibiting suchapplication, then the Co-Obligors’ obligations under this Indenture and theNotes shall be revived and reinstated as though no deposit had occurredpursuant to Section 8.02 or 8.03 hereof until such time as the Trustee orPaying Agent is permitted to apply all such money in accordance with Section8.02 or 8.03 hereof, as the case may be; *provided,however*, that, if the Co-Obligors make any payment of principal of,premium, if any, or interest on any Note following the reinstatement of itsobligations, the Co-Obligors shall be subrogated to the rights of the Holdersof such Notes to receive such payment from the money held by the Trustee orPaying Agent.

 

# **ARTICLE NINE**Amendment, Supplement and Waiver

#  

Section 9.01.                             Without Consent of Holders of Notes.

 

### (a)                                  NotwithstandingSection 9.02 hereof, the Co-Obligors, the Guarantors, any other obligor underthe Notes and the Trustee may modify, supplement or amend this Indenture or theNotes without the consent of any Holder of a Note:

###  

###### (1)                                  to evidence thesuccession of another Person to the Company, Duane Reade GP, a Guarantor or anyother obligor under the Notes, and the assumption by any such successor of thecovenants of the Company, Duane Reaade GP, or such Guarantor or such obligor inthis Indenture and in the Notes and in any Guarantee in accordance with Section5.01 hereof;

######  

###### (2)                                  to add to thecovenants of the Company, Duane Reade GP, any Guarantor or any other obligorupon the Notes for the benefit of the Holders of the Notes or to surrender anyright or power conferred upon the Company, Duane Reade GP or any Guarantor orany other obligor upon the Notes, as applicable, in this Indenture, in theNotes or in any Guarantee;

######  

###### (3)                                  to cure anyambiguity, or to correct or supplement any provision in this Indenture, theNotes or any Guarantee which may be defective or inconsistent with any otherprovision in this Indenture, the Notes or any Guarantee;

######  

###### (4)                                  to make any otherprovisions with respect to matters or questions arising under this Indenture,the Notes or any Guarantee; *provided*that such provisions shall not adversely affect in any material respect theinterest of the Holders of the Notes;

 

100

----

 

###### (5)                                  to comply with therequirements of the Commission in order to effect or maintain the qualificationof this Indenture under the Trust Indenture Act;

######  

###### (6)                                  to add a Guarantor oradditional obligor under this Indenture or permit any Person to guarantee theNotes and/or obligations under this Indenture;

######  

###### (7)                                  to release aGuarantor as provided in this Indenture;

######  

###### (8)                                  to comply with therules of any applicable securities depositary;

######  

###### (9)                                  to evidence andprovide the acceptance of the appointment of a successor Trustee under thisIndenture;

######  

###### (10)                            to mortgage, pledge,hypothecate or grant a security interest in favor of the Trustee for thebenefit of the Holders of the Notes as additional security for the payment andperformance of the Company’s, Duane Reade GP’s and any Guarantor’s obligationsunder this Indenture, in any property, or assets, including any of which arerequired to be mortgaged, pledged or hypothecated, or in which a securityinterest is required to be granted to the Trustee pursuant to this Indenture orotherwise;

######  

###### (11)                            to provide for the issuanceof Additional Notes under this Indenture in accordance with the limitations setforth in this Indenture; or

######  

###### (12)                            to provide for the issuanceof the Exchange Notes pursuant to the terms of this Indenture and theRegistration Rights Agreement.

######  

Notwithstandingthe foregoing, and so long as the Credit Agreement or Term Loan is outstanding,no amendment may be made to the subordination provisions of this Indenture thatadversely affects the rights of any holder of Senior Indebtedness thenoutstanding unless holders of such Senior Indebtedness (or any group orrepresentative thereof authorized to give such consent) consent thereto.

 

### (b)                                 Uponthe request of the Co-Obligors accompanied by a resolution of their Boards ofDirectors authorizing the execution of any such amended or supplementalIndenture, and upon receipt by the Trustee of the documents described inSection 7.02 and Section 9.06 hereof, the Trustee shall join with theCo-Obligors in the execution of any amended or supplemental Indentureauthorized or permitted by the terms of this Indenture and to make any furtherappropriate agreements and stipulations that may be therein contained, but theTrustee shall not be obligated to enter into such amended or supplementalIndenture that adversely affects its own rights, duties or immunities underthis Indenture.

###  

Section 9.02.                             WithConsent of Holders of Notes.

 

### (a)                                  Exceptas provided below in this Section 9.02, the Co-Obligors, the Guarantors, anyother obligor under the Notes and the Trustee may amend or supplement thisIndenture or the Notes with the consent of the Holders of at least a majorityin principal amount of the Notes (including Additional Notes, if any) then outstanding(including, without limitation, consents obtained in connection with a purchaseof, or tender offer or exchange offer for, Notes), and, 

 

101

----

 

### subject to Sections 6.04 and6.07 hereof, any existing Default or Event of Default or compliance with anyprovision of this Indenture or the Notes may be waived with the consent of theHolders of a majority in principal amount of the then outstanding Notes(including Additional Notes, if any) (including, without limitation, consentsobtained in connection with a purchase of, or tender offer or exchange offerfor, Notes).  However, without theconsent of each Holder affected, an amendment or waiver under this Section 9.02may not (with respect to any Notes held by a non-consenting Holder):

###  

###### (1)                                  reduce the principalof or change the fixed maturity of any Note or alter the provisions, or waiveany payment, with respect of the redemption of the Notes;

######  

###### (2)                                  reduce the rate of orchange the time for payment of interest of any Note;

######  

###### (3)                                  waive a Default orEvent of Default in the payment of principal of, or interest or premium, ifany, on the Notes (except a rescission of acceleration of the Notes by theholders of at least a majority in aggregate principal amount of the Notes and awaiver of the payment default that resulted from such acceleration);

######  

###### (4)                                  make any Note payablein money other than U.S. dollars;

######  

###### (5)                                  reduce the percentagein principal amount of such outstanding Notes, the consent of whose Holders isrequired for any such amendment or supplemental indenture, or the consent ofwhose Holders is required for any waiver or compliance with certain provisionsof this Indenture;

######  

###### (6)                                  modify any of theprovisions relating to supplemental indentures requiring the consent of Holdersor relating to the waiver of past Defaults or relating to the waiver of certaincovenants, except to increase the percentage of such outstanding Notes requiredfor such actions or to provide that certain other provisions of this Indenture cannotbe modified or waived without the consent of the Holder of each such Noteaffected thereby;

######  

###### (7)                                  except in connectionwith the completion of the Acquisition on the Acquisition Closing Date or asotherwise permitted under Section 5.01 hereof, consent to the assignment ortransfer by the Company, Duane Reade GP or any Guarantor of any of its rightsand obligations under this Indenture;

######  

###### (8)                                  amend or modify anyof the provisions of this Indenture in any manner which makes any change to thesubordination provisions of the Notes or makes any change to the subordinationprovisions of any Guarantee and that in either case, adversely affects theHolders of the Notes; or

######  

###### (9)                                  voluntarily release,other than in accordance with this Indenture, any Guarantee of any SignificantSubsidiary.

######  

### (b)                                 TheCo-Obligors may, but shall not be obligated to, fix a record date for thepurpose of determining the Persons entitled to consent to any indenturesupplemental hereto.  If a record date isfixed, the Holders on such record date, or its duly designated proxies, andonly 

 

102

----

 

### such Persons, shall be entitledto consent to such supplemental indenture, whether or not such Holders remainHolders after such record date; *provided* thatunless such consent shall have become effective by virtue of the requisitepercentage having been obtained prior to the date which is 90 days after suchrecord date, any such consent previously given shall automatically and withoutfurther action by any Holder be cancelled and of no further effect.

###  

### (c)                                  Uponthe request of the Co-Obligors accompanied by a resolution of their Boards ofDirectors authorizing the execution of any such amended or supplementalIndenture, and upon the filing with the Trustee of evidence reasonablysatisfactory to the Trustee of the consent of the Holders of Notes asaforesaid, and upon receipt by the Trustee of the documents described inSection 9.06 hereof, the Trustee shall join with the Company in the executionof such amended or supplemental Indenture unless such amended or supplementalIndenture directly affects the Trustee’s own rights, duties or immunities underthis Indenture or otherwise, in which case the Trustee may in its discretion,but shall not be obligated to, enter into such amended or supplementalIndenture.

###  

### (d)                                 Itshall not be necessary for the consent of the Holders of Notes under thisSection 9.02 to approve the particular form of any proposed amendment orwaiver, but it shall be sufficient if such consent approves the substancethereof.

###  

### (e)                                  Afteran amendment, supplement or waiver under this Section becomes effective, theCo-Obligors shall mail to the Holders of Notes affected thereby a noticebriefly describing the amendment, supplement or waiver.  Any failure of the Co-Obligors to mail suchnotice, or any defect therein, shall not, however, in any way impair or affectthe validity of any such amended or supplemental Indenture or waiver.

###  

Section 9.03.                             Compliancewith Trust Indenture Act.

 

Everyamendment or supplement to this Indenture or the Notes shall be set forth in anamended or supplemental Indenture that complies with the TIA as then in effect.

 

Section 9.04.                             Revocationand Effect of Consents.

 

Until anamendment, supplement or waiver becomes effective, a consent to it by a Holderof a Note is a continuing consent by the Holder of a Note and every subsequentHolder of a Note or portion of a Note that evidences the same debt as theconsenting Holder’s Note, even if notation of the consent is not made on anyNote.  However, any such Holder of a Noteor subsequent Holder of a Note may revoke the consent as to its Note if theTrustee receives written notice of revocation before the date the waiver,supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance withits terms and thereafter binds every Holder.

 

Section 9.05.                             Notationon or Exchange of Notes.

 

### (a)                                  TheTrustee may place an appropriate notation about an amendment, supplement orwaiver on any Note thereafter authenticated. The Co-Obligors in exchange for all Notes may issue and the Trusteeshall, upon receipt of an Authentication Order, authenticate new Notes thatreflect the amendment, supplement or waiver.

 

103

----

 

### (b)                                 Failureto make the appropriate notation or issue a new Note shall not affect thevalidity and effect of such amendment, supplement or waiver.

###  

Section 9.06.                             Trusteeto Sign Amendments, Etc.

 

The Trusteeshall sign any amended or supplemental indenture or Note authorized pursuant tothis Article Nine if the amendment or supplement does not adversely affect therights, duties, liabilities or immunities of the Trustee.  The Co-Obligors may not sign an amendment orsupplemental Indenture or Note until their Boards of Directors approve it.  In executing any amended or supplementalindenture or Note, the Trustee shall be entitled to receive and (subject toSection 7.01 hereof) shall be fully protected in relying upon an Officers’Certificate and an Opinion of Counsel stating that the execution of suchamended or supplemental indenture is authorized or permitted by this Indenture.

 

# **ARTICLE TEN**Subordination

#  

Section 10.01.                       Agreementto Subordinate.

 

TheCo-Obligors agree, and each Holder by accepting a Note agrees, that theIndebtedness evidenced by the Notes and any other payment obligations on orwith respect to the Notes (including any obligation to repurchase the Notes) issubordinated in right of payment, to the extent and in the manner provided inthis Article Ten, to the prior payment in full in cash or Cash Equivalents ofall Senior Indebtedness (whether outstanding on the date hereof or hereaftercreated, incurred, assumed or guaranteed), and that the subordination is forthe benefit of the holders of Senior Indebtedness.  The provisions of this Article Ten shallcontinue to be effective or be reinstated, as the case may be, if at any timeany payment of any of the Senior Indebtedness is rescinded or must otherwise bereturned by a holder of Senior Indebtedness upon any Proceeding or otherwise,all as though such payment had not been made.

 

Section 10.02.                       Liquidation; Dissolution; Bankruptcy.

 

The holders ofSenior Indebtedness of the Co-Obligors will be entitled to receive payment infull in cash or Cash Equivalents of all Obligations due in respect of SeniorIndebtedness of the Co-Obligors (including interest after the commencement ofany bankruptcy, reorganization, insolvency, receivership or similar proceedingwhether or not allowed or allowable as a claim in any such proceeding at therate specified in the applicable Senior Indebtedness) before the Holders willbe entitled to receive any direct or indirect payment in respect of anyIndenture Obligations (except that Holders may receive and retain payments madefrom the trust pursuant to Article Eight or Article Twelve hereunder), in theevent of any distribution to creditors of the Company, Duane Reade GP or aGuarantor:

 

(1)                                  ina liquidation or dissolution of the Company, Duane Reade GP or a Guarantor;

 

(2)                                  ina bankruptcy, reorganization, insolvency, receivership or similar proceedingrelating to the Company, Duane Reade GP or a Guarantor or its property;

 

(3)                                  inan assignment for the benefit of creditors; or

 

104

----

 

(4)                                  inany marshaling of the Company’s, Duane Reade GP’s or a Guarantor’s assets andliabilities.

 

Any payment ordistribution of any kind or character, whether in cash, property or securities,which may be payable or deliverable in respect of the Indenture Obligations inany case, proceeding, dissolution, liquidation or other winding up or event ofthe type referred to in clauses (1) through (4) above, including any suchpayment or distribution which may be payable or deliverable by reason of thepayment of any other Indebtedness of the Company, Duane Reade GP or a Guarantorwhich is subordinated to the payment of the Indenture Obligations, shall bepaid by the Company, Duane Reade GP or Guarantor, as applicable, or by the trusteein bankruptcy, debtor-in-possession, receiver, liquidating trustee, custodian,assignee, agent or other Person making payment or distribution of assets of theCompany, Duane Reade GP or a Guarantor directly to the holders of the SeniorIndebtedness or their Representative or Representatives or to the trustee ortrustees under any indenture under which any instruments evidencing any of suchSenior Indebtedness may have been issued, ratably according to the aggregateamounts remaining unpaid, for application to the payment of all SeniorIndebtedness remaining unpaid to the extent necessary to pay all SeniorIndebtedness in full in cash or Cash Equivalents after giving effect to anyconcurrent payment or distribution to or for the benefit of the holders of theSenior Indebtedness, except that (1) in a bankruptcy, reorganization,insolvency, receivership or similar proceeding relating to the Company, DuaneReade GP or a Guarantor or its property, Holders may receive any payment ordistribution (i) authorized by an unstayed, final, nonappealable order ordecree stating that effect is being given to the subordination of the IndentureObligations to the Senior Indebtedness and made by a court of competentjurisdiction in a reorganization proceeding under any applicable Bankruptcy Lawor (ii) consists of securities (“Permitted Junior Securities”) which, ifdebt securities, are subordinated to at least the same extent as the IndentureObligations are to (x) Senior Indebtedness or (y) any securities issued inexchange for Senior Indebtedness; and (2) Holders may receive and retainpayments made from the trust pursuant to Article Eight or Article Twelvehereof.

 

Section 10.03.                       Defaulton Designated Senior Indebtedness.

 

### (a)                                  TheCompany and Duane Reade GP may not make any direct or indirect payment upon orin respect of the Notes (except from the trust pursuant to Article Eight orArticle Twelve hereof) if:

###  

###### (1)                                  a default (a “PaymentEvent of Default”) in the payment of principal of, premium, if any, orinterest on Designated Senior Indebtedness occurs and is continuing beyond anyapplicable period of grace; or

######  

###### (2)                                  any other default (a“Non-Payment Event of Default”) occurs and is continuing with respect toDesignated Senior Indebtedness which permits holders of the Designated SeniorIndebtedness as to which such default relates to accelerate its maturity andthe Trustee receives a notice of such default (a “Payment Blockage Notice”)from the required holders under such Designated Senior Indebtedness or theRepresentative of any such Designated Senior Indebtedness.

 

105

----

 

### (b)                                 Paymentson the Notes may and shall be resumed:

###  

(1)                                  inthe case of a Payment Event of Default, upon the date on which such default iscured or waived or, if the Designated Senior Indebtedness has been accelerated,such acceleration has been rescinded;

 

(2)                                  incase of a Non-Payment Event of Default, upon the earlier of the date on whichsuch Non-Payment Event of Default is cured or waived or 179 days after the dateon which the applicable Payment Blockage Notice is received unless the maturityof any Designated Senior Indebtedness has been accelerated; or

 

(3)                                  whenthe Designated Senior Indebtedness has been paid in full in cash or CashEquivalents.

 

No new periodof payment blockage may be commenced by a Payment Blockage Notice unless anduntil 360 days have elapsed since the first day of the effectiveness of theimmediately prior Payment Blockage Notice; *provided*that the delivery of a Payment Blockage Notice by the Representatives ofDesignated Senior Indebtedness other than under the Credit Agreement or theTerm Loan shall not bar the delivery of another Payment Blockage Notice by theapplicable Representative for the Credit Agreement or the Term Loan within suchperiod of 360 days; *provided, further,*that no period of payment blockage shall exceed 179 days in any one year and notwo consecutive interest payments on the Notes may be blocked by delivery of aPayment Blockage Notice.

 

No Non-PaymentEvent of Default which existed or was continuing on the date of the delivery ofa Payment Blockage Notice with respect to the Designated Senior Indebtednessdelivering such Payment Blockage Notice shall be, or be made, the basis for thecommencement of a second Payment Blockage Notice by the Representative for orthe holders of such Designated Senior Indebtedness whether or not within aperiod of 360 days unless such default has been cured or waived for a period ofnot less than 90 days.

 

Section 10.04.                       Accelerationof Notes.

 

If payment ofthe Notes is accelerated because of an Event of Default, the Company or DuaneReade GP shall promptly notify the Representative or holders of DesignatedSenior Indebtedness of the acceleration. If any Designated Senior Indebtedness is outstanding, neither theCompany, Duane Reade GP nor any of the Guarantors may pay the Notes until fiveBusiness Days after the Representative of such Designated Senior Indebtednessreceives notice of such acceleration and, thereafter, may pay the Notes only ifthis Article Ten otherwise permits payment at that time.

 

Section 10.05.                       WhenDistribution Must Be Paid Over.

 

### (a)                                  Inthe event that the Trustee or any Holder receives any payment of anyObligations with respect to the Notes (except (i) for Permitted JuniorSecurities or (ii) from the trust pursuant to Article Eight or Article Twelvehereof) at a time when such payment is prohibited by this Article Ten and theTrustee or such Holder, as applicable, has actual knowledge that such paymentis prohibited by this Article Ten, such payment shall be held by 

 

106

----

 

### the Trustee or such Holder, asapplicable, in trust for the benefit of the holders of SeniorIndebtedness.  Upon proper writtenrequest of the holders of Senior Indebtedness, the Trustee or such Holder, asthe case may be, shall deliver the amounts in trust to the holders of SeniorIndebtedness or their proper Representative under the agreement or indenture(if any) pursuant to which Senior Indebtedness may have been issued, as theirrespective interests may appear, for application to the payment of allObligations with respect to Senior Indebtedness remaining unpaid to the extentnecessary to pay such Obligations in full in accordance with their terms, aftergiving effect to any concurrent payment or distribution to or for the holdersof Senior Indebtedness.

###  

### (b)                                 Withrespect to the holders of Senior Indebtedness, the Trustee undertakes toperform only such obligations on the part of the Trustee as are specificallyset forth in this Article Ten, and no implied covenants or obligations withrespect to the holders of Senior Indebtedness shall be read into this Indentureagainst the Trustee.  The Trustee shall notbe deemed to owe any fiduciary duty to the holders of Senior Indebtedness, andshall not be liable to any such holders if the Trustee shall pay over ordistribute to or on behalf of Holders or the Co-Obligors or any other Personmoney or assets to which any holders of Senior Indebtedness shall be entitledby virtue of this Article Ten, except if such payment is made as a result ofthe willful misconduct or gross negligence of the Trustee.

###  

Section 10.06.                       Noticeby the Co-Obligors.

 

The Company orDuane Reade GP shall promptly notify the Trustee and the Paying Agent inwriting of any facts known to the Company or Duane Reade GP that would cause apayment of any Obligations with respect to the Notes to violate this ArticleTen, which notice shall specifically reference this Article Ten, but failure togive such notice shall not affect the subordination of the Notes to the SeniorIndebtedness as provided in this Article Ten.

 

Section 10.07.                       Subrogation.

 

After allSenior Indebtedness is paid in full in cash or Cash Equivalents and until theNotes are paid in full, Holders shall be subrogated (equally and ratably withthe holders of all Indebtedness of the Co-Obligors which by its express termsis subordinated to Senior Indebtedness of the Co-Obligors to the same extent asthe Notes are subordinated and which is entitled to like rights of subrogation)to the rights of holders of Senior Indebtedness to receive distributionsapplicable to Senior Indebtedness to the extent that distributions otherwisepayable to the Holders have been applied to the payment of SeniorIndebtedness.  A distribution made underthis Article Ten to holders of Senior Indebtedness that otherwise would havebeen made to Holders is not, as between the Co-Obligors, their creditors otherthan the holders of Senior Indebtedness and Holders, a payment by theCo-Obligors on the Notes.

 

Section 10.08.                       RelativeRights.

 

### (a)                                  ThisArticle Ten defines the relative rights of Holders and holders of SeniorIndebtedness.  Nothing in this Indentureshall:

 

107

----

 

#### (i)                                     impair, as betweenthe Co-Obligors and Holders, the obligation of the Co-Obligors, which isabsolute and unconditional, to pay principal of and interest on the Notes inaccordance with their terms;

####  

#### (ii)                                  affect the relativerights of Holders of Notes and creditors of the Co-Obligors other than theirrights in relation to holders of Senior Indebtedness; or

####  

#### (iii)                               prevent the Trustee orany Holder of Notes from exercising its available remedies upon a Default orEvent of Default, subject to the rights of holders and owners of SeniorIndebtedness to receive distributions and payments otherwise payable toHolders.

####  

### (b)                                 Ifthe Co-Obligors fail because of this Article Ten to pay principal of orinterest on a Note on the due date, the failure is still a Default or Event ofDefault.

###  

Section 10.09.                       SubordinationMay Not Be Impaired by the Co-Obligors.

 

No right ofany holder of Senior Indebtedness to enforce the subordination of theIndebtedness evidenced by the Notes shall be impaired by any act or failure toact by the Co-Obligors or any Holder or by the failure of the Co-Obligors orany Holder to comply with this Indenture.

 

Section 10.10.                       Distributionor Notice to Representative.

 

### (a)                                  Whenevera distribution is to be made or a notice given to Holders of SeniorIndebtedness, the distribution may be made and the notice given to theirRepresentatives.

###  

### (b)                                 Uponany payment or distribution of assets of the Co-Obligors referred to in thisArticle Ten, the Trustee and the Holders of Notes shall be entitled to relyupon any order or decree made by any court of competent jurisdiction or uponany certificate of such Representative or of the liquidating trustee or agentor other Person making any distribution to the Trustee or to the Holders ofNotes for the purpose of ascertaining the Persons entitled to participate insuch distribution, the holders of the Senior Indebtedness and otherIndebtedness of the Co-Obligors, the amount thereof or payable thereon, theamount or amounts paid or distributed thereon and all other facts pertinentthereto or to this Article Ten.

###  

Section 10.11.                       Rightsof Trustee and Paying Agent.

 

### (a)                                  Notwithstandingthe provisions of this Article Ten or any other provision of this Indenture,the Trustee shall not be charged with knowledge of the existence of any factsthat would prohibit the making of any payment or distribution by the Trustee,and the Trustee and the Paying Agent may continue to make payments on theNotes, unless the Trustee shall have received at its Corporate Trust Office atleast five Business Days prior to the date of such payment written notice offacts that would cause the payment of any Obligations with respect to the Notesto violate this Article Ten, which notice shall specifically reference thisArticle Ten.  Only the Co-Obligors or aRepresentative may give the notice. Nothing in this Article Ten shall impair the claims of, or payments to,the Trustee under or pursuant to Section 7.07 hereof, and 

 

108

----

 

### such claims or payments shallnot constitute Indenture Obligations for purposes of this Article Ten.

###  

### (b)                                 TheTrustee in its individual or any other capacity may hold Senior Indebtednesswith the same rights it would have if it were not Trustee.  Any Agent may do the same with like rights.

###  

Section 10.12.                       Authorizationto Effect Subordination.

 

Each Holder,by the Holder’s acceptance thereof, agrees and directs the Trustee on suchHolder’s behalf to take such action as may be necessary or appropriate toeffectuate the subordination as provided in this Article Ten, and appoints theTrustee to act as such Holder’s attorney-in-fact for any and all suchpurposes.  If the Trustee does not file aproper proof of claim or proof of debt in the form required in any proceeding referredto in Section 6.09 hereof at least 30 days before the expiration of the time tofile such claim, the lenders under the Credit Agreement and the Term Loan arehereby authorized to file an appropriate claim for and on behalf of the Holdersof the Notes.

 

Section 10.13.                       Relianceby Holders of Senior Indebtedness on Subordination.

 

Each Holder ofa Note, by accepting such Note, acknowledges and agrees that the foregoingsubordination provisions are, and are intended to be, an inducement and aconsideration to each holder of any Senior Indebtedness, whether such SeniorIndebtedness was created or acquired before or after the issuance of the Note,to acquire and continue to hold, or to continue to hold, such SeniorIndebtedness, and such holder of such Senior Indebtedness shall be deemedconclusively to have relied on such subordination provisions in acquiring andcontinuing to hold, or in continuing to hold, such Senior Indebtedness.  The provisions of this Article Ten (includingthe defined terms used herein) are for the benefit of the holders of any SeniorIndebtedness and shall be enforceable by each of them directly against anyHolder.

 

 

# **ARTICLE ELEVEN**Guarantees

#  

Section 11.01.                       Guarantee.

 

### (a)                                  Subjectto this Article Eleven, each of the Guarantors hereby, jointly and severally,fully and unconditionally guarantees to each Holder of a Note authenticated anddelivered by the Trustee and to the Trustee and its successors and assigns,irrespective of the validity and enforceability of this Indenture, the Notes orthe obligations of the Co-Obligors hereunder or thereunder, that:  (i) the principal of, premium, if any, andinterest, on the Notes will be promptly paid in full when due, whether atmaturity, by acceleration, redemption or otherwise, and interest on the overdueprincipal of and interest on the Notes, if any, if lawful (subject in all casesto any applicable grace period provided herein), and all other obligations ofthe Co-Obligors to the Holders or the Trustee hereunder or thereunder will bepromptly paid in full or performed, all in accordance with the terms hereof andthereof; and (ii) in case of any extension of time of payment or renewal of anyNotes or any of such other obligations, that same 

 

109

----

 

### will be promptly paid in fullwhen due or performed in accordance with the terms of the extension or renewal,whether at stated maturity, by acceleration or otherwise.  Failing payment when due of any amount soguaranteed or any performance so guaranteed for whatever reason, the Guarantorsshall be jointly and severally obligated to pay the same immediately.  Each Guarantor agrees that this is aguarantee of payment and not a guarantee of collection.

###  

### (b)                                 TheGuarantors hereby agree that their obligations hereunder shall beunconditional, irrespective of the validity, regularity or enforceability ofthe Notes or this Indenture, the absence of any action to enforce the same, anywaiver or consent by any Holder of the Notes with respect to any provisionshereof or thereof, the recovery of any judgment against either of theCo-Obligors, any action to enforce the same or any other circumstance whichmight otherwise constitute a legal or equitable discharge or defense of aGuarantor.  Subject to Section 6.06hereof, each Guarantor hereby waives diligence, presentment, demand of payment,filing of claims with a court in the event of insolvency or bankruptcy ofeither of the Co-Obligors, any right to require a proceeding first againsteither of the Co-Obligors, protest, notice and all demands whatsoever andcovenant that this Guarantee shall not be discharged except by completeperformance of the obligations contained in the Notes and this Indenture.

###  

### (c)                                  Ifany Holder or the Trustee is required by any court or otherwise to return tothe Co-Obligors, the Guarantors or any custodian, trustee, liquidator or othersimilar official acting in relation to either of the Co-Obligors or theGuarantors, any amount paid by either to the Trustee or such Holder, thisGuarantee, to the extent theretofore discharged, shall be reinstated in fullforce and effect.

###  

### (d)                                 EachGuarantor agrees that it shall not be entitled to any right of subrogation inrelation to the Holders in respect of any obligations guaranteed hereby untilpayment in full of all obligations guaranteed hereby.  Each Guarantor further agrees that, asbetween the Guarantors, on the one hand, and the Holders and the Trustee, onthe other hand, (x) the maturity of the obligations guaranteed hereby may beaccelerated as provided in Article Six hereof for the purposes of thisGuarantee, notwithstanding any stay, injunction or other prohibition preventingsuch acceleration in respect of the obligations guaranteed hereby, and (y) inthe event of any declaration of acceleration of such obligations as provided inArticle Six hereof, such obligations (whether or not due and payable) shallforthwith become due and payable by the Guarantors for the purpose of thisGuarantee.  Each Guarantor that makes apayment or distribution under its Guarantee shall have the right to seekcontribution from any non-paying Guarantor, in a *pro rata* amount based on the net assets of each Guarantordetermined in accordance with GAAP, so long as the exercise of such right doesnot impair the rights of the Holders under the Guarantee.

###  

Section 11.02.                       Subordinationof Guarantee.

 

TheObligations of each Guarantor under its Guarantee pursuant to this ArticleEleven shall be junior and subordinated to the prior payment in full in cash orCash Equivalents of all Senior Indebtedness of such Guarantor (including SeniorIndebtedness of the Guarantor incurred after the date hereof) on the same basisas the Notes are junior and subordinated to the prior payment in full allSenior Indebtedness of the Co-Obligors, as described in Article Tenhereof.  For the purposes of theforegoing sentence, the Trustee and the Holders shall have the right to receiveand/or retain payments by any of the Guarantors only at such times as they mayreceive 

 

110

----

 

and/or retain payments inrespect of the Notes pursuant to this Indenture, including Article Ten hereof.

 

Section 11.03.                       Limitationon Guarantor Liability.

 

EachGuarantor, and by its acceptance of Notes, each Holder, hereby confirms that itis the intention of all such parties that the Guarantee of such Guarantor notconstitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law,the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or anysimilar federal or state law to the extent applicable to any Guarantee.  To effectuate the foregoing intention, theTrustee, the Holders and the Guarantors hereby irrevocably agree that theobligations of such Guarantor will be limited to the maximum amount which,after giving effect to all other contingent and fixed liabilities of suchGuarantor, and after giving effect to any collections from or payments made byor on behalf of any other Guarantor in respect of the obligations of such otherGuarantor under its Guarantee or pursuant to its contribution obligations underthis Article Eleven, will result in the obligations of such Guarantor under itsGuarantee not constituting a fraudulent conveyance or fraudulent transfer underFederal or state law.  Until such time asthe Notes are paid in full, each Guarantor hereby waives all rights ofsubrogation or contribution, whether arising by contract or operation of law(including, without limitation, any such right arising under federal BankruptcyLaw) or otherwise by reason of any payment by it pursuant to the provisions ofthis Article Eleven.

 

Section 11.04.                       Executionand Delivery of Guarantee.

 

### (a)                                  Toevidence its Guarantee set forth in Section 11.01, upon consummation of theAcquisition (i) each Initial Guarantor shall be required to have a notation ofsuch Guarantee substantially in the form included in Exhibit E endorsed by anOfficer of such Initial Guarantor by manual or facsimile signature on each Noteauthenticated and delivered by the Trustee upon consummation of theAcquisition, and (ii) the Guarantor Supplemental Indenture shall be executed onbehalf of such Initial Guarantor by any of its executive officers by manual orfacsimile signature.

###  

### (b)                                 EachGuarantor hereby agrees that its Guarantee set forth in Section 11.01 shallremain in full force and effect notwithstanding any failure to endorse on eachNote a notation of such Guarantee.

###  

### (c)                                  Ifan Officer whose signature is on this Indenture or on the Guarantee no longerholds that office at the time the Trustee authenticates the Note on which aGuarantee is endorsed, the Guarantee shall be valid nevertheless.

###  

### (d)                                 Thedelivery of any Note by the Trustee, after the authentication thereofhereunder, shall constitute due delivery of the Guarantee set forth in thisIndenture on behalf of the Guarantors.

###  

### (e)                                  Inthe event that the Company creates or acquires any new Restricted Subsidiary(other than Duane Reade GP) subsequent to the date of this Indenture, ifrequired by Section 4.12 hereof, the Company shall cause such RestrictedSubsidiary to execute a supplemental indenture to this Indenture substantiallyin the form included in Exhibit F and Guarantees in accordance with Section4.12 hereof and this Article Eleven, to the extent applicable.

 

111

----

 

Section 11.05.                       Releasesof Guarantors.

 

### (a)                                  AGuarantor will be deemed automatically and unconditionally released anddischarged from all of its obligations under its Guarantee without any furtheraction on the part of the Trustee or any Holder of the Notes:

###  

###### (1)                                  in connection withany sale or other disposition of all or substantially all of the assets of thatGuarantor (including by way of merger or consolidation) to a Person that is not(either before or after giving effect to such transaction) the Company or aRestricted Subsidiary, if the sale or other disposition of all or substantiallyall of the assets of that Guarantor complies with Section 4.11 and Section 4.09hereof;

######  

###### (2)                                  in connection withany sale of all of the Capital Stock of a Guarantor to a Person that is not(either before or after giving effect to such transaction) the Company or aRestricted Subsidiary, if the sale of all such Capital Stock of that Guarantorcomplies with Section 4.11 and Section 4.09 hereof;

######  

###### (3)                                  in connection withany sale of Capital Stock of a Guarantor to a Person that results in theGuarantor no longer being a Subsidiary of the Company, if (i) the sale of suchCapital Stock of that Guarantor complies with Section 4.11 hereof; and (ii)following such sale, such Guarantor is no longer the obligor under or guarantorof any Indebtedness of the Company or any Restricted Subsidiary (other thanIndebtedness that is permitted to be incurred by Restricted Subsidiaries thatare not Guarantors under Section 4.07 hereof) (and no commitments in respect ofsuch Indebtedness are outstanding);

######  

###### (4)                                  if the Companyproperly designates any Restricted Subsidiary that is a Guarantor as anUnrestricted Subsidiary;

######  

###### (5)                                  if such Guarantor isno longer the obligor under or guarantor of any Indebtedness of the Company orany Restricted Subsidiary (other than Indebtedness that is permitted to beincurred by Restricted Subsidiaries that are not Guarantors under Section 4.07hereof) (and no commitments in respect of such Indebtedness are outstanding)and such Guarantor no longer pledges assets or other security interests whichsecure any Indebtedness of the Company or any Restricted Subsidiary (other thanIndebtedness that is permitted to be incurred by Restricted Subsidiaries thatare not Guarantors under Section 4.07 hereof); or

######  

###### (6)                                  if the Notes aredischarged in accordance with the procedures of Article Eight or Article Twelvehereof.

######  

### (b)                                 AnyGuarantor not released from its obligations under its Guarantee shall remainliable for the full amount of principal of and interest on the Notes and forthe other obligations of any Guarantor under this Indenture as provided in thisArticle Eleven.

 

112

----

 

# **ARTICLETWELVE**Satisfaction and Discharge

 

Section 12.01.                       Satisfactionand Discharge.

 

### (a)                                  ThisIndenture will be discharged and will cease to be of further effect (except asto surviving rights of registration of transfer or exchange of the Notes asexpressly provided for in this Indenture) as to all outstanding Notes underthis Indenture when

###  

#### (i)                                     either

####  

(1)                                  all such Notestheretofore authenticated and delivered (except lost, stolen or destroyed Noteswhich have been replaced or paid or Notes whose payment has been deposited intrust or segregated and held in trust by the Co-Obligors and thereafter repaidto the Co-Obligors or discharged from such trust as provided for in thisIndenture) have been delivered to the Trustee for cancellation or

 

(2)                                  all Notes nottheretofore delivered to the Trustee for cancellation (a) have become due andpayable, (b) will become due and payable at their Stated Maturity within oneyear, or (c) are to be called for redemption within one year under arrangementsreasonably satisfactory to the Trustee for the giving of notice of redemptionby the Trustee in the name, and at the expense, of the Co-Obligors;

 

### (b)                                 eitherof the Co-Obligors or any Guarantor has irrevocably deposited or caused to bedeposited with the Trustee as funds in trust an amount in United States dollars(whether in the form of cash or Cash Equivalents) sufficient to pay anddischarge the entire Indebtedness on the Notes not theretofore delivered to theTrustee for cancellation, including principal of, premium, if any, and accruedinterest at such Maturity, Stated Maturity or redemption date;

###  

### (c)                                  noDefault or Event of Default shall have occurred and be continuing on the dateof such deposit;

###  

### (d)                                 theCompany, Duane Reade GP or any Guarantor has paid or caused to be paid all othersums payable under this Indenture by the Company, Duane Reade GP and anyGuarantor;

###  

### (e)                                  theCo-Obligors have delivered to the Trustee an Officers’ Certificate and anopinion of independent counsel each stating that all conditions precedent underthis Indenture relating to the satisfaction and discharge of this Indenturehave been complied with;  and

###  

### (f)                                    theCo-Obligors have delivered irrevocable instructions to the Trustee hereunder toapply any deposited money described in clause (b) above to the payment of theNotes at Maturity, Stated Maturity or the redemption date, as the case may be.

 

113

----

 

Section 12.02.                       DepositedMoney and U.S. Government Obligations to be held in Trust; Other MiscellaneousProvisions.

 

Subject toSection 12.03 hereof, all money and non-callable U.S.  Government Obligations (including theproceeds thereof) deposited with the Trustee (or other qualifying trustee,collectively for purposes of this Section 12.02, the “Trustee”) pursuant toSection 12.01 hereof in respect of the outstanding Notes shall be held in trustand applied by the Trustee, in accordance with the provisions of such Notes andthis Indenture, to the payment, either directly or through any Paying Agent(including the Company acting as Paying Agent) as the Trustee may determine, tothe Holders of such Notes of all sums due and to become due thereon in respectof principal, premium and interest, but such money need not be segregated fromother funds except to the extent required by law.

 

Section 12.03.                       Repaymentto the Company.

 

Any moneydeposited with the Trustee or any Paying Agent, or then held by the Company, intrust for the payment of the principal of, premium or interest on any Note andremaining unclaimed for two years after such principal, and premium, if any, orinterest has become due and payable shall be paid to the Company on its requestor (if then held by the Company) shall be discharged from such trust; and theHolder of such Note shall thereafter look only to the Company for paymentthereof, and all liability of the Trustee or such Paying Agent with respect tosuch trust money, and all liability of the Company as trustee thereof, shallthereupon cease; *provided*, *however*, that the Trustee or such PayingAgent, before being required to make any such repayment, shall at the expenseof the Company cause to be published once, in the New York Times or The WallStreet Journal (national edition), notice that such money remains unclaimed andthat, after a date specified therein, which shall not be less than 30 days fromthe date of such notification or publication, any unclaimed balance of suchmoney then remaining shall be repaid to the Company.

 

# **ARTICLE THIRTEEN**Miscellaneous

 

Section 13.01.                       TrustIndenture Act Controls.

 

If and to theextent that any provision of this Indenture limits, qualifies or conflicts withthe duties imposed by TIA Section 318(c), the imposed duties shall control.

 

Section 13.02.                       Notices.

 

### (a)                                  Anynotice or communication by either of the Co-Obligors or any Guarantor, on theone hand, or the Trustee on the other hand, to the other is duly given if inwriting and delivered in Person or mailed by first class mail (registered orcertified, return receipt requested), facsimile or overnight air courierguaranteeing next day delivery, to the others’ address:

###  

If to theCompany (prior to the Acquisition Closing Date):

 

114

----

 

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022

Facsimile:  (212) 754-5685

Attention:  Tyler Wolfram

 

with copiesto:

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the AmericasNew York, New York  10019

Facsimile:  212-757-3990

Attention:  John C. Kennedy, Esq.

 

 

If to DuaneReade, Duane GP or any Guarantor (upon consummation of the Acquisition):

 

Duane Reade Inc.

440 Ninth Avenue

New York, New York  10001

Facsimile: 212-594-0832

Attention:  John K. Henry, Chief Financial Officer

 

with copiesto:

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the AmericasNew York, New York  10019

Facsimile:  212-757-3990

Attention:  John C. Kennedy, Esq.

 

 

If to theTrustee:

 

U.S. BankNational Association

225 AsylumStreet 23rd Floor

Hartford,Connecticut  06103

Fax:  (860) 241-6897

Attention:  Susan C. Merker

###  

### (b)                                 TheCompany, Duane Reade GP, the Guarantors or the Trustee, by notice to the othersmay designate additional or different addresses for subsequent notices orcommunications.

###  

### (c)                                  Allnotices and communications (other than those sent to Holders) shall be deemedto have been duly given: at the time delivered by hand, if personallydelivered; five 

 

115

----

 

### Business Days after beingdeposited in the mail, postage prepaid, if mailed; when receipt acknowledged,if telecopied; and the next Business Day after timely delivery to the courier,if sent by overnight air courier guaranteeing next day delivery.

###  

### (d)                                 Anynotice or communication to a Holder shall be mailed by first class mail, certifiedor registered, return receipt requested, or by overnight air courierguaranteeing next day delivery to its address shown on the register kept by theRegistrar.  Any notice or communicationshall also be so mailed to any Person described in TIA Section 313(c), to theextent required by the TIA.  Failure tomail a notice or communication to a Holder or any defect in it shall not affectits sufficiency with respect to other Holders.

###  

### (e)                                  Ifa notice or communication is mailed in the manner provided above within thetime prescribed, it is duly given, whether or not the addressee receives it.

###  

### (f)                                    Ifeither of the Co-Obligors mails a notice or communication to Holders, it shallmail a copy to the Trustee and each Agent at the same time.

 

Section 13.03.                       Communicationby Holders of Notes with Other Holders of Notes.

 

Holders maycommunicate pursuant to TIA Section 312(b) with other Holders with respect toits rights under this Indenture or the Notes. The Co-Obligors, the Trustee, the Registrar and anyone else shall havethe protection of TIA Section 312(c).

 

Section 13.04.                       Certificateand Opinion as to Conditions Precedent.

 

### (a)                                  Uponany request or application by the Co-Obligors to the Trustee to take any actionunder this Indenture, the Co-Obligors shall furnish to the Trustee:

###  

#### (i)                                     an Officers’Certificate in form and substance reasonably satisfactory to the Trustee (whichshall include the statements set forth in Section 13.05 hereof) stating that,in the opinion of the signers, all conditions precedent and covenants, if any,provided for in this Indenture relating to the proposed action have beensatisfied; and

####  

#### (ii)                                  to the extentrequired under Section 314 of the Trust Indenture Act, an Opinion of Counsel inform and substance reasonably satisfactory to the Trustee (which shall includethe statements set forth in Section 13.05 hereof) stating that, in the opinionof such counsel, all such conditions precedent and covenants have beensatisfied.

 

Section 13.05.                       StatementsRequired in Certificate or Opinion.

 

### (a)                                  Eachcertificate or opinion with respect to compliance with a condition or covenantprovided for in this Indenture (other than a certificate provided pursuant toTIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e)and shall include:

###  

#### (i)                                     a statement thatthe Person making such certificate or opinion has read such covenant orcondition;

 

116

----

 

#### (ii)                                  a brief statement asto the nature and scope of the examination or investigation upon which thestatements or opinions contained in such certificate or opinion are based;

####  

#### (iii)                               a statement that, in theopinion of such Person, he or she has made such examination or investigation asis necessary to enable him to express an informed opinion as to whether or notsuch covenant or condition has been satisfied; and

####  

#### (iv)                              a statement as to whetheror not, in the opinion of such Person, such condition or covenant has beensatisfied.

####  

#### Such opinionmay be rendered subject to exceptions and qualifications that are customary foropinions of like tenor.

 

Section 13.06.                       Rules byTrustee and Agents.

 

The Trusteemay make reasonable rules for action by or at a meeting of Holders.  The Registrar or Paying Agent may makereasonable rules and set reasonable requirements for its functions.

 

Section 13.07.                       NoPersonal Liability of Directors, Officers, Employees and Stockholders.

 

No director,officer, employee, member or stockholder of the Company or any RestrictedSubsidiary, as such, will have any liability for any obligations of the Companyor the Restricted Subsidiaries under the Notes, this Indenture, the Guaranteesto which they are a party or the Registration Rights Agreement, or for anyclaim based on, in respect of, or by reason of, such obligations or theircreation. Each holder of Notes by accepting a Note waives and releases all suchliability. The waiver and release are part of the consideration for issuance ofthe Notes. The waiver may not be effective to waive liabilities under thefederal securities laws.

 

Section 13.08.                       GoverningLaw.

 

THIS INDENTURESHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATEOF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOFTHAT WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

 

Section 13.09.                       NoAdverse Interpretation of Other Agreements.

 

This Indenturemay not be used to interpret any other indenture, loan or debt agreement of theCompany or any of its Subsidiaries or of any other Person.  Any such indenture, loan or debt agreementmay not be used to interpret this Indenture.

 

Section 13.10.                       Successors.

 

All agreementsof the Co-Obligors in this Indenture and the Notes shall bind their successors,except as otherwise provided in Section 5.01.  All agreements of the Trustee in this 

 

117

----

 

Indenture shall bind itssuccessors.  All agreements of eachGuarantor in this Indenture shall bind its successors, except as otherwiseprovided in Section 5.01.

 

Section 13.11.                       Severability.

 

In case anyprovision in this Indenture or the Notes shall be invalid, illegal orunenforceable, the validity, legality and enforceability of the remainingprovisions shall not in any way be affected or impaired thereby.

 

Section 13.12.                       CounterpartOriginals.

 

The partiesmay sign any number of copies of this Indenture.  Each signed copy shall be an original, butall of them together represent the same agreement.

 

Section 13.13.                       Acts ofHolders.

 

### (a)                                  Anyrequest, demand, authorization, direction, notice, consent, waiver or otheraction provided by this Indenture to be given or taken by the Holders may beembodied in and evidenced by one or more instruments of substantially similartenor signed by such Holders in person or by agents duly appointed in writing,and may be given or obtained in connection with a purchase of, or tender offeror exchange offer for, outstanding Notes; and, except as herein otherwiseexpressly provided, such action shall become effective when such instrument orinstruments are delivered to the Trustee and, where it is hereby expresslyrequired, to the Co-Obligors.  Suchinstrument or instruments (and the action embodied therein and evidencedthereby) are herein sometimes referred to as the “Act” of the Holderssigning such instrument or instruments. Proof of execution of any such instrument or of a writing appointing anysuch agent shall be sufficient for any purpose of this Indenture and conclusivein favor of the Trustee and the Co-Obligors if made in the manner provided inthis Section 13.13.

###  

### (b)                                 Thefact and date of the execution by any Person of any such instrument or writingmay be proved by the affidavit of a witness of such execution or by acertificate of a notary public or other officer authorized by law to takeacknowledgments of deeds, certifying that the individual signing suchinstrument or writing acknowledged to such witness, notary or officer theexecution thereof.  Where such executionis by a signer acting in a capacity other than his individual capacity, suchcertificate or affidavit shall also constitute sufficient proof ofauthority.  The fact and date of theexecution of any such instrument or writing, or the authority of the Personexecuting the same, may also be proved in any other manner which the Trusteedeems sufficient.

###  

### (c)                                  Notwithstandinganything to the contrary contained in this Section 13.13, the principal amountand serial numbers of Notes held by any Holder, and the date of holding thesame, shall be proved by the register of the Notes maintained by the Registraras provided in Section 2.04 hereof.

###  

### (d)                                 Ifthe Co-Obligors shall solicit from the Holders of the Notes any request,demand, authorization, direction, notice, consent, waiver or other Act, theCo-Obligors may, at their option, by or pursuant to a resolution of its Boardof Directors, fix in advance a record date for the determination of Holdersentitled to give such request, demand, authorization, direction, 

 

118

----

 

### notice, consent, waiver orother Act, but the Co-Obligors shall have no obligation to do so.  Notwithstanding TIA Section 316(c), suchrecord date shall be the record date specified in or pursuant to such BoardResolution, which shall be a date not earlier than the date 30 days prior tothe first solicitation of Holders generally in connection therewith or the dateof the most recent list of Holders forwarded to the Trustee prior to suchsolicitation pursuant to Section 2.06 hereof and not later than the date suchsolicitation is completed.  If such arecord date is fixed, such request, demand, authorization, direction, notice,consent, waiver or other Act may be given before or after such record date, butonly the Holders of record at the close of business on such record date shallbe deemed to be Holders for the purposes of determining whether Holders of therequisite proportion of the then outstanding Notes have authorized or agreed orconsented to such request, demand, authorization, direction, notice, consent,waiver or other Act, and for that purpose the then outstanding Notes shall becomputed as of such record date; providedthat no such authorization, agreement or consent by the Holders on such recorddate shall be deemed effective unless it shall become effective pursuant to theprovisions of this Indenture not later than eleven months after the recorddate.

###  

### (e)                                  Anyrequest, demand, authorization, direction, notice, consent, waiver or other Actof the Holder of any Note shall bind every future Holder of the same Note andthe Holder of every Note issued upon the registration or transfer thereof or inexchange therefor or in lieu thereof in respect of anything done, omitted orsuffered to be done by the Trustee or the Co-Obligors in reliance thereon, whetheror not notation of such action is made upon such Note.

###  

### (f)                                    Withoutlimiting the foregoing, a Holder entitled hereunder to take any actionhereunder with regard to any particular Note may do so itself with regard toall or any part of the principal amount of such Note or by one or more dulyappointed agents each of which may do so pursuant to such appointment withregard to all or any part of such principal amount.

###  

### (g)                                 Forpurposes of this Indenture, any action by the Holders which may be taken in writingmay be taken by electronic means or as otherwise reasonably acceptable to theTrustee.

 

Section 13.14.                       Benefitof Indenture.

 

Nothing inthis Indenture or in the Notes, express or implied, shall give to any Person,other than the parties hereto, any Paying Agent, any Registrar and itssuccessors hereunder, and the Holders, any benefit or any legal or equitableright, remedy or claim under this Indenture.

 

Section 13.15.                       Table ofContents, Headings, Etc.

 

The Table ofContents, Cross-Reference Table and Headings of the Articles and Sections ofthis Indenture have been inserted for convenience of reference only, are not tobe considered a part of this Indenture and shall in no way modify or restrictany of the terms or provisions hereof.

 

119

----

 

Section 13.16.                       TrusteeNot Fiduciary for Holders of Senior Indebtedness.

 

The Trusteeshall not be deemed to owe any fiduciary duty to the holders of SeniorIndebtedness and shall not be liable to any such holders if it shall in goodfaith mistakenly pay over or distribute to Holders or the Company or to anyother Person cash, property or securities to which any holders of SeniorIndebtedness shall be entitled by virtue of this Agreement or otherwise.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

120

----

 

**SIGNATURES**

 
|   | DUANE READE  ACQUISITION CORP., a   Delaware corporation |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | By:                                                      | /s/ Tyler J.  Wolfram |   |
|   |                                                     |  Name: Tyler J. Wolfram |
|   |                                                     |  Title: Vice President and Secretary |
|   |                                                     |
|   |                                                     |
|   | U.S. BANK  NATIONAL ASSOCIATION,   as Trustee            |
|   |                                                     |
|   | By:                                                      | /s/  Elizabeth C. Hammer |   |
|   |                                                     |  Name:  Elizabeth C. Hammer |
|   |                                                     |  Title:  Vice President |
|        |                                                          |  |  |  |

 

121

----

 

**EXHIBITA1**

 

[Face of Note]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OFTHE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE[COMPANY OR ITS]†** **[CO-OBLIGORS ORTHEIR]†† AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &CO.  OR IN SUCH OTHER NAME AS ISREQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TOCEDE & CO.  OR TO SUCH OTHER ENTITYAS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE,OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFULINASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTERESTHEREIN.

 

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTUREGOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THEBENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANYCIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAYBE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAYBE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.07(a) OF THEINDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FORCANCELLATION PURSUANT TO SECTION 2.12 OF THE INDENTURE AND (4) THIS GLOBAL NOTEMAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OFTHE [COMPANY]**†** [CO-OBLIGORS]**††**.

 

THIS NOTE AND THE GUARANTEES ENDORSED HEREON HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ORANY STATE SECURITIES LAWS.  NEITHER THISNOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST OR PARTICIPATION HEREINMAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISEDISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION ISEXEMPT FROM, OR NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIESACT.  THE HOLDER OF THIS NOTE AND THEGUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCE HEREOF, AGREES NOT TO OFFER, SELLOR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT THAT THE NOTES AND GUARANTEES MAY BETRANSFERRED (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO ANEFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG ASTHE NOTES AND THE GUARANTEES 

 

----

†   ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-1

----

 

ENDORSED THEREON ARE ELIGIBLE FOR RESALEPURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO APERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINEDIN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AQUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER ISBEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TONON-U.S.  PERSONS THAT OCCUR OUTSIDE THEUNITED STATES IN OFFSHORE TRANSACTIONS WITHIN THE MEANING OF REGULATION S UNDERTHE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THEREGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S ANDTHE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TOCLAUSE (D) PRIOR TO THE END OF THE 40-DAY “DISTRIBUTION COMPLIANCE PERIOD”WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TOCLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONAND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (2) IN EACH OF THEFOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORMAPPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THETRUSTEE.

 

A1-2

----

 

CUSIP[      ]

 
| No.      |   | $                        |
|-----------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

 

**[DUANE READE ACQUISITION CORP.]†[DUANE READE INC.**

**DUANE READE]††**

 

9.75% Senior Subordinated Notes due 2011

 

[Duane Reade Acquisition Corp., a Delaware corporation (the “Company”)]**†** [Duane Reade Inc., a Delaware corporation (the “Company”)and Duane Reade, a New York general partnership (“Duane Reade GP”, andtogether with the Company, the “Co-Obligors”)]**††**,which terms include any successor under the Indenture hereinafter referred to,for value received, promises to pay to CEDE & CO., or its registeredassigns, the principal sum of [Amount of Note]($[         ]) UNITED STATESDOLLARS on August 1, 2011.

 

Interest Payment Dates:  February1 and August 1 of each year, commencing February 1, 2005.

 

Regular Record Dates:  January 15and July 15 of each year.

 

Reference is hereby made to the further provisions of this Note setforth on the reverse hereof, which further provisions shall for all purposeshave the same effect as if set forth at this place.

 

 

Date of Issuance:                 

 

----

†   ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-3

----

 

IN WITNESS WHEREOF, the [Company has]†****[Co-Obligorshave]†† caused this Note to be signed manually or by facsimile by their dulyauthorized officers.

 
|   | [DUANE READE  ACQUISITION CORP., a   Delaware corporation                                                |   |
|--------|----------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                     |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: | ]† |
|   |                                                                                                     |
|   |                                                                                                     |
|   | [DUANE READE  INC. (as successor by merger to   Duane Reade Acquisition Corp.), a Delaware   corporation |   |
|   |                                                                                                     |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
|   |                                                                                                     |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
|   | DUANE READE, a New York general partnership                                                              |   |
|   |                                                                                                     |
|   | By:  Duane Reade Inc., as  General Partner                                                          |   |
|   |                                                                                                     |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: | ]†† |
|        |                                                                                                          |        |  |  |

 

----

†   ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-4

----

 

(Form of Trustee’s Certificate ofAuthentication)

 

 

This is one of the 9.75% Senior Subordinated Notes due 2011 describedin the within-mentioned Indenture.

 

 
|                                                                                                                                      | U.S. BANK NATIONAL ASSOCIATION, |
|-------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|
|                                                                                                                                      | as Trustee                      |
|                                                                                                                                      |                            |
|                                                                                                                                      | By:                             |   |   |
|                                                                                                                                      |                            | Authorized Signatory |
|                                                                                                                                      |                            |
| Date:                       |                            |

 

A1-5

----

 

[Reverse Side of Note]

 

**[DUANE READE ACQUISITION CORP.]†[DUANE READE INC.**

**DUANE READE]††**

 

9.75% Senior Subordinated Notes due 2011

 

Capitalizedterms used herein shall have the meanings assigned to them in the Indenturereferred to below unless otherwise indicated.

 

1.  Interest.  The [Company promises]**†**[Co-Obligors promise]**††** to payinterest on the principal amount of this Note at 9.75% per annum from the datehereof until maturity [and shall pay the Liquidated Damages, if any, payablepursuant to the Registration Rights Agreement, dated July 30, 2004‡ referred tobelow]*.  The [Company]**†** [Co-Obligors]**††** shall payinterest [and Liquidated Damages, if any,]* semi-annually in arrears onFebruary 1 and August 1 of each year, or if any such day is not a Business Day,on the next succeeding Business Day (each an “Interest Payment Date”).  Interest on the Notes shall accrue from themost recent date to which interest has been paid or, if no interest has beenpaid, from the date of original issuance; *provided*that if there is no existing Default in the payment of interest, and if thisNote is authenticated between a record date referred to on the face hereof andthe next succeeding Interest Payment Date, interest shall accrue from such nextsucceeding Interest Payment Date; *provided*further that the first Interest Payment Date shall be February 1, 2005.  The [Company]**†**[Co-Obligors]**††** shall pay interest (includingpost-petition interest in any proceeding under any Bankruptcy Law) on overdueinstallments of interest [and Liquidated Damages]* (without regard to anyapplicable grace periods) from time to time on demand at the same rate to theextent lawful.  Interest shall becomputed on the basis of a 360-day year of twelve 30-day months.  If a payment date is not a Business Day,payment may be made on the next succeeding day that is a Business Day, and nointerest shall accrue on such payment for the intervening period.

 

[This ExchangeNote was issued in connection with the Exchange Offer pursuant to which the9.75% Senior Subordinated Notes due 2011 in like principal amount wereexchanged for Exchange Notes.  TheExchange Notes rank *pari passu* inright of payment with the Initial Notes. For any period in which the Initial Note exchanged for this ExchangeNote was outstanding, Liquidated Damages may be due and owing on the InitialNote in connection with the Registration Rights Agreement.]**

 

2.  Method of Payment.  The [Company]**†**[Co-Obligors]**††** shall pay interest on the Notes(except defaulted interest [and Liquidated Damages]*, if any) to the Personswho are registered Holders of Notes at the close of business on the January15th or July 15th immediately 

 

----

†   For Notes issued on the Issue Date.

††  For Notes issued upon consummation of theAcquisition.

‡  For Additional Notes, insert the date of theRegistration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

** For Exchange Notes.

 

A1-6

----

 

preceding the Interest PaymentDate, even if such Notes are canceled after such record date and on or beforesuch Interest Payment Date, except as provided in Section 2.13 of the Indenturewith respect to defaulted interest.  [The[Company]**†** [Co-Obligors]**††**shall pay all Liquidated Damages, if any, on the Interest Payment Date of itschoosing and in the amounts set forth in the Registration RightsAgreement.]*  The Notes shall be payableas to principal, premium [and Liquidated Damages]*, if any, and interest at theoffice or agency of the [Company]† [Co-Obligors]†† maintained for such purposein The City of New York, or, at the option of the Company, payment of interest[and Liquidated Damages, if any,]* may be made by check mailed to the Holdersat their addresses set forth in the register of Holders, and provided thatpayment by wire transfer of immediately available funds shall be required withrespect to principal of and interest, premium [and Liquidated Damages]*, ifany, on, all Global Notes and all other Notes the Holders of which shall haveprovided wire transfer instructions to the [Company]**†**[Co-Obligors]**††** or the Paying Agent.  Such payment shall be in such coin orcurrency of the United States of America as at the time of payment is legaltender for payment of public and private debts.

 

3.  Paying Agent and Registrar.  Initially, U.S. Bank National Association,the Trustee under the Indenture, shall act as Paying Agent and Registrar.  The [Company]**†**[Co-Obligors]**††** may change any Paying Agent orRegistrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.

 

4.  Indenture.  [The Company issued the Notes under anIndenture dated as of July 30, 2004 (the “Indenture”) among the Companyand the Trustee.]**†** [The Co-Obligors issued the Notes pursuant to Supplemental Indentures,dated as of July 30, 2004, to the Indenture, dated as of July 30, 2004 (assupplemented, the “Indenture”) among Duane Reade Acquisition Corp. (“DRAC”)and the Trustee, wherein such Supplemental Indentures the Co-Obligors assumedthe obligations of DRAC under the Indenture and the Notes originally issuedunder the Indenture.]**††**  The terms of the Notes include those stated inthe Indenture and those made part of the Indenture by reference to the TrustIndenture Act of 1939, as amended.  TheNotes are subject to all such terms, and Holders are referred to the Indentureand such Act for a statement of such terms. To the extent any provision of this Note conflicts with the expressprovisions of the Indenture, the provisions of the Indenture shall govern andbe controlling.  The Indenture pursuantto which this Note is issued provides that an unlimited amount of AdditionalNotes may be issued thereunder, subject to compliance with the covenantstherein.

 

----

*  Not to be included forExchange Notes.

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-7

----

 

### 5.  Optional Redemption.  [(a)]**††**  After August 1, 2008, the [Company]**†** [Co-Obligors],**††,** on one ormore occasions may redeem for cash all or a portion of the Notes, on not lessthan 30 nor more than 90 days’ prior notice, in amounts of $5,000 or wholemultiples of $1,000 in excess thereof at the following redemption prices(expressed as percentages of principal amount) set forth below plus accrued andunpaid interest and additional interest, if any, thereon, to the applicableredemption date, if redeemed during the twelve-month period beginning on August1 of the years indicated below:

###  

| **Year**            | ** ** | **Redemption Price** | ** ** |
|---------------------|------------|----------------------|------------|
|                |       |                 |       |
| 2008                |       | 104.875              | %          |
| 2009                |       | 102.438              | %          |
| 2010 and thereafter |       | 100.000              | %          |

 

[(b)                             Atany time prior to August 1, 2007, the Company, DRS LLC or Holdings, at theCompany’s option, may use the net proceeds of one or more Equity Offerings toredeem on one or more occasions up to an aggregate of 35% of the aggregateprincipal amount of Notes issued under the Indenture (including the principalamount of any Additional Notes issued under the Indenture but withoutduplication with respect to any Exchange Notes issued under the Indenture) at aredemption price equal to 109.75% of the aggregate principal amount of theNotes redeemed, plus accrued and unpaid interest, if any, to the redemptiondate (subject to the rights of holders of record on relevant record dates toreceive interest due on an interest payment date); *provided* that this redemption provision shall not beapplicable with respect to any transaction that results in a Change of Control;*provided, further*, that if theproceeds of an Equity Offering are used for redemption, all of such proceedsare first contributed to the equity capital of the Company on a non-recoursebasis. At least 65% of the aggregate principal amount of Notes (including theprincipal amount of any Additional Notes issued under the Indenture but withoutduplication with respect to any Exchange Notes issued under the Indenture) mustremain outstanding immediately after the occurrence of such redemption. Inorder to effect this redemption, the Company, DRS LLC or Holdings, as the casemay be, must complete such redemption within 90 days after the closing of theEquity Offering.]**††**

 

6.  Mandatory Redemption.  The [Company]† [Co-Obligors]†† shall not berequired to make mandatory redemption or sinking fund payments with respect tothe Notes.

 

7.  Repurchase at Option of Holders.

 

### (a)                                  Uponthe occurrence of a Change of Control, each Holder may require the [Company]**†** [Co-Obligors]**††** to purchasesuch Holder’s Notes in whole or in part in integral multiples of $1,000, at apurchase price in cash in an amount equal to 101% of the principal amountthereof, plus accrued and unpaid interest, if any, to the date of purchase,pursuant to a Change of Control Offer in accordance with the procedures setforth in the Indenture.

 

----

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-8

----

 

### (b)                                 Undercertain circumstances described in the Indenture, the [Company]**†** [Co-Obligors]**††** will berequired to apply the proceeds of Asset Sales to the repayment of the Notesand/or Pari Passu Indebtedness.

###  

8.  Selection and Notice of Redemption.  If less than all of the Notes are to beredeemed or purchased in an offer to purchase at any time, the Trustee shallselect the Notes to be redeemed or purchased among the Holders of the Notes notmore than 90 days prior to the redemption date in compliance with the requirementsof the principal national securities exchange, if any, on which the Notes arelisted or, if the Notes are not so listed, on a *pro rata* basis, by lot or in accordance with any othermethod the Trustee considers fair and reasonable.  Redemptions pursuant to Section 3.07(b) ofthe Indenture shall be made on a *pro rata*basis or on as nearly a *pro rata*basis as practicable (subject to the provisions of the Depositary).  In the event of partial redemption by lot,the particular Notes to be redeemed shall be selected, unless otherwiseprovided herein, not less than 30 nor more than 90 days prior to the redemptiondate by the Trustee from the outstanding Notes not previously called forredemption.  Notices of redemption maynot be conditional.  If any Note is to beredeemed in part only, the notice of redemption that relates to that Note willstate the portion of the principal amount thereof to be redeemed.  A new Note in principal amount equal to theunredeemed portion of the original Note will be issued in the name of theHolder thereof upon cancellation of the original Note.  Notes called for redemption become due on thedate fixed for redemption.  On and afterthe redemption date, interest [and Liquidated Damages, if any,]* if any, ceaseto accrue on Notes or portions of them called for redemption.

 

9.  Denominations, Transfer, Exchange.  The Notes are in registered form withoutcoupons in denominations of $5,000 and integral multiples of $1,000 in excessthereof.  The transfer of Notes may beregistered and Notes may be exchanged as provided in the Indenture.  The Registrar and the Trustee may require aHolder, among other things, to furnish appropriate endorsements and transferdocuments and the [Company]† [Co-Obligors]†† may require a Holder to pay any taxesand fees required by law or permitted by the Indenture.  The [Company is]**†**[Co-Obligors are]**††**not required to transfer orexchange any Note selected for redemption. Also, the [Company is]**†** [Co-Obligorsare]**††**not required to transfer or exchangeany Note for a period of 15 days before a selection of Notes to be redeemed.

 

10.  Persons Deemed Owners.  The registered Holder of a Note will betreated as its owner for all purposes.

 

11.  Amendment, Supplement and Waiver.  The Indenture or the Notes may be amended orsupplemented only as provided in the Indenture.

 

12.  Defaults.  In the case of an Event of Default arisingfrom certain events of bankruptcy or insolvency specified in the Indenture,with respect to the Company or any Significant Subsidiary, all outstandingNotes will become due and payable immediately without 

 

----

*  Not to be included forExchange Notes.

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-9

----

 

further action or notice.  If any other Event of Default occurs and iscontinuing, the Trustee or the Holders of at least 25% in principal amount ofthe then outstanding Notes may, and the Trustee at the request of such Holdersshall, declare all unpaid principal of premium, if any, and accrued interest onall Notes to be due and payable immediately, by a notice in writing to theCompany (and to the Trustee if given by the Holders of the Notes) and upon anysuch declaration, such principal, premium, if any, and interest shall becomedue and payable immediately; *provided,however*, that so long as any Indebtedness permitted to be incurredunder the Credit Agreement or the Term Loan is outstanding, that accelerationshall not be effective until the earlier of (1) an acceleration of Indebtednessunder the Credit Agreement or the Term Loan or (2) five Business Days afterreceipt by the Company and the representatives of the lenders under the CreditAgreement and the Term Loan of written notice of the acceleration of the Notes(and such Event of Default is then continuing). The Trustee may withhold from Holders of the Notes notice of anycontinuing Default or Event of Default (except a Default or Event of Defaultrelating to the payment of principal or interest) if it determines thatwithholding notice is in their interest. The Holders of not less than a majority in aggregate principal amount ofthe Notes outstanding by notice to the Trustee may on behalf of the Holders ofall outstanding Notes waive any past Default and its consequences under theIndenture except a Default (1) in the payment of the principal of, premium, ifany, or interest on any Note (which may only be waived with the consent of eachHolder of Notes affected) or (2) in respect of a covenant or provision whichunder the Indenture cannot be modified or amended without the consent of theHolder of each Note affected by such modification or amendment.

 

13.  Subordination.                                           The Notes are subordinated, as provided in theIndenture, to Senior Indebtedness, as defined in the Indenture.  Each of the [Company]† [Co-Obligors]†† andthe Guarantors agrees, and each Holder by accepting a Note agrees, to thesubordination provisions contained in the Indenture and authorizes the Trusteeto give them effect.

 

14.  Trustee Dealings with the [Company]**†** [Co-Obligors]**††**.  The Trustee, in its individual or any othercapacity, may make loans to, accept deposits from, and perform services for the[Company or its]**†** [Co-Obligors or their]**††**Affiliates, and may otherwise deal with the [Company orits]**†** [Co-Obligors or their]**††**Affiliates, as if it were not the Trustee.

 

15.  No Recourse Against Others.  No director, officer, employee, member orstockholder of [the Company]**†** [either ofthe Co-Obligors or any Guarantor, ]**††** as such,will have any liability for any obligations of the [Company]**†** [Co-Obligors or the Guarantors]**††**underthe Notes, the Indenture[, the Guarantees]**††**or theRegistration Rights Agreement, or for any claim based on, in respect of, or byreason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all suchliability.  The waiver and release arepart of the consideration for issuance of the Notes.  The waiver may not be effective to waiveliabilities under the federal securities laws.

 

16.  Authentication.  This Note shall not be valid untilauthenticated by the manual signature of the Trustee or an authenticatingagent.

 

----

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-10

----

 

17.  Additional Rights of Holders of RestrictedGlobal Notes and Restricted Definitive Notes.  [In addition to the rights provided toHolders under the Indenture, Holders of Restricted Global Notes and RestrictedDefinitive Notes issued on the Issue Date shall have all the rights set forthin the Registration Rights Agreement dated as of July 30, 2004‡, among the[Company]**†** [Co-Obligors, the Guarantors]**††** and the parties named on the signature pages thereof.]*

 

18.  CUSIP Numbers.  Pursuant to a recommendation promulgated bythe Committee on Uniform Security Identification Procedures, the [Company has]†[Co-Obligors have]†† caused CUSIP numbers to be printed on the Notes and theTrustee may use CUSIP numbers in notices of redemption as a convenience toHolders.  No representation is made as tothe accuracy of such numbers either as printed on the Notes or as contained inany notice of redemption and reliance may be placed only on the otheridentification numbers placed thereon.

 

19.  Governing Law.  This Note shall be governed by and construedin accordance with the laws of the State of New York, without giving effect tothe conflicts of laws principles thereof that would indicate the applicabilityof the laws of any other jurisdiction.

 

The [Company]**†** [Co-Obligors]**††**shallfurnish to any Holder upon written request and without charge a copy of theIndenture and/or the Registration Rights Agreement.  Requests may be made to:

 

[DUANE READEACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022

Facsimile:  (212) 754-5685

Attention:  Tyler Wolfram]**†**

 

[DUANE READEINC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

Facsimile: 212-594-0832

Attention:  Chief FinancialOfficer]**††**

 

----

‡  For Additional Notes, insert the date of theRegistration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

†  For Notes issued on the Issue Date.

††  For Notes issued upon consummation of theAcquisition.

 

A1-11

----

 

**ASSIGNMENT FORM**

 

To assign this Note, fill in the form below:

 
| (I) or (we) assign and transfer this Note to:                                                                |                                |                                                                                              |
|--------------------------------------------------------------------------------------------------------------|-------------------------------------|---------------------------------------------------------------------------------------------------|
|                                                                                                         | (Insert assignee’s legal name) |                                                                                              |
|                                                                                                         |
| (Insert                                                                                                      |
| assignee’s soc. sec. or tax I.D. no.)                                                                   |
|                                                                                                         |
|                                                                                                         |
|                                                                                                         |
|                                                                                                         |
| (Print                                                                                                       |
| or type assignee’s name, address and zip  code)                                                         |
|                                                                                                         |
| and irrevocably appoint                                                                                      |
|                                                                                                         |
| to transfer this Note on the books of the Company.  The agent may substitute another to act for    him. |
|                                                                                                         |
| Date:                                                                                                        |
|                                                                                                         |
|                                                                                                         | Your Signature:                     |                                                                                              |   |
|                                                                                                         |                                |    (Sign exactly as your name appears on     the face of this Note) |   |
|                                                                                                         |
|                                                                                                         |
| Signature Guarantee*:                                                                                        |
|                                                                                                              |                                     |                                                                                                   |  |  |  |  |

 

----

* Participant in a recognized Signature Guarantee Medallion Program (orother signature guarantor acceptable to the Trustee).

 

A1-12

----

 

**OPTION OF HOLDER TO ELECT PURCHASE**

 

If you want toelect to have this Note purchased by the [Company]† [Co-Obligors]†† pursuant toSection 4.11 or 4.18 of the Indenture, check the appropriate box below:

 

oSection 4.11      oSection 4.18

 

If you want toelect to have only part of the Note purchased by the [Company]**†** [Co-Obligors]**††**pursuant toSection 4.11 or Section 4.18 of the Indenture, state the amount you elect tohave purchased:

 

$          

 

Date:             

 
|                                                                                                       | Your Signature:                                                                                                                      |                                                                                               |   |
|------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |                                                                                                                                 |    (Sign exactly as your name appears on      the face of this Note) |
|                                                                                                       |                                                                                                                                 |
|                                                                                                       | Tax Identification  No.:                   |
|                                                                                                       |
| Signature  Guarantee*:               |

 

----

*  Participant in a recognizedSignature Guarantee Medallion Program (or other signature guarantor acceptableto the Trustee).

 

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A1-13

----

 

**SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBALNOTE**

 

The followingexchanges of a part of this Global Note for an interest in another Global Noteor for a Definitive Note, or exchanges of a part of another Global Note orDefinitive Note for an interest in this Global Note, have been made:

 
| **Date of Exchange** | ** ** | **Amount of Decrease   in Principal Amount   at Maturity of this Global Note** | ** ** | **Amount of Increase in   Principal Amount at   Maturity of this   Global Note** | ** ** | **Principal Amount   Maturity of this   Global Note   Following such   Decrease (or Increase)** | ** ** |
|----------------------|------------|-------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **           | ** ** | ** **                                                                          | ** ** | ** **                                                                       | ** ** | ** **                                                                                      | ** ** |
| ** **           | ** ** | ** **                                                                          | ** ** | ** **                                                                       | ** ** | ** **                                                                                      | ** ** |
| ** **           | ** ** | ** **                                                                          | ** ** | ** **                                                                       | ** ** | ** **                                                                                      | ** ** |
| ** **           | ** ** | ** **                                                                          | ** ** | ** **                                                                       | ** ** | ** **                                                                                      | ** ** |
| ** **           | ** ** | ** **                                                                          | ** ** | ** **                                                                       | ** ** | ** **                                                                                      | ** ** |

 

A1-14

----

 

**EXHIBITA2**

 

[Face of Note]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OFTHE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE[COMPANY OR ITS]†** **[CO-OBLIGORS ORTHEIR]†† AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &CO.  OR IN SUCH OTHER NAME AS ISREQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TOCEDE & CO.  OR TO SUCH OTHER ENTITYAS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE,OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFULINASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTERESTHEREIN.

 

THIS GLOBALNOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THISNOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERSHEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPTTHAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANTTO SECTION 2.07 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED INWHOLE BUT NOT IN PART PURSUANT TO SECTION 2.07(a) OF THE INDENTURE, (3) THIS GLOBALNOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSORDEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE [COMPANY]**†**[CO-OBLIGORS]**††**.

 

THIS NOTE AND THE GUARANTEES ENDORSED HEREONHAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIESACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST ORPARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION ORUNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO THE REGISTRATIONREQUIREMENTS OF THE SECURITIES ACT.  THEHOLDER OF THIS NOTE AND THE GUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCEHEREOF, AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPTTHAT THE NOTES AND GUARANTEES MAY BE TRANSFERRED (A) TO THE COMPANY OR ANYSUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDERTHE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES AND THE GUARANTEES 

 

----

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-1

----

 

ENDORSEDTHEREON ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT(“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIEDINSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNTOR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVENTHAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TOOFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES INOFFSHORE TRANSACTIONS WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIESACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATIONREQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’SRIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO CLAUSE (D) PRIORTO THE END OF THE 40-DAY “DISTRIBUTION COMPLIANCE PERIOD” WITHIN THE MEANING OFREGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (E) TO REQUIRE THEDELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATIONSATISFACTORY TO EACH OF THEM, AND (2) IN EACH OF THE FOREGOING CASES, TOREQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE ISCOMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.

 

THE RIGHTS ATTACHING TO THIS REGULATION STEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGEFOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).

 

A2-2

----

 

CUSIP[     ]

 
| No. |   | $ |
|-----|--------|---|

 

**[DUANE READE ACQUISITION CORP.]†[DUANE READE INC.**

**DUANE READE]††**

 

9.75% Senior Subordinated Notes due 2011

 

[Duane Reade Acquisition Corp., a Delaware corporation (the “Company”)]**†** [Duane Reade Inc., a Delaware corporation (the “Company”)and Duane Reade, a New York general partnership (“Duane Reade GP”, andtogether with the Company, the “Co-Obligors”)]**††**,which terms include any successor under the Indenture hereinafter referred to,for value received, promises to pay to CEDE & CO., or its registeredassigns, the principal sum of [Amount of Note]($[      ]) UNITED STATES DOLLARS on August 1,2011.

 

Interest Payment Dates:  February1 and August 1 of each year, commencing February 1, 2005.

 

Regular Record Dates:  January 15and July 15 of each year.

 

Reference is hereby made to the further provisions of this Note setforth on the reverse hereof, which further provisions shall for all purposeshave the same effect as if set forth at this place.

 

 

Date of Issuance:              

 

----

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-3

----

 

IN WITNESS WHEREOF, the [Company has]†****[Co-Obligorshave]†† caused this Note to be signed manually or by facsimile by their dulyauthorized officers.

 
|   | [DUANE READE  ACQUISITION CORP., a   Delaware corporation                                                |   |
|--------|----------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                     |   |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: | ]**†** |
|   |                                                                                                     |   |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
|   | [DUANE READE  INC. (as successor by merger to   Duane Reade Acquisition Corp.), a Delaware   corporation |   |
|   |                                                                                                     |   |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |   |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
|   | DUANE READE, a New York general partnership                                                              |   |
|   |                                                                                                     |   |
|   | By:  Duane Reade Inc., as  General Partner                                                          |   |
|   |                                                                                                     |   |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: |   |
|   |                                                                                                     |   |
|   | By:                                                                                                      |   |
|   |                                                                                                     | Name:  |   |
|   |                                                                                                     | Title: | ]**††** |
|        |                                                                                                          |        |  |  |

 

----

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-4

----

 

(Form of Trustee’s Certificate ofAuthentication)

 

This is one of the 9.75% Senior Subordinated Notes due 2011 describedin the within-mentioned Indenture.

 

 
|                                                        | U.S. BANK NATIONAL ASSOCIATION, |
|-------------------------------------------------------------|---------------------------------|
|                                                        | as Trustee                      |
|                                                        |                            |
|                                                        | By:                             |   |   |
|                                                        |                            | Authorized Signatory |
|                                                        |                            |
| Date:          |                            |

 

 

A2-5

----

 

[Reverse Side of Note]

 

**[DUANE READE ACQUISITION CORP.]†[DUANE READE INC.**

**DUANE READE]††**

 

9.75% Senior Subordinated Notes due 2011

 

Capitalizedterms used herein shall have the meanings assigned to them in the Indenturereferred to below unless otherwise indicated.

 

1.  Interest.  The [Company promises]**†**[Co-Obligors promise]**††** to payinterest on the principal amount of this Note at 9.75% per annum from the datehereof until maturity [and shall pay the Liquidated Damages, if any, payablepursuant to the Registration Rights Agreement, dated July 30, 2004‡ referred tobelow]*.  The [Company]**†** [Co-Obligors]**††** shall payinterest [and Liquidated Damages, if any,]* semi-annually in arrears onFebruary 1 and August 1 of each year, or if any such day is not a Business Day,on the next succeeding Business Day (each an “Interest Payment Date”).  Interest on the Notes shall accrue from themost recent date to which interest has been paid or, if no interest has beenpaid, from the date of original issuance; *provided*that if there is no existing Default in the payment of interest, and if thisNote is authenticated between a record date referred to on the face hereof andthe next succeeding Interest Payment Date, interest shall accrue from such nextsucceeding Interest Payment Date; *provided*further that the first Interest Payment Date shall be February 1, 2005.  The [Company]**†**[Co-Obligors]**††** shall pay interest (includingpost-petition interest in any proceeding under any Bankruptcy Law) on overdueinstallments of interest [and Liquidated Damages]* (without regard to anyapplicable grace periods) from time to time on demand at the same rate to theextent lawful.  Interest shall becomputed on the basis of a 360-day year of twelve 30-day months.  If a payment date is not a Business Day, paymentmay be made on the next succeeding day that is a Business Day, and no interestshall accrue on such payment for the intervening period.

 

[This ExchangeNote was issued in connection with the Exchange Offer pursuant to which the9.75% Senior Subordinated Notes due 2011 in like principal amount wereexchanged for Exchange Notes.  TheExchange Notes rank *pari passu* inright of payment with the Initial Notes. For any period in which the Initial Note exchanged for this ExchangeNote was outstanding, Liquidated Damages may be due and owing on the InitialNote in connection with the Registration Rights Agreement.]**

 

2.  Method of Payment.  The [Company]**†**[Co-Obligors]**††** shall pay interest on the Notes(except defaulted interest [and Liquidated Damages]*, if any) to the Personswho are registered Holders of Notes at the close of business on the January15th or July 15th immediately 

 

----

†   For Notes issued on the Issue Date.

††  For Notes issued upon consummation of theAcquisition.

‡  For Additional Notes, insert the date of theRegistration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

** For Exchange Notes.

 

A2-6

----

 

preceding the Interest PaymentDate, even if such Notes are canceled after such record date and on or beforesuch Interest Payment Date, except as provided in Section 2.13 of the Indenturewith respect to defaulted interest.  [The[Company]**†** [Co-Obligors]**††**shall pay all Liquidated Damages, if any, on the Interest Payment Date of itschoosing and in the amounts set forth in the Registration RightsAgreement.]*  The Notes shall be payableas to principal, premium [and Liquidated Damages]*, if any, and interest at theoffice or agency of the [Company]† [Co-Obligors]†† maintained for such purpose inThe City of New York, or, at the option of the Company, payment of interest[and Liquidated Damages, if any,]* may be made by check mailed to the Holdersat their addresses set forth in the register of Holders, and provided thatpayment by wire transfer of immediately available funds shall be required withrespect to principal of and interest, premium [and Liquidated Damages]*, ifany, on, all Global Notes and all other Notes the Holders of which shall haveprovided wire transfer instructions to the [Company]**†**[Co-Obligors]**††** or the Paying Agent.  Such payment shall be in such coin orcurrency of the United States of America as at the time of payment is legaltender for payment of public and private debts.

 

3.  Paying Agent and Registrar.  Initially, U.S. Bank National Association,the Trustee under the Indenture, shall act as Paying Agent and Registrar.  The [Company]**†**[Co-Obligors]**††** may change any Paying Agent orRegistrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.

 

4.  Indenture.  [The Company issued the Notes under anIndenture dated as of July 30, 2004 (the “Indenture”) among the Companyand the Trustee.]**†** [The Co-Obligors issued the Notes pursuant to Supplemental Indentures,dated as of July 30, 2004, to the Indenture, dated as of July 30, 2004 (assupplemented, the “Indenture”) among Duane Reade Acquisition Corp. (“DRAC”)and the Trustee, wherein such Supplemental Indentures the Co-Obligors assumedthe obligations of DRAC under the Indenture and the Notes originally issuedunder the Indenture.]**††**  The terms of the Notes include those statedin the Indenture and those made part of the Indenture by reference to the TrustIndenture Act of 1939, as amended.  TheNotes are subject to all such terms, and Holders are referred to the Indentureand such Act for a statement of such terms. To the extent any provision of this Note conflicts with the expressprovisions of the Indenture, the provisions of the Indenture shall govern andbe controlling.  The Indenture pursuantto which this Note is issued provides that an unlimited amount of AdditionalNotes may be issued thereunder, subject to compliance with the covenantstherein.

 

----

*  Not to be included forExchange Notes.

†  ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-7

----

 

### 5.  Optional Redemption.  [(a)]**††**  After August 1, 2008, the [Company]**†** [Co-Obligors],**††,** on one ormore occasions may redeem for cash all or a portion of the Notes, on not lessthan 30 nor more than 90 days’ prior notice, in amounts of $5,000 or wholemultiples of $1,000 in excess thereof at the following redemption prices(expressed as percentages of principal amount) set forth below plus accrued andunpaid interest and additional interest, if any, thereon, to the applicableredemption date, if redeemed during the twelve-month period beginning on August1 of the years indicated below:

###  

| **Year**            | ** ** | **Redemption Price** | ** ** |
|---------------------|------------|----------------------|------------|
|                |       |                 |       |
| 2008                |       | 104.875              | %          |
| 2009                |       | 102.438              | %          |
| 2010 and thereafter |       | 100.000              | %          |

 

[(b)                             Atany time prior to August 1, 2007, the Company, DRS LLC or Holdings, at theCompany’s option, may use the net proceeds of one or more Equity Offerings toredeem on one or more occasions up to an aggregate of 35% of the aggregateprincipal amount of Notes issued under the Indenture (including the principalamount of any Additional Notes issued under the Indenture but withoutduplication with respect to any Exchange Notes issued under the Indenture) at aredemption price equal to 109.75% of the aggregate principal amount of theNotes redeemed, plus accrued and unpaid interest, if any, to the redemptiondate (subject to the rights of holders of record on relevant record dates toreceive interest due on an interest payment date); *provided* that this redemption provision shall not beapplicable with respect to any transaction that results in a Change of Control;*provided, further*, that if theproceeds of an Equity Offering are used for redemption, all of such proceedsare first contributed to the equity capital of the Company on a non-recoursebasis. At least 65% of the aggregate principal amount of Notes (including theprincipal amount of any Additional Notes issued under the Indenture but withoutduplication with respect to any Exchange Notes issued under the Indenture) mustremain outstanding immediately after the occurrence of such redemption. Inorder to effect this redemption, the Company, DRS LLC or Holdings, as the casemay be, must complete such redemption within 90 days after the closing of the EquityOffering.]**††**

 

6.  Mandatory Redemption.  The [Company]† [Co-Obligors]†† shall not berequired to make mandatory redemption or sinking fund payments with respect tothe Notes.

 

7.  Repurchase at Option of Holders.

 

### (c)                                  Uponthe occurrence of a Change of Control, each Holder may require the [Company]**†** [Co-Obligors]**††** to purchasesuch Holder’s Notes in whole or in part in integral multiples of $1,000, at apurchase price in cash in an amount equal to 101% of the principal amountthereof, plus accrued and unpaid interest, if any, to the date of purchase,pursuant to a Change of Control Offer in accordance with the procedures setforth in the Indenture.

 

----

†   ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-8

----

 

### (d)                                 Undercertain circumstances described in the Indenture, the [Company]**†** [Co-Obligors]**††** will berequired to apply the proceeds of Asset Sales to the repayment of the Notesand/or Pari Passu Indebtedness.

###  

8.  Selection and Notice of Redemption.  If less than all of the Notes are to beredeemed or purchased in an offer to purchase at any time, the Trustee shallselect the Notes to be redeemed or purchased among the Holders of the Notes notmore than 90 days prior to the redemption date in compliance with therequirements of the principal national securities exchange, if any, on whichthe Notes are listed or, if the Notes are not so listed, on a *pro rata* basis, by lot or in accordancewith any other method the Trustee considers fair and reasonable.  Redemptions pursuant to Section 3.07(b) ofthe Indenture shall be made on a *pro rata*basis or on as nearly a *pro rata*basis as practicable (subject to the provisions of the Depositary).  In the event of partial redemption by lot,the particular Notes to be redeemed shall be selected, unless otherwiseprovided herein, not less than 30 nor more than 90 days prior to the redemptiondate by the Trustee from the outstanding Notes not previously called forredemption.  Notices of redemption maynot be conditional.  If any Note is to beredeemed in part only, the notice of redemption that relates to that Note willstate the portion of the principal amount thereof to be redeemed.  A new Note in principal amount equal to theunredeemed portion of the original Note will be issued in the name of theHolder thereof upon cancellation of the original Note.  Notes called for redemption become due on thedate fixed for redemption.  On and afterthe redemption date, interest [and Liquidated Damages, if any,]* if any, ceaseto accrue on Notes or portions of them called for redemption.

 

9.  Denominations, Transfer, Exchange.  The Notes are in registered form withoutcoupons in denominations of $5,000 and integral multiples of $1,000 in excessthereof.  The transfer of Notes may beregistered and Notes may be exchanged as provided in the Indenture.  The Registrar and the Trustee may require aHolder, among other things, to furnish appropriate endorsements and transferdocuments and the [Company]† [Co-Obligors]†† may require a Holder to pay anytaxes and fees required by law or permitted by the Indenture.  The [Company is]**†**[Co-Obligors are]**††**not required to transfer orexchange any Note selected for redemption. Also, the [Company is]**†** [Co-Obligorsare]**††**not required to transfer or exchangeany Note for a period of 15 days before a selection of Notes to be redeemed.

 

10.  Persons Deemed Owners.  The registered Holder of a Note will betreated as its owner for all purposes.

 

11.  Amendment, Supplement and Waiver.  The Indenture or the Notes may be amended orsupplemented only as provided in the Indenture.

 

12.  Defaults.  In the case of an Event of Default arisingfrom certain events of bankruptcy or insolvency specified in the Indenture,with respect to the Company or any Significant Subsidiary, all outstandingNotes will become due and payable immediately without 

 

----

*  Not to be included forExchange Notes.

†   ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-9

----

 

further action or notice.  If any other Event of Default occurs and iscontinuing, the Trustee or the Holders of at least 25% in principal amount ofthe then outstanding Notes may, and the Trustee at the request of such Holdersshall, declare all unpaid principal of premium, if any, and accrued interest onall Notes to be due and payable immediately, by a notice in writing to theCompany (and to the Trustee if given by the Holders of the Notes) and upon anysuch declaration, such principal, premium, if any, and interest shall becomedue and payable immediately; *provided,however*, that so long as any Indebtedness permitted to be incurredunder the Credit Agreement or the Term Loan is outstanding, that accelerationshall not be effective until the earlier of (1) an acceleration of Indebtednessunder the Credit Agreement or the Term Loan or (2) five Business Days afterreceipt by the Company and the representatives of the lenders under the CreditAgreement and the Term Loan of written notice of the acceleration of the Notes(and such Event of Default is then continuing). The Trustee may withhold from Holders of the Notes notice of anycontinuing Default or Event of Default (except a Default or Event of Defaultrelating to the payment of principal or interest) if it determines thatwithholding notice is in their interest. The Holders of not less than a majority in aggregate principal amount ofthe Notes outstanding by notice to the Trustee may on behalf of the Holders ofall outstanding Notes waive any past Default and its consequences under theIndenture except a Default (1) in the payment of the principal of, premium, ifany, or interest on any Note (which may only be waived with the consent of eachHolder of Notes affected) or (2) in respect of a covenant or provision whichunder the Indenture cannot be modified or amended without the consent of theHolder of each Note affected by such modification or amendment.

 

13.  Subordination.                                           The Notes are subordinated, as provided in theIndenture, to Senior Indebtedness, as defined in the Indenture.  Each of the [Company]† [Co-Obligors]†† andthe Guarantors agrees, and each Holder by accepting a Note agrees, to thesubordination provisions contained in the Indenture and authorizes the Trusteeto give them effect.

 

14.  Trustee Dealings with the [Company]**†** [Co-Obligors]**††**.  The Trustee, in its individual or any othercapacity, may make loans to, accept deposits from, and perform services for the[Company or its]**†** [Co-Obligors or their]**††**Affiliates, and may otherwise deal with the [Company orits]**†** [Co-Obligors or their]**††**Affiliates, as if it were not the Trustee.

 

15.  No Recourse Against Others.  No director, officer, employee, member orstockholder of [the Company]**†** [either ofthe Co-Obligors or any Guarantor, ]**††** as such,will have any liability for any obligations of the [Company]**†** [Co-Obligors or the Guarantors]**††**underthe Notes, the Indenture[, the Guarantees]**††**or theRegistration Rights Agreement, or for any claim based on, in respect of, or byreason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all suchliability.  The waiver and release arepart of the consideration for issuance of the Notes.  The waiver may not be effective to waiveliabilities under the federal securities laws.

 

16.  Authentication.  This Note shall not be valid untilauthenticated by the manual signature of the Trustee or an authenticatingagent.

 

----

†   ForNotes issued on the Issue Date.

††  ForNotes issued upon consummation of the Acquisition.

 

A2-10

----

 

17.  Additional Rights of Holders of RestrictedGlobal Notes and Restricted Definitive Notes.  [In addition to the rights provided toHolders under the Indenture, Holders of Restricted Global Notes and RestrictedDefinitive Notes issued on the Issue Date shall have all the rights set forthin the Registration Rights Agreement dated as of July 30, 2004‡, among the [Company]**†** [Co-Obligors, the Guarantors]**††**and the parties named on the signature pages thereof.]*

 

18.  CUSIP Numbers.  Pursuant to a recommendation promulgated bythe Committee on Uniform Security Identification Procedures, the [Company has]†[Co-Obligors have]†† caused CUSIP numbers to be printed on the Notes and theTrustee may use CUSIP numbers in notices of redemption as a convenience toHolders.  No representation is made as tothe accuracy of such numbers either as printed on the Notes or as contained inany notice of redemption and reliance may be placed only on the otheridentification numbers placed thereon.

 

19.  Governing Law.  This Note shall be governed by and construedin accordance with the laws of the State of New York, without giving effect tothe conflicts of laws principles thereof that would indicate the applicabilityof the laws of any other jurisdiction.

 

The [Company]**†** [Co-Obligors]**††**shallfurnish to any Holder upon written request and without charge a copy of theIndenture and/or the Registration Rights Agreement.  Requests may be made to:

 

[DUANE READEACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022

Facsimile:  (212) 754-5685

Attention:  Tyler Wolfram]**†**

 

[DUANE READEINC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

Facsimile: 212-594-0832

Attention:  Chief Financial Officer]**††**

 

----

‡  For Additional Notes, insert the date of theRegistration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

†  For Notes issued on the Issue Date.

†† For Notes issued uponconsummation of the Acquisition.

 

A2-11

----

 

**ASSIGNMENT FORM**

 

To assign this Note, fill in the form below:

 
| (I) or (we) assign and transfer this Note to:                                                                                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                          | (Insert assignee’s legal name) |
|                                                                                                                                                          |
| (Insert                                                                                                                                                       |
| assignee’s soc. sec. or tax I.D. no.)                                                                                                                    |
|                                                                                                                                                          |
|                                                                                                                                                          |
|                                                                                                                                                          |
|                                                                                                                                                          |
| (Print                                                                                                                                                        |
| or type assignee’s name, address and zip  code)                                                                                                          |
|                                                                                                                                                          |
| and irrevocably appoint                                                                                                                                       |
|                                                                                                                                                          |
| to transfer this Note on the books of the Company.  The agent may substitute another to act for    him.                                                  |
|                                                                                                                                                          |
| Date:                            |
|                                                                                                                                                          |
|                                                                                                                                                          | Your Signature: |   |   |
|                                                                                                                                                          |   | (Sign exactly as your name appears on   the face of this Note) |
|                                                                                                                                                          |   |
|                                                                                                                                                          | Tax Identification No.: |
|                                                                                                                                                          |   |
| Signature Guarantee*:                                                                                                                                         |   |
|                                                                                                                                                               |  |  |  |  |

 

----

*  Participant in a recognized SignatureGuarantee Medallion Program (or other signature guarantor acceptable to theTrustee).

 

A2-12

----

 

**OPTION OF HOLDER TO ELECT PURCHASE**

 

If you want toelect to have this Note purchased by the [Company]† [Co-Obligors]†† pursuant toSection 4.11 or 4.18 of the Indenture, check the appropriate box below:

 

oSection 4.11      oSection 4.18

 

If you want toelect to have only part of the Note purchased by the [Company]**†** [Co-Obligors]**††**pursuant toSection 4.11 or Section 4.18 of the Indenture, state the amount you elect tohave purchased:

 

$              

 

Date:               

 
|                                                                                          | Your Signature:         |                                                           |   |
|-----------------------------------------------------------------------------------------------|-------------------------|----------------------------------------------------------------|--------|
|                                                                                          |                    | (Sign exactly as your name appears on   the face of this Note) |
|                                                                                          |                    |
|                                                                                          | Tax Identification No.: |
|                                                                                          |                    |
| Signature Guarantee*:             |

 

----

*  Participant in a recognizedSignature Guarantee Medallion Program (or other signature guarantor acceptableto the Trustee).

 

†  ForNotes issued on the Issue Date.

†† For Notes issued upon consummation of theAcquisition.

 

A2-13

----

 

**SCHEDULE OF EXCHANGES OF INTERESTS IN THEGLOBAL NOTE**

 

The followingexchanges of a part of this Global Note for an interest in another Global Noteor for a Definitive Note, or exchanges of a part of another Global Note orDefinitive Note for an interest in this Global Note, have been made:

 
| **Date of Exchange** | ** ** | **Amount of Decrease  in Principal Amount   at Maturity of this  Global Note** | ** ** | **Amount of Increase in  Principal Amount at  Maturity of this  Global Note** | ** ** | **Principal Amount  Maturity of this  Global Note  Following such  Decrease (or Increase)** | ** ** |
|----------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|

 

A2-114

----

 

**EXHIBITB**

 

**FORM OF CERTIFICATE OF TRANSFER**

 

[DUANE READE ACQUISITION CORP.

 

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022]**†**

 

[DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001]**††**

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

 

Attention:  Susan C. Merker

 

Re:   9.75% Senior Subordinated Notes due 2011

 

Reference ishereby made to the Indenture, dated as of July 30, 2004[, as supplemented]**††** (the “Indenture”), among [Duane Reade AcquisitionCorp. (the “Company”)]† [Duane Reade Inc., a Delaware corporation (assuccessor by merger to Duane Reade Acquisition Corp.) (the “Company”)and Duane Reade, a New York general partnership (“Duane Reade GP”, andtogether with the Company, the “Co-Obligors”), the Guarantors]†† andU.S. Bank National Association, as trustee. Capitalized terms used but not defined herein shall have the meaningsgiven to them in the Indenture.

 

                   (the “Transferor”) owns and proposes to transfer the Note[s] or interestin such Note[s] specified in Annex A hereto, in the principal amount atmaturity of $           in such Note[s] or interests (the “Transfer”), to                           (the “Transferee”), as further specified in Annex A hereto.  In connection with the Transfer, theTransferor hereby certifies that:

 

[CHECK ALL THAT APPLY]

 

o            1.             Check if Transferee will takedelivery of a beneficial interest in the 144A Global Note or a Definitive NotePursuant to Rule 144A.  The Transfer isbeing effected pursuant to and in accordance with Rule 144A under the UnitedStates Securities Act of 1933, as amended (the “Securities Act”), and,accordingly, the Transferor hereby further certifies that the 

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

B-1

----

 

beneficial interest orDefinitive Note is being transferred to a Person that the Transferor reasonablybelieved and believes is purchasing the beneficial interest or Definitive Notefor its own account, or for one or more accounts with respect to which suchPerson exercises sole investment discretion, and such Person and each suchaccount is a “qualified institutional buyer” within the meaning of Rule 144A ina transaction meeting the requirements of Rule 144A and such Transfer is incompliance with any applicable blue sky securities laws of any state of theUnited States.  Upon consummation of theproposed Transfer in accordance with the terms of the Indenture, thetransferred beneficial interest or Definitive Note will be subject to therestrictions on transfer enumerated in the Private Placement Legend printed onthe 144A Global Note and/or the Definitive Note and in the Indenture and theSecurities Act.

 

o            2.             Check if Transferee will takedelivery of a beneficial interest in the Regulation S Temporary Global Note,the Regulation S Permanent Global Note or a Definitive Note pursuant toRegulation S.  The Transfer is beingeffected pursuant to and in accordance with Rule 903 or Rule 904 under theSecurities Act and, accordingly, the Transferor hereby further certifies that(i) the Transfer is not being made to a person in the United States and (x) atthe time the buy order was originated, the Transferee was outside the UnitedStates or such Transferor and any Person acting on its behalf reasonablybelieved and believes that the Transferee was outside the United States or (y)the transaction was an offshore transaction executed in, on or through thefacilities of a designated offshore securities market and neither suchTransferor nor any Person acting on its behalf knows that the transaction wasprearranged with a buyer in the United States, (ii) no directed selling effortshave been made in contravention of the requirements of Rule 903(b) or Rule904(b) of Regulation S under the Securities Act, (iii) the transaction is notpart of a plan or scheme to evade the registration requirements of theSecurities Act and (iv) if the proposed transfer is being made prior to theexpiration of the Restricted Period, the transfer is not being made to aU.S.  Person or for the account orbenefit of a U.S.  Person (other than anInitial Purchaser).  Upon consummation ofthe proposed transfer in accordance with the terms of the Indenture, thetransferred beneficial interest or Definitive Note will be subject to therestrictions on Transfer enumerated in the Private Placement Legend printed onthe Regulation S Permanent Global Note, the Regulation S Temporary Global Noteand/or the Definitive Note and in the Indenture and the Securities Act.

 

o            3.             Check and complete if Transfereewill take delivery of a beneficial interest in the IAI Global Note or aDefinitive Note pursuant to any provision of the Securities Act other than Rule144A or Regulation S.  The Transfer isbeing effected in compliance with the transfer restrictions applicable tobeneficial interests in Restricted Global Notes and Restricted Definitive Notesand pursuant to and in accordance with the Securities Act and any applicableblue sky securities laws of any state of the United States, and accordingly theTransferor hereby further certifies that (check one):

 

### (a)           such Transfer is being effectedpursuant to and in accordance with Rule 144 under the Securities Act;

###  

or

 

### (b)           such Transfer is being effected tothe Company or a subsidiary thereof;

 

B-2

----

or

 

### (c)           such Transfer is being effectedpursuant to an effective registration statement under the Securities Act and incompliance with the prospectus delivery requirements of the Securities Act;

###  

or

 

### (d)           such Transfer is being effected to anInstitutional Accredited Investor and pursuant to an exemption from theregistration requirements of the Securities Act other than Rule 144A, Rule 144or Rule 904, and the Transferor hereby further certifies that it has notengaged in any general solicitation within the meaning of Regulation D underthe Securities Act and the Transfer complies with the transfer restrictionsapplicable to beneficial interests in a Restricted Global Note or RestrictedDefinitive Notes and the requirements of the exemption claimed, whichcertification is supported by (1) a certificate executed by the Transferee inthe form of Exhibit D to the Indenture and (2) an Opinion of Counsel providedby the Transferor or the Transferee (a copy of which the Transferor hasattached to this certification), to the effect that such Transfer is incompliance with the Securities Act.  Uponconsummation of the proposed transfer in accordance with the terms of theIndenture, the transferred beneficial interest or Definitive Note will besubject to the restrictions on transfer enumerated in the Private PlacementLegend printed on the IAI Global Note and/or the Definitive Notes and in theIndenture and the Securities Act.

###  

o            4.             Check if Transferee will takedelivery of a beneficial interest in an Unrestricted Global Note or of anUnrestricted Definitive Note.

 

### (a)           Check if Transfer is Pursuant to Rule144.  (i) The Transfer is being effectedpursuant to and in accordance with Rule 144 under the Securities Act and incompliance with the transfer restrictions contained in the Indenture and anyapplicable blue sky securities laws of any state of the United States and (ii)the restrictions on transfer contained in the Indenture and the PrivatePlacement Legend are not required in order to maintain compliance with theSecurities Act.  Upon consummation of theproposed Transfer in accordance with the terms of the Indenture, thetransferred beneficial interest or Definitive Note will no longer be subject tothe restrictions on transfer enumerated in the Private Placement Legend printedon the Restricted Global Notes, on Restricted Definitive Notes and in theIndenture.                              o

###  

### (b)           Check if Transfer isPursuant to Regulation S.  (i) TheTransfer is being effected pursuant to and in accordance with Rule 903 or Rule904 under the Securities Act and in compliance with the transfer restrictionscontained in the Indenture and any applicable blue sky securities laws of anystate of the United States and (ii) the restrictions on transfer contained inthe Indenture and the Private Placement Legend are not required in order tomaintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms ofthe Indenture, the transferred beneficial interest or Definitive Note will nolonger be subject to the restrictions on transfer enumerated in the PrivatePlacement Legend printed on the Restricted Global Notes, on RestrictedDefinitive Notes and in the Indenture.           o

###  

### (c)           Check if Transfer is Pursuant toOther Exemption.  (i) The Transfer isbeing effected pursuant to and in compliance with an exemption from theregistration 

 

B-3

----

 

### requirementsof the Securities Act other than Rule 144, Rule 903 or Rule 904 and incompliance with the transfer restrictions contained in the Indenture and anyapplicable blue sky securities laws of any State of the United States and (ii)the restrictions on transfer contained in the Indenture and the PrivatePlacement Legend are not required in order to maintain compliance with theSecurities Act.  Upon consummation of theproposed Transfer in accordance with the terms of the Indenture, thetransferred beneficial interest or Definitive Note will not be subject to therestrictions on transfer enumerated in the Private Placement Legend printed onthe Restricted Global Notes or Restricted Definitive Notes and in theIndenture.                                                                                                                             o

###  

Thiscertificate and the statements contained herein are made for your benefit andthe benefit of the [Company]† [Co-Obligors]††.

 
|   |                        |   |
|--------|-----------------------------|--------|
|   | [Insert Name of Transferor] |   |
|   |                        |
|   | By:                         |   |   |
|   |                        | Name:  |
|   |                        | Title: |
|   |                        |   |
| Dated: |                        |   |   |   |
|        |                             |        |  |  |  |  |

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

B-4

----

 

**ANNEX A TO CERTIFICATE OF TRANSFER**

 

1.             The Transferor ownsand proposes to transfer the following:

 

[CHECK ONE OF (A) OR (B)]

 

o                            (A)          a beneficial interest in the:

 

#### (i)            144A Global Note(CUSIP             );or

####  

#### (ii)           Regulation S GlobalNote (CUSIP           ); or

####  

#### (iii)          IAI Global Note(CUSIP           ); or

####  

o                            (B)           a Restricted Definitive Note.

 

2.             After the Transferthe Transferee will hold:

 

[CHECK ONE]

 

o                            (A)          a beneficial interest in the:

 

#### (iv)          144A Global Note(CUSIP           ); or

####  

#### (v)           Regulation S GlobalNote (CUSIP           ); or

####  

#### (vi)          IAI Global Note(CUSIP        ); or

####  

#### (vii)         Unrestricted GlobalNote (CUSIP           );or

####  

o                            (B)           a Restricted Definitive Note; or

 

o                            (C)           an Unrestricted Definitive Note,

 

in accordance with the terms of the Indenture.

 

B-5

----

 

**EXHIBITC**

 

**FORM OF CERTIFICATE OF EXCHANGE**

 

[DUANE READE ACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022]**†**

 

[DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001]**††**

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

Attention:  Susan C. Merker

 

Re:   9.75% Senior Subordinated Notes due 2011

 

Reference ishereby made to the Indenture, dated as of July 30, 2004[, as supplemented]**††** (the “Indenture”), among [Duane Reade AcquisitionCorp. (the “Company”)]† [Duane Reade Inc., a Delaware corporation (assuccessor by merger to Duane Reade Acquisition Corp.) (the “Company”)and Duane Reade, a New York general partnership (“Duane Reade GP”, andtogether with the Company, the “Co-Obligors”), the Guarantors]†† andU.S. Bank National Association, as trustee. Capitalized terms used but not defined herein shall have the meaningsgiven to them in the Indenture.

 

                              (the “Owner”) owns and proposes to exchange the Note[s] or interest insuch Note[s] specified herein, in the principal amount at maturity of$             insuch Note[s] or interests (the “Exchange”).  In connection with the Exchange, the Ownerhereby certifies that:

 

1.             Exchange of Restricted DefinitiveNotes or Beneficial Interests in a Restricted Global Note for UnrestrictedDefinitive Notes or Beneficial Interests in an Unrestricted Global Note

 

### (a)           Check if Exchange is from beneficialinterest in a Restricted Global Note to beneficial interest in an UnrestrictedGlobal Note.  In connection with theExchange of the Owner’s beneficial interest in a Restricted Global Note for abeneficial interest in an Unrestricted 

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

C-1

----

 

Global Note in an equalprincipal amount at maturity, the Owner hereby certifies (i) the beneficialinterest is being acquired for the Owner’s own account without transfer, (ii)such Exchange has been effected in compliance with the transfer restrictionsapplicable to the Global Notes and pursuant to and in accordance with the UnitedStates Securities Act of 1933, as amended (the “Securities Act”), (iii) therestrictions on transfer contained in the Indenture and the Private PlacementLegend are not required in order to maintain compliance with the Securities Actand (iv) the beneficial interest in an Unrestricted Global Note is beingacquired in compliance with any applicable blue sky securities laws of anystate of the United States.  o

 

(b)           Check if Exchange is from beneficialinterest in a Restricted Global Note to Unrestricted Definitive Note.  In connection with the Exchange of theOwner’s beneficial interest in a Restricted Global Note for an UnrestrictedDefinitive Note, the Owner hereby certifies (i) the Definitive Note is beingacquired for the Owner’s own account without transfer, (ii) such Exchange hasbeen effected in compliance with the transfer restrictions applicable to theRestricted Global Notes and pursuant to and in accordance with the SecuritiesAct, (iii) the restrictions on transfer contained in the Indenture and thePrivate Placement Legend are not required in order to maintain compliance withthe Securities Act and (iv) the Definitive Note is being acquired in compliancewith any applicable blue sky securities laws of any state of the United States.  o

 

(c)           Check if Exchange is from RestrictedDefinitive Note to beneficial interest in an Unrestricted Global Note.  In connection with the Owner’s Exchange of aRestricted Definitive Note for a beneficial interest in an Unrestricted GlobalNote, the Owner hereby certifies (i) the beneficial interest is being acquiredfor the Owner’s own account without transfer, (ii) such Exchange has beeneffected in compliance with the transfer restrictions applicable to RestrictedDefinitive Notes and pursuant to and in accordance with the Securities Act,(iii) the restrictions on transfer contained in the Indenture and the PrivatePlacement Legend are not required in order to maintain compliance with theSecurities Act and (iv) the beneficial interest is being acquired in compliancewith any applicable blue sky securities laws of any state of the UnitedStates.  o

 

(d)           Check if Exchange is from RestrictedDefinitive Note to Unrestricted Definitive Note.  In connection with the Owner’s Exchange of aRestricted Definitive Note for an Unrestricted Definitive Note, the Ownerhereby certifies (i) the Unrestricted Definitive Note is being acquired for theOwner’s own account without transfer, (ii) such Exchange has been effected incompliance with the transfer restrictions applicable to Restricted DefinitiveNotes and pursuant to and in accordance with the Securities Act, (iii) therestrictions on transfer contained in the Indenture and the Private PlacementLegend are not required in order to maintain compliance with the Securities Actand (iv) the Unrestricted Definitive Note is being acquired in compliance withany applicable blue sky securities laws of any state of the United States.  o

 

2.             Exchange of Restricted DefinitiveNotes or Beneficial Interests in Restricted Global Notes for RestrictedDefinitive Notes or Beneficial Interests in Restricted Global Notes

 

(a)           Check if Exchange is from beneficialinterest in a Restricted Global Note to Restricted Definitive Note.  In connection with the Exchange of theOwner’s beneficial

 

C-2

----

 

interest in a Restricted GlobalNote for a Restricted Definitive Note with an equal principal amount atmaturity, the Owner hereby certifies that the Restricted Definitive Note isbeing acquired for the Owner’s own account without transfer.  Upon consummation of the proposed Exchange inaccordance with the terms of the Indenture, the Restricted Definitive Noteissued will continue to be subject to the restrictions on transfer enumeratedin the Private Placement Legend printed on the Restricted Definitive Note andin the Indenture and the Securities Act. o

 

(b)           Check if Exchange is from RestrictedDefinitive Note to beneficial interest in a Restricted Global Note.  In connection with the Exchange of theOwner’s Restricted Definitive Note for a beneficial interest in the [CHECK ONE][ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with anequal principal amount at maturity, the Owner hereby certifies (i) thebeneficial interest is being acquired for the Owner’s own account withouttransfer and (ii) such Exchange has been effected in compliance with thetransfer restrictions applicable to the Restricted Global Notes and pursuant toand in accordance with the Securities Act, and in compliance with anyapplicable blue sky securities laws of any state of the United States.  Upon consummation of the proposed Exchange inaccordance with the terms of the Indenture, the beneficial interest issued willbe subject to the restrictions on transfer enumerated in the Private PlacementLegend printed on the relevant Restricted Global Note and in the Indenture andthe Securities Act.  o

 

Thiscertificate and the statements contained herein are made for your benefit andthe benefit of the [Company]† [Co-Obligors]††.

 
|   |                        |   |
|--------|-----------------------------|--------|
|   | [Insert Name of Transferor] |   |
|   |                        |
|   | By:                         |   |   |
|   |                        | Name:  |
|   |                        | Title: |
|   |                        |
| Dated: |                        |   |   |
|        |                             |        |  |  |  |  |

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

C-3

----

 

**EXHIBITD**

 

**FORM OF CERTIFICATE FROMACQUIRING INSTITUTIONAL ACCREDITED INVESTOR**

 

[DUANE READE ACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022]**†**

 

[DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001]**††**

 

Re:  9.75% Senior Subordinated Notes due 2012

 

Reference ishereby made to the Indenture, dated as of July 30, 2004[, as supplemented]**††** (the “Indenture”), among [Duane Reade AcquisitionCorp. (the “Company”)]† [Duane Reade Inc., a Delaware corporation (assuccessor by merger to Duane Reade Acquisition Corp.) (the “Company”)and Duane Reade, a New York general partnership (“Duane Reade GP”, andtogether with the Company, the “Co-Obligors”), the Guarantors]†† andU.S. Bank National Association, as trustee.  Capitalized terms used but not defined hereinshall have the meanings given to them in the Indenture.

 

In connectionwith our proposed purchase of$            aggregate principal amount at maturity of:

 

### (a)           beneficial interest in a Global Note,or

###  

### (b)           a Definitive Note,

###  

we confirmthat:

 

1.             We understand that any subsequenttransfer of the Notes or any interest therein is subject to certainrestrictions and conditions set forth in the Indenture and the undersignedagrees to be bound by, and not to resell, pledge or otherwise transfer theNotes or any interest therein except in compliance with, such restrictions andconditions and the United States Securities Act of 1933, as amended (the “SecuritiesAct”).

 

2.             We understand that the offer andsale of the Notes have not been registered under the Securities Act, and thatthe Notes and any interest therein may not be 

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

D-1

----

 

offered or sold except aspermitted in the following sentence.  Weagree, on our own behalf and on behalf of any accounts for which we are actingas hereinafter stated, that if we should sell the Notes or any interesttherein, we will do so only (A) to the Company or any subsidiary thereof, (B)in accordance with Rule 144A under the Securities Act to a “qualifiedinstitutional buyer” (as defined therein), (C) to an institutional “accreditedinvestor” (as defined below) that, prior to such transfer, furnishes (or hasfurnished on its behalf by a U.S. broker-dealer) to you and to the Company asigned letter substantially in the form of this letter and an Opinion ofCounsel in form reasonably acceptable to the Company to the effect that suchtransfer is in compliance with the Securities Act, (D) outside the UnitedStates in accordance with Rule 904 of Regulation S under the Securities Act,(E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F)pursuant to an effective registration statement under the Securities Act, andwe further agree to provide to any person purchasing the Definitive Note orbeneficial interest in a Global Note from us in a transaction meeting therequirements of clauses (A) through (E) of this paragraph a notice advisingsuch purchaser that resales thereof are restricted as stated herein.

 

3.             We understand that, on any proposedresale of the Notes or beneficial interest therein, we will be required tofurnish to you and the Company such certifications, legal opinions and otherinformation as you and the Company may reasonably require to confirm that theproposed sale complies with the foregoing restrictions.  We further understand that the Notespurchased by us will bear a legend to the foregoing effect.

 

4.             We are an institutional “accreditedinvestor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D underthe Securities Act) and have such knowledge and experience in financial andbusiness matters as to be capable of evaluating the merits and risks of ourinvestment in the Notes, and we and any accounts for which we are acting areeach able to bear the economic risk of our or its investment.

 

5.             We are acquiring the Notes orbeneficial interest therein purchased by us for our own account or for one ormore accounts (each of which is an institutional “accredited investor”) as toeach of which we exercise sole investment discretion.

 

You and the[Company]† [Co-Obligors]†† are entitled to rely upon this letter and areirrevocably authorized to produce this letter or a copy hereof to anyinterested party in any administrative or legal proceedings or official inquirywith respect to the matters covered hereby.

 
|   |                                 |   |
|--------|--------------------------------------|--------|
|   | [Insert Name of Accredited Investor] |   |
|   |                                 |
|   | By:                                  |   |   |
|   |                                 | Name:  |
|   |                                 | Title: |
|   |                                 |
| Dated: |                                 |   |   |
|        |                                      |        |  |  |  |

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

D-2

----

 

**EXHIBITE**

 

**FORM OF NOTATION OF GUARANTEE**

 

For valuereceived, each Guarantor (which term includes any successor Person under theIndenture) has, jointly and severally, fully and unconditionally andirrevocably guaranteed, to the extent set forth in the Indenture, dated as ofJuly 30, 2004[, as supplemented]**††** (the “Indenture”),among [Duane Reade Acquisition Corp. (the “Company”)]† [Duane ReadeInc., a Delaware corporation (as successor by merger to Duane Reade AcquisitionCorp.) (the “Company”) and Duane Reade, a New York general partnership(“Duane Reade GP”, and together with the Company, the “Co-Obligors”),the Guarantors]†† and U.S. Bank National Association, as trustee (the “Trustee”),and subject to the provisions in the Indenture, (a) the due and punctualpayment of the principal of, premium, if any, and interest on the Notes (asdefined in the Indenture), whether at maturity, by acceleration, redemption orotherwise, the due and punctual payment of interest on overdue principal andpremium, and, to the extent permitted by law, interest, and the due andpunctual performance of all other obligations of the [Company]**†** [Co-Obligors]**††**to theHolders or the Trustee all in accordance with the terms of the Indenture and(b) in case of any extension of time of payment or renewal of any Notes or anyof such other obligations, that the same will be promptly paid in full when dueor performed in accordance with the terms of the extension or renewal, whetherat stated maturity, by acceleration or otherwise.  The obligations of the Guarantors to theHolders of Notes and to the Trustee pursuant to the Guarantee and the Indentureare expressly set forth in Article Eleven of the Indenture and reference ishereby made to the Indenture for the precise terms of the Guarantee.  The Indebtedness evidenced by theseGuarantees is, to the extent and in the manner provided in the Indenture, subordinateand subject in right of payment to the prior payment in full in cash or CashEquivalents of all Senior Indebtedness of the Guarantors, whether outstandingon the date of the Indenture or thereafter, and the Guarantees are issuedsubject to such provisions.  Each Holderof a Note, by accepting the same, (a) agrees to and shall be bound by suchprovisions, (b) authorizes and directs the Trustee, on behalf of such Holder,to take such action as may be necessary or appropriate to effectuate thesubordination as provided in the Indenture and (c) appoints the Trustee asattorney-in-fact of such Holder for such purpose; provided that theIndebtedness evidenced by this Guarantee shall cease to be so subordinated andsubject in right of payment upon any defeasance of this Note in accordance withthe provisions of the Indenture.  ThisGuarantee shall be governed by and construed in accordance with the laws of theState of New York.

 
|   | [Name of Guarantor] |
|--------|---------------------|
|   |                |
|   | By:                 |   |   |
|   |                | Name: |
|   |                | Title: |

 

----

† For Guarantees, if any, issued prior to the consummation of theAcquisition.

†† For Guarantees issued upon consummation of the Acquisition.

 

E-1

----

 

**EXHIBITF**

 

**FORM OF GUARANTOR SUPPLEMENTAL INDENTURETO BE DELIVERED BY GUARANTORS**

 

GUARANTOR SUPPLEMENTAL INDENTURE (this “Guarantor Supplemental Indenture”), dated as of               ,among [Duane Reade Acquisition Corp. (the “Company”)]† [Duane ReadeInc., a Delaware corporation (as successor by merger to Duane Reade AcquisitionCorp. (“DRAC”)) (the “Company”), Duane Reade, a New York generalpartnership (“Duane Reade GP”, and together with the Company, the “Co-Obligors”),]††, the Company’s subsidiaries listed on Schedule A hereto (each, a “NewGuarantor”), [the Company’s subsidiaries listed on Schedule B hereto(collectively the “Existing Guarantors”)]‡ and U.S. Bank NationalAssociation, as trustee under the Indenture referred to below (the “Trustee”).

 

W I T N E S SE T H

 

WHEREAS, [the Company]**†** [theCo-Obligors]**††**[, the Existing Guarantors]**‡** and the Trustee are parties to an indenture[, assupplemented]**††** (the “Indenture”), dated as of July 30,2004, providing for the issuance of 9.75% Senior Subordinated Notes due 2011(the “Notes”);

 

WHEREAS, Section 9.01 of the Indenture provides that, without theconsent of any Holders, [the Company]**†** [theCo-Obligors]**††** [and the Existing Guarantors]**‡**, when authorized by a Board Resolution, and the Trustee,at any time and from time to time, may modify, supplement or amend theIndenture to add a Guarantor or additional obligor under the Indenture orpermit any Person to guarantee the Notes and/or obligations under theIndenture;

 

WHEREAS, eachNew Guarantor wishes to guarantee the Notes pursuant to the Indenture;

 

WHEREAS,pursuant to the Indenture [the Company]**†** [theCo-Obligors]**††**, [the Existing Guarantors]**‡**, the New Guarantors and the Trustee have agreed to enterinto this Guarantor Supplemental Indenture for the purposes stated herein; and

 

WHEREAS, allthings necessary have been done to make this Guarantor Supplemental Indenture,when executed and delivered by [the Company]**†**[the Co-Obligors]**††** [,the Existing Guarantors]**‡**, each New Guarantor and the Trustee, the legal, valid andbinding agreement of [the Company]**†** [theCo-Obligors]**††** [, the Existing Guarantors]**‡**and each New Guarantor, in accordance with its terms.

 

NOW THEREFORE, in consideration of the foregoing and for other good andvaluable consideration, the receipt of which is hereby acknowledged, [theCompany]**†** [the Co-Obligors]**††**,

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

‡ If any.

 

F-1

----

 

each New Guarantor[, the Existing Guarantors]**‡**andthe Trustee mutually covenant and agree for the equal and ratable benefit ofthe Holders of the Notes as follows:

 

###### (1)           Capitalized Terms.  Capitalized terms used herein withoutdefinition shall have the meanings assigned to them in the Indenture.

######  

###### (2)           Guarantee.  Each New Guarantor hereby agrees to guaranteethe Indenture and the Notes related thereto pursuant to the terms andconditions of Article Eleven of the Indenture, such Article Eleven beingincorporated by reference herein as if set forth at length herein (each suchguarantee, a “Guarantee”) and such New Guarantor agrees to be bound as aGuarantor under the Indenture as if it had been an initial signatory thereto.

######  

###### (3)           GOVERNING LAW.  THIS GUARANTOR SUPPLEMENTAL INDENTURE SHALLBE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEWYORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THATWOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

######  

###### (4)           Counterparts.  The parties may sign any number of copies ofthis Guarantor Supplemental Indenture. Each signed copy shall be an original, but all of them togetherrepresent the same agreement.

######  

###### (5)           Effect of Headings.  The section headings herein are forconvenience only and shall not affect the construction hereof.

######  

###### (6)           The Trustee.  The Trustee shall not be responsible in anymanner whatsoever for or in respect of the validity or sufficiency of thisGuarantor Supplemental Indenture or for or in respect of the recitals containedherein, all of which recitals are made solely by [the Company]† [theCo-Obligors]†† [, Existing Guarantors]‡ and the New Guarantors.

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

‡ If any.

 

F-2

----

 

IN WITNESSWHEREOF, the parties hereto have caused this Guarantor Supplemental Indentureto be duly executed and attested, all as of the date first above written.

 
| Dated: |                                                                                                  |   |
|--------|-------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                  |   |
|   | [DUANE READE  ACQUISITION CORP.                                                                       |
|   |                                                                                                  |
|   | By:                                                                                                   |   |   |
|   |                                                                                                  | Name:  |   |
|   |                                                                                                  | Title: | ]† |
|   |                                                                                                  |   |
|   | [DUANE READE  INC. (as successor by merger to  Duane Reade Acquisition Corp.), a Delaware corporation |   |
|   |                                                                                                  |   |
|   | By:                                                                                                   |   |   |
|   |                                                                                                  | Name:  |   |
|   |                                                                                                  | Title: |   |
|   |                                                                                                  |   |
|   | DUANE READE, a New York general partnership                                                           |   |
|   |                                                                                                  |   |
|   | By:  Duane Reade Inc., as  General Partner                                                       |   |
|   |                                                                                                  |   |
|   | By:                                                                                                   |   |   |
|   |                                                                                                  | Name:  |   |
|   |                                                                                                  | Title: | ]†† |
|   |                                                                                                  |   |
|   | EACH GUARANTOR LISTED ON                                                                              |   |
|   | SCHEDULE A HERETO                                                                                     |   |
|   |                                                                                                  |   |
|   | By:                                                                                                   |   |   |
|   | Name:                                                                                                 |   |
|   | Title:                                                                                                |   |
|        |                                                                                                       |        |  |  |

 

----

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

F-3

----

 
|                 | [EACH  GUARANTOR LISTED ON                 |    |
|----------------------|--------------------------------------------|---------|
|                 | SCHEDULE B  HERETO                         |    |
|                 |                                       |    |
|                 | By:                                        |    |   |
|                 | Name:                                      |    |
|                 | Title:                                     | ]‡ |
|                 |                                       |    |
|                 | U.S. BANK NATIONAL ASSOCIATION, as Trustee |    |
|                 |                                       |    |
| By:                  |                                       |    |   |
| Authorized Signatory |                                       |    |
|                      |                                            |         |  |  |

 

F-4

----

 

**EXHIBITG**

 

**FORM OF SUCCESSOR SUPPLEMENTAL INDENTURETO BE DELIVERED BY DUANE READE INC.**

 

SUCCESSOR SUPPLEMENTAL INDENTURE (this “Successor Supplemental Indenture”), datedas of July 30, 2004, among Duane Reade Inc., a Delaware corporation (assuccessor by merger to Duane Reade Acquisition Corp. (“DRAC”)) (the “Company”or “Duane Reade”) and U.S. Bank National Association, as trustee underthe Indenture referred to below (the “Trustee”).

 

W I T N E S SE T H

 

WHEREAS, DRAC and the Trustee are parties to an indenture (the “Indenture”), dated as of July 30,2004, providing for the issuance of 9.75% Senior Subordinated Notes due 2011(the “Notes”);

 

WHEREAS, pursuant to the Agreement and Plan of Merger, upon theAcquisition Closing Date, DRAC was merged with and into Duane Reade, with DuaneReade as the Surviving Entity in the Acquisition;

 

WHEREAS, Section 5.01 of the Indenture provides that any such SurvivingEntity expressly assume, by a supplemental indenture, all the obligations ofDRAC under the Notes and the Indenture;

 

###### WHEREAS,immediately after giving effect to the Acquisition on a *pro forma* basis, no Default or Event ofDefault will have occurred and be continuing under the Indenture;

######  

###### WHEREAS,immediately before and immediately after giving effect to the Acquisition on a *pro forma* basis, Duane Reade could incur$1.00 of additional Indebtedness (other than Permitted Indebtedness) underparagraph (a) of Section 4.07 of the Indenture;

######  

WHEREAS, at the time of the Acquisition, Duane Reade delivered to theTrustee an Officers’ Certificate and an Opinion of Counsel, each to the effect thatthe Acquisition and this Successor Supplemental Indenture comply with theIndenture and that all conditions precedent therein provided for relating tothe Acquisition have been complied with;

 

WHEREAS, Section 9.01 of the Indenture provides that, without theconsent of any Holders, DRAC, when authorized by a Board Resolution, and theTrustee, at any time and from time to time, may modify, supplement or amend theIndenture to evidence the succession of another Person to DRAC, and theassumption by any such successor of the covenants of DRAC in the Indenture andin the Notes in accordance with Section 5.01 of the Indenture;

 

WHEREAS, DuaneReade wishes to assume all the obligations of DRAC under the Notes and theIndenture;

 

WHEREAS,pursuant to the Indenture the Duane Reade and the Trustee have agreed to enterinto this Successor Supplemental Indenture for the purposes stated herein; and

 

G-1

----

 

WHEREAS, allthings necessary have been done to make this Successor Supplemental Indenture,when executed and delivered by Duane Reade, the legal, valid and bindingagreement of Duane Reade, in accordance with its terms.

 

NOW THEREFORE, in consideration of the foregoing and for other good andvaluable consideration, the receipt of which is hereby acknowledged, DuaneReade and the Trustee mutually covenant and agree for the equal and ratablebenefit of the Holders of the Notes as follows:

 

###### (1)           Capitalized Terms.  Capitalized terms used herein withoutdefinition shall have the meanings assigned to them in the Indenture.

######  

###### (2)           Successor.  Duane Reade, as the Surviving Entity to DRACin the Acquisition, hereby assumes all the obligations of DRAC under the Notesand the Indenture pursuant to the terms and conditions of the Indenture, andDuane Reade agrees to be bound as an obligor under the Indenture as if it hadbeen an initial signatory thereto.  Inaccordance with Section 5.01(c) of the Indenture, Duane Reade shall herebysucceed to, and be substituted for, and may exercise every right and power of,DRAC.

######  

###### (3)           GOVERNING LAW.  THIS SUCCESSOR SUPPLEMENTAL INDENTURE SHALLBE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEWYORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THATWOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

######  

###### (4)           Counterparts.  The parties may sign any number of copies ofthis Successor Supplemental Indenture. Each signed copy shall be an original, but all of them togetherrepresent the same agreement.

######  

###### (5)           Effect of Headings.  The section headings herein are forconvenience only and shall not affect the construction hereof.

######  

###### (6)           The Trustee.  The Trustee shall not be responsible in anymanner whatsoever for or in respect of the validity or sufficiency of thisSuccessor Supplemental Indenture or for or in respect of the recitals containedherein, all of which recitals are made solely by Duane Reade.

 

G-2

----

 

IN WITNESSWHEREOF, the parties hereto have caused this Successor Supplemental Indentureto be duly executed and attested, all as of the date first above written.

 

Dated:

 

 
|                 | DUANE READE  INC. (as successor by merger to  Duane Reade Acquisition Corp.), a Delaware  corporation |   |
|----------------------|-------------------------------------------------------------------------------------------------------|--------|
|                 |                                                                                                  |   |
|                 | By:                                                                                                   |   |   |
|                 |                                                                                                  | Name:  |   |
|                 |                                                                                                  | Title: |   |
|                 |                                                                                                  |   |
|                 | U.S. BANK  NATIONAL ASSOCIATION, as  Trustee                                                          |   |
|                 |                                                                                                  |   |
| By:                  |                                                                                                  |   |   |
| Authorized Signatory |                                                                                                  |   |
|                      |                                                                                                       |        |  |  |

 

G-3

----

 

**EXHIBITH**

 

**FORM OF CO-OBLIGOR SUPPLEMENTAL INDENTURETO BE DELIVERED BY DUANE READE GP**

 

CO-OBLIGOR SUPPLEMENTAL INDENTURE (this “Co-Obligor Supplemental Indenture”), datedas of July 30, 2004, among Duane Reade Inc., a Delaware corporation (assuccessor by merger to Duane Reade Acquisition Corp.) (the “Company”),Duane Reade, a New York general partnership (“Duane Reade GP”) and U.S.Bank National Association, as trustee under the Indenture referred to below(the “Trustee”).

 

W I T N E S SE T H

 

WHEREAS, the Company and the Trustee are parties to an indenture, assupplemented (the “Indenture”),dated as of July 30, 2004, providing for the issuance of 9.75% SeniorSubordinated Notes due 2011 (the “Notes”);

 

WHEREAS, Section 4.17 of the Indenture provides that the Company shallcause Duane Reade GP to execute this Co-Obligor Supplemental Indenture;

 

WHEREAS, Section 9.01 of the Indenture provides that, without theconsent of any Holders, the Company, when authorized by a Board Resolution, andthe Trustee, at any time and from time to time, may modify, supplement or amendthe Indenture to add an additional obligor under the Indenture;

 

WHEREAS, DuaneReade GP wishes to become a co-obligor with the Company of all the obligationsunder the Notes and the Indenture;

 

WHEREAS,pursuant to the Indenture the Company, Duane Reade GP and the Trustee haveagreed to enter into this Co-Obligor Supplemental Indenture for the purposesstated herein; and

 

WHEREAS, allthings necessary have been done to make this Co-Obligor Supplemental Indenture,when executed and delivered by the Company and Duane Reade GP, the legal, validand binding agreement of the Company and Duane Reade GP, in accordance with itsterms.

 

 

 

NOW THEREFORE, in consideration of the foregoing and for other good andvaluable consideration, the receipt of which is hereby acknowledged, theCompany, Duane Reade GP****and theTrustee mutually covenant and agree for the equal and ratable benefit of theHolders of the Notes as follows:

 

###### (1)           Capitalized Terms.  Capitalized terms used herein withoutdefinition shall have the meanings assigned to them in the Indenture.

######  

###### (2)           Co-Obligor.  Duane Reade GP hereby agrees to become aco-obligor with the Company of all the obligations under the Notes and theIndenture pursuant to the terms and

H-1

----

 

###### conditions of the Indenture, andDuane Reade GP agrees to be bound as a co-obligor under the Indenture as if ithad been an initial signatory thereto.

 

###### (3)           GOVERNING LAW.  THIS CO-OBLIGOR SUPPLEMENTAL INDENTURE SHALLBE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEWYORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THATWOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

######  

###### (4)           Counterparts.  The parties may sign any number of copies ofthis Co-Obligor Supplemental Indenture. Each signed copy shall be an original, but all of them togetherrepresent the same agreement.

######  

###### (5)           Effect of Headings.  The section headings herein are forconvenience only and shall not affect the construction hereof.

######  

###### (6)           The Trustee.  The Trustee shall not be responsible in anymanner whatsoever for or in respect of the validity or sufficiency of thisCo-Obligor Supplemental Indenture or for or in respect of the recitalscontained herein, all of which recitals are made solely by the Company and DuaneReade GP.

 

H-2

----

 

IN WITNESSWHEREOF, the parties hereto have caused this Co-Obligor Supplemental Indentureto be duly executed and attested, all as of the date first above written.

 

Dated:

 

 

 
|                  | DUANE READE  INC. (as successor by merger to  Duane Reade Acquisition Corp.), a Delaware  corporation |   |
|-----------------------|-------------------------------------------------------------------------------------------------------|--------|
|                  |                                                                                                  |   |
|                  | By:                                                                                                   |   |   |
|                  |                                                                                                  | Name:  |   |
|                  |                                                                                                  | Title: |   |
|                  |                                                                                                  |   |
|                  | DUANE READE, a New York general partnership                                                           |   |
|                  |                                                                                                  |   |
|                  | By:  Duane Reade Inc., as  General Partner                                                       |   |
|                  |                                                                                                  |   |
|                  | By:                                                                                                   |   |   |
|                  |                                                                                                  | Name:  |   |
|                  |                                                                                                  | Title: |   |
|                  |                                                                                                  |   |
|                  | U.S. BANK  NATIONAL ASSOCIATION, as Trustee                                                           |   |
|                  |                                                                                                  |   |
| By:                   |                                                                                                  |   |   |
| Authorized  Signatory |                                                                                                  |   |
|                       |                                                                                                       |        |  |  |  |

 

H-3

----