**Exhibit 10.3**

 

**EXECUTION COPY**

 

 

 

STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT

 

 

by and among

 

 

DUANE READE HOLDINGS, INC.

 

 

and

 

 

DUANE READE SHAREHOLDERS, LLC AND THE MANAGEMENT STOCKHOLDERS LISTED HEREIN

 

 

----

 

Dated:  July 30, 2004

 

----

 

 

 

----

 

**Table of Contents**

 
| ARTICLE I  DEFINITIONS                                       |   |
|-------------------------------------------------------------------|--------|
|                                                              | 1.1    | Definitions. |   |
|                                                              | 1.2    | Usage Generally. |   |
|                                                              |   |   |   |
| ARTICLE II  TRANSFERS                                        |   |
|                                                              | 2.1    | General Restrictions. |   |
|                                                              | 2.2    | Permitted Transfers. |   |
|                                                              | 2.3    | Drag-Along Right. |   |
|                                                              | 2.4    | Tag-Along  Right. |   |
|                                                              | 2.5    | Conditions to Transfers. |   |
|                                                              | 2.6    | Apportionment. |   |
|                                                              |   |   |   |
| ARTICLE III  OTHER RIGHTS                                    |   |
|                                                              | 3.1    | Initial Public Offering. |   |
|                                                              | 3.2    | Registration Rights. |   |
|                                                              | 3.3    | Holdback Agreements. |   |
|                                                              | 3.4    | Dividends. |   |
|                                                              |   |   |   |
| ARTICLE IV  AFTER-ACQUIRED SECURITIES; AGREEMENT TO BE BOUND |   |
|                                                              | 4.1    | After-Acquired Securities. |   |
|                                                              | 4.2    | Agreement to be Bound. |   |
|                                                              |   |   |   |
| ARTICLE V  CORPORATE GOVERNANCE                              |   |
|                                                              | 5.1    | General. |   |
|                                                              | 5.2    | Stockholder Actions. |   |
|                                                              | 5.3    | Election  of Directors; Number and Composition. |   |
|                                                              | 5.4    | Removal and  Replacement of Directors. |   |
|                                                              | 5.5    | Reimbursement of Expenses. |   |
|                                                              |   |   |   |
| ARTICLE VI STOCK  CERTIFICATE LEGEND                         |   |
|                                                              |   |   |   |
| ARTICLE VII  MISCELLANEOUS                                   |   |
|                                                              | 7.1    | Notices. |   |
|                                                              | 7.2    | Entire Agreement. |   |
|                                                              | 7.3    | Amendment. |   |
|                                                              | 7.4    | No Waivers. |   |
|                                                              | 7.5    | Applicable Law. |   |
|                                                              | 7.6    | SUBMISSION  TO JURISDICTION; WAIVER OF JURY TRIAL; SELECTION OF FORUM. |   |
|                                                              | 7.7    | Further Assurances. |   |
|                                                              | 7.8    | Assignment of  Contracts and Rights. |   |

 

i

----

 
|      | 7.9                  | No Third-Party Rights.                                                 |   |
|-----------|----------------------|------------------------------------------------------------------------|--------|
|      | 7.10                 | Successors and Assigns.                                                |   |
|      | 7.11                 | Severability.                                                          |   |
|      | 7.12                 | Remedies Not Exclusive.                                                |   |
|      | 7.13                 | Representation by Counsel.                                             |   |
|      | 7.14                 | Counterparts.                                                          |   |
|      | 7.15                 | Table of Contents and  Headings.                                       |   |
|      | 7.16                 | Rules of Construction.                                                 |   |
|      | 7.17                 | Term of Agreement.                                                     |   |
|      | 7.18                 | Survival of Certain  Provisions.                                       |   |
|      | 7.19                 | Fees.                                                                  |   |
|      | 7.20                 | Management  Stockholder Representation                                 |   |
|      |                 |                                                                   |   |
| EXHIBITS  |                 |
|      |                 |                                                                   |   |
| A         |                 | Form  of Joinder to the Stockholders and Registration Rights Agreement |   |
|      |                 |                                                                   |   |
| SCHEDULES |                 |                                                                   |
|      |                 |                                                                   |   |
| 1         | Management Members   |                                                                   |
| 2         | Optionholders        |                                                                   |
| 3         | Phantom Stockholders |                                                                   |

 

ii

----

 

**STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT**

** **

STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT (this “Agreement”),dated as of July 30, 2004, by and among Duane Reade Holdings, Inc.(formerly known as Rex Corner Holdings, Inc.), a Delaware corporation (the “Company”),Duane Reade Shareholders, LLC (formerly known as Rex Corner Holdings, LLC), aDelaware limited liability company (“Parent”), and certain members ofthe management of Duane Reade Inc., a wholly-owned Subsidiary of the Company,listed on Schedule 1 hereto (as such Schedule may be updatedfrom time to time, the “Management Members”).

 

WHEREAS, immediately following the consummation of thetransactions contemplated by the Agreement and Plan of Merger, dated as ofDecember 22, 2003, by and among Duane Reade Acquisition Corp. (formerlyknown as Rex Corner Acquisition Corp.), Parent and Duane Reade Inc., as amendedby Amendment No. 1 on June 10, 2004, Amendment No. 2 on June 13, 2004and Amendment No. 3 on June 18, 2004 (as amended, the “Merger Agreement”),Parent will beneficially own shares of Common Stock (as hereinafter defined);

 

WHEREAS, immediately following consummation of thetransactions contemplated by the Merger Agreement, the Management Membersidentified on Schedule  2 hereto will be granted options topurchase Common Stock (“Options”) pursuant to the Duane Reade Holdings,Inc. 2004 Management Stock Option Plan (the “Option Plan”);

 

WHEREAS, immediately following consummation of thetransactions contemplated by the Merger Agreement, the Management Membersidentified on Schedule 3 hereto (the “Phantom Stockholders”)will be awarded shares of phantom stock (the “Phantom Stock”) pursuantto the Duane Reade Inc. Phantom Stock Plan (the “Phantom Stock Plan”);and

 

WHEREAS, the parties hereto wish to restrict thetransfer of the Shares (as hereinafter defined) and to provide for, among otherthings, tag-along, drag-along, registration rights and corporate governancerights and obligations and certain other rights under certain conditions.

 

NOW, THEREFORE, in consideration of the mutualcovenants and agreements set forth herein and for good and valuableconsideration, the receipt and adequacy of which are hereby acknowledged, theparties hereto agree as follows:

 

----

 

**ARTICLE I**

 

**DEFINITIONS**

 

1.1                                 Definitions.  As used in this Agreement, and unless thecontext requires a different meaning, the following terms have the meaningsindicated:

 

“Affiliate” means, with respect to any Person,any other Person who, directly or indirectly, controls, is controlled by, or isunder direct or indirect common control with, such Person.  For the purposes of this definition“control,” when used with respect to any specified Person, shall mean the powerto direct or cause the direction of the management and policies of such Person,directly or indirectly, whether through ownership of voting securities orpartnership or other ownership interests, by contract or otherwise; and theterms “controlling” and “controlled” shall have correlative meanings.

 

“Agreement” has the meaning set forth in thePreamble.

 

“Board of Directors” means the Board ofDirectors of the Company.

 

“Business Day” means any day other than aSaturday, Sunday or other day on which commercial banks in the State ofNew York are authorized or required by law or executive order to close.

 

“Chairman” means Anthony J. Cuti.

 

“Chairman Employment Agreement” means theAmended and Restated Employment Agreement, dated as of March 16, 2004, byand among Duane Reade Acquisition Corp., the Company, Parent and the Chairman.

 

“Chairman Transfer Amount” means, in connectionwith a Parent Tag-Along Sale and as of the date thereof, a number of shares ofCommon Stock equal to the sum of (a) (i) if in connection with such ParentTag-Along Sale the Chairman is Transferring less than all of his Class B Units,zero or (ii) if as of such date the Chairman has previously Transferred all ofhis Class B Units or would do so in connection with such Parent Tag-Along Sale,the excess, if any, of (A) the product of the Chairman Transfer Percentagemultiplied by the number of Parent Transfer Units, over (B) the product of(x) the quotient obtained by dividing the number of Class B Units to beTransferred by the Chairman in connection with such Parent Tag-Along Sale bythe number of Units outstanding multiplied by (y) the number of Sharesheld by Parent; plus (b) the number of shares of Common Stock equal to theproduct of the Percentage Interest of the Chairman (the numerator of suchPercentage Interest to be calculated only as to the Chairman’s shares of CommonStock and not Options) multiplied by the number of shares of Common Stockproposed to be Transferred by the Parent Stockholders pursuant to suchTag-Along Sale (or the Parent Transfer Units in the case of a Parent Tag-AlongSale).

 

2

----

 

“Chairman Transfer Percentage” shall mean, as of any date of determination, a fraction equal to thesum of (a) the quotient obtained by dividing (A) the number of VestedOption Shares owned by the Chairman by (B) the total number of issued andoutstanding Shares; plus (b) the product of (i) the quotient obtained bydividing (A) the aggregate number of Class B Units by (B) the aggregatenumber of Units issued and outstanding, multiplied by (ii) the quotientobtained by dividing (A) the number of Shares owned by Parent by (B) theaggregate number of issued and outstanding Shares.

 

“Charity” means any Person organized andoperated for a charitable purpose.

 

“Charter Documents” means the Certificate ofIncorporation and the By-laws of the Company.

 

“Chosen Court” has the meaning set forth inSection 7.6.

 

“Class A Units” has the meaning set forth inthe LLC Agreement.

 

“Class B Units” has the meaning set forth inthe LLC Agreement.

 

“Commission” means the Securities and ExchangeCommission or any similar agency then having jurisdiction to enforce theSecurities Act.

 

“Common Stock” means the Common Stock, parvalue $0.01 per share, of the Company or any other capital stock of the Companyinto which such stock is reclassified or reconstituted and any other commonstock of the Company.

 

“Common Stock Equivalents” means anyconvertible securities, warrants, Options, Phantom Stock or other similarrights which by their terms are convertible into or exercisable, exchangeableor settle for Equity Securities of the Company.

 

“Company” has the meaning set forth in thePreamble.

 

“Demand Registration” has the meaning set forthin Section 3.1(a).

 

“Drag-Along Notice” has the meaning set forthin Section 2.3(a).

 

“Drag-Along Sale” has the meaning set forth inSection 2.3(a).

 

“Duane Reade” shall have the meaning set forthin the LLC Agreement.

 

“Equity Securities” has the meaning ascribed tosuch term in Rule 405 promulgated under the Securities Act as in effect onthe date hereof, and in any event includes any common stock, any limitedpartnership interest, any limited liability company interest and any otherinterest or security having the attendant right to vote for directors orsimilar representatives.

 

3

----

 

“Governmental Authority” means the governmentof any nation, state, city, locality or other political subdivision thereof,any entity exercising executive, legislative, judicial, regulatory oradministrative functions of or pertaining to government, and any corporation orother entity owned or controlled, through stock or capital ownership orotherwise, by any of the foregoing.

 

“Independent Director” means an individual who(a) is not a current or former employee, officer or consultant of (i) the Company,(ii) any Stockholder or (iii) any Affiliate of the Company or any Stockholder;(b) is not a Stockholder; (c) is not a family member or Affiliate of any Persondescribed in clause (a) or (b) above; and (d) has no material businessrelationship with the Company.

 

“Initial Public Offering” means an underwrittenPublic Sale of Equity Securities of an IPO Entity pursuant to an effectiveregistration statement under the Securities Act that (a) results in thelisting for trading on an internationally recognized securities exchange orinter-dealer quotation system and (b) involves (alone or in combinationwith any prior such offerings) either (i) a Public Sale of at least twentypercent (20%) of such Equity Securities or (ii) an offering of EquitySecurities which generates gross proceeds of at least $100 million.

 

“IPO Effectiveness Date” means the date uponwhich the Initial Public Offering is closed.

 

“IPO Entity” shall mean any of Parent, theCompany, any Subsidiary of the Company, including Duane Reade, or any of theirrespective successors.

 

“LLC Agreement” means the Amended and RestatedLimited Liability Company Operating Agreement of Parent, dated as of the datehereof, by and among Oak Hill Capital Partners, L.P., Oak Hill CapitalManagement Partners, L.P., OHCP DR Co-Investors, LLC and the Chairman.

 

“Management Director” has the meaning set forthin Section 5.3(c).

 

“Management Members” has the meaning set forthin the Preamble.

 

“Management Stockholders” means the ManagementMembers and any Permitted Transferee thereof to whom Shares are Transferred inaccordance with Section 2.2 of this Agreement, and the term “ManagementStockholder” shall mean any such Person.

 

“Member” has the meaning set forth in the LLCAgreement.

 

“Merger Agreement” has the meaning set forth inthe Recitals.

 

“Old Equity” has the meaning set forth inSection 7.20.

 

“Option Plan” has the meaning set forth in theRecitals.

 

4

----

 

“Options” has the meaning set forth in theRecitals.

 

“Parent” has the meaning set forth in thePreamble.

 

“Parent Director(s)” has the meaning set forthin Section 5.3(b).

 

“Parent Drag-Along Notice” means a Drag-AlongNotice (as defined in the LLC Agreement) delivered pursuant to Section 9.3of the LLC Agreement.

 

“Parent Drag-Along Sale” means a Drag-AlongSale (as defined in the LLC Agreement) pursuant to Section 9.3 of the LLCAgreement.

 

“Parent Stockholders” means Parent and, subjectto the proviso set forth in Section 2.5(b), any Permitted Transferee thereofto whom Shares are Transferred in accordance with Section 2.2 of thisAgreement, and the term “Parent Stockholder” shall mean any such Person.

 

“Parent Tag-Along Notice” means a Tag-AlongNotice (as defined in the LLC Agreement) delivered pursuant to Section 9.4of the LLC Agreement.

 

“Parent Tag-Along Sale” means a Tag-Along Sale(as defined in the LLC Agreement) pursuant to Section 9.4 of the LLCAgreement.

 

“Parent Transfer Percentage Interest” means, asof any date of determination, (a) in connection with a Drag-Along Saleother than a Parent Drag-Along Sale, the quotient obtained by dividing thenumber of Shares proposed to be Transferred by the Parent Stockholders by thenumber of Shares held by the Parent Stockholders immediately prior to such Drag-AlongSale or (b) in the case of a Parent Drag-Along Sale, the product obtainedby multiplying (i) the quotient obtained by dividing (A) the numberof Units to be Transferred by the Class A Members pursuant to such ParentDrag-Along Sale by (B) the number of Units held by the Class A Membersimmediately prior to such Parent Drag-Along Sale, by (ii) the number ofShares held by the Parent Stockholders.

 

“Parent Transfer Units” means in connectionwith a Parent Tag-Along Sale and as of the date thereof, the product of (a) thenumber of Class A Units proposed to be Transferred in connection with suchParent Tag-Along Sale divided by the number of Units issued and outstandingmultiplied by (b) the number of Shares owned by the Parent.

 

“Percentage Interest” means, as of any date ofdetermination, with respect to any Stockholder, the percentage determined bydividing (a) the number of Shares held by such Stockholder by (b) thetotal number of Shares issued and outstanding.

 

“Permitted Transfer” has the meaning set forthin Section 2.2.

 

“Permitted Transferee” has the meaning setforth in Section 2.2.

 

5

----

 

“Person” means any individual, firm,corporation, partnership, trust, incorporated or unincorporated association,joint venture, joint stock company, limited liability company, GovernmentalAuthority or other entity of any kind, and shall include any successor (bymerger or otherwise) of such entity.

 

“Phantom Stock” has the meaning set forth inthe Recitals.

 

“Phantom Stock Plan” has the meaning set forthin the Recitals.

 

“Phantom Stockholders” has the meaning setforth in the Recitals.

 

“Piggyback Notice” has the meaning set forth inSection 3.1(b).

 

“Preemptive Rights Agreement” has the meaningset forth in the LLC Agreement.

 

“Public Sale” means any sale of Equity Securities to the public(a) pursuant to an offering registered under the Securities Act or(b) through a broker, dealer or market maker pursuant to the provisions ofRule 144 (or any similar provision then in effect) adopted under the SecuritiesAct, other than Rule 144(k) or any similar provision then in effect.

 

“Securities Act” means the United StatesSecurities Act of 1933 and the rules and regulations of the Commissionpromulgated thereunder.

 

“Shares” means, as of any date ofdetermination, all shares of Common Stock, all Common Stock Equivalents and allEquity Securities of the Company issued and outstanding.  For purposes of determining the number ofShares issued and outstanding at any time, all outstanding Common StockEquivalents shall be deemed converted, exercised or exchanged as applicable andthe shares of Common Stock issuable upon such conversion, exercise or exchangeshall be deemed issued and outstanding, whether or not such conversion,exercise or exchange has actually been effected; provided, however,that as to any options, such number shall be determined solely based on VestedOption Shares.

 

“Stock Option Agreement” has the meaning setforth in the Option Plan.

 

“Stockholders” means (a) the ParentStockholders, the Management Stockholders and any Transferee thereof who hasagreed to be bound by the terms and conditions of this Agreement in accordancewith Section 2.5 and (b) any Person who has agreed to be bound by theterms and conditions of this Agreement in accordance with Section 4.2, andthe term “Stockholder” shall mean any such Person.

 

“Stockholders Meeting” has the meaning setforth in Section 5.1.

 

“Subsidiary” means, with respect to any Person,any entity of which (a) if a corporation, a majority of the total votingpower of shares of stock entitled (without regard to the occurrence of anycontingency) to vote in the election of directors,

 

6

----

 

managers or trustees thereof is at the time ofdetermination owned or controlled, directly or indirectly, collectively orindividually, by such Person or by one or more Subsidiaries of such Person, and(b) if a partnership, association, limited liability company or otherentity, (i) the general partner or similar managing entity and (ii) amajority of the partnership, membership or other similar ownership interestthereof is at the time of determination beneficially owned or controlled,directly or indirectly, collectively or individually, by such Person or by oneor more Subsidiaries of such Person.  Forpurposes of this Agreement, the Company and its Subsidiaries shall be deemed toown a majority ownership interest in a partnership, association, limitedliability company or other entity if the Company and its Subsidiaries shallcontrol the general partner or managing member or managing director of suchentity.

 

“Tag-Along Exercise Notice” has the meaning setforth in Section 2.4(a).

 

“Tag-Along Notice” has the meaning set forth inSection 2.4(a).

 

“Tag-Along Right” has the meaning set forth inSection 2.4(a).

 

“Tag-Along Sale” has the meaning set forth inSection 2.4(a).

 

“Third Party Purchaser” has the meaning setforth in Section 2.3(a).

 

“Transfer” means any direct or indirecttransfer, sale, assignment, pledge, lease, hypothecation, mortgage, gift orcreation of security interest, lien or trust (voting or otherwise) or otherencumbrance or other disposition of any Shares. “Transferor” and “Transferee” have correlative meanings.

 

“Units” has the meaning set forth in the LLCAgreement.

 

“Valid Business Reason” has the meaning setforth in Section 3.1(a)(i).

 

“Vested Option Shares” has the meaning setforth in the LLC Agreement.

 

1.2                                 UsageGenerally.  The definitions in thisArticle I shall apply equally to both the singular and plural forms of theterms defined.  Whenever the context mayrequire, any pronoun shall include the corresponding masculine, feminine andneuter forms.  All references herein toArticles, Sections, Exhibits and Schedules shall be deemed to be references toArticles and Sections of, and Exhibits and Schedules to, this Agreement unlessthe context shall otherwise require.  AllSchedules attached hereto shall be deemed incorporated herein as if setforth in full herein and, unless otherwise defined therein, all terms used inany Schedule shall have the meaning ascribed to such term in thisAgreement.  The words “include,”“includes” and “including” shall be deemed to be followed by the phrase“without limitation.”  The words“hereof,” “herein” and “hereunder” and words of similar import when used inthis Agreement shall refer to this Agreement as a whole and not to anyparticular provision of this Agreement. Unless otherwise expressly provided herein, any agreement, instrument orstatute defined or referred to herein or in any agreement or instrument that isreferred to herein means such

 

7

----

 

agreement, instrument orstatute as from time to time amended, modified or supplemented, including (inthe case of agreements or instruments) by waiver or consent and (in the case ofstatutes) by succession of comparable successor statutes and references to allattachments thereto and instruments incorporated therein.

 

**ARTICLE II**

 

**TRANSFERS**

 

2.1                                 GeneralRestrictions.  Except as otherwisepermitted in this Article II, no Management Stockholder shall Transfer all orany portion of his or her Shares,  orrights to income or other attributes with respect to his or her Shares, itbeing understood that any such Transfer or issuance not in accordance with thisSection 2.1 or the remainder of this Article II will be deemed to constitute aTransfer by such Management Stockholder in violation of this Agreement, shallbe void *ab initio* and shall not be recognized bythe Company.  Any Transfer of Shares bythe Parent Stockholders shall be subject to Sections 2.3, 2.4 (each, ifapplicable in connection with such Transfer) and 2.5.

 

2.2                                 PermittedTransfers.  The provisions ofSection 2.1 shall not apply to the following Transfers of Shares by aManagement Stockholder (each, a “Permitted Transfer” and the Transfereepursuant to each such Permitted Transfer, a “Permitted Transferee”):

 

(a)                                  withrespect to each Management Stockholder, any Transfer to:

 

#### (i)                                     suchManagement Stockholder’s parents, spouse, descendants (whether natural, step oradopted) or other family members;

####  

#### (ii)                                  followingthe death of a Management Stockholder, one or more Charities designated by suchManagement Stockholder in his or her will;

####  

#### (iii)                               subject to the priorwritten consent of the board of directors of Duane Reade (which consent shallnot be unreasonably withheld), except as permitted by clauses (i) and(ii), upon such Management Stockholder’s death, his or her heirs, executors or administrators;

####  

#### (iv)                              a trust or family limited partnership formedexclusively for the benefit of any of the Persons described inclauses (i) and/or, upon such Management Stockholder’s death, (ii) or(iii) above;

####  

#### (v)                                 inconnection with a Drag-Along Sale or a Tag-Along Sale, to a Third-PartyPurchaser;

####  

#### (vi)                              subjectto Section 3.2 (Holdback Agreements), in connection with the InitialPublic Offering or any subsequent Public Sale; or

 

8

----

 

#### (vii)                           pursuant to the priorwritten consent of a majority of the board of directors of Duane Reade(excluding, if applicable, the Management Stockholder); and

####  

(b)                                 withrespect to the Parent Stockholders, subject, to the extent applicable, to theprovisions of Sections 2.3 and 2.4, any Transfer.

 

2.3                                 Drag-AlongRight.

 

(a)                                  If,at any time prior to an Initial Public Offering, (i) a Parent Drag-AlongNotice is delivered or (ii) the Parent Stockholders desire to TransferShares (each, a “Drag-Along Sale”), that, as to clause (ii) only andtogether with any Shares previously Transferred, represent fifty percent (50%)or more of the aggregate number of Shares owned by the Parent Stockholders toone or more third parties (each, a “Third-Party Purchaser”), then theParent Stockholders shall have the right to require the Management Stockholders(A) other than in respect of the Phantom Stockholders (solely in theircapacity as such), if such Transfer is structured as a sale of capital stock ofthe Company, to Transfer, or cause to be Transferred, to the Third-PartyPurchaser the number of shares of Common Stock determined in accordance withSection 2.6(a), (B) if such Transfer is structured as a merger,consolidation, sale of all or substantially all of the assets of the Company orother transaction requiring the consent or approval of the Stockholders, tovote all of the Shares held by the Management Stockholders in favor thereof,and otherwise to consent to and raise no objection to such transaction, and theManagement Stockholders shall waive any dissenters’ rights, appraisal rights orsimilar rights which the Management Stockholders may have in connectiontherewith, (C) other than in respect of the Phantom Stockholders (solely intheir capacity as such), if such Transfer is in connection with a ParentDrag-Along Sale, to Transfer, or cause to be Transferred, in connection withthe Drag-Along Sale, the number of shares of Common Stock determined inaccordance with Section 2.6(a) and (D) as to the Phantom Stockholders(solely in their capacity as such), to Transfer, or cause to be Transferred, tothe Third-Party Purchaser the number of shares of Common Stock to be issued tosettle a Phantom Stock award immediately prior to and as a result of suchDrag-Along Sale computed in accordance with Section 6(a) of the PhantomStock Plan.  The rights of the ParentStockholders under this Section 2.3 shall be exercisable by written notice(a “Drag-Along Notice”) delivered by the Parent Stockholders to theManagement Stockholders, which shall state (1) that a Parent Drag-AlongNotice has been delivered or that the Parent Stockholders propose to effect aDrag-Along Sale, (2) the number of Shares and the Percentage Interest ofthe Parent Stockholders (or the Parent Transfer Percentage Interest) proposedto be Transferred, (3) the proposed purchase price to be paid by theThird-Party Purchaser for the Shares to be Transferred and (4) the otherprincipal terms of the Drag-Along Sale. The Management Stockholders agree, upon receipt of a Drag-Along Notice,(x) to be bound by the same terms, provisions and conditions in respect ofthe Drag-Along Sale as are applicable to the Parent Stockholders (or, ifapplicable, the Members) and (y) to be obligated to sell the number ofshares of Common Stock as determined in accordance with thisSection 2.3(a) and to take all reasonably necessary actions to cause theconsummation of the proposed transaction,

 

9

----

 

including voting (pursuant toclause (B) of the first sentence above) in favor of such transaction.

 

(b)                                 Inconnection with any proposed Drag-Along Sale:

 

#### (i)                                     priorto the consummation of any such proposed Drag-Along Sale, the ManagementStockholders shall execute any purchase or sale agreement and any othercertificate, instrument and agreement reasonably requested by the ParentStockholders or the Third-Party Purchaser to consummate the proposed Drag-AlongSale, containing terms no less favorable to the Management Stockholders thanthose executed by the Parent Stockholders (or the Members) with respect to theShares (or the Units) proposed to be Transferred by the Parent Stockholders (orthe Members) in connection with such Drag-Along Sale.  For the avoidance of doubt, the Management Stockholdersshall be required (A) to bear, to the extent not borne by the Company,their *pro rata*share (based upon thepercentage of the total consideration to which each such Person is entitled inrespect of the Drag-Along Sale) of any indemnities, escrows, holdbacks oradjustments in purchase price established pursuant to the agreement evidencingsuch Transfer and (B) to make such representations, warranties andcovenants and enter into such agreements customarily made or entered into insimilar transactions;

####  

#### (ii)                                  theParent Stockholders and each Management Stockholder shall bear their respective*pro rata* share (based upon thepercentage of the total consideration to which each such Person is entitled inrespect of the Drag-Along Sale) of the costs incurred in connection with suchDrag-Along Sale to the extent such costs are incurred for the benefit of theParent Stockholders (or the Members) and the Management Stockholders and arenot otherwise paid by the Company or the Third-Party Purchaser, with theunderstanding that the Company shall pay such costs unless prohibited fromdoing so by the terms of the transaction; provided, however, thatcosts incurred by each Member, Parent Stockholders and Management Stockholder,as applicable, on their own behalf shall not be considered to be costs of thetransaction hereunder;

####  

#### (iii)                               at the closing of anyDrag-Along Sale, the Management Stockholders shall deliver to the ParentStockholders or the Third-Party Purchaser such instruments of Transfer as shallbe requested by the Parent Stockholders or the Third-Party Purchaser withrespect to the Shares of the Management Stockholders to be Transferred, againstreceipt of the purchase price therefor, including certificates representing theShares of the Management Stockholders to be Transferred, which shall be dulyendorsed for Transfer with all applicable stock transfer tax stamps attached,paid or otherwise provided for by the Management Stockholders;

####  

#### (iv)                              theconsideration payable in respect of each share of Common Stock in connectionwith any Drag-Along Sale shall equal the consideration payable in respect ofeach share of Common Stock Transferred by the Parent Stockholders or, if inconnection with a Parent Drag-Along Sale, the consideration payable in respectof each Class A Unit Transferred; and

 

10

----

 

#### (v)                                 thereshall be no liability on the part of any Member, the Parent Stockholders or theCompany to the Management Stockholders if any Drag-Along Sale is notconsummated for whatever reason.  For theavoidance of doubt, the determination of whether to effect a Drag-Along Saleshall be in the sole and absolute discretion of the Parent Stockholders (or theapplicable Members).

####  

2.4                                 Tag-AlongRight.

 

(a)                                  If,at any time prior to an Initial Public Offering, (i) a Parent Tag-AlongNotice is delivered or (ii) in connection with a Transfer by the ParentStockholders to a Third-Party Purchaser of Shares that, as to this clause (ii)only and together with Shares previously Transferred, represent five percent(5%) or more of the Shares held by the Parent as of the date hereof (each, a “Tag-AlongSale”), the Management Stockholders shall have the right (but not theobligation) (such right, the “Tag-Along Right”) to require the ParentStockholders (or the Members) to cause the Third-Party Purchaser to purchase(A) if the Tag-Along Sale is not effected pursuant to a Parent Tag-AlongSale, as to each Management Stockholder other than the Phantom Stockholders(solely in their capacity as such), a number of shares of Common Stockdetermined in accordance with Section 2.6(b), (B) if the Tag-Along Sale iseffected pursuant to a Parent Tag-Along Sale, (x) as to each ManagementStockholder other than the Chairman and the Phantom Stockholders (solely intheir capacity as such), the number of shares of Common Stock determined inaccordance with Section 2.6(b) and (y) as to the Chairman, the ChairmanTransfer Amount, and (C) as to the Phantom Stockholders (solely in theircapacity as such), the number of shares of Common Stock to be issued to settlea Phantom Stock award immediately prior to and as a result of such Tag-AlongSale computed in accordance with Section 6(b) of the Phantom Stock Plan.  Prior to completing a Tag-Along Sale, theParent Stockholders shall provide no less than fifteen (15) calendar days’ (andshall use commercially reasonable efforts to provide thirty (30) calendardays’) prior written notice to the Management Stockholders (the “Tag-AlongNotice”) setting forth (1) the number of Shares of the ParentStockholders (or the Parent Transfer Units) proposed to be Transferred,(2) the proposed purchase price to be paid by the Third Party Purchaserfor the Shares to be Transferred and (3) the other principal terms of theTag-Along Sale.  No later than fourteen(14) calendar days after delivery of the Tag-Along Notice, each ManagementStockholder may exercise the Tag-Along Right by delivering to the ParentStockholders written notice of his or her irrevocable agreement to participatein the proposed Transfer on the terms and conditions provided for in thisSection 2.4 (the “Tag-Along Exercise Notice”).  If applicable, the number of Shares proposedto be Transferred to the Third-Party Purchaser by the Parent Stockholders shallbe reduced by the number of Shares to be Transferred by the ManagementStockholders.  The failure of any of theManagement Stockholders to deliver the Tag-Along Exercise Notice within theperiod described above shall be deemed to be a waiver by such ManagementStockholder of such Tag-Along Right under this Section 2.4.

 

(b)                                 Inthe event that any of the Management Stockholders deliver the Tag-AlongExercise Notice to the Parent Stockholders:

 

11

----

 

#### (i)                                     priorto the closing of any such proposed Tag-Along Sale, such ManagementStockholders shall execute any purchase or sale agreement and any othercertificate, instrument or agreement reasonably requested by the ParentStockholders or the Third-Party Purchaser to consummate the proposed Tag-AlongSale, containing terms no less favorable to such Management Stockholders thanthose executed by the Parent Stockholders (or the Members) with respect to theShares (or Units) proposed to be Transferred in connection with such Tag-AlongSale.  For the avoidance of doubt, such ManagementStockholders shall be required (A) to bear, to the extent not borne by theCompany, their *pro rata*share (based upon thepercentage of the total consideration to which each such Person is entitled inrespect of the Tag-Along Sale) of any indemnities, escrows, holdbacks oradjustments in purchase price established pursuant to the agreement evidencingsuch Transfer and (B) to make such representations, warranties and covenantsand enter into such agreements customarily made or entered into in similartransactions;

####  

#### (ii)                                  theParent Stockholder and each such Management Stockholder shall bear theirrespective *pro rata* share (based upon thepercentage of the total consideration to which each such Person is entitled inrespect of the Tag-Along Sale) of the costs incurred in connection with suchTag-Along Sale to the extent such costs are incurred for the benefit of theParent Stockholders (or the Members) and such Management Stockholders and arenot otherwise paid by the Company or the Third-Party Purchaser, with theunderstanding that the Company shall pay such costs unless prohibited fromdoing so by the terms of the transaction; provided, however, thatcosts incurred by each Member, Parent Stockholder and each such ManagementStockholder, as applicable, on their own behalf shall not be considered to becosts of the transaction hereunder;

####  

#### (iii)                               at the closing of anysuch proposed Tag-Along Sale, such Management Stockholders shall deliver to theParent Stockholders or the Third-Party Purchaser such instruments of Transferas shall be requested by the Parent Stockholders or the Third-Party Purchaserwith respect to the Shares of such Management Stockholders to be Transferred,against receipt of the purchase price therefor, including certificatesrepresenting the Shares of such Management Stockholders to be Transferred,which shall be duly endorsed for Transfer with all applicable stock transfertax stamps attached, paid or otherwise provided for by such ManagementStockholders;

####  

#### (iv)                              theconsideration payable in respect of each share of Common Stock in connectionwith any Tag-Along Sale shall equal the consideration payable in respect ofeach share of Common Stock Transferred by the Parent Stockholders or, if inconnection with a Parent Tag-Along Sale, the consideration in respect of eachClass A Unit Transferred; and

####  

#### (v)                                 thereshall be no liability on the part of any Member, the Parent Stockholders or theCompany to the Management Stockholders if the Tag-Along Sale is not consummatedfor whatever reason.  For the avoidanceof doubt,

 

12

----

 

#### thedetermination of whether to effect a Tag-Along Sale shall be in the sole andabsolute discretion of the Parent Stockholders (or the applicable Members).

 

2.5                                 Conditionsto Transfers.  In addition to allother terms and conditions contained in this Agreement, no Transfers to whichthe provisions of Section 2.2 would apply (other than any Transferpursuant to Section 2.3 or 2.4) shall be complete or effective for anypurpose unless prior thereto:

 

(a)                                  theTransferor shall have provided to the Company (i) at least five (5)Business Days’ prior notice of such Transfer or in the case of a Transfer byreason of death pursuant to 2.2(a), at least five (5) Business Days’ noticeprior to the proposed effectiveness of such Transfer for purposes of thisAgreement and (ii) in the case of the Management Stockholders, acertificate of the Transferor, delivered with such notice, containing astatement as to which provision of Section 2.2 is applicable to suchTransfer, together with such information as is reasonably necessary for theBoard of Directors to determine whether such Transfer is permitted thereby;

 

(b)                                 theTransferee of such Shares shall have executed and delivered to the Company ajoinder in the form of Exhibit A pursuant to which it shall becomea party to and be bound by the applicable terms and provisions of thisAgreement; provided, however, that any Transferee of Parent shallnot be bound by or otherwise subject to Section 2.4 (Tag-Along Rights); provided,further, that to the extent any such Permitted Transferee is aThird-Party Purchaser pursuant to a Drag-Along Sale or Tag-Along Sale suchPermitted Transferee shall not have any rights pursuant to Section 2.4(Tag-Along Right); and

 

(c)                                  ifrequested by the Company and at the Company’s expense, counsel to theTransferee of such Shares shall have delivered to the Company an opinionreasonably satisfactory in form and substance to the Company, to the effectthat such Transfer would not violate the Securities Act or any state securitiesor “blue sky” laws applicable to the Company or the Shares to be Transferred.

 

2.6                                 Apportionment.  Each of the parties hereby acknowledges andagrees that with respect to the number of shares of Common Stock to beTransferred by a Management Stockholder (other than in his or her capacity as aPhantom Stockholder) pursuant to Section 2.3 or 2.4 the following shallapply:

 

(a)                                  inconnection with a Drag-Along Sale, the number of shares of Common Stock to beTransferred by each such Management Stockholder shall be comprised of(i) the number of shares of Common Stock held by such ManagementStockholder (excluding Options) multiplied by the Parent Transfer PercentageInterest and (ii) a number of shares of Common Stock to be obtainedthrough the exercise (whether on a cashless exercise basis or otherwise) ofOptions equal to the number of vested Options held by such ManagementStockholder (after giving effect to any acceleration of vesting resulting from suchDrag-Along Sale) multiplied by the Parent Transfer Percentage Interest; or

 

13

----

 

(b)                                 inconnection with a Tag-Along Sale, the number of shares of Common Stock to beTransferred by each such Management Stockholder shall be comprised of(i) the number of shares of Common Stock held by such ManagementStockholder (excluding Options) equal to the product of the Percentage Interestof such Management Stockholders as of such date (the numerator of such PercentageInterest to be calculated only as to such Management Stockholder’s shares ofCommon Stock and not Options) multiplied by the number of shares of CommonStock proposed to be Transferred by the Parent Stockholders pursuant to suchTag-Along Sale (or the Parent Transfer Units in the case of a Parent Tag-AlongSale) and (ii) a number of shares of Common Stock to be obtained throughthe exercise (whether on a cashless basis or otherwise) of Options equal to theproduct of the Percentage Interest of such Management Stockholder as of suchdate (the numerator of such Percentage Interest to be calculated only as tosuch Management Stockholder’s Options and not shares of Common Stock)multiplied by the number of shares of Common Stock proposed to be Transferredby the Parent Stockholders pursuant to such Tag-Along Sale (or the ParentTransfer Units in the case of a Parent Tag-Along Sale); provided, however,that in the case of the Chairman in connection with a Parent Tag-Along Sale,the number of shares of Common Stock to be Transferred by the Chairman inrespect of Options shall be limited to the number of such shares, if any, thatconstitute all or a portion of the Chairman Transfer Amount.

 

**ARTICLE III**

 

**OTHER RIGHTS**

 

3.1                                 InitialPublic Offering.

 

(a)                                  ConversionRights.  In connection with anInitial Public Offering, (i) upon not less than thirty (30) calendar days’prior written notice, (A) each Stockholder may elect to convert suchStockholder’s shares of Common Stock into Equity Securities of the IPO Entityand (B) the Management Stockholders may elect to convert their Optionsinto options to purchase Equity Securities of the IPO Entity in accordance withthe terms of the applicable option award agreement and (ii) shares ofPhantom Stock shall be settled and converted in accordance withSection 6(c) of the Phantom Stock Plan. The terms and conditions of any conversion with respect to shares ofCommon Stock, Phantom Stock and Options held by the Management Stockholders shallbe no less favorable than those applicable to the shares of Common Stock heldby the Parent Stockholders.  Followingthe Initial Public Offering and a conversion pursuant to thisSection 3.1(a) references to shares of Common Stock in this Agreement, theOption Plan, the Phantom Stock Plan and the applicable Option and Phantom Stockaward agreements shall be deemed to refer to Equity Securities of the IPOEntity that are issued pursuant to this Section 3.1(a) and references tothe Company in this Agreement, the Option Plan, the Phantom Stock Plan andapplicable Option and Phantom Stock award agreements shall be deemed to referto the IPO Entity.

 

14

----

 

(b)                                 FormS-8.  Upon an Initial PublicOffering, the IPO Entity will use commercially reasonable efforts to registerunder the Securities Act the Equity Securities to be acquired pursuant to theOption Plan and the Phantom Stock Plan, to the extent not exercised or settled,on a Form S-8 provided that in the reasonable judgment of the Board ofDirectors (or the managing underwriter in the Initial Public Offering) such aregistration on Form S-8 could not reasonably be expected to have an adverseeffect on the market for the securities being registered in the Initial PublicOffering.

 

3.2                                 RegistrationRights.

 

(a)                                  DemandRegistrations.  Subject toSection 3.3, at any time, and from time to time, the Parent Stockholdersmay make a written request to the Company or its successor to register all orany portion of its shares of Common Stock under the Securities Act (other thanpursuant to a Registration Statement on Form S-4 or S-8 or any successoror similar forms thereto) (one or more registrations made in response to such awritten request by the Parent Stockholders, a “Demand Registration”).  The written request shall state the number ofshares of Common Stock held by the Parent Stockholders proposed to beTransferred and the proposed method or methods of disposition.  Upon the Company’s receipt of such writtenrequest by the Parent Stockholders:

 

#### (i)                                     theCompany shall register the shares of Common Stock stated in such request andshall use its reasonable best efforts to cause any such Demand Registration tobecome effective as promptly as practicable after it receives any request froma Parent Stockholder relating to such Demand Registration, unless the Board ofDirectors (or the board of directors of the IPO Entity), in its good faithjudgment, determines that any registration of such shares should not be made orcontinued because it would materially interfere with any material financing,acquisition, corporate reorganization or merger or other material transactioninvolving the Company or the IPO Entity (a “Valid Business Reason”), inwhich instance the Company may (x) postpone filing a registrationstatement relating to such Demand Registration until such Valid Business Reasonno longer exists and (y) in case a registration statement has been filedrelating to a Demand Registration, the Company or the IPO Entity, upon theapproval of a majority of the Board of Directors, may cause such registrationstatement to be withdrawn and its effectiveness terminated or may postponeamending or supplementing such registration statement upon written notice tothe Parent Stockholders and the Management Stockholders of such determination,in each case, promptly after the occurrence thereof; and

####  

#### (ii)                                  withinten (10) calendar days after the Company’s receipt of any request for suchDemand Registration from a Parent Stockholder, the Company shall give writtennotice thereof to the Management Stockholders and the Management Stockholdersmay, within five (5) Business Days after receipt of such written notice, sendto the Company a written request to include in such Demand Registration thenumber of shares of Common Stock equal to the product of the number of sharesof Common Stock held by the Management Stockholders as of such time

 

15

----

 

#### multipliedby the quotient obtained by dividing the number of shares of Common Stock to beregistered by the Parent Stockholders pursuant to such Demand Registration bythe aggregate number of shares of Common Stock held by the Parent Stockholdersas of such time. Such written request shall be irrevocable.  The failure of any of the ManagementStockholders to send to the Company such irrevocable written request withinsuch five (5) Business Day period shall be deemed to be a waiver by suchManagement Stockholder of his or her rights under this Section 3.2(a) withrespect to such Demand Registration.  Inconnection with any such Demand Registration involving an underwrittenoffering, none of the shares of Common Stock held by any of the ManagementStockholders stated in such irrevocable****writtenrequest for inclusion shall be included unless such Management Stockholdersaccept the terms of the offering pursuant to such Demand Registration as agreedupon by the Company, the Parent Stockholders and the underwriter(s).

####  

(b)                                 CompanyRegistration.  If the Company, at anytime, or from time to time, proposes to register any of its Common Stock byfiling a registration statement under the Securities Act (other than aregistration on Form S-4 or S-8 or any successor or similar formsthereto), solely for the sale on its own account, on a form and in a mannerthat would permit registration of Common Stock for sale to the public under theSecurities Act, the Company shall use its reasonable best efforts to affordeach Stockholder an opportunity to include in such registration statement allor part of the Common Stock held by such Stockholders by notifying suchStockholders at least fifteen (15) Business Days prior to the filing of suchregistration statement (the “Piggyback Notice”).  Each Stockholder shall have five (5) BusinessDays after the delivery of the Piggyback Notice to notify the Company inwriting that it desires to include its Common Stock in such offering,specifying the number of shares of Common Stock that it proposes to includetherein; provided, however, that in no event shall the number ofshares of Common Stock to be included by the Management Stockholders exceed theproduct of the number of shares of Common Stock held by the ManagementStockholders as of such time multiplied by the quotient obtained by dividingthe number of shares of Common Stock to be registered by the ParentStockholders by the aggregate number of shares of Common Stock held by theParent Stockholders as of such time. Each Stockholder’s rights to register its Common Stock under thisSection 3.2 shall terminate with respect to the applicable offering ifsuch Stockholder has not exercised its piggyback registration rights withinsuch five (5) Business Day period. Notwithstanding anything to the contrary herein, the Company shall notbe obligated to effect any registration of Common Stock held by a Stockholderunder this Section 3.2 incidental to the registration of any of itssecurities in connection with mergers, acquisitions, convertible securities,exchange offers, dividend reinvestment plans, employee stock ownership plans orother employee benefit plans, and the Company shall have the right to terminateor withdraw any registration initiated by it prior to the effectiveness of suchregistration whether or not any Stockholder has elected to include its CommonStock in such registration and there shall be no liability on the part of theCompany to the Stockholders if any registration is not consummated for whateverreason.

 

16

----

 

(c)                                  Limitationson Piggyback Registration. Notwithstanding any other provision of this Agreement, if theregistration statement is for an underwritten offering and the underwriterdetermines in good faith that marketing factors require a limitation of thenumber of shares of Common Stock to be underwritten, the number of shares ofCommon Stock proposed to be registered by any Stockholder under thisSection 3.2 shall be subject to customary underwriter cutbacks, and in allcases the Common Stock being offered by the Company shall have priority overany Common Stock proposed to be registered by any Stockholder; provided,however, that such cutback will be on a *pro rata*basis determined using the number of shares of Common Stock proposed to beregistered by each such Stockholder. Each Stockholder agrees to execute reasonably acceptable documents toeffect the exercise of any of its piggyback registration rights pursuant tothis Section 3.2.

 

(d)                                 Exerciseof Rights; Expenses; Underwriters. The Company shall bear all expenses in connection with any registrationof any Stockholder’s Common Stock under this Section 3.2 (other than thefees and expenses of counsel for such Stockholder and any underwritingdiscounts on the Common Stock included in the registration by suchStockholder).  In no event shall anyStockholder other than the Parent Stockholders (on behalf of the Stockholders)have the right to select the underwriters of any underwritten offering of theCompany that it participates in pursuant to this Section 3.2.

 

(e)                                  SubsidiaryRegistration Rights.  To the extentthat an Initial Public Offering or other registration is consummated withrespect to any IPO Entity other than the Company, the Stockholders shall haveregistration rights, substantially similar to the registration rights set forthin this Section 3.2 with respect to the Equity Securities held in such IPOEntity (including, without limitation, Equity Securities acquired in suchSubsidiary pursuant to the conversion under Section 3.1(a)).

 

(f)                                    Terms.  Any registration statement effected pursuantto this Section 3.2 shall, as to the terms and conditions on which sharesof Common Stock may be sold pursuant to such registration statement, be no lessfavorable in respect of shares of Common Stock held by the ManagementStockholders than in respect of such shares held by the ParentStockholders.  For the avoidance ofdoubt, the Management Stockholders acknowledge and agree that nothing in thisSection 3.2 shall constitute a guarantee or other commitment orunderstanding as to (i) the price at which such shares may be sold or (ii) theManagement Stockholders being afforded the opportunity to Transfer such sharesto one or more Persons to whom the Parent Stockholders propose to Transfershares of Common Stock (other than the general public).

 

3.3                                 HoldbackAgreements.  In connection with anInitial Public Offering or any underwritten Public Sale, to the extentrequested by the Company or the underwriter of such offering, each Stockholderagrees (a) not to effect any public distribution of any Shares, includinga sale pursuant to Rule 144 under the Securities Act, or offer or contractto sell (including any short sale), grant any option to purchase or enter intoany hedging or similar transaction with the same economic effect as a sale ofany 

 

17

----

 

Shares and (y) not to makeany request for a Demand Registration under this Agreement, during the onehundred eighty (180) calendar day period (or any shorter period mutually agreedupon by such Stockholder and the requesting party, which shall apply to allStockholders) beginning on the effective date of the registration statement(except as part of such registration) for such Initial Public Offering orunderwritten Public Sale.  No Stockholderholding Shares subject to this Section 3.3 shall be released from anyobligation under any agreement, arrangement or understanding entered into withrespect to this Section 3.3 unless all other Stockholders holding Sharessubject to the same obligation are also released.

 

3.4                                 Dividends.  Prior to the issuance of any dividend on theCommon Stock by the Company, the Company shall provide the Chairman with ten(10) Business Days’ prior written notice. During such ten (10) Business Day period the Chairman shall be entitledto exercise (for cash) all of his vested Options in accordance with theChairman’s Stock Option Agreement.

 

**ARTICLE IV******

**AFTER-ACQUIRED SECURITIES; AGREEMENT TO BE BOUND**

 

4.1                                 After-AcquiredSecurities.  All of the provisions ofthis Agreement shall apply to all of the Shares now owned or which may beissued or Transferred hereafter to a Stockholder in consequence of anyadditional issuance, purchase, exchange or reclassification of any of suchShares, corporate reorganization, or any other form of recapitalization,consolidation, merger, share split or share dividend, or which are acquired bya Stockholder in any other manner.

 

4.2                                 Agreementto be Bound.  The Company shall notgrant any Options or award shares of Phantom Stock, pursuant to the StockOption Plan or the Phantom Stock Plan, as applicable, to any Person not a partyto this Agreement, unless either (a) such Person has agreed in writing tobe bound by the terms and conditions of this Agreement pursuant to a joindersubstantially in the form attached hereto as Exhibit A or (b) suchPerson has entered into an agreement with the Company restricting the Transferof its or his shares of Common Stock underlying Options or Phantom Stock inform and substance reasonably satisfactory to the Parent Stockholders.  Upon becoming a party to this Agreement, suchPerson shall be deemed to be, and shall be subject to the same obligations as,a Management Stockholder hereunder.  Anygrant of Options by the Company in violation of this Section 4.2 shall benull and void *ab**initio*.

 

**ARTICLE V******

**CORPORATE GOVERNANCE**

 

5.1                                 General.  From and after the execution of thisAgreement, at any regular or special meeting of stockholders of the Company(each, a “Stockholders Meeting”) (a) each Stockholder shall voteits Shares, and each Stockholder and the Company shall take all other actionsnecessary, to give effect to the provisions of this

 

18

----

 

Agreement (includingSection 5.3) and (b) each Stockholder shall vote his or its Shares,upon any matter submitted for action by the Company’s stockholders or withrespect to which such Stockholder may vote, in conformity with the specificterms and provisions of this Agreement and the Charter Documents.

 

5.2                                 StockholderActions.  In order to effectuate theprovisions of this Agreement, each Stockholder (a) hereby agrees that whenany action or vote is required to be taken by such Stockholder pursuant to thisAgreement, such Stockholder shall use his or its reasonable best efforts tocall, or cause the appropriate officers and directors of the Company to call, aStockholders Meeting and (b) shall use his or its reasonable best effortsto cause the Board of Directors to adopt, at a meeting of the Board ofDirectors, all the resolutions necessary to effectuate the provisions of thisAgreement.

 

5.3                                 Electionof Directors; Number and Composition.

 

(a)                                  EachStockholder shall vote its Shares at any Stockholders Meeting and take allother actions necessary to ensure that the number of directors constituting theentire Board of Directors shall be seven.

 

(b)                                 EachStockholder shall vote its Shares at any Stockholders Meeting called for thepurpose of filling the positions on the Board of Directors and take all otheractions necessary to ensure the election to the Board of Directors of four****individuals designated by the Parent Stockholders(collectively, the “Parent Directors” and each a “Parent Director”).

 

(c)                                  Forso long as the Chairman is employed by Duane Reade, each Stockholder shall voteits Shares at any Stockholders Meeting called for the purpose of filling thepositions on the Board of Directors and take all other actions necessary toensure the election to the Board of Directors of the Chairman as a member andthe chairman of the Board of Directors (the “Management Director”).

 

(d)                                 EachStockholder shall vote its Shares at any Stockholders Meeting called for thepurpose of filling the positions on the Board of Directors and take all otheractions necessary to ensure the election to the Board of Directors of twoIndependent Directors designated by the Parent Stockholders.

 

(e)                                  TheCompany shall, in connection with filling the positions on the board ofdirectors of any Subsidiary of the Company (other than, at the election of theParent Stockholders as the same may be revoked or made from time to time, DuaneReade International, Inc.), take all actions necessary to cause the compositionof such board to be the same as the composition of the Board of Directors.

 

(f)                                    Anyaction to be taken at a Stockholders Meeting may be taken pursuant to a writtenconsent executed in lieu of such Stockholders Meeting in accordance with theCharter Documents.

 

19

----

 

(g)                                 Notwithstandinganything to the contrary contained herein, any vacancy on the Board ofDirectors shall not affect the validity of any action taken by the Board ofDirectors, to the extent such action is otherwise validly taken in accordancewith the General Corporation Law of the State of Delaware.

 

5.4                                 Removaland Replacement of Directors.

 

(a)                                  Removalof Parent Directors.  If at any timethe Parent Stockholders notify the other Stockholders of their wish to removeat any time and for any reason (or no reason) a Parent Director, then eachStockholder shall vote all of its Shares so as to remove such Parent Director.

 

(b)                                 Removalof Management Director.  TheManagement Director may only be removed, as Chairman of the Board of Directors,in accordance with the terms of the Chairman Employment Agreement.

 

(c)                                  Replacementof Directors.

 

#### (i)                                     Ifat any time, a vacancy is created on the Board of Directors by reason of theincapacity, death, removal or resignation of either (x) any of the ParentDirectors designated pursuant to Section 5.3(b) or (y) any of theIndependent Directors designated pursuant to Section 5.3(d), then theParent Stockholders shall designate a qualified individual who shall be electedto fill the vacancy until the next Stockholders Meeting.

####  

#### (ii)                                  Uponreceipt of notice of the designation of a nominee pursuant to Section 5.4(b)(i),each Stockholder shall, as soon as practicable after the date of such notice,take all reasonable actions, including the voting of its Shares, to elect thedirector so designated to fill the vacancy.

####  

5.5                                 Reimbursementof Expenses.  The Company shallreimburse the Parent Directors, the Management Director and the IndependentDirectors, or their respective designees, for all reasonable travel andaccommodation expenses incurred by the Parent Directors, the ManagementDirector and the Independent Directors in connection with the performance oftheir duties as directors of the Company upon presentation of appropriatedocumentation therefor.

 

**ARTICLE VI**

 

**STOCK CERTIFICATE LEGEND**

 

6.1                                 Acopy of this Agreement shall be filed with the Secretary of the Company andkept with the records of the Company. Each certificate representing Shares now held or hereafter acquired byany Stockholder shall for as long as this Agreement is effective bear legendssubstantially in the following forms:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVENOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),OR THE SECURITIES LAWS OF ANY

 

20

----

 

STATE.  THESECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATIONSTATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO ANAPPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCHLAWS.

 

THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE,ENCUMBRANCE OR OTHER DISPOSITION (EACH A “TRANSFER”) AND VOTING OF ANYOF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMSOF THE STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT, DATED JULY 30,2004, AMONG THE COMPANY AND THE OTHER PERSONS NAMED THEREIN, A COPY OF WHICHMAY BE INSPECTED AT THE COMPANY’S PRINCIPAL OFFICE**.**  THE COMPANY WILL NOT REGISTER THE TRANSFER OFSUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HASBEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AND REGISTRATIONRIGHTS AGREEMENT.

 

**ARTICLE VII**

 

**MISCELLANEOUS**

 

7.1                                 Notices.  Wherever provision is made in this Agreementfor the giving of any notice, such notice shall be in writing and shall bedelivered personally to such party, or sent by facsimile transmission orovernight courier:

 

(a)                                  ifto the Company:

 

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

 

with a copy to:

 

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

 

21

----

 

and

 

Paul, Weiss,Rifkind, Wharton & Garrison LLP1285 Avenue of the AmericasNew York, NY 10019-6064Facsimile: (212) 757-3990Attention:  Robert B. Schumer, Esq.

 

(b)                                 ifto the Parent Stockholders:

 

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

with a copy to:

 

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

 

and

 

Paul, Weiss,Rifkind, Wharton & Garrison LLP1285 Avenue of the AmericasNew York, NY 10019-6064Facsimile: (212) 757-3990Attention:  Robert B. Schumer, Esq.

 

(c)                                  ifto the Chairman:

 

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

 

with a copy to:

 

Shearman &Sterling LLP

599 LexingtonAvenue

New York, NY  10022-6069

Facsimile:  (212) 848-7179

Attention:  Kenneth J. Laverriere, Esq.

 

22

----

 

(d)                                 ifto any other Management Stockholder, at his or her address as it appears on therecord books of the Company;

 

with a copy to:

 

Shearman &Sterling LLP

599 LexingtonAvenue

New York, NY  10022-6069

Facsimile:  (212) 848-7179

Attention:  Kenneth J. Laverriere, Esq.

 

(e)                                  ifto any other Stockholder, at its address as it appears on the record books ofthe Company;

 

or to such other address, in any such case, as any party hereto shallhave last designated by notice to the other party.  Notice shall be deemed to have been given onthe day that it is so delivered personally or sent by facsimile transmissionand the appropriate confirmation of successful transmission is received.  If sent by overnight courier, notice shall bedeemed to have been given the next Business Day after such communication issent to the specified address.  Any partymay change its address for notices by giving written notice of such change tothe other parties and the Company.

 

7.2                                 EntireAgreement.  This Agreement, togetherwith the Exhibits and Schedules hereto and documents incorporated by referenceherein, constitutes the entire agreement of the parties hereto and supersedesany prior understandings or written or oral agreements between the parties withrespect to the subject matter hereof. Notwithstanding the foregoing, this Agreement shall in no way supersedethe terms of the Employment Agreement (other than those contained in ExhibitIII to the Employment Agreement) or interfere with any rights of the Chairmanpursuant to the Employment Agreement.  Tothe extent any of the rights and/or obligations set forth herein areduplicative of any rights and/or obligations set forth in the LLC Agreement orthe Preemptive Rights Agreement then this Agreement, the LLC Agreement and thePreemptive Rights Agreement shall be interpreted construed to eliminate anysuch duplication.

 

7.3                                 Amendment.  Any amendment, supplement or modification ofor to any provision of this Agreement, any waiver of any provision of thisAgreement, and any consent to any departure by any party from the terms of anyprovision of this Agreement, shall be effective only if it is made or given inwriting and signed by (i) the Company and (ii) the ParentStockholders.  Any such amendment,supplement, modification, waiver or consent shall be binding upon the Companyand all of the Stockholders. Notwithstanding the above, any amendment that has a material adverse

 

23

----

 

effect on the rights grantedherein to (a) the Management Stockholders (including the Chairman), shallnot be effective against the Management Stockholders without the approval ofthe Management Stockholders holding a majority of the voting power of theShares held by the Management Stockholders and (b) the Chairman, shall notbe effective against the Chairman without the approval of the Chairman.

 

7.4                                 NoWaivers.  No delay on the part of anyparty in exercising any right hereunder shall operate as a waiver thereof, norshall any waiver, express or implied, by any party of any right hereunder or ofany failure to perform or breach hereof by any other party constitute or bedeemed a waiver of any other right hereunder or of any other failure to performor breach hereof by the same or any other party, whether of a similar ordissimilar nature thereof.

 

7.5                                 ApplicableLaw.  This Agreement shall begoverned by and construed in accordance with the laws of the State of Delaware,without regard to the principles of conflicts of law thereof.

 

7.6                                 SUBMISSIONTO JURISDICTION; WAIVER OF JURY TRIAL; SELECTION OF FORUM.  EACH PARTY HERETO AGREES THAT IT SHALL BRINGANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TOTHIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THISAGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN(A) THE FEDERAL OR STATE COURTS LOCATED IN NEW YORK, NEW YORK OR (B) INTHE EVENT THAT SUCH COURT LACKS JURISDICTION TO HEAR THE CLAIM,  IN THEFEDERAL OR STATE COURTS LOCATED IN WILMINGTON, DELAWARE (ANY SUCH COURT, THE“CHOSEN COURT”) AND (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTIONOF THE CHOSEN COURTS, (II) WAIVES, TO THE EXTENT PERMITTED BY APPLICABLELAW ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THECHOSEN COURTS, (III) WAIVES ANY OBJECTION THAT ANY CHOSEN COURT IS ANINCONVENIENT FORUM OR DOES NOT HAVE JURISDICTION OVER ANY PARTY HERETO,(IV) IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A JURY TRIAL AND(V) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH ACTION ORPROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITHSECTION 7.1 OF THIS AGREEMENT.

 

7.7                                 FurtherAssurances.  Each of the partieshereby agrees, at the request of any other party, to execute and deliver allsuch other and additional instruments and documents and to do such other actsand things as may be reasonably necessary or appropriate to carry out theintent and purposes of this Agreement.

 

7.8                                 Assignmentof Contracts and Rights.  Except inconnection with a Transfer permitted under Article II, no party to thisAgreement may assign any of its rights or remedies or delegate any of itsobligations under this Agreement without the prior written consent of the Boardof Directors.

 

24

----

 

7.9                                 NoThird-Party Rights.  This Agreementis made solely and specifically between and for the benefit of the partieshereto, and their respective successors and assigns (subject to the expressprovisions hereof relating to successors and assigns), and is not intended toconfer any benefits upon, or create any rights in favor of, any Person otherthan the parties hereto.

 

7.10                           Successorsand Assigns.  Subject to therestrictions on Transfer set forth herein, and except as otherwise providedherein, this Agreement shall be binding upon and inure to the benefit of and beenforceable by the parties hereto and their respective heirs, personalrepresentatives, successors and permitted assignees under this Agreement.

 

7.11                           Severability.  If any provision of this Agreement shall bedeclared by a court of competent jurisdiction to be invalid, illegal orunenforceable, such provision shall survive to the extent it is not sodeclared, and the validity, legality and enforceability of the other provisionshereof shall not in any way be affected or impaired thereby, unless such actionwould substantially impair the benefits to either party of the remainingprovisions of this Agreement.

 

7.12                           RemediesNot Exclusive.  Except as otherwiseprovided herein, no remedy herein conferred or reserved is intended to be exclusiveof any other available remedy or remedies, and each and every remedy shall becumulative and shall be in addition to every remedy under this Agreement now orhereafter existing at law or in equity or by statute.

 

7.13                           Representationby Counsel.  Each of the parties hasbeen represented by and has had an opportunity to consult legal counsel inconnection with the negotiation and execution of this Agreement.  No provision of this Agreement shall beconstrued against or interpreted to the disadvantage of any party by any courtor arbitrator or any Governmental Authority by reason of such party havingdrafted or being deemed to have drafted such provision.

 

7.14                           Counterparts.  This Agreement may be executed in one or morecounterparts, each of which shall be deemed an original but all of whichtogether shall constitute one and the same instrument.  This Agreement shall be binding when one ormore counterparts, individually or taken together, bear the signatures of eachof the parties reflected herein as signatories.

 

7.15                           Tableof Contents and Headings.  The tableof contents and headings in this Agreement are solely for convenience ofreference and shall not affect the interpretation or construction of any of theprovisions hereof.

 

7.16                           Rulesof Construction.  Unless the contextotherwise requires, references to sections or subsections refer to sections orsubsections of this Agreement.

 

25

----

 

7.17                           Termof Agreement.  This Agreement shallbecome effective upon the execution hereof and shall terminate upon the earlierof (a) the IPO Effectiveness Date or (b) the twentieth anniversary of the datehereof.

 

7.18                           Survivalof Certain Provisions. Notwithstanding the termination or expiration of this Agreement, the provisionsof Articles I, III and VII and Sections 2.1, 2.2 and 2.5 shall survive andcontinue and shall bind the parties and their legal representatives, successorsand permitted assigns.

 

7.19                           Fees.  Duane Reade agrees to pay the reasonablelegal fees and related expenses incurred by the Management Members through thedate hereof in connection with the drafting, negotiation and execution of thisAgreement.

 

7.20                           ManagementStockholder Representation.  EachManagement Stockholder (other than the Chairman) hereby represents, warrantsand covenants that, as of the Effective Date, DRI Investments (or any successorthereto) has no right, title or interest to pay any payments from, orliabilities to any OH Affiliate (as defined in the Chairman’s Employment Agreement),the Company, Holdings or any of their Affiliates with respect to any shares,options to purchase shares, or any other equity security of Duane Reade withrespect to the Merger Consideration (as defined in the Merger Agreement).

 

**[Remainder of Page Intentionally Left Blank]**

 

26

----

 

IN WITNESS WHEREOF, the undersigned have executed, orhave caused to be executed, this Stockholders and Registration Rights Agreementon the date first written above.

 
|   | DUANE READE HOLDINGS,  INC.    |
|--------|--------------------------------|
|   |                           |
|   |                           |
|   | By:                            |   | /s/ Andrew J.  Nathanson |
|   |                           | Name: |  Andrew J.  Nathanson |
|   |                           | Title: |  Vice  President |
|   |                           |
|   |                           |
|   | DUANE READE  SHAREHOLDERS, LLC |
|   |                           |
|   |                           |
|   | By:                            |   | /s/ Andrew J. Nathanson |
|   |                           | Name: |  Andrew J.  Nathanson |
|   |                           | Title: |  Vice  President |
|   |                           |
|   |                           |
|   |                           |   /s/  Anthony J. Cuti |
|   |                           | Anthony J. Cuti |
|   |                           |
|   |                           |
|   |                           |   /s/  Gary Charboneau |
|   |                           | Gary Charboneau |
|   |                           |
|   |                           |
|   |                           |   /s/  Timothy R. LaBeau |
|   |                           | Timothy R.  LaBeau |
|   |                           |
|   |                           |
|   |                           |   /s/  John K. Henry |
|   |                           | John K. Henry |
|   |                           |
|   |                           |
|   |                           |   /s/  Jerry M. Ray |
|   |                           | Jerry  M. Ray |

 

 

Signature Page to Stockholders and Registration Rights Agreement

 

S-1

----

 

Schedule 1

 

ManagementMembers

 
| 1.     | Anthony J.  Cuti   |
|--------|--------------------|
|   |               |
| 2.     | Gary  Charboneau   |
|   |               |
| 3.     | Timothy R.  LaBeau |
|   |               |
| 4.     | John K.  Henry     |
|   |               |
| 5.     | Jerry M. Ray       |

 

----

 

Schedule 2

 

Optionholders

 

| **Name**           | ** ** | **No. of Options** | ** ** |
|--------------------|------------|--------------------|------------|
| ** **         | ** ** | ** **         | ** ** |
| Anthony J.  Cuti   |       | 116,746.66         |       |
|               |       |               |       |
| Gary  Charboneau   |       | 8,500.00           |       |
|               |       |               |       |
| Timothy R.  Labeau |       | 8,500.00           |       |
|               |       |               |       |
| John K.  Henry     |       | 30,600.00          |       |
|               |       |               |       |
| Jerry M. Ray       |       | 13,600.00          |       |

 

----

 

Schedule 3

 

PhantomStockholders

 
| 1.     | Gary Charboneau    |
|--------|--------------------|
|   |               |
| 2.     | Timothy R.  LaBeau |
|   |               |
| 3.     | John K.  Henry     |
|   |               |
| 4.     | Jerry M. Ray       |

 

----

 

Exhibit A

 

FORM OF JOINDER TOTHE STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT

 

THIS JOINDER to the Stockholders and RegistrationRights Agreement,  dated as ofJuly 30, 2004, by and among and Duane Reade Holdings, Inc. (the “Company”)and the other persons named therein (the “Agreement”), is made andentered into as of           by andbetween the Company and                             (the “Joining Stockholder”). Capitalized terms used herein but not otherwise defined shall have themeanings set forth in the Agreement.

 

WHEREAS, on the date hereof, Joining Stockholderproposes to acquire              Shares from             andthe Agreement and the Company require Joining Stockholder, as a holder of suchShares, to become a party to the Agreement, and Joining Stockholder agrees todo so in accordance with the terms hereof.

 

NOW, THEREFORE, in consideration of the mutualcovenants contained herein and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the parties to thisJoinder hereby agree as follows:

 

1.                                       Agreementto be Bound.  The Joining Stockholderhereby (i) acknowledges that it has received and reviewed a complete copyof the Agreement and (ii) agrees that upon execution of this Joinder, itshall become a party to the Agreement and shall be fully bound by, and subjectto, all of the covenants, terms and conditions of the Agreement as though anoriginal [Parent Stockholder (other than Section 2.4 of the Agreement)][Management Stockholder] thereto and shall be deemed, and is hereby admittedas, a Stockholder for all purposes thereof and entitled to all the rightsincidental thereto.

 

2.                                       CompanyRecords.  For purposes of the recordsof the Company, the address of the Joining Stockholder is as follows:

 

[Name]

[Address]

[Facsimile Number]

 

3.                                       GoverningLaw.  This Agreement and the rightsof the parties hereunder shall be interpreted in accordance with the laws ofthe State of Delaware, and all rights and remedies shall be governed by suchlaws without regard to principles of conflicts of laws.

 

4.                                       DescriptiveHeadings.  The descriptive headingsof this Joinder are inserted for convenience only and do not constitute a partof this Joinder.

 

5.                                       Counterparts.  This Joinder may be executed in counterpartseach of which, taken together, shall constitute one and the same original.

 

[Signature Page follows]

 

----

 

IN WITNESS WHEREOF, the parties hereto have executedthis Joinder as of                                            .

 

 
|   | DUANE READE  HOLDINGS, INC. |
|--------|-----------------------------|
|   |                        |
|   |                        |
|   | By:                         |   |   |
|   |                        | Name: |
|   |                        | Title: |
|   |                        |
|   |                        |
|   | [JOINING  STOCKHOLDER]      |
|   |                        |
|   |                        |
|   | By:                         |   |   |
|   |                        | Name: |
|   |                        | Title: |
|        |                             |  |  |  |

 

----