**Exhibit 10.20**

 

SECURITY AGREEMENT

 

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

 

WITNESSETH:

 

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

 

The Lendershave agreed to make Loans to the Borrower, and the Issuing Bank has agreed toissue Letters of Credit for the account of the Borrower, pursuant to, and uponthe terms and subject to the conditions specified in, the CreditAgreement.  The Facility Guarantors haveexecuted the Facility Guarantee, pursuant to which each Facility Guarantorguarantees the Obligations of the Borrower. The obligations of the Lenders to make Loans and of the Issuing Bank toissue Letters of Credit are each conditioned upon, among other things, theexecution and delivery by the Grantors of an agreement in the form hereof tosecure the Obligations.

 

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

 

I

 

Definitions

 

I.01                             Definitionof Terms Used Herein. Unless the context otherwise requires, all capitalizedterms used but not defined herein shall have the meanings set forth in theCredit Agreement, and all references to the UCC shall mean the UniformCommercial Code as in effect from time to time in the State of New York.

 

I.02                             Definitionof Certain Terms Used Herein.  Asused herein, the following terms shall have the following meanings:

 

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

 

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

 

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

 

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

 

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

 

“CreditAgreement” shall have the meaning assigned to such term in the preliminarystatement of this Agreement.

 

“DepositAccount” shall have the meaning given that term in the UCC and shall alsoinclude all demand, time, savings, passbook, or similar accounts maintainedwith a bank or other financial institution.

 

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

 

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

 

“ExcludedCollateral” shall mean (i) all rights to payment under any and all key-manlife insurance policies, split-level insurance policies or similar policiesmaintained for the benefit of, and providing retirement or casualty benefitsfor, directors and officers of the Borrower, and the spouses, heirs and directdescendants of such Persons and (ii) all proceeds of, and payments due andpayable with respect to, the foregoing.

 

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

 

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

 

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

 

“Health-Care-InsuranceReceivables” shall have the meaning given that term in the UCC, and shallalso mean an interest in, or claim under, a policy of insurance or otherwisewhich is a right to payment of a monetary obligation for health-care goods orservices provided.

 

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

 

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

 

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

 

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

 

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

 

“PerfectionCertificate” shall mean a certificate substantially in the form of Annex1 hereto, completed and supplemented with the schedules and attachmentscontemplated thereby, and duly executed by a Financial Officer of the Borrower.

 

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

 

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

 

“SupportingObligation” shall have the meaning given that term in the UCC and shallalso refer to a Letter-of-Credit Right or secondary obligation that supportsthe payment or performance of an Account, Chattel Paper, a Document, a GeneralIntangible, an Instrument, or Investment Property.

 

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

 

I.03                             Rulesof Interpretation.  The rules ofinterpretation specified in Section 1.02 of the Credit Agreement shall beapplicable to this Agreement.

 

**ARTICLE II**

 

Security Interest

 

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

 

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II.02                         NoAssumption of Liability.  TheSecurity Interest is granted as security only and shall not subject theCollateral Agent or any other Secured Party to, or in any way alter or modify,any obligation or liability of any Grantor with respect to or arising out ofthe Collateral.

 

**ARTICLE III**

 

Representations and Warranties

 

The Grantorsjointly and severally represent and warrant to the Collateral Agent and theother Secured Parties that:

 

III.01                     Representationsand Warranties Incorporated by Reference. Each Grantor hereby makes each of the representations and warranties setforth in Article III of the Credit Agreement with respect to the Grantor as aLoan Party.  Each such warranty andrepresentation is incorporated herein by reference.

 

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

 

III.03                     Filings.  The Perfection Certificate has been dulyprepared, completed and executed, and the information set forth therein iscorrect and complete.  UCC financingstatements or other appropriate filings, recordings or registrations containinga description of the Collateral have been provided to the Collateral Agent forfiling in each governmental, municipal or other office as is necessary topublish notice of and protect the validity of and to establish a legal, validand perfected security interest in favor of the Collateral Agent (for thebenefit of the Secured Parties) in respect of all Collateral in which theSecurity Interest may be perfected by filing, recording or registration in theUnited States (or any political subdivision thereof) and its territories andpossessions, and no further or subsequent filing, refiling, recording,rerecording, registration or reregistration is necessary in any suchjurisdiction, except as provided under Applicable Law with respect to thefiling of continuation statements.

 

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

 

III.05                     Absence ofOther Liens.  The Collateral isowned by the Grantors free and clear of any Lien, except for Liens expresslypermitted pursuant to Section 6.02 of the Credit Agreement.  The Grantors have not filed or consented tothe filing of (a) any financing statement or analogous document under the UCCor any other Applicable Law covering any Collateral, (b) any assignment inwhich any Grantor assigns any Collateral or any security agreement or similarinstrument covering any Collateral with the United States Patent and TrademarkOffice or the United States Copyright Office or (c) any assignment in which anyGrantor assigns any Collateral or any security agreement or similar instrumentcovering any Collateral with any foreign governmental, municipal or otheroffice, which financing statement or analogous document, assignment, securityagreement or similar

 

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instrument is still in effect, except, ineach case, for Liens expressly permitted pursuant to Section 6.02 of the CreditAgreement.

 

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

 

III.07                     Consignments.  Other than pharmaceutical Inventory onconsignment from AmerisourceBergen Drug Corporation, no Grantor has, and noneshall have, possession of any material property on consignment.

 

**ARTICLE IV**

 

Covenants

 

**IV.01**                  CovenantsIncorporated by Reference.  EachGrantor hereby covenants and agrees that each Grantor shall perform, observe andotherwise comply with the covenants set forth in Articles V and VI of theCredit Agreement with respect to such Grantor as a Loan Party.

 

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

 

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

 

(b)                                 EachGrantor agrees to maintain, at its own cost and expense, such complete andaccurate records with respect to the Collateral owned by it as is consistentwith its current practices and in accordance with such prudent and standardpractices used in industries that are the same as, or similar to, those inwhich such Grantor is engaged, but in any event to include complete accountingrecords indicating all payments and proceeds received with respect to any partof the Collateral, and, at such time or times as the Collateral Agent mayreasonably request, promptly to prepare and deliver to the Collateral Agent aduly certified schedule or schedules in form and detail reasonably satisfactoryto the Collateral Agent showing the identity, amount and location of any andall Collateral.

 

IV.03                     PeriodicCertification.   Each year, at thetime of delivery of annual financial statements with respect to the precedingfiscal year pursuant to Section 5.01 of the Credit Agreement, the Borrowershall deliver to the Collateral Agent a certificate executed by a FinancialOfficer of the

 

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Borrower (a) setting forth the informationrequired pursuant to Section 2 of the Perfection Certificate or confirming thatthere has been no change in such information since the date of the PerfectionCertificate delivered on the Closing Date or the date of the most recentcertificate delivered pursuant to this Section 4.03 and (b) certifying that allUCC financing statements (including Fixture filings, as applicable) or otherappropriate filings, recordings or registrations, including all refilings,rerecordings and reregistrations, containing a description of the Collateralhave been filed of record in each governmental, municipal or other appropriateoffice in each jurisdiction to the extent necessary to protect and perfect theSecurity Interest.

 

IV.04                     Protectionof Security.  Each Grantor shall, atits own cost and expense, take any and all actions reasonably necessary todefend title to the Collateral against all Persons and to defend the SecurityInterest of the Collateral Agent in the Collateral and the priority thereofagainst any Lien not expressly permitted pursuant to Section 6.02 of the CreditAgreement.

 

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

 

IV.06                     Inspectionand Verification.  Subject to, butwithout limiting, the terms and conditions of Sections 5.09 and 5.10 of theCredit Agreement, the Collateral Agent and such Persons as the Collateral Agentmay reasonably designate shall have the right, at the Grantors’ own cost andexpense, to inspect the Collateral, all records related thereto (and to makeextracts and copies from such records) and the premises upon which any of theCollateral is located, to discuss the Grantors’ affairs with the officers ofthe Grantors and their independent accountants and to verify  the validity, amount, quality, quantity,value, condition and status of, or any other matter relating to, theCollateral, including, in the case of Accounts or Collateral in the possessionof any third Person, by contacting Account Debtors or the third Personpossessing such Collateral for the purpose of making such a verification. TheCollateral Agent shall have the absolute right to share any information itgains from such inspection or verification with any Secured Party.

 

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

 

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

 

IV.08                     Assignmentof Security Interest.

 

(a)                                  Ifat any time any Grantor shall take a security interest in any property of anAccount Debtor or any other Person to secure payment and performance of anAccount, such Grantor shall promptly assign such security interest to theCollateral Agent.  Such assignment neednot be filed of public record unless necessary to continue the perfected statusof the security interest against creditors of, and transferees from, theAccount Debtor or other Person granting the security interest.

 

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

 

IV.09                     ContinuingObligations of the Grantors.  EachGrantor shall remain liable to observe and perform all the conditions andobligations to be observed and performed by it under each contract, agreementor instrument relating to the Collateral, all in accordance with the terms andconditions thereof, and each Grantor jointly and severally agrees to indemnifyand hold harmless the Collateral Agent and the Secured Parties from and againstany and all liability for such performance.

 

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

 

IV.11                     Limitationon Modification of Accounts.  Noneof the Grantors will, without the Collateral Agent’s prior written consent,grant any material extension of the time of payment of any of the Accounts,compromise, compound or settle the same for less than the full amount thereof,release, wholly or partly, any Person liable for the payment thereof or allowany credit or discount whatsoever thereon, other than extensions, releases,credits, discounts, compromises or settlements

 

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

 

IV.12                     Insurance.

 

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

 

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

 

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

 

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

 

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

 

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**ARTICLE V**

 

Collections

 

V.01                         Collections.

 

(a)                                  EachGrantor shall at all times comply with the Cash Receipts provisions of Section2.22 of the Credit Agreement including, without limitation, causing the sweepon each Business Day of all Cash Receipts into the FRF Concentration Account.

 

(b)                                 Withoutthe prior written consent of the Collateral Agent, no Grantor shall modify oramend the instructions pursuant to any of the DDA Notifications, the CreditCard Notifications, or the Blocked Account Agreements.  Until the Collateral Agent shall haveadvised the Grantors to the contrary, each Grantor shall, and the CollateralAgent hereby authorizes each Grantor to, enforce and collect all amounts owingon the Inventory and Accounts, for the benefit and on behalf of the CollateralAgent and the other Secured Parties; provided, however, that suchprivilege may, at the option of the Collateral Agent, be terminated upon theoccurrence and during the continuance of any Event of Default.

 

V.02                         Powerof Attorney.  Each Grantorirrevocably makes, constitutes and appoints the Collateral Agent (and allofficers, employees or agents designated by the Collateral Agent) as suchGrantor’s true and lawful agent and attorney-in-fact, and in such capacity theCollateral Agent shall have the right, with power of substitution for eachGrantor and in each Grantor’s name or otherwise, for the use and benefit of theCollateral Agent and the other Secured Parties, (a) at any time, whether or nota Default or Event of Default has occurred, to take actions required to betaken by the Grantors under Sections 2.01 and 5.01 of this Agreement, and (b)upon the occurrence and during the continuance of an Event of Default or asotherwise permitted under the Credit Agreement, (i) to receive, endorse, assignand/or deliver any and all notes, acceptances, checks, drafts, money orders orother evidences of payment relating to the Collateral or any part thereof;(ii) to demand, collect, receive payment of, give receipt for and givedischarges and releases of all or any of the Collateral; (iii) to sign thename of any Grantor on any invoices, schedules of Collateral, freight orexpress receipts, or bills of lading storage receipts, warehouse receipts orother documents of title relating to any of the Collateral; (iv) to sign thename of any Grantor on any notice to such Grantor’s Account Debtors; (v) tosign the name of any Grantor on any Proof of Claim in bankruptcy againstAccount Debtors, and on notices of lien, claims of mechanic’s liens, orassignments or releases of mechanic’s liens securing the Accounts; (vi) to signchange of address forms to change the address to which each Grantor’s mail isto be sent to such address as the Collateral Agent shall designate; (vii) toreceive and open each Grantor’s mail, remove any Proceeds of Collateraltherefrom and turn over the balance of such mail either to the Borrower or toany trustee in bankruptcy or receiver of a Grantor, or other legalrepresentative of a Grantor whom the Collateral Agent determines to be theappropriate person to whom to so turn over such mail; (viii) to commenceand prosecute any and all suits, actions or proceedings at law or in equity inany court of competent jurisdiction to collect or otherwise realize on all orany of the Collateral or to enforce any rights in respect of any Collateral;(ix) to settle, compromise, compound, adjust or defend any actions, suitsor proceedings relating to all or any of the Collateral; (x) to take all suchaction as may be necessary to obtain the payment of any letter of credit and/orbanker’s acceptance of which any Grantor is a beneficiary; (xi) to repair,manufacture, assemble, complete, package, deliver, alter or supply goods, ifany, necessary to fulfill in whole or in part the purchase order of anycustomer of any Grantor; (xii) to use, license or transfer any or all GeneralIntangibles of any Grantor; and (xiii) to use, sell, assign, transfer,pledge, make any agreement with respect to or otherwise deal with all or any ofthe Collateral, and to do all other acts and things necessary to carry out thepurposes of this Agreement, as fully and completely as though the CollateralAgent were the absolute owner of the Collateral for all purposes; provided,however, that nothing herein contained shall be construed as requiringor obligating the Collateral Agent or any other Secured Party to make any commitmentor to make any inquiry as to the nature or sufficiency of any payment receivedby the Collateral Agent or any other Secured Party, or to present or file anyclaim or notice.  It is understood andagreed that the appointment of the Collateral Agent

 

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

 

V.03                         NoObligation to Act.  The CollateralAgent shall not be obligated to do any of the acts or to exercise any of thepowers authorized by Section 5.02, but if the Collateral Agent elects to do anysuch act or to exercise any of such powers, it shall not be accountable formore than it actually receives as a result of such exercise of power, and shallnot be responsible to any Grantor for any act or omission to act except for anyact or omission to act as to which there is a final determination made in ajudicial proceeding, which determination includes a specific finding that thesubject act or omission to act had been grossly negligent or in actual badfaith.  The provisions of Section 5.02shall in no event relieve any Grantor of any of its obligations hereunder orunder any other Loan Document with respect to the Collateral or any partthereof or impose any obligation on the Collateral Agent or any other SecuredParty to proceed in any particular manner with respect to the Collateral or anypart thereof, or in any way limit the exercise by the Collateral Agent or any otherSecured Party of any other or further right which it may have on the date ofthis Agreement or hereafter, whether hereunder, under any other Loan Document,by law or otherwise.

 

**ARTICLE VI**

 

Remedies

 

VI.01                     Remediesupon Default.  Upon the occurrence ofan Event of Default, it is agreed that the Collateral Agent shall have in anyjurisdiction in which enforcement hereof is sought, in addition to all otherrights and remedies, the rights and remedies of a secured party under the UCCor other Applicable Law.  The rights andremedies of the Collateral Agent shall include, without limitation, the rightto take any of or all the following actions at the same or different times:

 

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

 

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

 

(c)                                  With or without legalprocess and with or without prior notice or demand for performance, theCollateral Agent may enter upon, occupy, and use any premises owned or occupiedby each Grantor, and may exclude the Grantors from such premises or portion

 

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

 

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

 

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

 

(f)                                    Unless theCollateral is perishable or threatens to decline speedily in value, or is of atype customarily sold on a recognized market (in which event the CollateralAgent shall provide the Grantors such notice as may be practicable under thecircumstances), the Collateral Agent shall give the Grantors at least ten (10) days’prior written notice, by authenticated record, of the date, time and place ofany proposed public sale, and of the date after which any private sale or otherdisposition of the Collateral may be made. Each Grantor agrees that such written notice shall satisfy allrequirements for notice to that Grantor which are imposed under the UCC orother Applicable Law with respect to the exercise of the Collateral Agent’srights and remedies upon default.  TheCollateral Agent shall not be obligated to make any sale or other dispositionof any Collateral if it shall determine not to do so, regardless of the factthat notice of sale or other disposition of such Collateral shall have beengiven.  The Collateral Agent may,without notice or publication, adjourn any public or private sale or cause thesame to be adjourned from time to time by announcement at the time and placefixed for sale, and such sale may, without further notice, be made at the timeand place to which the same was so adjourned.

 

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

 

(h)                                 At any public (or, tothe extent permitted by Applicable Law, private) sale made pursuant to thisSection 6.01, the Collateral Agent or any other Secured Party may bid for orpurchase, free (to the extent permitted by Applicable Law) from any right ofredemption, stay, valuation or appraisal on the part of any Grantor (all saidrights being also

 

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hereby waived and released to the extentpermitted by Applicable Law), the Collateral or any part thereof offered forsale and may make payment on account thereof by using any claim then due andpayable to the Collateral Agent or such other Secured Party from any Grantor onaccount of the Obligations as a credit against the purchase price, and theCollateral Agent or such other Secured Party may, upon compliance with theterms of sale, hold, retain and dispose of such property without furtheraccountability to any Grantor therefor.

 

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

 

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

 

VI.02                     Applicationof Proceeds.  After the occurrenceof an Event of Default and acceleration of the Obligations, the CollateralAgent shall apply the proceeds of any collection or sale of the Collateral, aswell as any Collateral consisting of cash, or any Collateral granted under anyother of the Security Documents as follows:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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The Collateral Agent shall haveabsolute discretion as to the time of application of any such proceeds, moneysor balances in accordance with this Agreement. Upon any sale or other disposition of the Collateral by the CollateralAgent (including pursuant to a power of sale granted by statute or under ajudicial proceeding), the receipt of the purchase money by the Collateral Agentor of the officer making the sale or other disposition shall be a sufficientdischarge to the purchaser or purchasers of the Collateral so sold or otherwisedisposed of and such purchaser or purchasers shall not be obligated to see tothe application of any part of the purchase money paid over to the CollateralAgent or such officer or be answerable in any way for the misapplicationthereof.

 

**ARTICLE VII**

 

Perfection of Security Interest

 

VII.01                 Perfection byFiling.  This Agreement constitutesan authenticated record,  and eachGrantor hereby authorizes the Collateral Agent, pursuant to the provisions ofSections 2.01 and 5.02, to file one or more financing or continuationstatements, and amendments thereto, relative to all or any part of theCollateral, in such filing offices as the Collateral Agent shall deemappropriate, and the Grantors shall deliver to the Collateral Agent suchfinancing or continuation statements, and amendments thereto, promptly upon thereasonable request of the Collateral Agent and shall pay the Collateral Agent’sreasonable costs and expenses incurred in connection therewith.  Each Grantor hereby further authorizes the CollateralAgent to file one or more financing or continuation statements, and amendmentsthereto, relative to all or any part of the Collateral without the signature ofsuch Grantor, and each Grantor agrees that a carbon, photographic, or otherreproduction of this Agreement or of a financing statement signed by suchGrantor shall be sufficient as a financing statement and may be filed as afinancing statement in any and all jurisdictions.

 

VII.02                 OtherPerfection, etc.  The Grantors shall at any time and from time totime take such steps as the Collateral Agent may reasonably request for theCollateral Agent (a) to obtain an acknowledgment, in form and substancereasonably satisfactory to the Collateral Agent, of any bailee havingpossession of any of the Collateral that the bailee holds such Collateral forthe Collateral Agent, (b) to obtain “control” of any Investment Property,Deposit Accounts, Letter-of-Credit Rights or electronic Chattel Paper (as suchterms are defined in the UCC), with any agreements establishing control to bein form and substance satisfactory to the Collateral Agent, and (c) otherwiseto insure the continued perfection of the Collateral Agent’s security interestin any of the Collateral with the priority described in Section 3.04 and of thepreservation of its rights therein.

 

VII.03                 Savings Clause. Nothingcontained in this Article VII shall be construed to narrow the scope of theCollateral Agent’s Security Interest in any of the Collateral or the perfectionor priority thereof or to impair or otherwise limit any of the CollateralAgent’s Rights and Remedies hereunder except (and then only to the extent) asmandated by the UCC.

 

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**ARTICLE VIII**

 

Miscellaneous

 

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

 

VIII.02             Grant ofNon-Exclusive License.  Upon anEvent of Default, each Grantor hereby grants to the Collateral Agent a royaltyfree, non-exclusive, irrevocable license to use, apply, and affix anytrademark, trade name, logo, or the like in which any Grantor now or hereafterhas rights, such license being with respect to the Collateral Agent’s exerciseof the Collateral Agent’s Rights and Remedies hereunder including, withoutlimitation, in connection with any completion of the manufacture of Inventoryor any sale or other disposition of Inventory.

 

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

 

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

 

VIII.05             Binding Effect;Several Agreement; Assignments. Whenever in this Agreement any of the parties hereto is referred to,such reference shall be deemed to include the successors and assigns of suchparty, and all covenants, promises and agreements by or on behalf of theGrantors that are contained in this Agreement shall bind and inure to thebenefit of each Grantor and its respective successors and assigns.  This Agreement shall be binding upon eachGrantor and the Collateral Agent and their respective successors and assigns,and shall inure to the benefit of each Grantor, the Collateral Agent and theother Secured Parties and their respective successors and assigns, except thatno Grantor shall have the right to assign or transfer its rights or obligationshereunder or any interest herein or in the Collateral (and any such attemptedassignment or transfer shall be void) except as expressly permitted by thisAgreement or the Credit Agreement.  ThisAgreement shall be construed as a separate agreement with respect to eachGrantor and may be

 

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amended, modified, supplemented, waived orreleased with respect to any Grantor without the approval of any other Grantorand without affecting the obligations of any other Grantor hereunder.

 

VIII.06             Successors andAssigns.  Whenever in this Agreementany of the parties hereto is referred to, such reference shall be deemed toinclude the successors and assigns of such party; and all covenants, promisesand agreements by or on behalf of any Grantor or the Collateral Agent that arecontained in this Agreement shall bind and inure to the benefit of theirrespective successors and assigns.

 

VIII.07             Collateral Agent’sFees and Expenses; Indemnification.

 

(a)                                  Withoutlimiting any of their obligations under the Credit Agreement or the other LoanDocuments, the Grantors jointly and severally agree to pay all reasonableout-of-pocket expenses incurred by the Collateral Agent, including thereasonable fees, charges and disbursements of any counsel and any outsideconsultants for the Collateral Agent, in connection with (i) theadministration of this Agreement, (ii) the custody or preservation of, orthe sale of, collection from or other realization upon any of the Collateral,(iii) the exercise, enforcement or protection of any of the CollateralAgent’s Rights and Remedies hereunder or (iv) the failure of any Grantorto perform or observe any of the provisions hereof.

 

(b)                                 Withoutlimiting any of their indemnification obligations under the Credit Agreement orthe other Loan Documents, the Grantors shall, jointly and severally, indemnifythe Agents, the Issuing Bank and each Lender, and each Related Party of any ofthe foregoing Persons (each such Person being called an “Indemnitee”)against, and hold each Indemnitee harmless from, any and all losses, claims,damages, liabilities and related expenses, including the reasonable anddocumented fees, charges and disbursements of any counsel for any Indemnitee,incurred by or asserted against any Indemnitee arising out of, in connectionwith, or as a result of, (i) the execution or delivery of this Agreement or anyother Loan Document, the performance by the Grantors of their obligations underthis Agreement or any other Loan Document, or the consummation of thetransactions contemplated by the Loan Documents or any other transactionscontemplated hereby, or (ii) any actual claim, litigation, investigation orproceeding relating to any of the foregoing or to the Collateral, whether basedon contract, tort or any other theory and regardless of whether any Indemniteeis a party thereto; provided that such indemnity shall not, as to anyIndemnitee, be available to the extent that such losses, claims, damages,liabilities or related expenses resulted from the gross negligence or willfulmisconduct of such Indemnitee or any Affiliate of such Indemnitee (or of any officer,director, employee, advisor or agent of such Indemnitee or any suchIndemnitee’s Affiliates).

 

(c)                                  Anysuch amounts payable as provided hereunder shall be additional Obligationssecured hereby and by the other Security Documents.  All amounts due under this Section 8.07 shall be payable onwritten demand therefor.

 

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

 

VIII.09             Waivers;Amendment.

 

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

 

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Agent of any Event of Defaultor of any default under any other agreement shall operate as a waiver of anyother default hereunder or under any other agreement.  No single or partial exercise of any of the Collateral Agent’s Rightsor Remedies, and no express or implied agreement or transaction of whatevernature entered into between the Collateral Agent and any Person, at any time,shall preclude the other or further exercise of the Collateral Agent’s Rightsand Remedies.  No waiver by theCollateral Agent of any of the Collateral Agent’s Rights and Remedies on anyone occasion shall be deemed a waiver on any subsequent occasion, nor shall itbe deemed a continuing waiver.  TheCollateral Agent’s Rights and Remedies may be exercised at such time or times and in such order of preferenceas the Collateral Agent may determine. The Collateral Agent’s Rights andRemedies may be exercised without resort or regard to any other source ofsatisfaction of the Obligations.  Nowaiver of any provisions of this Agreement or any other Loan Document orconsent to any departure by any Grantor therefrom shall in any event beeffective unless the same shall be permitted by paragraph (b) below, andthen such waiver or consent shall be effective only in the specific instanceand for the purpose for which given.  Nonotice to or demand on any Grantor in any case shall entitle such Grantor orany other Grantor to any other or further notice or demand in similar or othercircumstances.

 

(b)                                 Neitherthis Agreement nor any provision hereof may be waived, amended or modifiedexcept pursuant to a written agreement entered into between the CollateralAgent and the Grantor or Grantors with respect to whom such waiver, amendmentor modification is to apply, subject to any consent required in accordance withSection 9.02 of the Credit Agreement.

 

VIII.10             WAIVER OF JURYTRIAL.  EACH PARTY HERETO HEREBYWAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURYIN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH ANY PARTY HERETO IS OR BECOMESA PARTY **(****WHETHERSUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST ANY PARTY HERETO OR INWHICH ANY PARTY HERETO, IS JOINED AS A PARTY LITIGANT)**, WHICH CASEOR CONTROVERSY ARISES OUT OF OR RELATES TO THIS AGREEMENT OR ANY OTHER LOANDOCUMENT.  EACH PARTY HERETO (A)CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HASREPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THEEVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGESTHAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THISAGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SETFORTH IN THIS SECTION 8.10.

 

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

 

VIII.12             Counterparts.  This Agreement may be executed in two ormore counterparts, each of which shall constitute an original but all of which,when taken together, shall constitute a single contract (subject to Section8.05).  Delivery of an executedcounterpart of a signature page to this Agreement by facsimile transmissionshall be effective as delivery of a manually executed counterpart hereof.

 

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

 

VIII.14             Jurisdiction;Consent to Service of Process.

 

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

 

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

 

VIII.15             Termination;Release of Collateral.  ThisAgreement and the Security Interest shall terminate when all the Obligationshave been paid in full in cash, the Lenders have no further commitment to lend,the Letter of Credit Outstandings have been reduced to zero or fully cashcollateralized in a manner satisfactory to the Issuing Bank and theAdministrative Agent, and the Issuing Bank has no further obligation to issueLetters of Credit under the Credit Agreement, at which time the CollateralAgent shall execute and deliver to the Grantors, at the Grantors’ expense, allUCC termination statements and similar documents that the Grantors shallreasonably request to evidence such termination.  Any execution and delivery of termination statements or documentspursuant to this Section 8.15 shall be without recourse to, or warrantyby, the Collateral Agent.

 

[**SIGNATURE PAGES FOLLOW**]

 

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

 
| **BORROWER**:            | DUANE READE       |
|--------------------------|-------------------|
|                     |              |
|                     | By:               | Duane Reade  Inc., its General Partner |
|                     |              |   |
|                     |              |   |
|                     | By:               | /s/ John K.  Henry |   |
|                     | Name:             | John K.  Henry |
|                     | Title:            | Chief  Financial Officer |
|                     |              |   |
|                     |              |   |
|                     | By:               | /s/ Michelle  D. Bergman |   |
|                     | Name:             | Michelle D.  Bergman |
|                     | Title:            | Vice  President |
|                     |              |   |
|                     |              |   |
|                     | By:               | DRI I Inc.,  its General Partner |
|                     |              |   |
|                     |              |   |
|                     | By:               | /s/ John K.  Henry |   |
|                     | Name:             | John K.  Henry |
|                     | Title:            | Chief  Financial Officer |
|                     |              |   |
|                     |              |   |
|                     | By:               | /s/ Michelle  D. Bergman |   |
|                     | Name:             | Michelle D.  Bergman |
|                     | Title:            | Vice  President |
|                     |              |   |
|                     |              |   |
| **FACILITY GUARANTORS**: | DUANE READE  INC. |
|                     |              |   |
|                     |              |   |
|                     | By:               | /s/ John K.  Henry |   |
|                     | Name:             | John K.  Henry |
|                     | Title:            | Chief  Financial Officer |
|                     |              |   |
|                     |              |   |
|                     | By:               | /s/ Michelle  D. Bergman |   |
|                     | Name:             | Michelle D.  Bergman |
|                     | Title:            | Vice  President |
|                     |              |   |
|                     |              |   |
|                     | DRI I INC.        |
|                     |              |
|                     |              |
|                     | By:               | /s/ John K.  Henry |   |
|                     | Name:             | John K.  Henry |
|                     | Title:            | Chief  Financial Officer |
|                          |                   |  |  |  |

 

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|                  | By:                              | /s/ Michelle  D. Bergman |   |
|-----------------------|----------------------------------|--------------------------|--------|
|                  | Name:                            | Michelle D.  Bergman     |
|                  | Title:                           | Vice  President          |
|                  |                             |                     |
|                  |                             |                     |
|                  | DUANE READE  REALTY, INC.        |
|                  |                             |
|                  |                             |
|                  | By:                              | /s/ John K.  Henry       |   |
|                  | Name:                            | John K.  Henry           |
|                  | Title:                           | Chief  Financial Officer |
|                  |                             |                     |
|                  |                             |                     |
|                  | By:                              | /s/ Michelle  D. Bergman |   |
|                  | Name:                            | Michelle D.  Bergman     |
|                  | Title:                           | Vice  President          |
|                  |                             |                     |
|                  |                             |                     |
|                  | DUANE READE  INTERNATIONAL, INC. |
|                  |                             |
|                  |                             |
|                  | By:                              | /s/ John K.  Henry       |   |
|                  | Name:                            | John K.  Henry           |
|                  | Title:                           | Chief  Financial Officer |
|                  |                             |                     |
|                  |                             |                     |
|                  | By:                              | /s/ Michelle  D. Bergman |   |
|                  | Name:                            | Michelle D.  Bergman     |
|                  | Title:                           | Vice  President          |
|                  |                             |                     |
|                  |                             |                     |
| **COLLATERAL AGENT**: | FLEET RETAIL  FINANCE INC.       |
|                  |                             |                     |
|                  |                             |                     |
|                  | By:                              | /s/ Mark  Forti          |   |
|                  | Name:                            | Mark Forti               |
|                  | Title:                           | Director                 |
|                       |                                  |                          |        |  |

 

20

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**SCHEDULE I**

 

 

Facility Guarantors

 

 

Duane Reade Inc.

DRI I Inc.

Duane Reade Realty, Inc.

Duane Reade International, Inc.

 

21

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Annex 1 to the

Security Agreement

 

 

Form of Perfection Certificate

 

22

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