Exhibit 10.21


 


OWNERSHIP INTEREST PLEDGE AGREEMENT


 


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


 


WITNESSETH:


 


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


 


Reference is
also made to the Security Agreement dated as of July 21, 2003 (as such may be
amended, modified, supplemented or restated hereafter, the “Security
Agreement”) by and among the Pledgors, the other Grantors named therein and
the Collateral Agent.  Capitalized terms
used herein and not defined herein shall have the meanings assigned to such
terms in the Credit Agreement or the Security Agreement (as applicable).


 


The Lenders
have agreed to make Loans to the Borrower, and the Issuing Bank has agreed to
issue Letters of Credit for the account of the Borrower, pursuant to, and upon
the terms and subject to the conditions specified in, the Credit
Agreement.  The Pledgors have executed
the Facility Guarantee, pursuant to which the Pledgors guarantee the
Obligations of the Borrower.  The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the execution and
delivery by the Pledgors of an agreement in the form hereof to secure the
Obligations.


 


Accordingly,
the Pledgors and the Collateral Agent, on behalf of itself and each other
Secured Party (and each of their respective successors or assigns), hereby
agree as follows:


 


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


 


(a)                                  the general
partnership interests in the Borrower owned by the Pledgors and listed on Schedule
I hereto, and any additional partnership interests in the Borrower or any
general partnership which is the successor thereof, and the certificates or
other securities representing all such partnership interests (if any) (the “Partnership
Interests”);


 


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


 


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


 


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


 


(e)                                  subject to
Section 5, all rights and privileges of the Pledgors with respect to the
Pledged Securities and other Investment Property referred to in
clauses (a), (b), (c) and (d) above; and


 


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


 


TO HAVE AND TO
HOLD the Pledged Collateral, together with all right, title, interest, powers,
privileges and preferences pertaining or incidental thereto, unto the
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, until the Obligations have 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 cash collateralized in a manner satisfactory to the
Issuing Bank and the Administrative Agent, and the Issuing Bank has no further
obligation to issue Letters of Credit under the Credit Agreement; subject,
however, to the terms, covenants and conditions hereinafter set forth.


 


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


 


2.                                       Delivery
of the Pledged Collateral. On or before the Closing Date, the Pledgors
shall deliver or cause to be delivered to the Collateral Agent any and all
Pledged Securities, any and all Investment Property, and any and all
certificates or other instruments or documents representing the Pledged
Collateral.


 


3.                                       Representations,
Warranties and Covenants.  The
Pledgors hereby represent, warrant and covenant, as to themselves and the
Pledged Collateral pledged by them hereunder, to and with the Collateral Agent
that:


 


(a)                                  the Partnership
Interests represent that percentage of the issued and outstanding partnership
interests of the issuer with respect thereto as set forth on Schedule I;


 


(b)                                 the Ownership
Interests represent that percentage of the issued and outstanding shares of
each class of the capital stock or other equity interest of the issuer with
respect thereto as set forth on Schedule I;


 


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


 


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


 


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


 


(f)                                    by virtue of the
execution and delivery by the Pledgors of this Agreement, and the delivery by
the Pledgors to the Collateral Agent of the stock certificates or other
certificates or documents representing or evidencing the Pledged Collateral in
accordance with the terms of this Agreement, the Collateral Agent will obtain a
valid and perfected first lien upon, and security interest in, the Pledged
Collateral as security for the payment and performance of the Obligations;


 


(g)                                 the pledge effected
hereby is effective to vest in the Collateral Agent, on behalf of the Secured
Parties, the rights of the Collateral Agent in the Pledged Collateral as set
forth herein;


 


(h)                                 all the Pledged
Securities have been duly authorized and validly issued and are fully paid and
nonassessable;


 


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


 


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


 


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


 


5.                                       Voting
Rights; Dividends and Interest, etc.


 


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


 


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(i)                                     The Pledgors shall
be entitled to exercise any and all voting and/or other consensual rights and
powers inuring to an owner of the Pledged Securities or any part thereof to the
extent, and only to the extent, that such rights are exercised for any purpose
consistent with, and not otherwise in violation of, the terms and conditions of
this Agreement, the Credit Agreement, the other Loan Documents and Applicable
Law; provided, however, that the Pledgors will not be entitled to
exercise any such right if the result thereof could materially and adversely
affect the rights inuring to a holder of the Pledged Securities or the rights
and remedies of any of the Secured Parties under this Agreement, the Credit
Agreement or any other Loan Document or the ability of the Secured Parties to
exercise the same.


 


(ii)                                  The Pledgors shall be
entitled to receive and retain any and all cash dividends paid on the Pledged
Collateral to the extent, and only to the extent, that such cash dividends are
permitted by, and otherwise paid in accordance with, the terms and conditions
of this Agreement, the Credit Agreement, the other Loan Documents and
Applicable Law.  All noncash dividends,
and all dividends paid or payable in cash or otherwise in connection with a
partial or total liquidation or dissolution, return of capital, capital surplus
or paid-in surplus, and all other distributions (other than dividends and
distributions referred to in the preceding sentence) made on or in respect of
the Pledged Collateral, whether paid or payable in cash or otherwise, whether
resulting from a subdivision, combination or reclassification of the
outstanding capital stock or partnership interests of the issuer of any Pledged
Securities or received in exchange for Pledged Securities or any part thereof,
or in redemption thereof, or as a result of any merger, amalgamation,
arrangement, consolidation, acquisition or other exchange of assets to which
such issuer may be a party or otherwise, shall be and become part of the Pledged
Collateral, and, if received by the Pledgors, to the extent required to be paid
to the Collateral Agent pursuant to the terms of the Credit Agreement or the
other Loan Documents, shall not be commingled by the Pledgors with any of their
other funds or property but shall be held separate and apart therefrom, shall
be held in trust for the benefit of the Collateral Agent and shall be forthwith
delivered to the Collateral Agent in the same form as so received (with any
necessary endorsement).


 


(b)                                 Upon the occurrence
and during the continuance of an Event of Default, all rights of the Pledgors
to dividends that the Pledgors are authorized to receive pursuant to
paragraph (a)(ii) above shall cease, and all such rights shall thereupon
become vested in the Collateral Agent, which shall have the sole and exclusive
right and authority to receive and retain such dividends.  All dividends received by the Pledgors
contrary to the provisions of this Section 5 shall be held in trust for
the benefit of the Collateral Agent, shall be segregated from other property or
funds of the Pledgors and shall be forthwith delivered to the Collateral Agent
upon demand in the same form as so received (with any necessary endorsement).
Any and all money and other property paid over to or received by the Collateral
Agent pursuant to the provisions of this paragraph (b) shall be retained
by the Collateral Agent in an account to be established by the Collateral Agent
upon receipt of such money or other property and shall be applied in accordance
with the provisions of Section 7.


 


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


 


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6.                                       Remedies
upon Default.  Upon the occurrence
of an Event of Default, it is agreed that the Collateral Agent shall have in
any jurisdiction in which enforcement hereof is sought, in addition to all
other rights and remedies, the rights and remedies of a secured party under the
UCC or other Applicable Law.  The rights
and remedies of the Collateral Agent shall include, without limitation, the
right to take any of or all the following actions at the same or different
times:


 


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


 


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


 


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


 


(d)                                 At any public (or, to
the extent permitted by Applicable Law, private) sale made pursuant to this
Section 6, the Collateral Agent or any other Secured Party may bid for or
purchase, free (to the extent permitted by Applicable Law) from any right of redemption,
stay, valuation or appraisal on the part of the Pledgors (all said rights being
also hereby waived and released to the extent permitted by Applicable Law), the
Pledged Collateral or any part thereof offered for sale and may make payment on
account thereof by using any claim then due and payable to the Collateral Agent
or such other Secured Party from the Pledgors on account of the Obligations as
a credit against the purchase price, and the Collateral Agent or such other
Secured Party may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to the Pledgors
therefor.


 


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


 


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


 


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


 


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


 


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


 


8.                                       Reimbursement
of Collateral Agent.


 


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


 


(b)                                 Without limiting any
of their indemnification obligations under the Credit Agreement or the other
Loan Documents, the Pledgors shall, jointly and severally, indemnify the
Agents, the Issuing Bank and each Lender, and each Related Party of any of the
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 and
documented fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of, (i) the execution or delivery of this Agreement or any
other Loan Document, the performance by the Pledgors of their obligations under
this Agreement or any other Loan Document, or the consummation of the
transactions contemplated by the Loan Documents or any other transactions
contemplated hereby, or (ii) any actual claim, litigation, investigation or
proceeding relating to any of the foregoing or to the Pledged Collateral,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall
not, as to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses resulted from the gross negligence or
willful misconduct of such Indemnitee or any Affiliate of such Indemnitee (or
of any officer, director, employee, advisor or agent of such Indemnitee or any
of such Indemnitee’s Affiliates).


 


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


 


9.                                       Collateral
Agent Appointed Attorney-in-Fact.


 


(a)                                  Effective upon the
occurrence and during the continuance of any Event of Default, the Pledgors
hereby make, constitute and appoint the Collateral Agent (and all officers,
employees or agents designated by the Collateral Agent) as the Pledgors’ true
and lawful agent and the attorney-in-fact for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instrument
that the Collateral Agent may deems necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an
interest.  Without limiting the
generality of the foregoing, the Collateral Agent shall have the right, upon
the occurrence and during the continuance of an Event of Default, with full
power of substitution either in the Collateral Agent’s name or in the name of
the Pledgors, (i) to ask for, demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become due under and by virtue of
any Pledged Collateral, (ii) to endorse checks, drafts, orders and other instruments
for the payment of money payable to the Pledgors representing any dividend or
other distribution payable in respect of the Pledged Collateral or any part
thereof or on account thereof and to give full discharge for the same, (iii) to
settle, compromise, compound, adjust, prosecute or defend any action, suit,
claim or proceeding relating to any of the Pledged Collateral, and (iv) to use,
sell, assign, transfer, pledge, make any agreement with respect to or otherwise
deal with all or any of the Pledged Collateral, and to do all other acts and
things necessary to carry out the purposes of this Agreement, as fully and
completely as though the Collateral Agent were the absolute owner of the
Pledged Collateral for all purposes; provided, however, that nothing
herein contained shall be construed as requiring or obligating the Collateral
Agent or any other Secured Party to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent
or any other Secured Party, or to present or file any claim or notice.


 


(b)                                 The Collateral Agent
shall not be obligated to do any of the acts or to exercise any of the powers
authorized by subparagraph (a), but if the Collateral Agent elects to do any
such act or to exercise any of such powers, it shall not be accountable for
more than it actually receives as a result of such exercise of power, and shall
not be responsible to the Pledgors for any act or omission to act except for
any act or omission to act as to which there is a final determination made in a
judicial proceeding (in which proceeding the Collateral Agent has had an
opportunity to be heard) which determination includes a specific finding that
the subject act or omission to act had been grossly negligent or in actual bad
faith.


 


10.                                 Waivers;
Amendment.


 


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


 


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deemed a waiver on any subsequent occasion,
nor shall it be deemed a continuing waiver. 
The Collateral Agent’s Rights and Remedies  may be exercised at such time or times and in such order of
preference as the Collateral Agent may determine. The Collateral Agent’s Rights
and Remedies may be exercised without resort or regard to any other source of
satisfaction of the Obligations.  No
waiver of any provisions of this Agreement or any other Loan Document or
consent to any departure by the Pledgors therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and
then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  No
notice to or demand on the Pledgors in any case shall entitle the Pledgors to
any other or further notice or demand in similar or other circumstances.


 


(b)                                 Neither this Agreement
nor any provision hereof may be waived, amended or modified except pursuant to
a written agreement entered into between the Collateral Agent and the Pledgors,
subject to any consent required in accordance with Section 9.02 of the Credit
Agreement.


 


11.                                 Securities
Act, etc.  The Pledgors recognize
that the Collateral Agent may be unable to effect a public sale of the Pledged
Securities by reason of certain prohibitions contained in the Securities Act of
1933, as amended (the “Securities Act”), federal banking laws, and other
Applicable Law, but may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers. 
The Pledgors understand that compliance with the Securities Act might
limit the course of conduct of the Collateral Agent if the Collateral Agent was
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same.  Similarly, there may be other legal restrictions or limitations
affecting the Collateral Agent in any attempt to dispose of all or part of the
Pledged Securities under applicable Blue Sky or other state securities laws or
similar laws analogous in purpose or effect. 
The Pledgors recognize that, in light of such restrictions and
limitations, the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things,
to acquire such Pledged Securities for their own account, for investment, and
not with a view to the distribution or resale thereof.  The Pledgors acknowledge and agree that, in
light of such restrictions and limitations, the Collateral Agent, in its sole
and absolute discretion, (a) may proceed to make such a sale whether or
not a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under the Securities Act and
(b) may approach and negotiate with a single potential purchaser to effect
such sale.  The Pledgors acknowledge and
agree that any such sale might result in prices and other terms less favorable
to the seller than if such sale were a public sale without such
restrictions.  In the event of any such
sale, the Collateral Agent shall incur no responsibility or liability for
selling all or any part of the Pledged Securities at a price that the
Collateral Agent, in its sole and absolute discretion, may in good faith deem
reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might have been realized if the sale were deferred
until after registration as aforesaid or if more than a single purchaser were
approached.  The provisions of this
Section 11 will apply notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Collateral Agent sells the Pledged Securities.


 


12.                                 Registration,
etc.  If the Collateral Agent
reasonably determines that it is necessary to sell any of the Pledged
Securities at a public sale, the Pledgors agree that, upon the occurrence and
during the continuance of an Event of Default hereunder, the Pledgors will, at
any time and from time to time, upon the written request of the Collateral
Agent, use their reasonable best efforts to take or to cause the issuer of such
Pledged Securities to take such action and prepare, distribute and/or file such
documents, as are required or advisable in the reasonable opinion of counsel
for the Collateral Agent to permit the public sale of such Pledged
Securities.  Without limiting any of its
other indemnification obligations under this Agreement, the Credit Agreement or
the other Loan Documents, the Pledgors agree to indemnify, defend and hold
harmless the Collateral Agent, each 


 


8

















 


other Secured Party, any underwriter and
their respective officers, directors, Affiliates and controlling Persons from
and against all loss, liability, expenses, costs of counsel (including the
reasonable fees and expenses of legal counsel to the Collateral Agent), and
claims (including the reasonable costs of investigation) that any of them may
incur insofar as such loss, liability, expense or claim arises out of, or is
based upon, any alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto) or in any notification or
offering circular, or arises out of or is based upon any alleged omission to
state a material fact required to be stated therein or necessary to make the
statements in any thereof not misleading, except insofar as the same may have
been caused by any untrue statement or omission based upon information
furnished in writing to the Pledgors or the issuer of such Pledged Securities
by the Collateral Agent or any other Secured Party expressly for use
therein.  The Pledgors further agree,
upon such written request referred to above, to use their reasonable best
efforts to qualify, file or register, or cause the issuer of such Pledged
Securities to qualify, file or register, any of the Pledged Securities under
the Blue Sky or other securities laws of such states as may be requested by the
Collateral Agent and keep effective, or cause to be kept effective, all such
qualifications, filings or registrations. 
The Pledgors will bear all costs and expenses of carrying out their
obligations under this Section 12. 
The Pledgors acknowledge that there is no adequate remedy at law for
failure by them to comply with the provisions of this Section 12 and that
such failure would not be adequately compensable in damages, and therefore
agree that their agreements contained in this Section 12 may be
specifically enforced.


 


13.                                 Security
Interest Absolute.  All rights of
the Collateral Agent hereunder, the grant of a security interest in the Pledged
Collateral, and all obligations of the Pledgors hereunder shall be absolute and
unconditional irrespective of (a) any lack of validity or enforceability
of the Credit Agreement, any other Loan Document, any agreement with respect to
any of the Obligations or any 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 other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to any departure from the Credit Agreement, any
other Loan Document, or any other agreement or instrument, (c) any
exchange, release or non-perfection of any Lien on other collateral, or any
release or amendment or waiver of or consent to or departure from the Facility
Guarantee or any other guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance that might otherwise constitute
a defense available to, or a discharge of, the Pledgors or any other Loan Party
in respect of the Obligations or in respect of this Agreement.


 


14.                                 Termination
or Release.


 


(a)                                  This Agreement and
the security interests granted hereby shall terminate when all the Obligations
have been paid in full, the Lenders have no further commitment to lend, the
Letter of Credit Outstandings have been reduced to zero or fully cash
collateralized in a manner satisfactory to the Issuing Bank and the
Administrative Agent, and the Issuing Bank has no further obligation to issue
Letters of Credit under the Credit Agreement.


 


(b)                                 Upon any sale or other
transfer by the Pledgors of any Pledged Collateral that is permitted under the
Credit Agreement to any Person that is not a Loan Party, or, upon the
effectiveness of any written consent to the release of the security interest
granted hereby in any Pledged Collateral pursuant to Section 9.02(b)
of the Credit Agreement, the security interest in such Pledged Collateral shall
be automatically released.


 


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


 


9

















 


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


 


16.                                 Further
Assurances.  The Pledgors agree to
do such further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Collateral Agent
may at any time reasonably request in connection with the administration and
enforcement of this Agreement or with respect to the Pledged Collateral or any
part thereof or in order better to assure and confirm unto the Collateral Agent
its rights and remedies hereunder.


 


17.                                 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 such party, and all covenants, promises and
agreements by or on behalf of the Pledgors that are contained in this Agreement
shall bind and inure to the benefit of their successors and assigns.  This Agreement shall be binding upon the
Pledgors and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of the Pledgors, the Collateral Agent and the
other Secured Parties and their respective successors and assigns, except that
the Pledgors shall not have the right to assign or transfer their rights or
obligations hereunder or any interest herein or in the Pledged Collateral (and
any such attempted assignment or transfer shall be void), except as expressly
permitted by this Agreement or the Credit Agreement.


 


18.                                 Survival
of Agreement; Severability.


 


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


 


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


 


19.                                 Governing
Law.  THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.


 


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


 


21.                                 Rules
of Interpretation.  The rules of
interpretation specified in Section 1.02 of the Credit Agreement shall be
applicable to this Agreement.  Section
headings used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting this Agreement.


 


10

















 


22.                                 Jurisdiction;
Consent to Service of Process.


 


(a)                                  Each of the Pledgors
agrees that any suit for the enforcement of this Agreement or any other Loan
Document may be brought in any New York state or federal court sitting in the
Borough of Manhattan in New York City, as the Collateral Agent may elect in its
sole discretion, and consents to the non-exclusive jurisdiction of such
courts.  Each of the Pledgors hereby
waives any objection which it may now or hereafter have to the venue of any
such suit or any such court or that such suit is brought in an inconvenient
forum.  Each of the Pledgors agrees that
any action commenced by any Pledgor asserting any claim or counterclaim arising
under or in connection with this Agreement shall be brought solely in any New
York state or federal court sitting in the Borough of Manhattan in New York
City, as the Collateral Agent may elect in its sole discretion, and consents to
the exclusive jurisdiction of such courts with respect to any such action.


 


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


 


23.                                 Waiver
of Jury Trial.  EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO
A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH ANY PARTY HERETO IS OR
BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST
ANY PARTY HERETO OR IN WHICH ANY PARTY HERETO, IS JOINED AS A PARTY LITIGANT),
WHICH CASE OR CONTROVERSY ARISES OUT OF OR RELATES TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT.  EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SET
FORTH IN THIS SECTION 23.


 


[SIGNATURE PAGE FOLLOWS]


 


11

















 


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


 


 


	
  PLEDGORS:

  	
  DUANE READE
  INC.

  
	
   

  
	
   

  	
  By:

  	
  Duane Reade
  Inc., its General Partner

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  DRI I Inc.,
  its General Partner

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  
	
   

  
	
   

  	
  DRI I INC.

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  
	
   

  
	
  COLLATERAL AGENT:

  	
  FLEET RETAIL
  FINANCE INC., as Collateral

  Agent

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Mark
  Forti

  	
   

  
	
   

  	
  Name:

  	
  Mark Forti

  
	
   

  	
  Title:

  	
  Director

  
							



 


12

















 


SCHEDULE I


 


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


 




	
  Issuer

  	
   

  	
  Record

  Owner

  	
   

  	
  Type of Interest

  held by Record

  Owner

  	
   

  	
  Percentage of

  Partnership Interests

  held by Record

  Owner

  	
   

  
	
  Duane Reade

  	
   

  	
  Duane Reade Inc.

  	
   

  	
  General Partnership

  	
   

  	
  99.0

  	
  %

  
	
  Duane Reade

  	
   

  	
  DRI I Inc.

  	
   

  	
  General Partnership

  	
   

  	
  1.0

  	
  %

  






 


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


 




	
  Issuer

  	
   

  	
  Record

  Owner

  	
   

  	
  Class of

  Shares

  	
   

  	
  Number

  of Shares

  held by

  Record

  Owner

  	
   

  	
  Number of

  Issued and

  Outstanding

  Shares

  	
   

  	
  Percentage
  of

  Shares

  held by

  Record

  Owner

  	
   

  
	
  DRI I Inc.

  	
   

  	
  Duane Reade

  Inc.

  	
   

  	
  Common

  	
   

  	
  1,000

  	
   

  	
  1,000

  	
   

  	
  100.0

  	
  %

  
	
  Duane Reade Realty, Inc.

  	
   

  	
  Duane Reade

  Inc.

  	
   

  	
  Common

  	
   

  	
  990

  	
   

  	
  1,000

  	
   

  	
  99.0

  	
  %

  
	
  Duane Reade Realty, Inc.

  	
   

  	
  DRI I Inc.

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  1,000

  	
   

  	
  1.0

  	
  %

  
	
  Duane Reade International, Inc.

  	
   

  	
  Duane Reade

  Inc.

  	
   

  	
  Common

  	
   

  	
  990

  	
   

  	
  1,000

  	
   

  	
  99.0

  	
  %

  
	
  Duane Reade International, Inc.

  	
   

  	
  DRI I Inc.

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  1,000

  	
   

  	
  1.0

  	
  %

  






 


13