Document:

Exhibit 10.22

 

A G R E E M E
N T

 

BETWEEN:

 

DUANE READE
INC.

 

-  and  -

 

LOCAL 340A, NEW YORK

JOINT BOARD, UNITE-HERE

 

*     *     *

 

April 1, 2004 –
March 31, 2005

 

 

I N D E X:

 

	
  DESCRIPTION

  	
   

  	
  ARTICLE NO.

  	
   

  
	
   

  	
   

  	
   

  
	
  BEREAVEMENT PAY

  	
  XIV

  	
   

  
	
  CHECKOFF

  	
  IX

  	
   

  
	
  COLLECTIVE BARGAINING AGREEMENT

  	
  II

  	
   

  
	
  COMPLETE AGREEMENT

  	
  XXII

  	
   

  
	
  FAIR TREATMENT & RESPECT

  	
  VIII

  	
   

  
	
  GRIEVANCES AND ARBITRATION

  	
  XIII

  	
   

  
	
  HEALTH & SAFETY

  	
  XXVI

  	
   

  
	
  HOLIDAYS

  	
  VI

  	
   

  
	
  HOURS OF WORK

  	
  V

  	
   

  
	
  INVALIDATION

  	
  XX

  	
   

  
	
  JURY DUTY

  	
  XXVII

  	
   

  
	
  LAYOFF AND DISCHARGE

  	
  VII

  	
   

  
	
  MANAGEMENT PEROGATIVES

  	
  X

  	
   

  
	
  NOTICES

  	
  XVIII

  	
   

  
	
  RECOGNITION AND UNION SECURITY

  	
  I

  	
   

  
	
  RETIREMENT FUND

  	
  XVII

  	
   

  
	
  SENIORITY

  	
  IV

  	
   

  
	
  SICK LEAVE

  	
  XV

  	
   

  
	
  STRIKES AND LOCKOUTS

  	
  XII

  	
   

  
	
  SUCCESSORS

  	
  XXIII

  	
   

  
	
  TERM OF AGREEMENT

  	
  XXI

  	
   

  
	
  TRIAL PERIOD

  	
  III

  	
   

  
	
  UNION ISSUES

  	
  XXV

  	
   

  
	
  UNION VISITATION

  	
  XIX

  	
   

  
	
  VACATIONS

  	
  VIII

  	
   

  
	
  WAGE SCHEDULE

  	
  XXIV

  	
   

  
	
  WAIVER AND MODIFICATIONS

  	
  XI

  	
   

  
	
  WELFARE

  	
  XVI

  	
   

  

 

2

 

AGREEMENT made and entered into the lst day of April, 2004, by and
between DUANE READE, INC., 440 9TH Avenue, New York, (hereafter
called the “Employer”), and LOCAL 340A, New York, JOINT BOARD, UNITE-HERE, 31
West 15th Street, New York, New York 10011 (hereafter called the
“Union”).

 

W I T N E S S
E T H:

 

WHEREAS, the parties hereto desire to
cooperate in establishing and maintaining proper and suitable conditions, and
to secure uniform and equitable terms of employment and conditions of labor
satisfactory to Employer and employees.

 

NOW, THEREFORE, in consideration of the
mutual covenants and agreement hereinafter contained, it is mutually agreed as
follows:

 

ARTICLE I,
RECOGNITION AND UNION SECURITY

 

A.                                   The
Employer recognizes the Union as the sole and exclusive bargaining agent for
all clerks, pharmacy clerks and cashiers employed in the Employer’s stores
(refer to Appendix “A”).

 

B.                                     It
shall be a condition of employment that all employees of the Employer covered
by this Agreement, who are members of the Union in good standing on the
effective date of this Agreement shall remain members in good standing, and
those who are not members on the effective date of this Agreement shall on the
60th day following the effective date of this Agreement, or after
the execution the of the Agreement, whichever is later, become and remain
members in good standing in the Union. 
It shall also be a condition of employment that all employees covered by
this Agreement and hired on or after its effective date shall on the 60th
day following the beginning of such employment become and remain members in
good standing in the Union.

 

ARTICLE II,
COLLECTIVE BARGAINING UNIT

 

A.                                   The
collective bargaining unit covered by this Agreement shall consist of all
Covered employees employed in the Employer’s store who are employed for twenty
(20)  hours or more per week, excluding
store managers, assistant store managers, pharmacists, clericals, individuals supplied
by contractors, guards and supervisory employees as may be defined in the
National labor Relations Act, as amended.

 

B.                                     Seasonal
employees hired temporarily or supplied by a contractor for the Christmas
season no earlier than December 15th and terminated no later
than the next January 5th in any year shall also be excluded
from the coverage of this Agreement.

 

3

 

ARTICLE III, TRIAL PERIOD

 

A.                                   A
trial period of sixty (60) days shall be in effect for all new employees hired
by the Employer, during which period the employee may be discharged with or
without cause in the sole determination of the Employer, and such determination
shall not be subject to the arbitration provision hereinafter set forth.  The trial period for any new Employee will
be extended an additional sixty (60) days upon the Employer’s written request
therefore.  Employees retained in the
employ of the Employer subsequent to the expiration of such trial period shall
be deemed regular employees and placed on a seniority list of the employees of
the Employer, such seniority to date back to the beginning of their employment.

 

ARTICLE IV. SENIORITY

 

A.                                   Seniority
shall be recognized on a store by store basis. 
In no case shall seniority in one store be counted as seniority in
another store.

 

B.                                     All
things being equal, including ability to perform the job, seniority, on a
single store basis, shall govern in all layoffs and rehirings, except that if
any specific application of this seniority provision shall cause the Employer a
business hardship, such problem shall be resolved by the Employer and the Union
towards the end of eliminating such hardship.

 

C.                                     An employee shall
lose seniority in the event of the occurrence of any one Of the following
events.

 

1.                                       Quit

2.                                       Discharge for
cause

3.                                       After
layoff the employee is notified in writing to return to work and the employee
fails to inform the Employer of his intention to so return within 48 hours
after receipt of such notice.

4.                                       The employee is
on continuous layoff for six (6) months.

5.                                       No show – no
call per Company Rules of Conduct and Orientation booklet

 

D.                                    Employees
will be covered without a waiting period, for medical benefits only, in a
Company acquired store, providing said employee was covered by a previous
medical plan at the time of acquisition.

 

ARTICLE V.  HOURS OF WORK

 

A.                                   The
regular work week for all full-time employees shall not exceed forty (40) hours
per week for any five (5) days out of a seven (7) day week in any store
regularly opened seven (7) days per week. 
A full-time employee is defined as an employee who averages a minimum of
thirty (30) hours per week over a quarter.

 

4

 

B.                                     Overtime
shall be paid at the rate of time and one-half for all work over forty (40)
hours per week.

 

C.                                     Part-time
employees shall receive payment for vacations and holiday pay On a pro-rata
basis of a forty (40) hour work week.

 

D.                                    All
full-time employees shall have the ability to request all available hours in
their home stores, in order to maintain their full-time status.  Employees cannot claim hours that they are
already working in another store.  It is
understood that the employer will accommodate transfers, when the business
allows, in stores under the jurisdiction of LOCAL 340A of UNITE.

 

E.                                      The
Company shall make every reasonable commercial effort to maintain an employee
ratio of 65% full time and 35% part time employees in all stores represented by
LOCAL 340A of UNITE.

 

F.                                      The
Employer will provide a 10-minute paid break for each four-hour block of work
time.  The Employer will allow a one
half hour unpaid meal break for each six hour block of work time.

 

ARTICLE VI. HOLIDAYS

 

A.                                   Each
employee who has completed six (6) months of service, excluding absences, shall
be off with full pay on all holidays that the store is closed.

 

B.                                     The holidays to
which the employee shall be entitled hereunder shall be:

 

	
  Washington’s Birthday

  	
   

  	
  Thanksgiving Day

  
	
  Memorial Day

  	
   

  	
  Christmas Day

  
	
  Fourth of July

  	
   

  	
  New Years Day

  
	
  Labor Day

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

Employees will also be eligible for three (3)
personal days each year. Personal days must be approved by the Store Manager,
in advance, by giving forty eight (48) hours notice to be paid.  There will be no carryover of personal days.  Eligible days not taken will be forfeited.

 

C.                                     Should
any of the afore-mentioned holidays to which an employee is entitled, fall on
his day off or during his vacation, such employee shall, in addition to his
regular pay, be paid for such holiday. 
Should any employee be called in to work on any holiday to which he is
entitled, he shall, in addition to this regular day’s pay, be paid for such
holiday.  Exclusive of Holiday Pay, if
eligible, employees will only receive overtime pay if they actually work over
forty (40) hours in a Holiday week.

 

5

 

D.                                    To
be eligible for Holiday pay, employees must work their scheduled days before
and after a paid Holiday.

 

E.                                      Part-time
employees shall be entitled to holidays with pay on the same basis as
hereinabove set forth but pro-rated in the proportion that their work hours
bear to the full work week in the category in which employed.

 

ARTICLE VII.
LAYOFF AND DISCHARGE

 

A.                                   The
Employer shall have the right to determine the number of employees from time to
time required in the operation of its business and to determine the necessity
for or extent of layoffs.

 

B.                                     Employees,
after the expiration of their trial period, may be discharged only for cause
which includes but is not limited to reasons outlined in the company’s Rules of
Conduct and Orientation booklet.  In the
event of any dispute as to the existence of cause for discharge, such dispute
shall be determined in accordance with the grievance and arbitration provisions
hereinafter contained.  Unless the
Employer receives a written claim of wrongful discharge within two (2) weeks of
date of discharge, discharge shall be deemed to be for good cause.

 

ARTICLE VIII. VACATIONS

 

A.                                   The
Company agrees that, upon request, vacation pay shall be paid prior to the
employee’s scheduled time off.  All
requests must be made on the pay period prior to the scheduled time off.  It is understood that all eligible vacations
must be taken in the calendar year or it will be forfeited.  If an employee requests a delay and/or store
management requests the vacation delay, it must be made in writing to the
VP/Human Resources, who will respond within seven (7) days, in writing, if the
request for delay is rejected.

 

B.                                     A
blackout period will exist from November 1st each year until
December 31st of each year where no vacation will be
allowed.  An employee will never be paid
for vacation in lieu of time off. 
Employees who qualify for vacation during the blackout period, November 1
through December 31, shall be eligible to take their vacation after January 1st
of the next calendar year.

 

6

 

C.                                     All
full and part time employees shall be eligible for vacation pay as follows:

 

1.                                       Upon completing
six (6) months employment – one (1) week

2.                                       Upon completing
one (1) year employment – two (2) weeks

3.                                       Upon completing
seven (7) years employment – three (3) weeks

4.                                       Upon completing
fifteen (15) years employment – four (4) weeks

5.                                       Upon completing
twenty (20) years employment – five (5) weeks

 

Part-time employees shall be entitled to
vacation on the same basis as set forth herein, but pro-rated in the proportion
that their work hours bear to the full workweek.

 

FAIR TREATMENT AND RESPECT:

 

A.                                   The
Employer agrees that each employee should be treated with respect and dignity.  The Employer will not tolerate verbal abuse
or threats by managers.  Corrective
discussions should not be administered in the store selling areas or in front
of other bargaining unit employees.  The
Union member may request the presence of the Union Steward or other witness at
any disciplinary meeting.  Discipline
shall be administered in a professional, adult and non-confrontational manner.

 

B.                                     All
written complaints regarding this section shall be addressed within ten
(10) calendar days of receipt in the Company’s Human Resource department.  Upon request, the Union will be provided a
written summary of all actions resulting from such complaints.

 

ARTICLE IX. CHECKOFF

 

A.                                   During
the second week of each and every month the Employer agrees to deduct and remit
to the Union the Union’s regular membership dues and initiation fees, upon
condition that the Union shall furnish the Employer with a lawful checkoff
authorization form executed by the employee.

 

B.                                     The
Employer will notify the Union of any revocation of such authorization received
by it.

 

C.                                     This
authorization shall automatically renew itself unless written authorization for
revocation is submitted as above directed.

 

7

 

D.                                    Any
monies deducted, except monies deducted in error, from the employees are to
remain the property of the Union, and in no event shall the Employer be
permitted to use said monies for any other purpose, but as stipulated above.

 

E.                                      All
monies deducted in accordance with the provisions of this section shall be
promptly remitted to the Union or its office with a list of all workers and the
amounts of money deducted from each.

 

F.                                      The
Employer agrees to deduct from the wage of its employees who are members and
who voluntarily authorize such contributions on forms designated for that
purpose, contributions to UNITE HERE, campaign committee.  The amounts deducted pursuant to the
voluntary authorization shall be sent to the treasurer of UNITE HERE on monthly
intervals.  These transmittals shall be
accompanied by a list of contributions made by those employees for whom such
deductions have been made.

 

ARTICLE X.
MANAGEMENT PEROGATIVE:

 

A.                                   Any
and all rights and prerogatives of the Employer in the operation and management
of its business and the direction of its employees, including the making of
work rules in connection therewith, shall be and remain vested in the Employer,
except as modified by this Agreement.

 

B.                                     The
management of the business and the direction of working forces is vested exclusively
in the Employer.  All employees shall
perform any duties to which they may be assigned in the performance of their
duties.

 

ARTICLE XI.
WAIVER AND MODIFICATIONS:

 

A.                                   The
failure of either party to enforce any term, condition, covenant, rule or regulation
contained herein, shall not be deemed to be a waiver of these terms,
conditions, covenants, rules or regulations, nor shall either party be stopped
from demanding performance of those terms, conditions, covenants, rules or
regulations:

 

8

 

ARTICLE XII.
STRIKES AND LOCKOUTS:

 

A.                                   There
shall be no strike, picketing, slowdown, or work stoppage by the Union or its
members, or a refusal by any employee to cross a picket line in sympathy with
the sponsors of such picket line, and there shall be no lockout by the Employer
of any kind whatsoever, during the life of this Agreement.  In the event of an unauthorized strike,
picketing, slowdown or work stoppage the Union will immediately disavow such
action and will instruct its members to return to work or to their normal level
of work.

 

B.                                     In
the event of a breach of Article XII by the Union and/or its members, that
the Union does not immediately disavow, the Union will consent to an injunction
by a Court of competent jurisdiction and agrees to pay all damages and all
costs arising from a breach of this section. 
If the Union and/or its members do not disavow, the company, at
its election, can Lockout without violating this section.

 

ARTICLE XIII.
GRIEVANCES AND ARBITRATION

 

A.                                   Any
disputes between the Union and the Employer arising out of or under this
Agreement shall be first taken up for amicable adjustment between the
disputants.

 

B.                                     If
the parties to any such dispute shall be unable to adjust such dispute, then such
dispute shall be referred to arbitration. 
All complaints, disputes or grievances of whatsoever kind or nature
arising between the Union and the Employer concerning any provision of this
Agreement, shall be submitted for arbitration to an arbitrator designated by
mutual agreement of the parties.  If
within ten (10) days the parties fail to reach agreement on the designation of
an arbitrator the matter shall be submitted to the AMERICAN ARBITRATION
ASSOCIATION which shall submit a panel of arbitrators pursuant to its rules and
procedures from which the parties will choose an arbitrator.  The arbitration shall be brought on by
written notice sent by the party requesting the same addressed to the other
party at the address set forth in this Agreement.  Said notice shall not be required to set forth the issues but
should state that a grievance or dispute exists between the parties.  It is expressly agreed between the parties
hereto that should any dispute or grievance arise after the sending of such
notice, all such additional disputes or grievances shall likewise be arbitrated
at the time of the arbitration hearing. 
The arbitrator shall upon such notice as he shall give to the parties,
(which notice shall be deemed good and sufficient notice), proceed to a hearing
at the time and place fixed by him.  If
either party fails or refuses or neglects to appear, then the arbitrator shall
hear the evidence of the party appearing and render his decision as if both
parties had appeared.  The decision of
the arbitrator shall be binding upon the

 

9

 

parties and the employees and shall have the
effect of a judgment entered upon an award as provided by the New York State
law.  The parties consent that any
papers, notices, process, including subpoenas, necessary or appropriate to
institute or continue an arbitration, or to enforce or confirm an award, shall
be deemed duly and sufficiently served if served by ordinary mail directed to
the party’s address as set forth in this Agreement, or to the party’s
attorney.  The arbitrator is empowered
to include in his award mandatory and injunctive relief and to assess
damages.  The expenses of arbitration
hereunder shall be borne equally by the parties hereto.

 

C.                                     Time
shall be of the essence in any arbitration proceeding and both parties to the
dispute shall exert their best efforts in obtaining a speedy
determination.  The Arbitrator shall not
have the authority to issue an award or arbitrate a claim regarding a dispute
that occurred more than ninety (90) days prior to the date of the arbitration
hearing.

 

D.                                    Any
claim for unpaid compensation to which an employee may be entitled under the
provisions of this Agreement shall be deemed waived unless such claim is made
within six (6) months from the date when such unpaid compensation may have
become due and payable.  Any such claim,
made more than six (6) months after it was allegedly due and payable, shall not
be subject to the grievance and arbitration provisions of this Agreement.

 

E.                                      Under
no conditions, will the Union be permitted to grieve or arbitrate a violation
of Article XII, or any other Article of this Agreement, while the
Union and/or its members are in active violation of Article XII.

 

F.                                      The
grievance and arbitration procedure set forth above shall be the sole and
exclusive means for the determination of all disputes, complaints,
controversies, claims or grievances whatsoever, including unfair labor
practices or alleged breaches of this agreement.  Neither party nor any individual employee shall institute any
action, charge or proceeding in a court of law or equity or before an
administrative agency, state or federal other than to compel arbitration as
provided in this Agreement, or with respect to the Award of an arbitrator.  This provision shall be a complete defense
to and also grounds for a stay of any action or proceeding instituted to the
contrary.

 

10

 

ARTICLE XIV. BEREAVEMENT PAY

 

A.                                   All
covered employees who have been employed six (6) months or more by the Employer
shall receive a maximum of three (3) days bereavement leave in the event of the
death of a father, mother, sister, brother, child, spouse or legal
guardian.  Bereavement leave shall be
counted starting with the day after death, and the employee shall be paid for
any day he is regularly scheduled to work during such three (3) days of
leave.  One additional paid day will be
granted for deaths that require travel outside of the tri-state area.

 

ARTICLE XV. SICK LEAVE

 

A.                                   Employees
who have worked at least six (6) months, excluding absences, shall be entitled
to receive five (5) days sick leave with pay each contract year.  Sick leave shall not be cumulative, and
unused sick leave days will be paid at the end of the contract year.

 

B.                                     An
employee who claims sick leave pay for taking time off when such employee was
not ill shall be subject to discharge for good cause.  The Company reserves the right to verify all absences due to
sickness before Payment.

 

ARTICLE XVI. WELFARE

 

A.                                   The
Employer agrees to pay the Amalgamated Cotton Garment and Allied Industries
Health Fund $195.00 per month, effective on the first of the month following a
full time employees completion of two hundred and ten (210) days of employment.

 

B.                                     All
full-time employees, following the completion of the two hundred and ten (210)
days of employment, will be eligible to participate in the Duane Reade
Prescription program. The Union agrees to company-wide co-pay changes, as
necessary to the Duane Reade Prescription Plan for the life of this Agreement.

 

C.                                     The
parties agree that Duane Reade Inc. shall continue to make contributions to the
Amalgamated Cotton Garment and Allied Industries Health Fund as set forth in
the Supplemental Agreement already executed by the parties, except as modified
by the Collective Bargaining agreement and any other agreements between the
parties.

 

11

 

D.                                    The
Company agrees to notify the Union within ten (10) calendar days of terminating
health contributions to eligible members.

 

ARTICLE XVII.          AMALGAMATED COTTON
GARMENT & ALLIED INDUSTRIES RETIRRMENT FUND:

 

A.                                   The
Employer agrees to contribute into the AMALGAMATED COTTON GARMENT & ALLIED
INDUSTRIES RETIREMENT FUND on behalf of all full-time employees who have
completed ninety (90) days of continuous service an amount as specified in the
pension supplement to this contract.

 

B.                                     The
parties agree that Duane Reade Inc. shall continue to make contributions to the
Amalgamated Cotton Garment and Allied Industries Retirement Fund as set forth
in the Supplemental Agreement already executed by the parties, except as
modified by the Collective Bargaining agreement and any other agreements
between the parties.

 

ARTICLE XVIII. NOTICES

 

A.                                   All
notices required to be made hereunder must be made in writing, by certified or
registered mail, and sent by each party hereto to the other to the addresses
respectively set forth hereinabove, unless similarly notified in writing of a
change in address.

 

ARTICLE XIX. UNION VISITATION

 

A.                                   Representatives
of the Union shall be permitted to visit the store of the Employer for a
reasonable period of time for the purpose of meeting with the employees and for
the purpose of observing whether or not the terms and conditions of this
Agreement are carried out.  No more than
five (5) named Union representatives shall be engaged in Duane Reade
visitations. The Union shall name the five representatives and notify the
Company of any changes no more frequently than once every thirty (30)
days.  Such visits are not to interfere
with the normal operations of the store.

 

B.                                     The
Union shall represent the employees of the Employer and the Employer shall deal
with the Union or its duly accredited representative with respect to any matter
affecting same.

 

12

 

ARTICLE XX. INVALIDATION

 

A.                                   Should
any section, or portion thereof, of this Agreement beheld unlawful and
unenforceable by any tribunal of competent jurisdiction, such decision shall
apply only to the specified section or portion thereof directly specified
in the decision and not affect the validity or enforceability of the remainder
of this Agreement, including but not limited to Article XII.

 

B.                                     To
whatever extent any section or portion thereof in this Agreement is
invalidated, the cost savings realized by the Company in executing this
Agreement must be recognized.  The Union
will work with the Company in regards to salary and benefit programs such that
the sum of all changes will equal the cost savings realized by the Company in
executing this Agreement.

 

ARTICLE XXI. SUCCESSORS

 

A.                                   This
contract shall inure to the benefit of and be binding upon the parties hereto,
their successors and assigns.  In the
event that Local 340A merges with another union, that is not currently part of
UNITE-HERE and, that represents employees in Duane Reade’s market, Duane Reade
Inc., in its sole discretion, may elect to terminate this agreement by
providing a thirty (30) day notice of its intention to terminate this
agreement.  In the event of a change in
control of Duane Reade Inc., the purchaser may elect to reopen this Agreement,
providing the stores continue to operate under the Duane Reade name.  If the purchaser elects not to operate the
stores under the Duane Reade name, the purchaser can elect to terminate this
Agreement by providing a thirty (30) day notice of its intention to terminate
this Agreement.

 

ARTICLE XXII.
TERM OF AGREEMENT

 

A.                                   This
Agreement shall be in full force and effect from the lst day of April, 2004
through an including the 31st day of March, 2005 and shall
thereafter be automatically renewed for one (1) year unless and until either
party shall give to the other, not later than two (2) calendar months prior to
the expiration of the original or any such renewal term, a written notice of
election not to renew.

 

B.                                     In
the event the parties have not reached agreement on terms for the renewal of
this Agreement by the 31st day of March 2005, the expiration
date of this Agreement shall be automatically extended until the Union

 

13

 

provides the Employer with a sixty (60) day
notice of its intent to terminate the extension, it being clearly understood
between the parties that said notice to terminate can only be issued if all
pending unfair labor practice charges have been resolved between the parties.

 

ARTICLE XXIII.
COMPLETE AGREEMENT

 

A.                                   It
is agreed that this Agreement is a complete agreement and covers all subjects
and matters negotiable between the parties. 
It may not be changed orally, and may be amended only by a writing
signed by the parties hereto.

 

ARTICLE XXIV. WAGE SCHEDULE

 

A.                                   Minimum
start rate Minimum Wage Employees shall receive an increase of twenty cents per
hour ($.20/hr) after sixty (60) days of employment. Employees shall receive a
wage increase of ten cents ($.10) per hour commencing on the first day of the
month following such employee’s first anniversary date of employment..

 

B.                                     If
there is an increase in the Federal or State minimum wage during the term of
the Agreement only employees below the new minimum will be adjusted.

 

C.                                     Upon
ratification, all employees who have completed a year of active service as of
April 1, 2004, will receive an across the board increase of thirty cents
($.30) per hour.  This increase will be
retroactive to April 1, 2004 and will be paid in lump sum form in the
first check following ratification.

 

D.                                    All
employees scheduled to work from midnight to eight a.m. shall receive an
additional $1.50 per/hour.

 

E.                                      All
employees who have completed five (5) years of service as of April 1, 2004
will be eligible to receive the following upon ratification of this
Agreement.  Full time employees shall
receive a bonus of $200.00.  Part-time
employees shall receive a bonus of $100.00.

 

14

 

Article XXV. UNION ISSUES:

 

A.                                   Where
physically possible, the Employer will provide a bulletin board for Company and
Union business in an employee gathering area (i.e. lounge, break room etc.) and
will provide space for Union literature.

 

B.                                     The
Employer agrees to permit a fifteen (15) minute Union orientation at the start
of employment for all new hires in stores represented by LOCAL 340A UNITE HERE
conducted by the store Union representative.

 

C.                                     Employer
shall adjust the work schedule of a designated Union representative to
enable him/her to attend Union meetings once each quarter.

 

D.                                    All employees may
elect to receive eligible pay through direct deposit.

 

ARTICLE XXVI.
HEALTH & SAFTEY ISSUES:

 

A.                                   The Company agrees
to provide the following:

 

1.                                       A
re-usable covering garment for use to protect employee’s clothes.  A supply will be sent to each store and
controlled by store management.

 

2.                                       Clean restrooms
and breakrooms

 

3.                                       Properly ventilated
work areas

 

4.                                       Access to clean
drinking water

 

B.                                     The
Company and Union agree to the creation of a five (5) member Health and Safety
committee.  This Committee shall meet at
the Company’s headquarters once each calendar quarter (four times a year).  The committee will consist of three (3)
union store employees and two (2) management employees and a representative of
the Union may attend.  The purpose will
be to bring environmental issues to the attention of management in the form of
recommendations.  Nothing in this
paragraph shall obligate the Employer to follow through on the committee’s
recommendations.

 

ARTICLE XXVII. JURY DUTY:

 

A.                                   The
Company agrees to compensate employees for up to three days pay in conjunction
with applicable court stipends for time lost while serving on jury duty.

 

IN
WITNESS WHEREOF, the parties hereto have set their
hands and seals as of the

 

15

 

above date.

 

	
  LOCAL 340A

  	
   

  	
  DUANE READE INC.

  
	
  NEW YORK JOINT BOARD, UNITE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/  John Gillis

  	
   

  	
   

  	
  By:

  	
  /s/ 
  James M. Rizzo

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date Signed:

  	
  November 22, 2004

  	
   

  	
  Date Signed:

  	
  November 22, 2004

  	
   

  
									

 

16

 

PENSION SUPPLEMENT

DUANE READE LOCAL 340A UNITE
HERE AGREEMENT

 

Duane Reade Inc. shall make contributions to the AmalgamatedCotton
Garment & Allied Industries Retirement fund at the rate of five cents
($0.05) per hour for each compensated hour for all full-time employees who
complete ninety (90) days of employment.

 

17Exhibit 10.23

 

DUANE READE INC. and

DUANE READE, as Co-Obligors

THE GUARANTORS NAMED HEREIN

 

and

 

U.S. BANK NATIONAL ASSOCIATION,
as Trustee

 

 

INDENTURE

 

Dated as of December 20,
2004

 

 

Senior Secured Floating Rate
Notes due 2010

 

 

 

CROSS-REFERENCE TABLE*

 

	
  TRUST INDENTURE 

  ACT SECTION

  	
   

  	
  INDENTURE

  SECTION 

  
	
   

  	
   

  	
   

  	
   

  
	
  310

  	
  (a)(1)

  	
   

  	
  7.10

  
	
   

  	
  (a)(2)

  	
   

  	
  7.10

  
	
   

  	
  (a)(3)

  	
   

  	
  N.A.

  
	
   

  	
  (a)(4)

  	
   

  	
  N.A.

  
	
   

  	
  (a)(5)

  	
   

  	
  7.10

  
	
   

  	
  (b)

  	
   

  	
  7.10

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  
	
  311

  	
  (a)

  	
   

  	
  7.11

  
	
   

  	
  (b)

  	
   

  	
  7.11

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  
	
  312

  	
  (a)

  	
   

  	
  2.06

  
	
   

  	
  (b)

  	
   

  	
  13.03

  
	
   

  	
  (c)

  	
   

  	
  13.03

  
	
  313

  	
  (a)

  	
   

  	
  10.05 and
  10.06

  
	
   

  	
  (b)(1)

  	
   

  	
  N.A.

  
	
   

  	
  (b)(2)

  	
   

  	
  7.06

  
	
   

  	
  (c)

  	
   

  	
  7.06(a) and
  13.02

  
	
   

  	
  (d)

  	
   

  	
  7.06

  
	
  314

  	
  (a)

  	
   

  	
  4.04(b)

  
	
   

  	
  (b)

  	
   

  	
  10.02

  
	
   

  	
  (c)(1)

  	
   

  	
  N.A.

  
	
   

  	
  (c)(2)

  	
   

  	
  N.A.

  
	
   

  	
  (c)(3)

  	
   

  	
  N.A.

  
	
   

  	
  (d)

  	
   

  	
  10.05

  
	
   

  	
  (e)

  	
   

  	
  13.05

  
	
   

  	
  (f)

  	
   

  	
  N.A.

  
	
  315

  	
  (a)

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  
	
   

  	
  (d)

  	
   

  	
  N.A.

  
	
   

  	
  (e)

  	
   

  	
  N.A.

  
	
  316

  	
  (a)(last sentence)

  	
   

  	
  N.A.

  
	
   

  	
  (a)(1)(A)

  	
   

  	
  N.A.

  
	
   

  	
  (a)(1)(B)

  	
   

  	
  6.04

  
	
   

  	
  (a)(2)

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
  6.07

  
	
   

  	
  (c)

  	
   

  	
  13.13(d)

  
	
  317

  	
  (a)(1)

  	
   

  	
  N.A.

  
	
   

  	
  (a)(2)

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  
	
  318

  	
  (a)

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  

 

i

 

	
   

  	
  (c)

  	
   

  	
  13.01

  

 

N.A. means not applicable.

 

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

 

ii

 

TABLE OF CONTENTS

 

	
  CROSS-REFERENCE
  TABLE

  	
   

  
	
   

  	
   

  
	
  ARTICLE One

  	
   

  
	
  Definitions
  And Incorporation By Reference

  	
   

  
	
   

  	
   

  
	
  Section 1.01.

  	
  Definitions.

  	
   

  
	
  Section 1.02.

  	
  Other Definitions.

  	
   

  
	
  Section 1.03.

  	
  Incorporation by Reference of Trust
  Indenture Act.

  	
   

  
	
  Section 1.04.

  	
  Rules of Construction.

  	
   

  
	
  Section 1.05.

  	
  Designated Senior Indebtedness.

  	
   

  
	
   

  	
   

  
	
  ARTICLE Two

  	
   

  	
   

  
	
  The
  Notes

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.01.

  	
  Form and Dating.

  	
   

  
	
  Section 2.02.

  	
  Execution and Authentication.

  	
   

  
	
  Section 2.03.

  	
  Methods of Receiving Payments on the Notes.

  	
   

  
	
  Section 2.04.

  	
  Registrar and Paying Agent.

  	
   

  
	
  Section 2.05.

  	
  Paying Agent to Hold Money in Trust.

  	
   

  
	
  Section 2.06.

  	
  Holder Lists.

  	
   

  
	
  Section 2.07.

  	
  Transfer and Exchange.

  	
   

  
	
  Section 2.08.

  	
  Replacement Notes.

  	
   

  
	
  Section 2.09.

  	
  Outstanding Notes.

  	
   

  
	
  Section 2.10.

  	
  Treasury Notes.

  	
   

  
	
  Section 2.11.

  	
  Temporary Notes.

  	
   

  
	
  Section 2.12.

  	
  Cancellation.

  	
   

  
	
  Section 2.13.

  	
  Defaulted Interest.

  	
   

  
	
  Section 2.14.

  	
  CUSIP Numbers.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Three

  	
   

  	
   

  
	
  Redemption
  and Prepayment; Satisfaction and Discharge

  	
   

  
	
   

  	
   

  
	
  Section 3.01.

  	
  Notices
  to Trustee.

  	
   

  
	
  Section 3.02.

  	
  Selection
  of Notes to Be Redeemed.

  	
   

  
	
  Section 3.03.

  	
  Notice
  of Redemption.

  	
   

  
	
  Section 3.04.

  	
  Effect
  of Notice of Redemption.

  	
   

  
	
  Section 3.05.

  	
  Deposit
  of Redemption Price.

  	
   

  
	
  Section 3.06.

  	
  Notes
  Redeemed in Part.

  	
   

  
	
  Section 3.07.

  	
  Optional
  Redemption.

  	
   

  
	
  Section 3.08.

  	
  Mandatory
  Redemption.

  	
   

  
	
  Section 3.09.

  	
  Application
  of Trust Money.

  	
   

  

 

i

 

	
  Section 3.10.

  	
  Option
  to Purchase.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Four

  	
   

  	
   

  
	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.01.

  	
  Payment
  of Notes.

  	
   

  
	
  Section 4.02.

  	
  Maintenance
  of Office or Agency.

  	
   

  
	
  Section 4.03.

  	
  Reports.

  	
   

  
	
  Section 4.04.

  	
  Compliance
  Certificate.

  	
   

  
	
  Section 4.05.

  	
  Taxes.

  	
   

  
	
  Section 4.06.

  	
  Stay,
  Extension and Usury Laws.

  	
   

  
	
  Section 4.07.

  	
  Incurrence
  of Indebtedness and Issuance of Disqualified Stock.

  	
   

  
	
  Section 4.08.

  	
  Restricted
  Payments.

  	
   

  
	
  Section 4.09.

  	
  Transactions
  with Affiliates.

  	
   

  
	
  Section 4.10.

  	
  Liens.

  	
   

  
	
  Section 4.11.

  	
  Asset
  Sales.

  	
   

  
	
  Section 4.12.

  	
  Issuances
  of Guarantees by New Restricted Subsidiaries and Non-Guarantor Restricted
  Subsidiaries.

  	
   

  
	
  Section 4.13.

  	
  Dividend and Other Payment Restrictions Affecting Restricted
  Subsidiaries.

  	
   

  
	
  Section 4.14.

  	
  Sale and Leaseback Transaction.

  	
   

  
	
  Section 4.15.

  	
  Events of Loss.

  	
   

  
	
  Section 4.16.

  	
  Impairment of Collateral.

  	
   

  
	
  Section 4.17.

  	
  Limitation on Activities.

  	
   

  
	
  Section 4.18.

  	
  Unrestricted Subsidiaries.

  	
   

  
	
  Section 4.19.

  	
  Payments for Consent.

  	
   

  
	
  Section 4.20.

  	
  Offer to Repurchase upon a Change of Control.

  	
   

  
	
  Section 4.21.

  	
  Corporate Existence.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Five

  	
   

  	
   

  
	
  Successors

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.01.

  	
  Consolidation, Merger or Sale of Assets.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Six

  	
   

  	
   

  
	
  Defaults
  and Remedies

  	
   

  
	
   

  	
   

  
	
  Section 6.01.

  	
  Events of Default.

  	
   

  
	
  Section 6.02.

  	
  Acceleration.

  	
   

  
	
  Section 6.03.

  	
  Other Remedies.

  	
   

  
	
  Section 6.04.

  	
  Waiver of Past Defaults.

  	
   

  
	
  Section 6.05.

  	
  Control by Majority.

  	
   

  
	
  Section 6.06.

  	
  Limitation on Suits.

  	
   

  

 

ii

 

	
  Section 6.07.

  	
  Rights of Holders of Notes to Receive Payment.

  	
   

  
	
  Section 6.08.

  	
  Collection Suit by Trustee.

  	
   

  
	
  Section 6.09.

  	
  Trustee May File Proofs of Claim.

  	
   

  
	
  Section 6.10.

  	
  Priorities.

  	
   

  
	
  Section 6.11.

  	
  Undertaking for Costs.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Seven

  	
   

  	
   

  
	
  Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.01.

  	
  Duties of Trustee.

  	
   

  
	
  Section 7.02.

  	
  Certain Rights of Trustee.

  	
   

  
	
  Section 7.03.

  	
  Individual Rights of Trustee.

  	
   

  
	
  Section 7.04.

  	
  Trustee’s Disclaimer.

  	
   

  
	
  Section 7.05.

  	
  Notice
  of Defaults.

  	
   

  
	
  Section 7.06.

  	
  Reports by Trustee to Holders of the Notes.

  	
   

  
	
  Section 7.07.

  	
  Compensation and Indemnity.

  	
   

  
	
  Section 7.08.

  	
  Replacement of Trustee.

  	
   

  
	
  Section 7.09.

  	
  Successor Trustee by Merger, Etc.

  	
   

  
	
  Section 7.10.

  	
  Eligibility; Disqualification.

  	
   

  
	
  Section 7.11.

  	
  Preferential Collection of Claims Against Co-Obligors.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Eight

  	
   

  	
   

  
	
  Defeasance
  and Covenant Defeasance

  	
   

  
	
   

  	
   

  
	
  Section 8.01.

  	
  Option to Effect Legal Defeasance or Covenant Defeasance.

  	
   

  
	
  Section 8.02.

  	
  Legal Defeasance and Discharge.

  	
   

  
	
  Section 8.03.

  	
  Covenant Defeasance.

  	
   

  
	
  Section 8.04.

  	
  Conditions to Legal Defeasance or Covenant Defeasance.

  	
   

  
	
  Section 8.05.

  	
  Deposited Money and U.S

  	
   

  
	
  Section 8.06.

  	
  Repayment to the Co-Obligors.

  	
   

  
	
  Section 8.07.

  	
  Reinstatement.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Nine

  	
   

  	
   

  
	
  Amendment,
  Supplement and Waiver

  	
   

  
	
   

  	
   

  
	
  Section 9.01.

  	
  Without Consent of Holders of Notes.

  	
   

  
	
  Section 9.02.

  	
  With Consent of Holders of Notes.

  	
   

  
	
  Section 9.03.

  	
  Compliance with Trust Indenture Act.

  	
   

  
	
  Section 9.04.

  	
  Revocation and Effect of Consents.

  	
   

  
	
  Section 9.05.

  	
  Notation on or Exchange of Notes.

  	
   

  
	
  Section 9.06.

  	
  Trustee to Sign Amendments, Etc.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE TEN

  	
   

  	
   

  
	
  Collateral

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.01.

  	
  Collateral Documents.

  	
   

  
	
  Section 10.02.

  	
  Opinions of Counsel.

  	
   

  

 

iii

 

	
  Section 10.03.

  	
  Possession and Use of the Collateral.

  	
   

  
	
  Section 10.04.

  	
  Suits to Protect the Collateral.

  	
   

  
	
  Section 10.05.

  	
  Release of Collateral.

  	
   

  
	
  Section 10.06.

  	
  Permitted Ordinary Course Activities with respect to Collateral.

  	
   

  
	
  Section 10.07.

  	
  Actions by the Trustee.

  	
   

  
	
  Section 10.08.

  	
  Purchaser Protected.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Eleven

  	
   

  	
   

  
	
  Guarantees

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.01.

  	
  Guarantee.

  	
   

  
	
  Section 11.02.

  	
  Limitation on Guarantor Liability.

  	
   

  
	
  Section 11.03.

  	
  Execution and Delivery of Guarantee.

  	
   

  
	
  Section 11.04.

  	
  Release of Guarantors.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Twelve

  	
   

  	
   

  
	
  Satisfaction
  and Discharge

  	
   

  
	
   

  	
   

  
	
  Section 12.01.

  	
  Satisfaction and Discharge.

  	
   

  
	
  Section 12.02.

  	
  Deposited Money and U.S. Government Obligations to be held in Trust;
  Other Miscellaneous Provisions.

  	
   

  
	
  Section 12.03.

  	
  Repayment to the Company.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE Thirteen

  	
   

  
	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 13.01.

  	
  Trust Indenture Act Controls.

  	
   

  
	
  Section 13.02.

  	
  Notices.

  	
   

  
	
  Section 13.03.

  	
  Communication by Holders of Notes with Other Holders of Notes.

  	
   

  
	
  Section 13.04.

  	
  Certificate and Opinion as to Conditions Precedent.

  	
   

  
	
  Section 13.05.

  	
  Statements Required in Certificate or Opinion.

  	
   

  
	
  Section 13.06.

  	
  Rules by Trustee and Agents.

  	
   

  
	
  Section 13.07.

  	
  No Personal Liability of Directors, Officers, Employees and
  Stockholders.

  	
   

  
	
  Section 13.08.

  	
  Governing Law.

  	
   

  
	
  Section 13.09.

  	
  No Adverse Interpretation of Other Agreements.

  	
   

  
	
  Section 13.10.

  	
  Successors.

  	
   

  
	
  Section 13.11.

  	
  Severability.

  	
   

  
	
  Section 13.12.

  	
  Counterpart Originals.

  	
   

  
	
  Section 13.13.

  	
  Acts of Holders.

  	
   

  
	
  Section 13.14.

  	
  Benefit of Indenture.

  	
   

  
	
  Section 13.15.

  	
  Table of Contents, Headings, Etc.

  	
   

  
	
  Section 13.16.

  	
  Intercreditor Agreement and Collateral Documents.

  	
   

  
	
   

  	
   

  
	
  Exhibits:

  	
   

  	
   

  
	
  Exhibit A

  	
  FORM
  OF NOTE

  	
   

  
				

 

iv

 

	
  Exhibit B

  	
  FORM
  OF CERTIFICATE OF TRANSFER

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  FORM
  OF CERTIFICATE OF EXCHANGE

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  FORM
  OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit
  E

  	
  FORM OF NOTATION OF GUARANTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  FORM
  OF SUPPLEMENTAL INDENTURE

  	
   

  

 

v

 

INDENTURE (this “Indenture”), dated as of December 20, 2004,
by and among Duane Reade Inc., a Delaware corporation (the “Company”), Duane
Reade, a New York general partnership and subsidiary of the Company (“Duane
Reade GP”, and together with the Company, the “Co-Obligors”), Duane Reade
Holdings, Inc., a Delaware corporation (“Holdings”) and each of the direct and
indirect domestic subsidiaries of the Company named in the signature pages
hereto (other than Duane Reade GP) (the “Subsidiary Guarantors”, and together
with Holdings, the “Initial Guarantors”), and U.S. Bank National Association,
as Trustee (the “Trustee”).

 

As of the Issue Date, each of the Initial Guarantors will guarantee all
the obligations of Duane Reade and Duane Reade GP under the Notes and this
Indenture.

 

The Company and the Trustee (as defined below) agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders (as
defined below) of the Senior Secured Floating Rate Notes due 2010 (the “Initial
Notes” and, together with any Exchange Notes and Additional Notes, each as
defined herein, the “Notes”):

 

ARTICLE ONE

Definitions And Incorporation

By Reference

 

Section 1.01.                             Definitions.

 

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

 

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

 

“Acquisition” means the transactions contemplated by the
Agreement and Plan of Merger, dated December 22, 2003, as amended by
Amendment No. 1 on June 10, 2004, Amendment No. 2 on June 13, 2004
and Amendment No. 3 on June 18, 2004, among DRS LLC, Duane Reade
Acquisition Corp., a Delaware corporation, and the Company.

 

 “Acquisition Closing Date”
means July 30, 2004, the date on which the Acquisition was consummated.

 

“Additional Notes” means any further Notes (other than the
Initial Notes issued on the date of this Indenture) issued under this Indenture
in accordance with the terms of this Indenture, including Sections 2.02 and
4.07 hereof, as part of the same series as the Initial Notes

 

 

issued on the date hereof, ranking equally with those Initial Notes and
having identical terms and conditions to the Initial Notes (in all respects
other than the payment of interest accruing prior to the issue date of such
Additional Notes or except, in any such case, at the option of the Company, for
the first payment of interest following the issue date of such Additional
Notes), subject to compliance with Section 4.07 hereof.  The Initial Notes and any Additional Notes
subsequently issued under this Indenture shall be treated as a single class for
all purposes under this Indenture, including, without limitation, waivers,
amendments, security, redemptions and offers to purchase.

 

“Advisory Agreement” means the advisory agreement entered into
in connection with the Acquisition, as amended, restated or modified from time
to time, provided that such
amendment, restatement or modification is not materially more adverse, taken as
a whole, to the Company and its Restricted Subsidiaries than the Advisory
Agreement in effect or entered into on the Acquisition Closing Date.

 

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

 

“After-Acquired Property” means any and all assets or property
(other than Excluded Assets) acquired after the Issue Date, including any
property or assets acquired by the Company, Duane Reade GP or a Guarantor from
a transfer from the Company or a Guarantor, which in each case constitutes
Collateral.

 

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

 

“Applicable Procedures” means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Clearstream that apply to such
transfer or exchange.

 

“Asset Sale” means any sale, issuance, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a “transfer”),
directly or indirectly, in one or a series of related transactions, of:

 

(1)                                  any
Capital Stock of any Restricted Subsidiary;

 

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

 

(3)                                  any
other properties, assets or rights of the Company or any Restricted Subsidiary
other than in the ordinary course of business.

 

2

 

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

 

(A)                              that
is governed by Section 5.01 hereof,

 

(B)                                that
is by the Company to any Wholly Owned Restricted Subsidiary, or by any
Restricted Subsidiary to the Company or any Wholly Owned Restricted Subsidiary
in accordance with the terms of this Indenture,

 

(C)                                that
would be a Restricted Payment, Permitted Payment or Permitted Investment,

 

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

 

(E)                                 that
is of damaged, worn-out or obsolete equipment in the ordinary course of
business,

 

(F)                                 that
consists of cash or Cash Equivalents,

 

(G)                                pursuant
to an Interest Rate Agreement, Currency Hedging Agreement or Commodity Price
Agreement,

 

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

 

(I)                                    that
is a sale or lease of equipment, inventory or accounts receivable in the
ordinary course of business,

 

(J)                                   that
is a conversion of or foreclosure on any mortgage or note, but only if the
Company or a Restricted Subsidiary receives the real property underlying the
mortgage or note,

 

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

 

(L)                                 that
is the sale, lease, conveyance, disposition or other transfer of any Investment
in any Unrestricted Subsidiary,

 

(M)                            that
is a lease, license or sublease to third persons not interfering in any
material respect with the business of the Company or a Restricted Subsidiary,
or

 

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

 

 “Attributable Indebtedness”
in respect of a sale and leaseback transaction means, as of the time of
determination, the present value (discounted at the rate per annum equal to the
rate of interest implicit in the lease involved in such sale and leaseback
transaction, as determined in good faith by the Board of Directors of the
Company and set forth in a board resolution) of the obligation of the lessee
thereunder for rental payments (excluding, however,

 

3

 

any amounts required to be paid by such lessee, whether or not
designated as rent or additional rent, on account of maintenance and repairs,
insurance, taxes, assessments, water rates or similar charges or any amounts
required to be paid by such lessee thereunder contingent upon the amount of
sales or similar contingent amounts) during the remaining term of such lease
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).  In
the case of any lease which is terminable by the lessee upon the payment of a
penalty, such rental payments shall also include the amount of such penalty,
but no rental payments shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.

 

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

 

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

 

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

 

“Board of Directors” means, with respect to any Person, the
board of directors, management committee or other equivalent management entity
of such Person or any committee thereof duly authorized to act on behalf of
such board or, in the case of a Person that is a partnership that has no such
management entity, one or more general partners of such Person.

 

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

 

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

 

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

 

“Capital Lease Obligation” of any Person means any obligation of
such Person and its Restricted Subsidiaries on a Consolidated basis under any
capital lease of (or other

 

4

 

agreement conveying the right to use) real or personal property which,
in accordance with GAAP, is required to be capitalized on a balance sheet.

 

“Capital Stock” of any Person means any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person’s capital stock, other equity interests whether now outstanding
or issued after the date of this Indenture, partnership interests (whether
general or limited), limited liability company interests, any other interest or
participation that confers on a Person that right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person,
including any Preferred Stock, and any rights (other than debt securities
convertible into Capital Stock), warrants or options exchangeable for or
convertible into such Capital Stock.

 

“Cash Equivalents” means

 

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

 

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

 

(c)                                  commercial paper with
a maturity of 365 days or less issued by a corporation (other than an Affiliate
or Subsidiary of the Company) organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia and
rated at least “A-1” by S&P or at least “P-1” by Moody’s,

 

(d)                                 repurchase agreements
and reverse repurchase agreements relating to marketable direct obligations
issued or unconditionally guaranteed by the United States or issued by any
agency thereof and backed by the full faith and credit of the United States
maturing within 365 days from the date of acquisition, and

 

(e)                                  money market funds
which invest substantially all of their assets in securities described in the
preceding clauses (a) through (d).

 

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

 

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

 

(b)                                 during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company or of any of its direct or
indirect parent companies (together with any new directors whose election to
such board or whose nomination for election by the stockholders or members, as
the case may be, of the Company or of any of its direct or indirect parent
companies was approved by a vote of a

 

5

 

majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of such Board of Directors of the Company or of any of its direct or
indirect parent companies then in office;

 

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

 

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

 

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

 

(d)                                 the Company or any of
its direct or indirect parent companies is liquidated or dissolved or adopts a
plan of liquidation or dissolution other than in a transaction which complies
with Section 5.01 hereof.

 

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

 

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

 

6

 

“Clearstream” means Clearstream Banking, societe anonyme,
Luxembourg.

 

“Collateral” means collectively all of the property and assets
that are from time to time subject to the Lien of the Collateral Documents,
including the Liens, if any, required to be granted pursuant to this Indenture,
any Term Loan Agreement or the Collateral Documents.

 

“Collateral Agent” means U.S. Bank National Association, and any
successor thereto under the Collateral Agency Agreement, and any successor
thereto.

 

“Collateral Agency Agreement”means the Intercreditor and Collateral Agency Agreement, to be
entered into among the Company, Duane Reade GP, the Guarantors, the Collateral
Agent and the Trustee, and joined by any representative of the Term Loan
Lenders, as the same may be amended, restated, supplemented, replaced or
modified from time to time.

 

“Collateral Documents” means, collectively, the Collateral
Agency Agreement, the Security Agreement, the Pledge Agreement, the Depositary
Bank Agreements, any mortgage or deed of trust and all other pledges,
agreements, financing statements, filings or other documents that grant or
evidence the Lien in the Collateral in favor of the Collateral Agent for the
benefit of the Trustee and the Holders of Notes, as they may be amended,
restated, supplemented, replaced or modified from time to time.

 

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

 

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

 

“Company” means Duane Reade Inc., a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
“Company” shall mean such successor Person.

 

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

 

(a)                                  without duplication,
the sum of Consolidated Net Income (Loss), and in each case to the extent
deducted in computing Consolidated Net Income (Loss) for such period, (1)
Consolidated Interest Expense, (2) Consolidated Income Tax Expense, (3)
Consolidated Non-cash Charges, (4) expenses and charges related to any Equity
Offering or incurrence of Indebtedness permitted to be incurred pursuant to
this Indenture, (5) restructuring costs and acquisition integration costs and
fees, including cash severance payments made in connection with restructurings
and acquisitions, or other types of special charges or reserves, (6) payments
under the Advisory Agreement, and (7) any non-recurring losses, for such
period, of such Person and its Restricted Subsidiaries on a Consolidated basis,
all determined in accordance with GAAP, less all non-cash items increasing
Consolidated Net Income for such period and less all cash payments during such
period relating to non-cash charges that were added back to

 

7

 

Consolidated Net Income in determining the Consolidated Fixed Charge
Coverage Ratio in any prior period to

 

(b)                                 without duplication,
the sum of Consolidated Interest Expense for such period and any cash and
non-cash dividends (other than those paid in the form of Qualified Capital
Stock) paid on any Disqualified Capital Stock or Preferred Stock, of such
Person and its Restricted Subsidiaries during such period,

 

in each case after giving pro forma effect to, without duplication

 

(1)                                  the incurrence of the
Indebtedness giving rise to the need to make such calculation and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, on the first day of such period;

 

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

 

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

 

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

 

(5)                                  all adjustments to
“EBITDA” for such period used to calculate “Adjusted EBITDA” for such period
that are disclosed in the “Summary Unaudited Pro Forma Financial Information
and Statistical Data” section included in the Offering Memorandum, dated
as of July 23, 2004, relating to the Existing Notes; and

 

(6)                                  Pro Forma Cost
Savings;

 

provided that:

 

(a)                                  any such computation
shall be set forth in an Officers’ Certificate;

 

(b)                                 in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma
basis and (x) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the
entire period and (y) which was not outstanding during the period for which the
computation is being made but which bears, at the option of such Person, a
fixed or

 

8

 

floating rate of interest, shall be computed by applying at the option
of such Person either the fixed or floating rate; and

 

(c)                                  in making such
computation, the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based
upon the average balance at the end of each fiscal month of such Indebtedness
during the applicable period.

 

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

 

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

 

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

 

(i)                                     amortization
of debt discount,

 

(ii)                                  the
net cash costs associated with Interest Rate Agreements, Currency Hedging
Agreements and Commodity Price Agreements (including amortization of
discounts),

 

(iii)                               the
interest portion of any deferred payment obligation,

 

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

 

(v)                                 accrued
interest, plus

 

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

 

(ii)                                  all
capitalized interest of such Person and its Restricted Subsidiaries, plus

 

(c)                                  the interest expense
under any Guaranteed Debt of such Person and any Restricted Subsidiary to the
extent not included under any other clause hereof only to the extent actually
paid by such Person or its Restricted Subsidiaries, plus

 

(d)                                 dividend requirements
of the Company with respect to Disqualified Capital Stock and of any Restricted
Subsidiary with respect to Preferred Stock (except, in either case, dividends
payable solely in shares of Qualified Capital Stock of the Company or such
Restricted Subsidiary, as the case may be),

 

9

 

less, to the extent
included in such total interest expense, (A) the amortization during such
period of capitalized financing costs, (B) any charges resulting from the
application of Statement of Financial Accounting Standards No. 150, “Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity” with respect to Qualified Stock, and (C) any charges resulting from the
application of Statement of Financial Accounting Standards No. 145, “Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections.”

 

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

 

(1)                                  all
extraordinary or nonrecurring gains (or extraordinary losses or nonrecurring,
non-cash losses), together with any related provision for taxes on any such
extraordinary or nonrecurring gain (and the tax effect of any such extraordinary
loss or nonrecurring, non-cash loss), realized by the Company or any Restricted
Subsidiary during such period;

 

(2)                                  the
portion of net income (or loss) of such Person and its Restricted Subsidiaries
on a Consolidated basis allocable to minority interests in unconsolidated
Persons or Unrestricted Subsidiaries to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Consolidated Restricted Subsidiaries,

 

(3)                                  any
non-cash impact attributable to the application of the purchase method of
accounting in accordance with GAAP,

 

(4)                                  any
gain or loss realized upon the termination of any employee pension benefit
plan, together with any related provision for taxes on any such termination (or
the tax effect of any such termination),

 

(5)                                  gains
or losses in respect of dispositions of assets other than in the ordinary
course of business (including, without limitation, dispositions pursuant to
sale and leaseback transactions), together with any related provision for taxes
on any such disposition (or the tax effect of any such disposition),

 

(6)                                  (a)
for purposes of Section 4.07 hereof, the net income of any Restricted
Subsidiary that is not a Guarantor, and (b) for purposes of Section 4.08
hereof, the net income of any Restricted Subsidiary, to the extent that, in the
case of each of clauses (a) and (b), the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders,

 

(7)                                  any
restoration to net income of any contingency reserve, except to the extent
provision for such reserve was made out of income accrued at any time following
the Acquisition Closing Date,

 

10

 

(8)                                  any
net gain or loss arising from the acquisition of any securities or extinguishment,
under GAAP, of any Indebtedness of such Person or its Restricted Subsidiaries,

 

(9)                                  any
expenses or charges incurred in connection with the Transactions and all
deferred financing costs amortized or written off, and premiums and prepayment
penalties paid, in connection with the Transactions and the financings thereof
or any early extinguishment of Indebtedness,

 

(10)                            any
charges resulting from the application of Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible Assets,” or No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,”

 

(11)                            deferred
rental expense which is in excess of the amount of cash rental expense actually
paid in such relevant period, provided
that any amounts excluded in any period pursuant to this clause (11) shall be
deducted from Consolidated Net Income in the period for which the cash payments
in respect of such deferred rental expense are paid,

 

(12)                            unrealized
gains and losses associated with Interest Rate Agreements, Currency Hedging
Agreements and Commodity Price Agreements,

 

(13)                            non-cash
compensation charges or other non-cash expenses or charges arising from the
grant of or issuance or repricing of Capital Stock or other equity-based awards
or any amendment or substitution of any such Capital Stock or other
equity-based awards,

 

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

 

(15)                            so
long as the Company and its Restricted Subsidiaries file a Consolidated tax
return, or are part of a Consolidated group for tax purposes, with Holdings or
any other holding company, the excess of (a) the Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries for such period over (b)
all tax payments payable for such period (whether paid in such period or at any
time prior to such period) by the Company and its Restricted Subsidiaries to
Holdings or such other holding company under a tax sharing agreement or
arrangement, provided that any amounts excluded in any period pursuant to this
clause (15) must be deducted from Consolidated Net Income in the period for
which the cash payments in respect of such taxes are paid,

 

(16)                            the
cumulative effect of a change in accounting principles, or

 

(17)                            any
deferred financing costs amortized or written off and premiums and prepayment
penalties paid in connection with the refinancing of any Qualified Capital
Stock.

 

11

 

“Consolidated Net Tangible Assets” means the aggregate amount of
assets of the Company (less applicable reserves and other properly deductible
items) after deducting therefrom (to the extent otherwise included therein) (a)
all current liabilities (other than the obligations under this Indenture or
current maturities of long-term Indebtedness), and (b) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other
like intangibles, all as set forth on the books and records of the Company and
the Restricted Subsidiaries on a consolidated basis and in accordance with
GAAP.

 

“Consolidated Non-cash Charges” of any Person means, for any
period, the aggregate depreciation, amortization and write-downs, write-offs
and other non-cash charges of such Person and its Subsidiaries on a
Consolidated basis for such period, as determined in accordance with GAAP (excluding
any non-cash charge which requires an accrual or reserve for cash charges for
any future period).

 

“Consolidation” means, with respect to any Person, the
consolidation of the accounts of such Person and each of its Subsidiaries if
and to the extent the accounts of such Person and each of its Subsidiaries
would normally be consolidated with those of such Person, all in accordance
with GAAP. The term “Consolidated” shall have a correlative meaning.

 

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

 

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

 

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

 

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

 

“Custodian” means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.

 

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

 

“Definitive Note” means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.07
hereof, substantially in the form of Exhibit A hereto, except that such Note
shall not bear the Global Note Legend and shall not have the “Schedule of
Exchanges of Interests in the Global Note” attached thereto.

 

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

 

12

 

“Depositary Bank Agreement” means, with respect to any deposit
account, an agreement substantially in the form of Exhibit C-1 or Exhibit C-2
to the Security Agreement or such other form as to which an opinion of counsel
is delivered to the Collateral Agent opining that such agreement is sufficient
to grant the Collateral Agent a perfected security interest under the Uniform
Commercial Code, as in effect at such time in the applicable jurisdiction, in
the deposit account named therein, as the same may be amended, restated,
supplemented, replaced or modified from time to time in accordance with the
provisions of the Collateral Documents.

 

“Determination Date” means, with respect to an Interest Period,
the second London Banking Day preceding the first day of such Interest Period.

 

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

 

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

 

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

 

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

 

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

 

“Equity Offering” means (x) a Public Equity Offering or (y) a
private placement of Capital Stock (other than Disqualified Capital Stock) of
the Company or any of its direct or indirect parent companies, as the case may
be, pursuant to an exemption from the registration requirements of the
Securities Act, to a Person (other than an Affiliate of the Company) in either
case (x) or (y) with gross proceeds to the Company or any of its direct or
indirect parent

 

13

 

companies of at least $50 million that are promptly contributed to the
Company on a non-recourse basis.

 

“Event of Loss” means, with respect to any Collateral, any (1)
loss, destruction or damage of such Collateral, (2) condemnation, seizure or
taking by exercise of the power of eminent domain or otherwise of such
Collateral, or confiscation of such Collateral or the requisition of the use of
such Collateral or (3) settlement in lieu of clause (2) above.

 

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

 

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

 

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

 

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

 

“Excluded Assets” means the following assets that are not and
will not constitute Collateral securing the Note/Term Obligations and Hedging
Obligations:

 

(1)                                  any
property or assets owned by any Subsidiary of the Company or Duane Reade GP
which is not a domestic Restricted Subsidiary,

 

(2)                                  assets
securing Purchase Money Obligations or Capital Lease Obligations incurred
pursuant to clause (7) of paragraph (b) of Section 4.07 hereof;

 

(3)                                  Excluded
Contracts;

 

(4)                                  Excluded
Equipment;

 

(5)                                  any voting security that is issued by a foreign subsidiary (that is a
corporation for United States federal income tax purposes) and owned by the
Company, Duane Reade GP or any Guarantor, if and to the extent that the
inclusion of such voting security in the Collateral would cause the Collateral
pledged by the Company, Duane Reade GP or such Guarantor, as the case may be,
to include in the aggregate more than 65% of the total combined voting power of
all classes of voting securities of such foreign subsidiary;

 

(6)                                  any
interest in leased or owned real property;

 

(7)                                  any Capital Stock and other securities of Duane Reade International, Inc., a
Delaware corporation (“Duane Reade International”),
Duane Reade GP or DRI I Inc., a Delaware corporation (“DRI”), to the extent that the pledge of such Capital Stock or other securities
to secure the Notes or the Guarantees would cause such

 

14

 

Subsidiary to be
required to file separate financial statements with the Commission pursuant to
Rule 3-16 of Regulation S-X (as in effect from time to time);

 

(8)                                  any
Capital Stock and other securities of any Person that becomes a Guarantor after
the Issue Date that, together with all other such Guarantors created, acquired
or Invested in after the Issue Date, have a collective Fair Market Value of
less than $30.0 million; and

 

(9)                                  proceeds
and products from any and all of the foregoing excluded collateral described in
clauses (1) through (8), unless such proceeds or products would otherwise
constitute Collateral securing the Note/Term Obligations and Hedging
Obligations.

 

“Excluded Contract” means at any date any rights or interest of
the Company, Duane Reade GP or any Guarantor in, to or under any agreement,
contract, license, instrument, document or other general intangible (referred
to solely for purposes of this definition as a “Contract”) (i) to the extent that such Contract by the
express terms of a valid and enforceable restriction in favor of a Person who
is not the Company, Duane Reade GP or any Guarantor, or any requirement of law,
prohibits, or requires any consent or establishes any other condition for, an
assignment thereof or a grant of a security interest therein by the Company,
Duane Reade GP or a Guarantor and (ii) which, if in existence or the subject of
rights in favor of the Company, Duane Reade GP or any Guarantor as of the Issue
Date and with respect to which a contravention or other violation caused or
arising by its inclusion as Collateral could reasonably be expected to have a
Material Adverse Effect (as defined in the Security Agreement as in effect on
the Issue Date), is listed and designated as such on a schedule to any
such party’s perfection certificate required by the Collateral Documents or
individually or collectively is not material to the conduct of the business of
the Company, Duane Reade GP, or such Guarantor; provided that: (i) rights to payment under any such Contract
otherwise constituting an Excluded Contract by virtue of this definition shall
be included in the Collateral to the extent permitted thereby or by
Section 9-406 or Section 9-408 of the Uniform Commercial Code and
(ii) all proceeds paid or payable to any of the Company, Duane Reade GP or any
Guarantor from any sale, transfer or assignment of such Contract and all rights
to receive such proceeds shall be included in the Collateral.

 

“Excluded Equipment” means at any date any equipment of the
Company, Duane Reade GP or any Guarantor which is subject to, or secured by, a
Capital Lease Obligation or Purchase Money Indebtedness if and to the extent
that (i) the express terms of a valid and enforceable restriction in favor of a
Person who is not the Company, Duane Reade GP, Holdings or a Restricted
Subsidiary contained in the agreements or documents granting or governing such
Capital Lease Obligation or Purchase Money Indebtedness prohibits, or requires
any consent or establishes any other conditions for, an assignment thereof, or
a grant of a security interest therein, by the Company, Duane Reade GP or any
Guarantor and (ii) such restriction relates only to the asset or assets
acquired by the Company, Duane Reade GP or any Guarantor with the proceeds of
such Capital Lease Obligation or Purchase Money Indebtedness and attachments
thereto or substitutions therefor; provided
that all proceeds paid or payable to any of the Company, Duane Reade GP or any
Guarantor from any sale, transfer or assignment or other

 

15

 

voluntary or involuntary disposition of such equipment and all rights
to receive such proceeds shall be included in the Collateral to the extent not
otherwise required to be paid to the holder of the Capital Lease Obligation or
Purchase Money Indebtedness secured by such equipment.

 

“Existing Notes” means the 9 3⁄4% Senior Subordinated Notes Due
2011 of the Company and Duane Reade GP.

 

“Existing Notes Indenture” means the Indenture, dated as of
July 30, 2004 (as supplemented on July 30, 2004), among the Issuers,
the Guarantors (other than Holdings) and the Trustee, governing the Existing
Notes.

 

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

 

For purposes of Section 4.12, and for determinations of the Fair
Market Value of any Subsidiary for purposes of clause (8) of the
definition of Excluded Assets or the Fair Market Value of any Non-Guarantor
Restricted Subsidiary, such Fair Market Value will be the Fair Market Value of
any property transferred to or Investment in such Non-Guarantor Restricted
Subsidiary by the Company or any Restricted Subsidiary as at the time of such
transfer or Investment (or the Fair Market Value on the date of creation
(whether newly-formed or created by the sale of a portion of the Capital Stock
of such Restricted Subsidiary) or acquisition of any such entity), as
determined by the Board of Directors of the Company acting in good faith, and
shall not include any subsequent change in value other than from an additional
transfer or Investment.

 

“Finance Documents” has the meaning given to such term in the
Security Agreement.

 

“Finance Obligations” has the meaning given to such term in the
Security Agreement.

 

“Finance Parties” has the meaning given to such term in the
Security Agreement.

 

“Generally Accepted Accounting Principles” or “GAAP”
means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, the Public Company Accounting Oversight Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which were in effect on
July 30, 2004.

 

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

 

16

 

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

 

“Guarantee” means the guarantee by any Guarantor of the
Co-Obligors’ Indenture Obligations.

 

“Guaranteed Debt” of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement:

 

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

 

(b)                                 to purchase, sell or
lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss,

 

(c)                                  to supply funds to,
or in any other manner invest in, the debtor (including any agreement to pay
for property or services without requiring that such property be received or
such services be rendered),

 

(d)                                 to maintain working
capital or equity capital of the debtor, or otherwise to maintain the net
worth, solvency or other financial condition of the debtor or to cause such
debtor to achieve certain levels of financial performance or

 

(e)                                  otherwise to assure a
creditor against loss;

 

provided
that the term “guarantee” shall not include endorsements for collection or
deposit, in either case in the ordinary course of business.

 

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

 

“Hedging Obligations” means all obligations (including, without
limitation, any amounts which accrue after the commencement of any insolvency
proceedings) in respect of Interest Rate Agreements, Currency Hedging
Agreements, Commodity Price Agreements or any combination of the foregoing
transactions permitted to be incurred under this Indenture, excluding any
amounts which are entitled to set-off under applicable law and specified as
such by the Company in an Officers’ Certificate.

 

“Hedging Provider” means any Person from time to time party to one
or more Interest Rate Agreements, Currency Hedging Agreements or Commodity
Price Agreements, in

 

17

 

each case with respect to Hedging Obligations, and that has also
executed a Sharing Confirmation (as defined in the Collateral Agency
Agreement), and its successors and assigns, and “Hedging Providers”
means any two or more of such Hedging Providers, collectively.

 

“Holder” means the Person in whose name a Note is, at the time
of determination, registered on the Registrar’s books.

 

“Holdings” has the meaning set forth in the preamble hereto.

 

“IAI Global Note” means the global Note substantially in the
form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee that will be issued in a denomination equal to
the outstanding principal amount of the Notes sold to Institutional Accredited
Investors.

 

“Indebtedness” means, with respect to any Person, without
duplication,

 

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

 

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

 

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

 

(d)                                 all obligations under
Interest Rate Agreements, Currency Hedging Agreements or Commodity Price
Agreements of such Person,

 

(e)                                  all Capital Lease
Obligations of such Person,

 

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

 

(g)                                 all Guaranteed Debt of
such Person,

 

(h)                                 all Disqualified
Capital Stock issued by such Person, and

 

18

 

(i)                                     Preferred Stock of
any Restricted Subsidiary of the Company.

 

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

 

(1)                                  the
accreted value of the Indebtedness, in the case of any Indebtedness issued with
original issue discount, and

 

(2)                                  the
principal amount of the Indebtedness, together with any interest on the
Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.

 

Notwithstanding the foregoing, Indebtedness shall not include:

 

(1)                                  trade accounts
payable and other accrued liabilities arising in the ordinary course of
business;

 

(2)                                  obligations of such
Person other than principal; or

 

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

 

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

 

“Indenture Obligations”
means the obligations of the Company, Duane Reade GP and any other obligor
under this Indenture or under the Notes, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with this Indenture, the
Notes and the performance of all other obligations to the Trustee and the
holders under this Indenture, the Notes according to the respective terms
thereof.

 

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

 

“Initial Guarantors” has the meaning set forth in the preamble
hereto.

 

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

 

“Initial Purchasers” means (i) Banc of America Securities LLC
and Credit Suisse First Boston LLC, as initial purchasers under the Purchase
Agreements dated December 8, 2004, among the Company and the Initial
Purchasers and (ii) with respect to any Additional Notes issued subsequent to
the Issue Date, any investment bank acting as initial purchaser in connection
with the issuance and sale of such Additional Notes.

 

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

 

19

 

“Intercreditor Agreement” means the intercreditor agreement (as
amended, restated, supplemented, replaced or modified from time to time), dated
as of July 30, 2004, by and between the Collateral Agent, as successor
Term Loan Agent thereunder, and the Revolving Credit Agent.

 

“Interest Period” means the period commencing on and including
an interest payment date and ending on and including the day immediately
preceding the next succeeding interest payment date, except that the first
Interest Period shall commence on and include the Issue Date and end on and
include March 14, 2005.

 

“Interest Rate Agreements” means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, captions, collars and similar agreements) and /or
other types of interest rate hedging agreements from time to time.

 

“Investment” means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP. “Investment” shall exclude
direct or indirect advances to customers or suppliers in the ordinary course of
business that are, in conformity with GAAP, recorded as accounts receivable,
prepaid expenses or deposits on the Company’s or any Restricted Subsidiary’s
balance sheet, endorsements for collection or deposit arising in the ordinary
course of business, extensions of trade credit on commercially reasonable terms
in accordance with normal trade practices, and investments in payroll, travel
and similar advances made in the ordinary course of business. If the Company or
any Restricted Subsidiary of the Company sells or otherwise disposes of any
Capital Stock of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company (other than the sale of all of the
outstanding Capital Stock of such Subsidiary), the Company will be deemed to
have made an Investment on the date of such sale or disposition equal to the
Fair Market Value of the Company’s Investments in such Subsidiary that were not
sold or disposed of in an amount determined as provided in Section 4.08
hereof.

 

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

 

“Letter of Transmittal” means the letter of transmittal to be
prepared by the Co-Obligors and sent to all Holders of the Notes for use by
such Holders in connection with an Exchange Offer.

 

“LIBOR” means, with respect to an Interest Period, the rate
(expressed as a percentage per annum) for deposits in United States dollars for
a three-month period beginning on the second London Banking Day after the
Determination Date that appears on Telerate Page 3750 as of 11:00 a.m., London
time, on the Determination Date.  If
Telerate Page 3750 does not include such a rate or is unavailable on a
Determination Date, the calculation agent (the

 

20

 

“Calculation Agent”), shall request the principal London office
of each of four major banks in the London interbank market, as selected by the
Calculation Agent, to provide such bank’s offered quotation (expressed as a
percentage per annum), as of approximately 11:00 a.m., London time, on such
Determination Date, to prime banks in the London interbank market for deposits
in a Representative Amount in United States dollars for a three-month period
beginning on the second London Banking Day after the Determination Date.  If at least two such offered quotations are
so provided, LIBOR for the Interest Period shall be the arithmetic mean of such
quotations.  If fewer than two such
quotations are so provided, the Calculation Agent shall request each of three
major banks in New York City, as selected by the Calculation Agent, to provide
such bank’s rate (expressed as a percentage per annum), as of approximately
11:00 a.m., New York City time, on such Determination Date, for loans in a
Representative Amount in United States dollars to leading European banks for a
three-month period beginning on the second London Banking Day after the
Determination Date.  If at least two
such rates are so provided, LIBOR for the Interest Period shall be the arithmetic
mean of such rates.  If fewer than two
such rates are so provided, then LIBOR for the Interest Period shall be LIBOR
in effect with respect to the immediately preceding Interest Period.

 

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

 

“Liquidated Damages” means all liquidated damages then owing
pursuant to an applicable Registration Rights Agreement.

 

“London Banking Day”  means
any day in which dealings in United States dollars are transacted or, with
respect to any future date, are expected to be transacted in the London
interbank market.

 

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

 

“Maximum Revolving Debt Amount” means an amount equal to the sum
of (x) the greater of (a) $275.0 million and (b) the sum of the Borrowing
Base (as defined in the Revolving Credit Agreement in effect on the Issue
Date), exclusive of Reserves (as defined in the Revolving Credit Agreement in
effect on the Issue Date), plus Permitted Overadvances (as defined in the
Revolving Credit Agreement in effect on the Issue Date), plus (y) accrued and
unpaid interest, fees, expense reimbursements and other charges then due to the
lenders under the Revolving Credit Agreement.

 

21

 

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

 

“Net Cash Proceeds” means

 

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

 

(i)                                     brokerage
commissions and other fees and expenses (including, without limitation, fees
and expenses of counsel, accountants, consultants, agents and investment
bankers) related to such Asset Sale,

 

(ii)                                  provisions
for all taxes payable as a result of such Asset Sale,

 

(iii)                               payments
made to retire Indebtedness where payment of such Indebtedness is secured by
the assets or properties the subject of such Asset Sale,

 

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

 

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

 

(vi)                              appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers’ Certificate
delivered to the Trustee and

 

(b)                                 with respect to any
issuance or sale of Capital Stock or options, warrants or rights to purchase
Capital Stock, or debt securities or Capital Stock that have been converted
into or exchanged for Capital Stock as referred to under Section 4.08
hereof, the proceeds of such issuance or sale in the form of cash or Cash
Equivalents including payments in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed of for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of
attorney’s fees, accountant’s fees and brokerage, consultation, underwriting
and other fees and expenses actually incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.

 

22

 

“Net Loss Proceeds” means, with respect to any Event of Loss,
the proceeds in the form of (a) cash or Cash Equivalents and (b) insurance
proceeds from condemnation awards or damages awarded by any judgment, in each
case received by the Company or any of its Restricted Subsidiaries from such
Event of Loss, net of:

 

(1)                                  reasonable
out-of-pocket expenses and fees relating to such Event of Loss (including
without limitation legal, accounting and appraisal or insurance adjuster fees);

 

(2)                                  taxes
paid or payable after taking into account any reduction in consolidated tax
liability due to available tax credits or deductions and any tax sharing
arrangements;

 

(3)                                  any
repayment of Indebtedness that is secured by, or directly related to, the
property or assets that are the subject of such Event of Loss;

 

(4)                                  amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Event of
Loss or having a Lien thereon; and

 

(5)                                  appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Event of Loss and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Event of Loss, including,
without limitation, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Event of
Loss.

 

“Non-Guarantor Restricted Subsidiary” means a Restricted
Subsidiary that is not a Wholly-Owned Restricted Subsidiary and is designated
by the Company as a Non-Guarantor Restricted Subsidiary, as evidenced by a
resolution of the Board of Directors of the Company.

 

“Non-U.S. Person” means a Person who is not a U.S. Person.

 

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

 

“Note/Term Obligations” means:

 

(1)                                  all
principal of and interest (including, without limitation, any interest which
accrues after the commencement of any proceeding under any Bankruptcy Law with
respect to any of the Company, Duane Reade GP or any Guarantor, whether or not
allowed or allowable as a claim in any such proceeding) on any Note or Term Loan;

 

23

 

(2)                                  all
fees, expenses, indemnification obligations and other amounts of whatever
nature now or hereafter payable by the Company, Duane Reade GP or any Guarantor
(including, without limitation, any amounts which accrue after the commencement
of any proceeding under any Bankruptcy Law with respect to any of the Company,
Duane Reade GP or any Guarantor, whether or not allowed or allowable as a claim
in any such proceeding) pursuant to this Indenture, the Notes, the Term Loan
Agreement, the Intercreditor Agreement or any Collateral Document;

 

(3)                                  all
expenses of the Trustee, the Collateral Agent or any Term Loan Agent as to
which one or more of such agents has a right to reimbursement under this
Indenture, any Term Loan Agreement or under any other similar provision of any
other Collateral Document or the Intercreditor Agreement, including, without
limitation, any and all sums advanced by the Collateral Agent to preserve the
Collateral or preserve its security interests in the Collateral; and

 

(4)                                  in
the case of Holdings and each Subsidiary Guarantor, all amounts now or
hereafter payable by Holdings or such Subsidiary Guarantor and all other
obligations or liabilities now existing or hereafter arising or incurred
(including, without limitation, any amounts which accrue after the commencement
of any proceeding under any Bankruptcy Law with respect to the Company, Duane
Reade GP, Holdings or such Subsidiary Guarantor, whether or not allowed or
allowable as a claim in any such proceeding) on the part of Holdings or such
Subsidiary Guarantor pursuant to the Notes, this Indenture, the Guarantees, the
Term Loan Agreement, the Intercreditor Agreement or any other Collateral
Document;

 

together in
each case with all renewals, modifications, refinancings, consolidations or
extensions thereof.

 

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

 

 “Offering Memorandum”
means the Offering Memorandum relating to the issuance and sale of the Notes
and the Guarantees, together with the supplement thereto distributed therewith,
dated December 9, 2004, prepared by the Co-Obligors.

 

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

 

“Officers’ Certificate” means a certificate signed on behalf of
the Company by at least two Officers of the Company, one of whom must be the
principal executive officer, the

 

24

 

principal financial officer, the treasurer or the principal accounting
officer of the Company, that meets the requirements of Section 13.05
hereof.

 

“Opinion of Counsel” means an opinion from legal counsel who is
reasonably acceptable to the Trustee that meets the requirements of
Section 13.05 hereof, which may be corporate counsel to the Company.

 

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

 

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

 

“Permitted Business” means (x) the lines of business conducted
by the Company and its Restricted Subsidiaries on the Issue Date and business
reasonably related, complementary or ancillary thereto, including reasonably
related extensions or expansions thereof and (y) any unrelated business, to the
extent that it is not material in size.

 

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

 

“Permitted Investment” means

 

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

 

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

 

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

 

(4)                                  Investments in cash and Cash Equivalents;

 

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

 

(6)                                  Investments in existence on the Issue Date;

 

(7)                                  Investments acquired in exchange for the issuance
of Capital Stock (other than Disqualified Capital Stock of the Company or a
Restricted Subsidiary or Preferred Stock of a Restricted Subsidiary) or
acquired with the Net Cash Proceeds received by the Company after the Issue
Date from the issuance and sale of Capital Stock (other than Disqualified
Capital Stock

 

25

 

of the Company or a Restricted Subsidiary or
Preferred Stock of a Restricted Subsidiary); provided
that such Net Cash Proceeds are used to make such Investment within 60 days of
the receipt thereof and the amount of all such Net Cash Proceeds will be
excluded from clause (3)(B) of Section 4.08(a);

 

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

 

(9)                                  any Investments received in good faith in
settlement or compromise of obligations of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or insolvency
of any trade creditor or customer;

 

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

 

(11)                            Investments consisting of the licensing or
contribution of intellectual property pursuant to joint marketing arrangement
with other Persons;

 

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

 

(13)                            Investments made by the Company or a Restricted
Subsidiary for consideration consisting only of Qualified Capital Stock of the
Company;

 

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

 

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

 

In connection with any assets or property
contributed or transferred to any Person as an Investment, such property and
assets shall be equal to the Fair Market Value at the time of Investment.

 

“Permitted Lien” means:

 

(1)                                  any
Lien on any assets or property of the Company or any of its Subsidiaries or
Affiliates granted in favor of the lenders under Note/Term Obligations,
securing such Note/Term Obligations, existing at the Issue Date or granted
thereafter, in an aggregate principal amount not to exceed the sum of (a)
$185.0 million plus (b) the aggregate of amounts of Indebtedness incurred to
permanently repay Indebtedness that was at the time of each such repayment
classified as having been incurred under clause (1) or (7) of paragraph (b) of
Section 4.07 hereof, provided that the Refinancing Indebtedness is deemed
to be incurred pursuant to such clause (1) or (7) and is not reclassified
outside such clauses, which Liens shall include, without limitation, at the
Issue Date, Liens granted pursuant to the Collateral Documents or this

 

26

 

Indenture in
favor of the Collateral Agent, the Trustee, the Holders of the Notes and
Guarantees, or the lenders under the Term Loan Agreement;

 

(2)                                  any
Lien on any assets or property of the Company or any of its Subsidiaries or
Affiliates in favor of Hedging Providers, securing Hedging Obligations relating
to Note/Term Obligations.

 

(3)                                  any
Lien on Secondary Collateral which secures the Revolving Credit Agreement
incurred pursuant to clause (b)(1) of Section 4.07 hereof; provided that
the aggregate principal amount of Indebtedness which may be secured pursuant to
this clause (3) on a first-priority basis shall not exceed the Maximum
Revolving Debt Amount; provided further that the Revolving Credit Lenders (or
the agent or representative on behalf of such lenders) have no security
interest in any assets (other than Secondary Collateral) higher in priority
than that granted to the Collateral Agent;

 

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

 

(5)                                  Liens
to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (7) of paragraph (b) of Section 4.07 hereof covering only
the assets acquired, leased, constructed or improved with such Indebtedness or
permitted pursuant to clause (6) of paragraph (b) of
Section 4.07 hereof;

 

(6)                                  Liens
existing or entered into on the Issue Date and not otherwise referred to in
this definition (not including Liens terminated on the Issue Date) and Liens in
favor of the Company, Duane Reade GP or any Guarantor;

 

(7)                                  (A)
carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s
or other like Liens arising in the ordinary course of business, (B) Liens
for taxes, assessments or governmental charges or claims, in each case, that
are not yet due or delinquent or that are bonded or that are being contested in
good faith and by appropriate proceedings; provided that any reserve or other
appropriate provision shall be required in conformity with GAAP shall have been
made therefor, and (C) any lease or sublease to a third party;

 

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

 

(9)                                  Liens
on goods (and the proceeds thereof) and documents of title and the property
covered thereby securing Indebtedness in respect of commercial letters of
credit and Liens securing reimbursement obligations with respect to commercial
letters of credit which

 

27

 

encumber
documents and other property relating to such letters of credit and products
and proceeds thereof;

 

(10)                            minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of business of
such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person;

 

(11)                            Liens
arising by reason of a judgment, decree or court order, to the extent not
otherwise resulting in an Event of Default, and any Liens that are required to
protect or enforce any rights in any administrative, arbitration or other court
proceedings in the ordinary course of business;

 

(12)                            Liens
securing Refinancing Indebtedness otherwise permitted to be incurred under this
Indenture where the Indebtedness being refinanced was secured by a Lien, or
amendments or renewals of Liens that were permitted to be incurred;

 

(13)                            Liens
encumbering deposits made to secure obligations arising from statutory,
regulatory or contractual requirements of the Company or a Restricted
Subsidiary, including rights of offset and set-off;

 

(14)                            Liens
with respect to Indebtedness that does not exceed $5 million at any one
time outstanding;

 

(15)                            Liens
under licensing agreements for use of intellectual property entered into in the
ordinary course of business;

 

(16)                            Liens
securing Indebtedness incurred pursuant to clauses (8), (10) or (12) of
paragraph (b) of Section 4.07;

 

(17)                            Liens
securing any Indebtedness which became Indebtedness pursuant to a transaction
permitted under Section 5.01 or securing Acquired Indebtedness which was
created prior to (and not created in connection with, or contemplation of),
such transaction or acquisition (including any assumption, guarantee or other
liability with respect thereto by any Restricted Subsidiary) and which
Indebtedness is permitted under Section 4.07 hereof; and

 

(18)                            any
extension, renewal or replacement, in whole or in part, of any Lien described
in the foregoing clauses (1) through (17) provided that the Lien so
extended, renewed or replaced does not extend to any additional property or
assets.

 

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

 

28

 

“Pledge Agreement” means the Amended and Restated Pledge
Agreement, dated as of December 20, 2004, among the Issuers, the
Guarantors and the Collateral Agent, as the same may be amended, restated,
supplemented, replaced or modified from time to time.

 

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

 

“Primary Collateral” means all
Collateral other than Secondary Collateral.

 

“Prior Term Loan Agreement” means the Senior Secured Term Credit
Agreement, dated as of July 30, 2004, among the Company and Duane Reade
GP, as co-borrowers thereto, the Company’s Subsidiaries which were guarantors
thereof, Banc of America Securities LLC and Credit Suisse First Boston, as
joint lead arrangers, Banc of America Securities LLC, Credit Suisse First
Boston and Citigroup Global Markets Inc. as joint book running managers, Bank
of America Bridge LLC, as second lien administrative and collateral agent,
certain lenders party thereto, and certain agents party thereto.

 

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

 

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

 

“Public Equity Offering” means an underwritten public offering
of common stock (other than Disqualified Capital Stock) of the Company or any
of its direct or indirect parent companies, as the case may be, with gross
proceeds to the Company or any of its direct or indirect parent companies of at
least $50 million, pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act (other than a
registration statement on Form S-4 (or any successor form covering
substantially the same transactions), Form S-8 (or any successor form covering
substantially the same transactions) or otherwise relating to equity securities
issuable under any employee benefit plan of the Company or any of its direct or
indirect parent companies, as the case may be).

 

“Purchase Money Obligations” means Indebtedness of the Company
or any Restricted Subsidiary incurred for the purpose of financing all or any
part of the purchase price of property, plant or equipment used in the business
of the Company or any Restricted

 

29

 

Subsidiary or the cost of installation, construction or improvement
thereof, and the payment of any sales or other taxes associated therewith; provided, however, that (1) the amount of
such Indebtedness shall not exceed such purchase price or cost and payment plus
applicable taxes, and (2) such Indebtedness shall be incurred within one year
of such acquisition of such asset by the Company or such Restricted Subsidiary
or such installation, construction or improvement.

 

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

 

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

 

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

 

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

 

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

 

“Registration Rights Agreement” means (i) the Registration
Rights Agreement among the Company, Duane Reade GP, the Guarantors and the
Initial Purchasers named therein, dated as of December 20, 2004, relating
to the Initial Notes, and (ii) with respect to any Additional Notes issued
subsequent to the Issue Date, any registration rights agreement entered into
for the benefit of the holders of such Additional Notes, if any.

 

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

 

“Regulation S Global Note” means a Regulation S Temporary Global
Note or a Regulation S Permanent Global Note, as appropriate.

 

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

 

“Regulation S Temporary Global Note” means a temporary global
Note in the form of Exhibit A hereto bearing the Global Note Legend, the
Private Placement Legend and the Temporary Regulation S Legend and deposited
with or on behalf of and registered in the name of the Depositary or its
nominee, issued in a denomination equal to the outstanding principal amount at
maturity of the Notes initially sold in reliance on Rule 903 of Regulation S.

 

“Representative Amount” means a principal amount of not less
than U.S. $1,000,000 for a single transaction in the relevant market at the
relevant time.

 

30

 

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

 

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

 

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

 

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

 

“Restricted Subsidiary” means any Subsidiary of the Company that
has not been designated by the Board of Directors of the Company by a Board
Resolution delivered to the Trustee as an Unrestricted Subsidiary pursuant to
and in compliance with Section 4.18 hereof.

 

“Revolving Credit Agent” means, at the Issue Date, Fleet
National Bank, and thereafter, at any time, the Person serving at such time as
the “Agent” or the “Administrative Agent” under the Revolving Credit Agreement
or any other representative of the Revolving Credit Lenders then most recently
designated as such by the requisite percentage of such Revolving Credit Lenders
in a written notice delivered to the Trustee and the Collateral Agent.

 

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

 

31

 

 “Revolving Credit Lenders”
means the lenders under the Revolving Credit Agreement.

 

“Revolving Loan Obligations” means the payment of the principal
of and interest on the loans under the Revolving Credit Agreement, together
with all Obligations (as defined in the Revolving Credit Agreement in effect on
the Issue Date).

 

“Revolving Loan Parties” means the Co-Obligors and the Guarantors
and each other Person now or hereafter becoming a guarantor of the obligations
under the Revolving Credit Agreement and shall include each of their respective
successors and assigns, including, without limitation, any receiver, trustee,
or debtor-in-possession on behalf of such Person or on behalf of such successor
or assign.

 

“Rule 144” means Rule 144 promulgated under the Securities Act.

 

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

 

“Rule 903” means Rule 903 promulgated under the Securities Act.

 

“Rule 904” means Rule 904 promulgated under the Securities Act.

 

“Secondary Collateral” means all of the following property and
interests in property of the Revolving Loan Parties, whether now owned or
existing, or hereafter created, acquired or arising and wherever located:

 

(a)                                  All
Accounts;

 

(b)                                 All
Inventory;

 

(c)                                  All
Chattel Paper, Instruments and Documents;

 

(d)                                 All
Payment Intangibles constituting proceeds of other Secondary Collateral;

 

(e)                                  All
prescription files, and all books, records, electronically stored data and
information relating to the prescription files and all rights of access to such
books, records and information;

 

(f)                                    All
tax refunds and abatements, and rights to payment for credit extended;

 

(g)                                 All
Deposit Accounts;

 

(h)                                 All
Letter of Credit Rights and Supporting Obligations relating to Secondary
Collateral;

 

(i)                                     All
books and records of the Revolving Loan Parties relating to any other
foregoing; and

 

32

 

(j)                                     All
products and proceeds of the foregoing, including, without limitation, proceeds
of insurance policies to the extent such proceeds relate to any of the
foregoing.

 

All capitalized terms used in this definition and not otherwise defined
shall have the same meaning herein as in the Uniform Commercial Code as in
effect from time to time in the State of New York.

 

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

 

“Security Agreement” means the Amended and Restated Security
Agreement, dated as of December 20, 2004, among the Issuers, the
Guarantors and the Collateral Agent, as the same may be amended, restated,
supplemented, replaced or modified from time to time.

 

“Senior Indebtedness” means Indebtedness of the Company or a
Guarantor that is not Subordinated Indebtedness.

 

“S&P” means Standard & Poor’s Ratings Group, a division
of The McGraw-Hill Companies, Inc., and any successor thereof.

 

“Shelf Registration Statement” means the Shelf Registration
Statement that may be filed pursuant to the Registration Rights Agreement.

 

“Significant Subsidiary” means any Restricted Subsidiary that
would be a “significant subsidiary” of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the Commission as in effect on the
Issue Date.

 

“Stated Maturity” means, when used with respect to any
Indebtedness or any installment of interest thereon, the dates specified in
such Indebtedness as the fixed date on which the principal of such Indebtedness
or such installment of interest, as the case may be, is due and payable.

 

“Stockholders and Registration Rights Agreement” means the
stockholders and registration rights agreement, dated July 30, 2004, as
amended, restated or modified from time to time, provided that such amendment, restatement or modification is
not materially more adverse, taken as a whole, to the Company and its
Restricted Subsidiaries than the Stockholders and Registration Rights Agreement
in effect on the Issue Date.

 

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

 

“Subsidiary” of a Person means

 

(a)                                  any corporation more
than 50% of the outstanding voting power of the Voting Stock of which is owned
or controlled, directly or indirectly, by such Person or by one or

 

33

 

more other Subsidiaries of such Person, or by such Person and one or
more other Subsidiaries thereof, or

 

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

 

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

 

“Subsidiary Guarantor” has the meaning set forth in the preamble
hereto.

 

“Tax Sharing Agreement” means the Tax Sharing Agreement dated as
of July 30, 2004, by and among DRS LLC and its Subsidiaries as amended,
restated or modified from time to time, provided that such amendment,
restatement or modification is not materially more adverse, taken as a whole,
to the Company and its Restricted Subsidiaries than the Tax Sharing Agreement
in effect on the Issue Date.

 

“Telerate Page 3750” means the display designated as “Page 3750”
on the Moneyline Telerate service (or such other page as may replace Page 3750
on that service).

 

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

 

“Term Loans” means loans made pursuant to and in accordance with
the Term Loan Agreements.

 

“Term Loan Agreement” means one or more debt facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing or letters of credit, including arrangements and
agreements relating to the sale of debt securities or other forms of debt
financing, in each case, as any of the foregoing, in whole or in part, in one
or more instances, may be amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from time to time
(including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing and including without limitation any
amendment increasing the amount of Indebtedness incurred or available to be
borrowed thereunder, extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby or deleting, adding or substituting one or
more parties thereto (whether or not such added or substituted parties are
banks or other institutional lenders)), including into one or more debt facilities,
commercial paper facilities or other debt instruments, indentures or agreements
(including in the form of Additional Notes), providing for revolving credit
loans, term loans, letters of credit or other debt obligations, whether any
such extension, replacement or refinancing (1) occurs simultaneously or not
with the termination or repayment of a prior Term Loan Agreement or (2) occurs
on one or more separate occasions; provided that such Term Loan Agreement shall
be specified as such by the Company in an Officers’ Certificate.

 

“Term Loan Lenders” means the lenders of any Term Loans.

 

34

 

“Transactions” means the Acquisition and all financing and other
transactions related thereto, including, without limitation, the issuance of
the Existing Notes, the Notes and the Exchange Notes, the transactions
contemplated by the Registration Rights Agreement, the entering into and
borrowings under the Prior Term Loan Agreement, the amendment of the Revolving
Credit Agreement, the repurchase of the Convertible Notes, the entering into
the Collateral Agency Agreement and the Collateral Documents and the other
transactions related thereto.

 

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

 

“Trustee” means U.S. Bank National Association until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

 

“Unrestricted Definitive Note” means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.

 

“Unrestricted Global Note” means a permanent Global Note
substantially in the form of Exhibit A attached hereto that bears the Global
Note Legend and that has the “Schedule of Exchanges of Interests in the
Global Note” attached thereto, and that is deposited with or on behalf of and
registered in the name of the Depositary, representing a series of Notes that
do not bear the Private Placement Legend.

 

“Unrestricted Subsidiary” means any Subsidiary of the Company
(other than Duane Reade GP or a Subsidiary Guarantor) designated as such
pursuant to and in compliance with Section 4.18 hereof.

 

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

 

(a)                                  as to which neither the Company nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Restricted Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness), except
Guaranteed Debt of the Company or any Restricted Subsidiary to any Affiliate of
the Company, in which case (unless the incurrence of such Guaranteed Debt
resulted in a Restricted Payment at the time of incurrence) the Company shall
be deemed to have made a Restricted Payment equal to the principal amount of
any such Indebtedness to the extent guaranteed at the time such Affiliate is
designated an Unrestricted Subsidiary and

 

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

 

provided that
notwithstanding the foregoing, any Unrestricted Subsidiary may guarantee the
Notes.

 

35

 

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

 

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

 

“Voting Stock” of a Person means Capital Stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
Board of Directors, managers or trustees of such Person (irrespective of
whether or not at the time Capital Stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).

 

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

 

36

 

Section 1.02.                             Other
Definitions.

 

	
  TERM

  	
   

  	
  DEFINED

  IN

  SECTION

  
	
  “Act”

  	
   

  	
  13.13

  
	
  “Asset
  Sale Offer”

  	
   

  	
  4.11

  
	
  “Asset
  Sale Offer Date”

  	
   

  	
  4.11

  
	
  “Asset
  Sale Offer Price”

  	
   

  	
  4.11

  
	
  “Authentication
  Order”

  	
   

  	
  2.02

  
	
  “Change of Control Offer”

  	
   

  	
  4.20

  
	
  “Change of Control Purchase Date”

  	
   

  	
  4.20

  
	
  “Change of Control Purchase Notice”

  	
   

  	
  4.20

  
	
  “Change of Control Purchase Price”

  	
   

  	
  4.20

  
	
  “Covenant Defeasance”

  	
   

  	
  8.03

  
	
  “Defeasance Redemption Date”

  	
   

  	
  8.04

  
	
  “Designation”

  	
   

  	
  4.18

  
	
  “Designation Amount”

  	
   

  	
  4.18

  
	
  “DTC”

  	
   

  	
  2.01

  
	
  “Event of Default”

  	
   

  	
  6.01

  
	
  “Excess
  Loss Proceeds”

  	
   

  	
  4.15

  
	
  “Excess Proceeds”

  	
   

  	
  4.11

  
	
  “Funds in Trust”

  	
   

  	
  8.04

  
	
  “incur”

  	
   

  	
  4.07

  
	
  “Legal Defeasance”

  	
   

  	
  8.02

  
	
  “Loss
  Proceeds Offer”

  	
   

  	
  4.15

  
	
  “Loss
  Proceeds Offer Trigger Date”

  	
   

  	
  4.15

  
	
  “Offer”

  	
   

  	
  4.10

  
	
  “Offer Date”

  	
   

  	
  4.10

  
	
  “Paying Agent”

  	
   

  	
  2.04

  
	
  “Permitted Indebtedness”

  	
   

  	
  4.07

  
	
  “Permitted Payment”

  	
   

  	
  4.08

  
	
  “refinancing”

  	
   

  	
  4.07

  

 

37

 

	
  “Refinancing Indebtedness”

  	
   

  	
  4.07

  
	
  “Registrar”

  	
   

  	
  2.04

  
	
  “Required Filing Date”

  	
   

  	
  4.03

  
	
  “Restricted Payments”

  	
   

  	
  4.08

  
	
  “Revocation”

  	
   

  	
  4.18

  
	
  “Surviving Entity”

  	
   

  	
  5.01

  
	
  “Surviving Guarantor Entity”

  	
   

  	
  5.01

  
	
  “Trustee”

  	
   

  	
  8.05

  

 

Section 1.03.                             Incorporation
by Reference of Trust Indenture Act.

 

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

 

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

 

Section 1.04.                             Rules of Construction.

 

Unless the context otherwise requires:

 

(i)                                     a
term has the meaning assigned to it;

 

(ii)                                  an
accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP;

 

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

 

(iv)                              references
to sections of or rules under the Securities Act shall be deemed to include
substitute, replacement of successor sections or rules adopted by the
Commission from time to time; and

 

(v)                                 all
references herein to “interest” include the Liquidated Damages.

 

38

 

Section 1.05.                             Designated
Senior Indebtedness.  

 

The Co-Obligors
hereby designate the Obligations under this Indenture, the Notes and the
Guarantees to be “Designated Senior Indebtedness” for purposes of the Existing
Notes Indenture.

 

ARTICLE TWO

The Notes

 

Section 2.01.                             Form
and Dating.

 

(a)                                  General.  The Notes and the Trustee’s certificate of
authentication shall be substantially in the form of Exhibit A hereto.  The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage.  Each Note shall be dated the date of its
authentication.  The Notes shall be
issued in registered, global form without interest coupons and only shall be in
minimum denominations of $5,000 and integral multiples of $1,000 in excess
thereof.

 

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

 

(b)                                 Global Notes.  Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the “Schedule of Exchanges of Interests in the
Global Note” attached thereto).  Notes
issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without the Global Note Legend thereon and without the
“Schedule of Exchanges of Interests in the Global Note” attached
thereto).  Each Global Note shall
represent such of the outstanding Notes as shall be specified therein and each
shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and
redemptions.  Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee in accordance with instructions given by the Holder thereof as required
by Section 2.07 hereof.

 

(c)                                  Temporary Global
Notes.  Notes offered and sold in
reliance on Regulation S shall be issued initially in the form of the
Regulation S Temporary Global Note, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with the Trustee, as custodian for
The Depository Trust Company (“DTC”) in New York, New York, and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear or
Clearstream, duly executed by the Co-Obligors and authenticated by the Trustee
as hereinafter provided.  The Restricted
Period shall be terminated upon the receipt by the Trustee of (i) a written
certificate from Euroclear and Clearstream certifying that they have received
certification of non-United States Beneficial

 

39

 

Ownership of 100% of the aggregate principal amount at maturity of the
Regulation S Temporary Global Note (except to the extent of any Beneficial
Owners thereof who acquired an interest therein during the Restricted Period
pursuant to another exemption from registration under the Securities Act and
who shall take delivery of a Beneficial Ownership interest in a 144A Global
Note bearing a Private Placement Legend, all as contemplated by
Section 2.07(a)(ii) hereof), and (ii) an Officers’ Certificate from the
Co-Obligors.  Following the termination
of the Restricted Period, beneficial interests in the Regulation S Temporary
Global Note shall be exchanged for beneficial interests in Regulation S
Permanent Global Notes pursuant to the Applicable Procedures.  Simultaneously with the authentication of
Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S
Temporary Global Note.  The aggregate
principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.

 

(d)                                 Euroclear and
Clearstream Procedures Applicable. 
The provisions of the “Operating Procedures of the Euroclear System” and
“Terms and Conditions Governing Use of Euroclear” and the “General Terms and
Conditions of Cedel Bank” and “Customer Handbook” of Clearstream shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Note and the Regulation S Permanent Global Notes that are held by
Participants through Euroclear or Clearstream.

 

(e)                                  Additional Notes.  Notwithstanding anything else herein, with
respect to any Additional Notes issued subsequent to the date of this
Indenture, when the context requires, (1) all references in Article Two
herein and elsewhere in this Indenture to a Registration Rights Agreement shall
be to the registration rights agreement entered into with respect to such
Additional Notes, (2) any references in this Indenture to the Exchange Offer,
Exchange Offer Registration Statement, Shelf Registration Statement, Initial
Purchasers, and any other term related thereto shall be to such terms as they
are defined in such registration rights agreement entered into with respect to
such Additional Notes, (3) all time periods described in the Notes with respect
to the registration of such Additional Notes shall be as provided in such
Registration Rights Agreement entered into with respect to such Additional
Notes, (4) any Liquidated Damages or penalty interest, if set forth in such
Registration Rights Agreement, may be paid to the holders of the Additional
Notes immediately prior to the making or the consummation of the Exchange Offer
regardless of any other provisions regarding record dates herein and (5) all
provisions of this Indenture shall be construed and interpreted to permit the
issuance of such Additional Notes and to allow such Additional Notes to become
fungible and interchangeable with the Initial Notes originally issued under
this Indenture (and Exchange Notes issued in exchange therefor).  Indebtedness represented by Additional Notes
shall be subject to the covenants contained herein, including, without
limitation, Section 4.10 hereof.

 

Section 2.02.                             Execution
and Authentication.

 

(a)                                  On the Issue Date,
one or more Officers of each of the Co-Obligors shall sign the Notes for the
Co-Obligors by manual or facsimile signature. 
The Trustee shall, upon a written order of the Co-Obligors signed by one
or more Officers of each of the Co-Obligors (an “Authentication Order”)
delivered to the Trustee from time to time, authenticate Notes for

 

40

 

original issue without limit as to the aggregate principal amount
thereof, subject to compliance with Section 4.07, of which $160,000,000
will be issued on the date of this Indenture.

 

(b)                                 Upon receipt of an
Authentication Order, the Trustee shall authenticate for original issue (i)
Exchange Notes in exchange for Initial Notes in an aggregate principal amount
not to exceed $160,000,000 or (ii) Exchange Notes in exchange for Additional
Notes; provided that such
Exchange Notes shall be issuable only upon the valid surrender for cancellation
of Initial Notes issued on the date hereof or Additional Notes, as the case may
be, of a like aggregate principal amount in accordance with an Exchange Offer
pursuant to an applicable Registration Rights Agreement.

 

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

 

(d)                                 A Note shall not be
valid until authenticated by the manual signature of the Trustee.  Such signature shall be conclusive evidence
that the Note has been authenticated under this Indenture.

 

(e)                                  The aggregate
principal amount of Notes which may be authenticated and delivered under this
Indenture is unlimited.

 

(f)                                    The Trustee may
appoint an authenticating agent acceptable to the Co-Obligors, to authenticate
Notes.  An authenticating agent may
authenticate Notes whenever the Trustee may do so.  Each reference in this Indenture to authentication
by the Trustee includes authentication by such agent.  An authenticating agent has the same rights
as an Agent to deal with Holders or an Affiliate of the Co-Obligors.

 

Section 2.03.                             Methods
of Receiving Payments on the Notes.

 

If a Holder of Notes has given wire transfer instructions to the Paying
Agent at least 10 Business Days before payment is due, the Co-Obligors shall
pay all principal, interest and premium, if any, on that Holder’s Notes in
accordance with those instructions.  All
other payments on Notes shall be made at the office or agency of the Paying
Agent and Registrar within the City and State of New York unless the
Co-Obligors elect to make interest payments by check mailed to the Holders at
their addresses set forth in the register of Holders.  Payments of interest to the Trustee as Paying
Agent, if the Trustee then acts as Paying Agent, with respect to any Interest
Payment Date (as defined in the Notes) shall be made by the Co-Obligors in immediately
available funds for receipt by the Trustee one Business Day prior to the such
Interest Payment Date (or in no event later than 12:30 p.m. Eastern Time on
such Interest Payment Date).

 

Section 2.04.                             Registrar
and Paying Agent.

 

(a)                                  The Co-Obligors shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (“Registrar”) and an office or agency where
Notes may be presented for payment (“Paying Agent”).  The Registrar shall keep a register of the
Notes and of their transfer and exchange. 
The Co-Obligors may appoint one or more co-registrars and one or more
additional paying agents.  The term
“Registrar” includes any co-registrar

 

41

 

and the term “Paying Agent” includes any additional paying agent.  The Co-Obligors may change any Paying Agent
or Registrar without prior notice to any Holder.  The Co-Obligors shall notify the Trustee in
writing of the name and address of any Agent not a party to this
Indenture.  If the Co-Obligors fail to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such.  The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.

 

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

 

(c)                                  The Co-Obligors
initially appoint the Trustee to act as the Registrar and Paying Agent and to
act as Custodian with respect to the Global Notes.

 

Section 2.05.                             Paying
Agent to Hold Money in Trust.

 

The Co-Obligors shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all money held by the Paying Agent for the
payment of principal or premium, if any, or interest on the Notes, and shall notify
the Trustee of any default by the Co-Obligors in making any such payment.  While any such default continues, the Trustee
may require a Paying Agent to pay all money held by it to the Trustee.  The Co-Obligors at any time may require a
Paying Agent to pay all money held by it to the Trustee.  Upon payment over to the Trustee, the Paying
Agent (if other than the Company or one of its Subsidiaries) shall have no
further liability for the money.  If the
Company or any of its Subsidiaries acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the benefit of the Holders all money held by
it as Paying Agent.  Upon any bankruptcy
or reorganization proceedings relating to either of the Co-Obligors, the
Trustee shall serve as Paying Agent for the Notes.

 

Section 2.06.                             Holder
Lists.

 

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a).  If the Trustee is not the Registrar, the
Co-Obligors shall furnish to the Trustee at least seven Business Days before
each interest payment date and at such other times as the Trustee may request
in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of the Holders of Notes and the
Co-Obligors shall otherwise comply with TIA Section 312(a).

 

Section 2.07.                             Transfer
and Exchange.

 

(a)                                  Transfer and
Exchange of Global Notes.  A Global
Note may not be transferred as a whole except by the Depositary to a nominee of
the Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.  All Global Notes shall be exchanged by the
Co-Obligors for Definitive Notes if (i) the Co-Obligors deliver to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by
the Co-Obligors within 90 days after the

 

42

 

date of such notice from the Depositary; (ii) the Co-Obligors in their
sole discretion determine that the Global Notes (in whole but not in part)
should be exchanged for Definitive Notes and deliver a written notice to such
effect to the Trustee; provided
that in no event shall the Regulation S Temporary Global Note be exchanged by
the Co-Obligors for Definitive Notes prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or (iii)
there shall have occurred and be continuing a Default or Event of Default with
respect to the Notes.  Upon the
occurrence of any of the preceding events in (i), (ii) or (iii) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee.  Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.02, 2.08
and 2.11 hereof.  Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or
any portion thereof, pursuant to this Section 2.07 or Section 2.02,
2.08 or 2.11 hereof, shall be authenticated and delivered in the form of, and
shall be, a Global Note.  Beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.07(b), (c) or (f) hereof.

 

(b)                                 Transfer and
Exchange of Beneficial Interests in the Global Notes.  The transfer and exchange of beneficial
interests in the Global Notes shall be effected through the Depositary, in
accordance with the provisions of this Indenture and the Applicable
Procedures.  Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.  Transfers of beneficial interests in the
Global Notes also shall require compliance with either subparagraph (i) or (ii)
below, as applicable, as well as one or more of the other following
subparagraphs, as applicable:

 

(i)                                     Transfer
of Beneficial Interests in the Same Global Note.  Beneficial interests in any Restricted Global
Note may be transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend; provided, however, that
prior to the expiration of the Restricted Period, transfers of beneficial
interests in the Regulation S Temporary Global Note may not be made to a
U.S.  Person or for the account or
benefit of a U.S.  Person (other than an
Initial Purchaser).  Beneficial interests
in any Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note.  No written orders or instructions
shall be required to be delivered to the Registrar to effect the transfers
described in this Section 2.07(b)(i).

 

(ii)                                  All
Other Transfers and Exchanges of Beneficial Interests in Global Notes.  In connection with all transfers and
exchanges of beneficial interests that are not subject to Section 2.07(b)(i)
above, the transferor of such beneficial interest must deliver to the Registrar
either (A) (1) a written order

 

43

 

from a
Participant or an Indirect Participant given to the Depositary in accordance
with the Applicable Procedures directing the Depositary to credit or cause to
be credited a beneficial interest in another Global Note in an amount equal to
the beneficial interest to be transferred or exchanged and (2) instructions
given in accordance with the Applicable Procedures containing information
regarding the Participant account to be credited with such increase or (B) (1)
a written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to cause to be issued a Definitive Note in an amount equal to the
beneficial interest to be transferred or exchanged and (2) instructions given
by the Depositary to the Registrar containing information regarding the Person
in whose name such Definitive Note shall be registered to effect the transfer
or exchange referred to in (1) above; provided
that in no event shall Definitive Notes be issued upon the transfer or exchange
of beneficial interests in the Regulation S Temporary Global Note prior to (x)
the expiration of the Restricted Period and (y) the receipt by the Registrar of
any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the
Securities Act.  Upon consummation of an
Exchange Offer by the Company in accordance with Section 2.07(f) hereof,
the requirements of this Section 2.07(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in the
Letter of Transmittal delivered by the Holder of such beneficial interests in
the Restricted Global Notes.  Upon
satisfaction of all of the requirements for transfer or exchange of beneficial
interests in Global Notes contained in this Indenture and the Notes or
otherwise applicable under the Securities Act, the Trustee shall adjust the
principal amount at maturity of the relevant Global Notes pursuant to
Section 2.07(i) hereof.

 

(iii)                               Transfer
of Beneficial Interests to Another Restricted Global Note.  A beneficial interest in any Restricted
Global Note may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.07(b)(ii) above and the
Registrar receives the following:

 

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

 

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

 

(iv)                              Transfer
and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial
Interests in the Unrestricted Global Note. 
A beneficial interest in any Restricted Global Note may be exchanged by
any Holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note if the exchange or transfer complies
with the requirements of Section 2.07(b)(ii) above and:

 

(A)                              such
exchange or transfer is effected pursuant to an Exchange Offer in accordance
with an applicable Registration Rights

 

44

 

Agreement and the Holder of the beneficial
interest to be transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of Transmittal that
it is not (1) a Broker-Dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;

 

(B)                                such
transfer is effected pursuant to a Shelf Registration Statement in accordance
with an applicable Registration Rights Agreement;

 

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

 

(D)                               the
Registrar receives the following:

 

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

 

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

 

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

 

If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.

 

Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.

 

45

 

(c)                                  Transfer or
Exchange of Beneficial Interests for Definitive Notes.

 

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

 

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

 

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

 

(C)                                if
such beneficial interest is being transferred to a Non-U.S.  Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications in item
(2) thereof;

 

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

 

(E)                                 if
such beneficial interest is being transferred to an Institutional Accredited
Investor in reliance on an exemption from the registration requirements of the
Securities Act other than those listed in subparagraphs (B) through (D) above,
a certificate to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item (3)
thereof, if applicable;

 

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

 

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

 

the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to
Section 2.07(i) hereof, and the Co-Obligors

 

46

 

shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount.  Any Definitive Note
issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.07(c) shall be registered in such name or names
and in such authorized denomination or denominations as the Holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant.  The Trustee shall deliver such Definitive
Notes to the Persons in whose names such Notes are so registered.  Any Definitive Note issued in exchange for a
beneficial interest in a Restricted Global Note pursuant to this Section 2.07(c)(i)
shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.

 

(ii)                                  Beneficial
Interests in Regulation S Temporary Global Note to Definitive Notes.  Notwithstanding Sections 2.07(c)(i)(A) and (C)
hereof, a beneficial interest in the Regulation S Temporary Global Note may not
be exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the expiration
of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities
Act, except in the case of a transfer pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 903 or Rule
904.

 

(iii)                               Beneficial
Interests in Restricted Global Notes to Unrestricted Definitive Notes.  A Holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note only if:

 

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

 

(B)                                such
transfer is effected pursuant to a Shelf Registration Statement in accordance
with an applicable Registration Rights Agreement;

 

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

 

(D)                               the
Registrar receives the following:

 

47

 

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

 

(2)                                  if
the Holder of such beneficial interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who shall take delivery thereof
in the form of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;

 

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

 

(iv)                              Beneficial
Interests in Unrestricted Global Notes to Unrestricted Definitive Notes.  If any Holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Definitive Note, then, upon satisfaction of
the conditions set forth in Section 2.07(b)(ii) hereof, the Trustee shall
cause the aggregate principal amount of the applicable Global Note to be
reduced accordingly pursuant to Section 2.07(i) hereof, and the
Co-Obligors shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount.  Any Definitive Note
issued in exchange for a beneficial interest pursuant to this
Section 2.07(c)(iv) shall be registered in such name or names and in such
authorized denomination or denominations as the Holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. 
The Trustee shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered.  Any
Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.07(c)(iv) shall not bear the Private Placement Legend.

 

(d)                                 Transfer and
Exchange of Definitive Notes for Beneficial Interests.

 

(i)                                     Restricted
Definitive Notes to Beneficial Interests in Restricted Global Notes.  If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted Global
Note or to transfer such Restricted Definitive Notes to a Person who takes
delivery thereof in the form of a

 

48

 

beneficial
interest in a Restricted Global Note, then, upon receipt by the Registrar of
the following documentation:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

the Trustee
shall cancel the Restricted Definitive Note, increase or cause to be increased
the aggregate principal amount of, in the case of clause (A) above, the
appropriate Restricted Global Note, in the case of clause (B) above, the 144A
Global Note, and in the case of clause (C) above, the Regulation S Global Note
and in all other cases the IAI Global Note.

 

(ii)                                  Restricted
Definitive Notes to Beneficial Interests in Unrestricted Global Notes.  A Holder of a Restricted Definitive Note may
exchange such Note

 

49

 

for a
beneficial interest in an Unrestricted Global Note or transfer such Restricted
Definitive Note to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note only if:

 

(A)                              such
exchange or transfer is effected pursuant to an Exchange Offer in accordance
with an applicable Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;

 

(B)                                such
transfer is effected pursuant to a Shelf Registration Statement in accordance
with an applicable Registration Rights Agreement;

 

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

 

(D)                               the
Registrar receives the following:

 

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

 

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

 

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

 

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

 

(iii)                               Unrestricted
Definitive Notes to Beneficial Interests in Unrestricted Global Notes.  A Holder of an Unrestricted Definitive Note
may

 

50

 

exchange such
Note for a beneficial interest in an Unrestricted Global Note or transfer such
Definitive Notes to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note at any time.  Upon receipt of a request for such an
exchange or transfer, the Trustee shall cancel the applicable Unrestricted
Definitive Note and increase or cause to be increased the aggregate principal
amount of one of the Unrestricted Global Notes.

 

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

 

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

 

(i)                                     Restricted
Definitive Notes to Restricted Definitive Notes.  Any Restricted Definitive Note may be
transferred to and registered in the name of Persons who take delivery thereof
in the form of a Restricted Definitive Note if the Registrar receives the
following:

 

(A)                              if
the transfer shall be made pursuant to Rule 144A under the Securities Act, then
the transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;

 

(B)                                if
the transfer shall be made pursuant to Rule 903 or Rule 904, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof; and

 

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

 

(ii)                                  Restricted
Definitive Notes to Unrestricted Definitive Notes.  Any Restricted Definitive Note may be
exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred
to a Person or Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:

 

51

 

(A)                              such
exchange or transfer is effected pursuant to an Exchange Offer in accordance
with an applicable Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;

 

(B)                                any
such transfer is effected pursuant to a Shelf Registration Statement in
accordance with an applicable Registration Rights Agreement;

 

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

 

(D)                               the
Registrar receives the following:

 

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

 

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

 

and, in each
such case set forth in this subparagraph (D), if the Registrar so requests, an
Opinion of Counsel in form reasonably acceptable to the Company to the effect
that such exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.

 

(iii)                               Unrestricted
Definitive Notes to Unrestricted Definitive Notes.  A Holder of Unrestricted Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note.  Upon
receipt of a request to register such a transfer, the Registrar shall register
the Unrestricted Definitive Notes pursuant to the instructions from the Holder
thereof.

 

(f)                                    Exchange Offer.  Upon the occurrence of an Exchange Offer in
accordance with an applicable Registration Rights Agreement, the Co-Obligors
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
the beneficial interests in the Restricted Global Notes tendered for acceptance
by Persons that certify in the applicable Letters of Transmittal that (x) they
are not

 

52

 

Broker-Dealers, (y) they are
not participating in a distribution of the Exchange Notes and (z) they are not
affiliates (as defined in Rule 144) of the Company, and accepted for exchange
in such Exchange Offer and (ii) Definitive Notes in an aggregate principal
amount equal to the principal amount of the Restricted Definitive Notes
accepted for exchange in such Exchange Offer. 
Concurrently with the issuance of such Notes, the Trustee shall cause
the aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Co-Obligors shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Definitive Notes in the appropriate principal amount.  Any Notes that remain outstanding after the
consummation of an Exchange Offer, and Exchange Notes issued in connection with
an Exchange Offer, shall be treated as a single class of securities under this
Indenture.

 

(g)           Legends.  The following legends shall appear on the
face of all Global Notes and Definitive Notes issued under this Indenture
unless specifically stated otherwise in the applicable provisions of this Indenture.

 

(i)            Private
Placement Legend.  Except as
permitted below, each Global Note and each Definitive Note (and all Notes
issued in exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:

 

THIS NOTE AND THE GUARANTEES ENDORSED HEREON
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAWS. 
NEITHER THIS NOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.  THE
HOLDER OF THIS NOTE AND THE GUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCE
HEREOF, AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT
THAT THE NOTES AND GUARANTEES MAY BE TRANSFERRED (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES AND THE GUARANTEES ENDORSED
THEREON ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
(“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED
INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN
OFFSHORE TRANSACTIONS WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES
ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION

 

53

 

REQUIREMENTS OF THE SECURITIES ACT, SUBJECT
TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (1) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY DISTRIBUTION
COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT
OR PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (2) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE.

 

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

 

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

 

(ii)           Global
Note Legend.  Each Global Note shall
bear a legend in substantially the following form:

 

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY
(AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR
THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH
NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE,
(2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO
SECTION 2.07(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12 OF THE INDENTURE AND (4) THIS
GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.

 

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

 

THE RIGHTS
ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND
PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS SPECIFIED IN THE
INDENTURE (AS DEFINED HEREIN).

 

54

 

(i)            Cancellation
and/or Adjustment of Global Notes. 
At such time as all beneficial interests in a particular Global Note
have been exchanged for Definitive Notes or a particular Global Note has been
redeemed, repurchased or canceled in whole and not in part, each such Global
Note shall be returned to or retained and canceled by the Trustee in accordance
with Section 2.12 hereof.  At any time
prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for or transferred to a Person who shall take delivery thereof in the
form of a beneficial interest in another Global Note or for Definitive Notes,
the principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such reduction;
and if the beneficial interest is being exchanged for or transferred to a
Person who shall take delivery thereof in the form of a beneficial interest in
another Global Note, such other Global Note shall be increased accordingly and
an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

 

(i)            General
Provisions Relating to Transfers and Exchanges.

 

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

 

(ii)           No
service charge shall be made to a Holder of a beneficial interest in a Global
Note or to a Holder of a Definitive Note for any registration of transfer or
exchange, but the Co-Obligors may require payment of a sum sufficient to cover
any transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.11, 3.06, 3.09, 4.11, 4.15, 4.20
and 9.05 hereof).

 

(iii)          The
Registrar shall not be required to register the transfer of or exchange any
Note selected for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part.

 

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

 

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

 

55

 

(vi)          Prior
to due presentment for the registration of a transfer of any Note, the Trustee,
any Agent and the Co-Obligors may deem and treat the Person in whose name any
Note is registered as the absolute owner of such Note for the purpose of
receiving payment of principal of and interest on such Notes and for all other
purposes, and none of the Trustee, any Agent or the Co-Obligors shall be
affected by notice to the contrary.

 

(vii)         The
Trustee shall authenticate Global Notes and Definitive Notes in accordance with
the provisions of Section 2.02 hereof.

 

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

 

Section 2.08.          Replacement
Notes.

 

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

 

(b)           Every
replacement Note is an additional obligation of the Co-Obligors and shall be
entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.

 

Section 2.09.          Outstanding
Notes.

 

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

 

(b)           If
a Note is replaced pursuant to Section 2.08 hereof, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a protected purchaser.

 

(c)           If
the principal amount of any Note is considered paid under Section 4.01 hereof,
it ceases to be outstanding and interest on it ceases to accrue.

 

(d)           If
the Paying Agent (other than the Company, a Subsidiary of the Company or an
Affiliate of any of the foregoing) holds, on a redemption date or maturity
date,

 

56

 

money sufficient to pay Notes
payable on that date, then on and after that date such Notes shall be deemed to
be no longer outstanding and shall cease to accrue interest.

 

Section 2.10.          Treasury
Notes.

 

In determining
whether the Holders of the required principal amount of Notes have concurred in
any direction, waiver or consent, Notes owned by the Company, or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company, shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes that
the Trustee knows are so owned shall be so disregarded.

 

Section 2.11.          Temporary
Notes.

 

(a)           Until
certificates representing Notes are ready for delivery, the Co-Obligors may
prepare and the Trustee, upon receipt of an Authentication Order, shall
authenticate temporary Notes.  Temporary
Notes shall be substantially in the form of Definitive Notes but may have
variations that the Co-Obligors consider appropriate for temporary Notes and as
shall be reasonably acceptable to the Trustee. 
Without unreasonable delay, the Co-Obligors shall prepare and the
Trustee shall authenticate Definitive Notes in exchange for temporary Notes.

 

(b)           Holders
of temporary Notes shall be entitled to all of the benefits of this Indenture.

 

Section 2.12.          Cancellation.

 

The
Co-Obligors at any time may deliver Notes to the Trustee for cancellation.  The Registrar and Paying Agent shall forward
to the Trustee any Notes surrendered to them for registration of transfer,
exchange or payment.  The Trustee and no
one else shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall dispose of canceled
Notes in accordance with its procedures for the disposition of canceled
securities in effect as of the date of such disposition (subject to the record
retention requirement of the Exchange Act). 
Certification of the disposition of all canceled Notes shall be delivered
to the Co-Obligors.  The Co-Obligors may
not issue new Notes to replace Notes that they have paid or that have been
delivered to the Trustee for cancellation.

 

Section 2.13.          Defaulted
Interest.

 

If the
Co-Obligors default in a payment of interest on the Notes, they shall pay the
defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on the record
date for the interest payment or a subsequent special record date, in each case
at the rate provided in the Notes and in Section 4.01 hereof.  The Co-Obligors shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. 
The Co-Obligors shall fix or cause to be fixed each such special record
date and payment date, provided
that no such special record date shall be less than 10 days prior to the
related payment date for such defaulted interest.  At least 15 days before the special record
date, the Co-Obligors (or, upon the written

 

57

 

request of the Co-Obligors, the
Trustee in the name and at the expense of the Co-Obligors) shall mail or cause
to be mailed to Holders a notice that states the special record date, the
related payment date and the amount of such interest to be paid.

 

Section 2.14.          CUSIP
Numbers.

 

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

 

ARTICLE THREE

Redemption and Prepayment;

Satisfaction and Discharge

 

Section 3.01.          Notices
to Trustee.

 

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

 

Section 3.02.          Selection
of Notes to Be Redeemed.

 

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

 

(b)           The
Trustee shall promptly notify the Co-Obligors in writing of the Notes selected
for redemption and, in the case of any Note selected for partial redemption,
the principal amount at maturity thereof to be redeemed.  No Notes in amounts of $1,000 or less shall
be redeemed in part.  The Trustee may
select for redemption portions of the principal of Notes that have denominations
larger than $1,000.  Notes and portions
of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000 in
excess thereof; except that if all of the Notes of a Holder are to be redeemed,
the entire outstanding amount of Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. 
Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to

 

58

 

portions of Notes called for
redemption.  Redemptions pursuant to
Section 3.07(b) hereof shall be made on a pro
rata basis or on as nearly a pro
rata basis as practicable (subject to the provisions of DTC or other
depositary).

 

Section 3.03.          Notice
of Redemption.

 

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

 

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

 

(i)            the
redemption date;

 

(ii)           the
redemption price;

 

(iii)          if
any Note is being redeemed in part, the portion of the principal amount at
maturity of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion of the original Note shall be issued in the name of the
Holder thereof upon cancellation of the original Note;

 

(iv)          the
name and address of the Paying Agent;

 

(v)           that
Notes called for redemption must be surrendered to the Paying Agent to collect
the redemption price and become due on the date fixed for redemption;

 

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

 

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

 

(viii)        that
no representation is made as to the correctness or accuracy of the CUSIP
number, if any, listed in such notice or printed on the Notes.

 

(b)           At
the Co-Obligors’ request, the Trustee shall give the notice of redemption in
the Co-Obligors’ name and at its expense; provided, however, that the Co-Obligors shall have delivered to the
Trustee, at least 31 days prior to the redemption date (unless the Trustee
shall have agreed to a shorter period), an Officers’ Certificate requesting
that the Trustee give such notice and setting forth the information to be
stated in such notice as provided in the preceding paragraph.  The notice, if mailed in the manner provided
herein shall be presumed to have been given, whether or not the Holder receives
such notice.

 

59

 

Section 3.04.          Effect
of Notice of Redemption.

 

(a)           Once
notice of redemption is mailed in accordance with Section 3.03 hereof, Notes
called for redemption become irrevocably due and payable on the redemption date
at the redemption price.  A notice of
redemption may not be conditional other than in the case of a Change of Control
Offer pursuant to Section 4.20 herein.

 

Section 3.05.          Deposit
of Redemption Price.

 

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

 

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

 

Section 3.06.          Notes
Redeemed in Part.

 

Upon surrender
of a Note that is redeemed in part, the Co-Obligors shall issue and the Trustee
shall authenticate for the Holder at the expense of the Co-Obligors a new Note
equal in principal amount to the unredeemed portion of the Note
surrendered.  No Notes in denominations
of $1,000 or less shall be redeemed in part.

 

Section 3.07.          Optional
Redemption.

 

(a)           After
December 15, 2006, the Co-Obligors, on one or more occasions, may redeem for
cash all or a portion of the Notes, on not less than 30 nor more than 90 days’
prior notice, in amounts of $1,000 or whole multiples of $1,000 in excess thereof
at the following redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and additional
interest, if any, thereon, to the applicable redemption date, if redeemed
during the twelve-month period beginning on December 15 of the years indicated
below:

 

60

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2006

  	
   

  	
  102.00

  	
  %

  
	
  2007

  	
   

  	
  101.00

  	
  %

  
	
  2008 and thereafter

  	
   

  	
  100.00

  	
  %

  

 

(b)           At
any time after the Issue Date and prior to December 15, 2006, the Company, DRS
LLC or Holdings, at the Company’s option, may use the net proceeds of one or
more Equity Offerings to redeem on one or more occasions up to an aggregate of
35% of the aggregate principal amount of Notes issued under this Indenture
(including the principal amount of any Additional Notes issued under this
Indenture but without duplication with respect to Exchange Notes) at a
redemption price equal to 100% of the aggregate principal amount of the Notes
redeemed, plus a premium equal to the interest rate per annum on the Notes
applicable on the date on which notice is given, plus accrued and unpaid
interest, if any, to the redemption date (subject to the rights of holders of
record on relevant record dates to receive interest due on an interest payment
date); provided that this
redemption provision shall not be applicable with respect to any transaction
that results in a Change of Control; provided,
further, that if the proceeds of an Equity Offering are used for
redemption, all of such proceeds are first contributed to the equity capital of
the Company on a non-recourse basis. At least 65% of the aggregate principal
amount of Notes (including the principal amount of any Additional Notes issued
under this Indenture but without duplication with respect to Exchange Notes)
must remain outstanding immediately after the occurrence of such redemption. In
order to effect this redemption, the Company, DRS LLC or Holdings, as the case
may be, must complete such redemption within 90 days after the closing of the
Equity Offering.

 

(c)           Any
redemption pursuant to this Section 3.07 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.

 

Section 3.08.          Mandatory
Redemption.

 

The
Co-Obligors are not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

 

Section 3.09.          Application
of Trust Money.

 

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

 

61

 

Section 3.10.          Option
to Purchase.

 

Upon or after
the occurrence of an Event of Default or event of default under any Term Loan
Agreement and the acceleration of any Note/Term Obligations, persons designated
by the Revolving Credit Agent shall have the option to purchase all of the
Notes. The purchase price for the Notes shall be the full amount of such Notes
outstanding (including principal, interest, fees and expenses, including
reasonable attorneys’ fees and legal expenses but excluding any premium). The
terms and procedure for such a purchase shall be as set forth in the
Intercreditor Agreement. Such a repurchase may occur notwithstanding the
limitations on optional redemptions of Notes set forth below. Similarly,
Holders of the Notes may purchase Revolving Loan Obligations under similar
circumstances and at similar terms.

 

ARTICLE FOUR

Covenants

 

Section 4.01.          Payment
of Notes.

 

(a)           The
Co-Obligors shall pay or cause to be paid the principal of, premium, if any,
and interest on the Notes on the dates and in the manner provided in the
Notes.  Interest on the Notes shall be
computed as set forth in the Notes. 
Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or one of its
Subsidiaries, holds as of 1:00 p.m. New York Time on the due date money
deposited by the Co-Obligors in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest on the Notes
then due.  The Co-Obligors shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement. 
If a payment date is not a Business Day, payment may be made on the next
succeeding day that is a Business Day, and no interest shall accrue on such
payment for the intervening period.

 

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

 

Section 4.02.          Maintenance
of Office or Agency.

 

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

 

62

 

 

(b)           The
Co-Obligors may also from time to time designate one or more other offices or
agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Co-Obligors of their obligation to maintain an
office or agency in the Borough of Manhattan, The City of New York for such
purposes.  The Co-Obligors shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.

 

(c)           The
Co-Obligors hereby designate the office of U.S. Bank Trust National Association
at 100 Wall Street, Suite 1600, New York, New York  10005 as one such office or agency of the
Co-Obligors in accordance with Section 2.04 of this Indenture.

 

Section 4.03.          Reports.

 

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

 

(b)           If
at any time the Notes are Guaranteed by a direct or indirect parent of the
Company, including Holdings and such company has complied with the reporting
requirements of Section 13 or 15(d) of the Exchange Act, if applicable, and has
furnished the Holders of Notes, or filed electronically with the Commission’s
Electronic Data Gathering, Analysis and Retrieval System (or any successor
system), the reports described herein with respect to such company, as
applicable (including any financial information required by Regulation S-X
under the Securities Act relating to the Company, Duane Reade GP and the
Guarantors), the Company, Duane Reade GP and the Guarantors shall be deemed to
be in compliance with the provisions of this Section 4.03.

 

(c)           The
Company, Duane Reade GP and any Guarantor shall also in any event (1) within 15
days after each Required Filing Date (A) transmit by mail to all Holders, as
their names and addresses appear in the security register, without cost to such
Holders and (B) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company, Duane Reade GP and such
Guarantor would have been required to file with the Commission pursuant to
Sections 13(a) or 15(d) of the Exchange Act (giving effect to Rule 12h-5 under
the Exchange Act) if the Company, Duane Reade GP and such Guarantor were
subject to either of such Sections and (2) if filing such documents by the
Company, Duane Reade GP and such Guarantor with the Commission is not permitted
under the Exchange Act, or prior to the Exchange Offer or the effectiveness of
a Shelf Registration Statement promptly upon written

 

63

 

request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
holder at the Company’s cost.

 

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

 

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

 

Section 4.04.          Compliance
Certificate.

 

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

 

(b)           If
required under Section 314(a) of the TIA, the year-end financial statements
delivered pursuant to Section 4.03(a) above shall be accompanied by a written
statement of the Co-Obligors’ independent public accountants (which shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Co-Obligors have
violated any provisions of this Article Four or Article Five hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.

 

(c)           The
Co-Obligors shall, so long as any of the Notes are outstanding, deliver to the
Trustee, within five Business Days after any Officer becomes aware of any
Default or

 

64

 

Event of Default, an Officers’ Certificate
specifying such Default or Event of Default and what action the Co-Obligors are
taking or propose to take with respect thereto.

 

Section 4.05.          Taxes.

 

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

 

Section 4.06.          Stay,
Extension and Usury Laws.

 

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

 

Section 4.07.          Incurrence
of Indebtedness and Issuance of Disqualified Stock.

 

(a)           The
Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in any
manner become directly or indirectly liable for the payment of or otherwise
incur, contingently or otherwise (collectively, “incur”), any Indebtedness
(including any Acquired Indebtedness and the issuance of Disqualified Stock),
unless such Indebtedness is incurred by the Company, Duane Reade GP or any
Subsidiary Guarantor and, in each case, the Company’s Consolidated Fixed Charge
Coverage Ratio for the most recent four full fiscal quarters for which
financial statements are available immediately preceding the incurrence of such
Indebtedness taken as one period is at least equal to or greater than 2:1.

 

(b)           Notwithstanding
the foregoing, the Company and, to the extent specifically set forth below, the
Restricted Subsidiaries may incur on or after the Issue Date each and all of
the following (collectively, the “Permitted Indebtedness”):

 

(1)           Indebtedness
of the Company or Duane Reade GP (and guarantees by Guarantors of such
Indebtedness) under the Revolving Credit Agreement in an aggregate principal
amount at any one time outstanding not to exceed the greater of (i) $245.0
million and (ii) (x) 85% of accounts receivable of the Company and its
Restricted Subsidiaries as of the end of the most recently ended fiscal quarter
for which consolidated financial statements are available, plus (y) 80% of
inventory of the Company and its Restricted Subsidiaries as of the end of the
most recently ended fiscal quarter for which consolidated financial statements
are available, less, in the case of clause (i) and clause (ii), without
duplication, the amount of any permanent repayments thereof or permanent
reductions in commitments thereunder from the

 

65

 

proceeds of one or more Asset Sales which are
used to prepay or repay the Revolving Credit Agreement, pursuant to clause
(b)(1) of Section 4.11 hereof;

 

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

 

(3)           Indebtedness
of the Company, Duane Reade GP or any Subsidiary Guarantor outstanding on the
Issue Date, including the Existing Notes, and not otherwise referred to in this
definition of “Permitted Indebtedness;”

 

(4)           the
incurrence by the Company or any of its Restricted Subsidiaries of intercompany
Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however,
that:

 

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

 

(b)           (i) any subsequent
issuance or transfer of Capital Stock that results in any such Indebtedness
being held by a Person other than the Company or a Restricted Subsidiary
thereof and (ii) any disposition, pledge or other transfer to a Person (other
than a disposition, pledge or transfer to the Company or a Restricted
Subsidiary or a disposition, pledge or transfer under the Revolving Credit
Agreement or the Term Loan Agreement and these Notes) of any such Indebtedness,
shall be deemed, in each case, to constitute an incurrence of such Indebtedness
by the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (4);

 

(5)           guarantees
of any Subsidiary Guarantor or Duane Reade GP of Indebtedness of the Company,
Duane Reade GP or any of the Subsidiary Guarantors which is permitted to be
incurred under this Indenture;

 

(6)           obligations
of the Company, Duane Reade GP, or any Subsidiary Guarantor not entered into
for speculative purposes

 

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

 

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

 

66

 

Indebtedness or other obligations of the
Company, Duane Reade GP or any Subsidiary Guarantor outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder or

 

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

 

(7)           Indebtedness
of the Company or any Restricted Subsidiary represented by Capital Lease
Obligations (whether or not incurred pursuant to sale and leaseback transactions)
or Purchase Money Obligations or other Indebtedness incurred or assumed in
connection with the acquisition or development of real or personal, movable or
immovable, property in each case incurred for the purpose of financing or
refinancing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or any Restricted
Subsidiary, in an aggregate principal amount pursuant to this clause (7),
together with any Refinancing Indebtedness (including in the form of Additional
Notes) incurred in respect thereof, not to exceed the greater of (x) $15
million and (y) 6% of Consolidated Net Tangible Assets, outstanding at any
time;

 

(8)           Indebtedness
of the Company or any Restricted Subsidiary arising from the honoring by a bank
or other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however, that such Indebtedness
is extinguished within five Business Days after incurrence;

 

(9)           Indebtedness
of the Company or any Restricted Subsidiary to the extent the net proceeds
thereof are promptly deposited to defease the Notes as described below under
Article Eight or Article Twelve hereof;

 

(10)         Indebtedness
of the Company or any Restricted Subsidiary arising from agreements for
indemnification or purchase price adjustment obligations or similar
obligations, earn-outs or other similar obligations or from guarantees or letters
of credit, surety bonds or performance bonds securing any obligation of the
Company or a Restricted Subsidiary pursuant to such an agreement, in each case,
incurred or assumed in connection with the acquisition or disposition of any
business, assets or Capital Stock of a Restricted Subsidiary; provided that the maximum assumable
liability in respect of all such obligations shall at no time exceed the gross
proceeds actually paid or received by the Company and any Restricted
Subsidiary, including the Fair Market Value of non-cash proceeds;

 

(11)         any
renewals, extensions, substitutions, refundings, refinancings or replacements
(collectively, “Refinancing Indebtedness”) of any Indebtedness, including any
Disqualified Capital Stock, incurred pursuant to paragraph (a) of this Section
4.07 and clauses (2) and (3) of this paragraph (b) of this definition of
“Permitted Indebtedness,” including any successive refinancings so long as the
borrower under such refinancing is the Company (which may be a borrower together
with Duane Reade GP or one or more co-obligors which are also Subsidiary
Guarantors) or, if not the Company, one or more Subsidiary Guarantors or Duane

 

67

 

Reade GP if the Indebtedness being refinanced
is of a Subsidiary Guarantor or Duane Reade GP, and the aggregate principal
amount of Indebtedness represented thereby (or if such Indebtedness provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the maturity thereof, the original issue price
of such Indebtedness plus any accreted value attributable thereto since the
original issuance of such Indebtedness) is not increased by such refinancing
plus the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing and (1) in the case of any
refinancing of Indebtedness that is Subordinated Indebtedness, such new
Indebtedness is made subordinated in right of payment to the Notes or
Guarantee, as the case may be, at least to the same extent as the Indebtedness
being refinanced and (2) in the case of Pari Passu Indebtedness or Subordinated
Indebtedness, as the case may be, such refinancing does not reduce the Average
Life to Stated Maturity or the Stated Maturity of such Indebtedness or has a
Stated Maturity later than that of the Notes;

 

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

 

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

 

(14)         Indebtedness
arising in connection with endorsement of instruments for deposit in the
ordinary course of business; and

 

(15)         Indebtedness
of the Company or any Restricted Subsidiary in addition to that described in
clauses (1) through (14) above, and any renewals, extensions, substitutions,

 

68

 

refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness shall not exceed $25 million outstanding at any one time in the
aggregate.

 

(c)           For
purposes of determining compliance with this Section 4.07, in the event that an
item of Indebtedness or portion thereof meets the criteria of more than one of
the types of Indebtedness permitted by this Section 4.07, the Company in its
sole discretion shall classify or reclassify such item of Indebtedness or
portion thereof as one or more of such types; provided
that Indebtedness under the Revolving Credit Agreement which is in existence on
the Issue Date in an amount not in excess of the amount permitted to be
incurred pursuant to clause (1) of paragraph (b) above, shall be deemed to have
been incurred pursuant to clause (1) of paragraph (b) above rather than paragraph
(a) above.

 

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

 

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

 

(f)            For
purposes of determining compliance with any dollar-denominated restriction on
the incurrence of Indebtedness denominated in a foreign currency, the
dollar-equivalent principal amount of such Indebtedness incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was incurred.

 

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

 

Section 4.08.          Restricted
Payments.

 

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

 

(i)            declare
or pay any dividend on, or make any distribution to holders of, any shares of
the Company’s Capital Stock (other than dividends or distributions payable
solely in shares of its Qualified Capital Stock or in options, warrants or
other rights to acquire shares of such Qualified Capital Stock);

 

(ii)           purchase,
redeem, defease or otherwise acquire or retire for value, directly or
indirectly, the Company’s Capital Stock or any Capital Stock of any direct or
indirect parent of the Company or any Subsidiary of such direct or indirect
parent or the Company (other than Capital Stock of any Restricted

 

69

 

Subsidiary of the Company) or options, warrants or other rights to
acquire such Capital Stock;

 

(iii)          make
any principal payment on, or repurchase, redeem, defease, retire or otherwise
acquire for value, prior to any scheduled principal payment, sinking fund
payment or maturity, any Subordinated Indebtedness, except a purchase,
repurchase, redemption, defeasance or retirement within 90 days of final
maturity thereof;

 

(iv)          declare
or pay any dividend or distribution on any Capital Stock of any Restricted
Subsidiary to any Person (other than (a) to the Company or any of its Wholly
Owned Restricted Subsidiaries or (b) dividends or distributions made by a
Restricted Subsidiary on a pro rata
basis to all stockholders of such Restricted Subsidiary); or

 

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

 

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

 

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

 

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

 

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

 

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

 

(B)           the
aggregate Net Cash Proceeds received after the Acquisition Closing Date by the
Company either (1) as capital contributions in the form of common equity to the
Company or (2) in respect of the issuance or sale (other than to any of its Subsidiaries)
of Qualified Capital Stock of the Company or any options, warrants or rights to
purchase such Qualified Capital Stock of the Company (except, in each case, to
the extent such proceeds are used to purchase, redeem or otherwise retire
Capital Stock or Subordinated Indebtedness as set forth

 

70

 

below in clause (2) or (3) of paragraph (b)
below) (and excluding the Net Cash Proceeds from the issuance of Qualified
Capital Stock financed, directly or indirectly, using funds borrowed from the
Company or any Subsidiary until and to the extent such borrowing is repaid);

 

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

 

(D)          the
aggregate Net Cash Proceeds received after the Acquisition Closing Date by the
Company from the conversion or exchange, if any, of debt securities or
Disqualified Capital Stock of the Company or its Restricted Subsidiaries into
or for Qualified Capital Stock of the Company plus, to the extent such debt
securities or Disqualified Capital Stock were issued after the Acquisition
Closing Date, the aggregate of Net Cash Proceeds received from their original
issuance (and excluding the Net Cash Proceeds from the conversion or exchange
of debt securities or Disqualified Capital Stock financed, directly or
indirectly, using funds borrowed from the Company or any Subsidiary until and
to the extent such borrowing is repaid);

 

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

 

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

 

71

 

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

 

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

 

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

 

(2)           the
purchase, repurchase, redemption, or other acquisition or retirement for value
of any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right or
privilege in connection with which cash is paid in lieu of the issuance of
fractional shares or scrip), or out of the Net Cash Proceeds of an issuance and
sale for cash (other than to a Subsidiary of the Company) of, other shares of
Qualified Capital Stock of the Company, which issuance or sale occurs
substantially concurrently with, or within 60 days of, such purchase,
repurchase or other acquisition or retirement; provided
that the Net Cash Proceeds from the issuance of such shares of Qualified
Capital Stock are excluded from clause (3)(B) of paragraph (a) of this Section
4.08;

 

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

 

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

 

72

 

(5)           the
purchase, repurchase, redemption, or other acquisition or retirement for value
of Disqualified Capital Stock of the Company made by exchange for, or out of
the proceeds of the sale of within 60 days of Disqualified Capital Stock; provided that any such new Disqualified
Capital Stock is issued in accordance with paragraph (a) of Section 4.07 hereof
and has an aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced plus the amount of premium
or other payment actually paid at such time to refinance such Disqualified
Capital Stock and the amount of expenses of the Company incurred in connection
with such refinancing;

 

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

 

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

 

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

 

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

 

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

 

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

 

73

 

(7)           any
transaction in connection with the Acquisition as described in the Offering
Memorandum, dated as of July 23, 2004, relating to the Existing Notes;

 

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

 

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

 

(10)         repurchase
of Capital Stock deemed to occur upon the cashless exercise of stock options
and warrants;

 

(11)         the
declaration and payment of dividends and distributions to holders of any class
or series of Disqualified Capital Stock of the Company or a Restricted
Subsidiary issued or incurred in accordance with Section 4.07 hereof, which
dividends and/or distributions are included in the calculation of Consolidated
Interest Expense for the relevant period;

 

(12)         any
purchase, redemption, retirement, defeasance or other acquisition for value of
any Subordinated Indebtedness pursuant to the provisions of such Subordinated
Indebtedness upon a Change of Control or an Asset Sale after the Company shall
have complied with the provisions of Section 4.11 or Section 4.20 hereof, as
the case may be; and

 

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

 

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

 

Section 4.09.          Transactions
with Affiliates.

 

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

 

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

 

74

 

(2)           with
respect to any transaction or series of related transactions involving
aggregate value in excess of $5 million,

 

(a)           the
material terms of the transaction or series of related transactions are set
forth in writing, and the Company delivers an Officers’ Certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (1) above, and

 

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

 

(3)           with
respect to any transaction or series of related transactions involving
aggregate value in excess of $25 million, the material terms of the transaction
or series of related transactions are set forth in writing, and the Company
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that either the
financial terms of the transaction or series of related transactions are fair
to the Company or such Restricted Subsidiary from a financial point of view or
the transaction or series of related transactions are on terms not less
favorable to the Company or such Restricted Subsidiary than could reasonably be
expected to be obtained at the time in an arm’s length transaction with a
Person who was not an Affiliate of the Company;

 

(b)           However,
paragraph (a) above shall not apply to:

 

(1)           employee
benefit arrangements (including for the payment of reasonable fees and
compensation) with any employee, consultant, officer or director of the
Company, including under any stock option or stock incentive plans, and
customary indemnification arrangements with such persons, in each case entered
into in the ordinary course of business or approved by the Board of Directors
of the Company;

 

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

 

(3)                                  any issuance of
Qualified Capital Stock;

 

(4)           transactions
involving the Company or any of its Restricted Subsidiaries on the one hand,
and the Equity Investors or any of their Affiliates, on the other hand, in
connection with (x) the Acquisition and transactions related thereto, (y) the
Revolving Credit Agreement, the Existing Notes, the Notes and any amendment,
modification, supplement, extension, refinancing, replacement, work-out,
restructuring and other transactions related to any of the foregoing, or (z)
any management, financial advisory,

 

75

 

financing, underwriting or placement services
or any other investment banking, banking or similar services, that are either
disclosed in the Offering Memorandum or approved by a majority of the
Disinterested Directors of the Board of Directors of the Company;

 

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

 

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

 

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

 

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

 

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

 

(10)         transactions
pursuant to the Stockholders and Registration Rights Agreement as in effect on the
Issue Date as the same may be amended from time to time in any manner not
materially less favorable taken as a whole to the Holders of the Notes.

 

Section 4.10.          Liens.

 

(a)           The
Company shall not, and shall not cause or permit any Restricted Subsidiary to,
directly or indirectly, create, incur or affirm any Lien (other than Permitted
Liens) of any kind securing any Indebtedness (including any assumption,
guarantee or other liability with respect thereto by any Restricted Subsidiary)
upon any property or assets (including any intercompany notes) of the Company
or any Restricted Subsidiary owned on the Issue Date or acquired after the
Issue Date, or assign or convey any right to receive any income or profits
therefrom.

 

Section 4.11.          Asset
Sales.

 

(a)           The
Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (1) at
least 75% of the consideration from such Asset Sale is received in cash or Cash
Equivalents and (2) the Company

 

76

 

or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (with respect to an Asset Sale involving Primary Collateral that consists
of a trademark in excess of $5 million, as determined by an appraisal
report of an independent appraiser) of the shares or assets subject to such
Asset Sale.

 

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

 

(b)           All
or a portion of the Net Cash Proceeds of any Asset Sale may be applied by the
Company or a Restricted Subsidiary, to the extent the Company or such
Restricted Subsidiary elects (or is required by the terms of any Indebtedness
under the Revolving Credit Agreement, the Term Loan Agreement or other Senior Indebtedness)
to:

 

(1)           with
respect to any Asset Sale, whether or not involving Collateral, (A) invest in
the purchase of assets (other than securities) to be used by the Company or any
Restricted Subsidiary in a Permitted Business, (B) acquire Equity Interests
in a Person that is a Restricted Subsidiary or in a Person engaged in a
Permitted Business that shall become a Restricted Subsidiary immediately upon
the consummation of such acquisition provided, that, in the case of assets or
Equity Interests acquired by the Company, Duane Reade GP or a Guarantor as
described in (A) and/or (B), the relevant party must execute such collateral
documents as are required by the Collateral Documents or (C) a combination of
(A) and (B); provided that any
Net Cash Proceeds received in the form of Qualified Non-Cash Proceeds shall be
deemed an application of such Net Cash Proceeds in accordance with this clause
(1); provided, further, that the
Company or such Restricted Subsidiary shall be deemed to have applied Net Cash
Proceeds in accordance with this clause (1) within such 365-day period if,
within such 365-day period, it has entered into a binding commitment or
agreement to invest such Net Cash Proceeds and continues to use all reasonable
efforts to so apply such Net Cash Proceeds as soon as practicable thereafter,
and that upon any abandonment or termination of such commitment or agreement
after such 365-day period, the Net Cash Proceeds not applied will constitute
Excess Proceeds. In addition, following the entering into of a binding
agreement with respect to an Asset Sale and prior to the consummation thereof,
cash (whether or not actual Net Cash Proceeds of such Asset Sale) used for the
purposes described in

 

77

 

subclauses (A), (B) and (C) of this clause (1) that are designated as
uses in accordance with this clause (1), and not previously or subsequently so
designated in respect of any other Asset Sale, shall be deemed to be Net Cash
Proceeds applied in accordance with this clause (1);

 

(2)           with respect to Net
Cash Proceeds of an Asset Sale of any asset that constitutes Collateral, prepay
permanently or repay permanently any Indebtedness secured by such Collateral in
accordance with the Collateral Documents; and/or

 

(3)           with respect to Net
Cash Proceeds of an Asset Sale of any asset that does not constitute
Collateral, prepay permanently or repay permanently any Indebtedness under the
Term Loan Agreement, the Revolving Credit Agreement or any other Senior
Indebtedness then outstanding (and in the case of any such Indebtedness under a
revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility).

 

The amount of such Net Cash Proceeds not used
or invested in accordance with the preceding clauses (1), (2) or
(3) within 365 days after the Asset Sale, or such earlier date, if
any, as any Officer (as evidenced by an Officer’s Certificate) or the Board of
Directors of the Company determines not to apply the Net Cash Proceeds in accordance
with clauses (1), (2) or (3), constitutes “Excess Proceeds.”

 

(c)           When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Co-Obligors
will make an offer (an “Asset Sale Offer”) to all Holders of Note/Term
Obligations and all holders of Pari Passu Indebtedness containing provisions
similar to those set forth in this Section 4.11 to purchase the maximum
principal amount of Note/Term Obligations and such other Pari Passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
(the “Asset Sale Offer Price”) in any Asset Sale Offer will be equal to
100% of principal amount plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase (the “Asset Sale Offer Date”),
and will be payable in cash. If any Excess Proceeds remain after consummation
of an Asset Sale Offer, the Co-Obligors may use such Excess Proceeds for any
purposes not otherwise prohibited by this Indenture. If the aggregate principal
amount of Note/Term Obligations and such other Pari Passu Indebtedness tendered
into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Notes and
such other Pari Passu Indebtedness to be purchased shall be purchased on a pro rata basis based on the aggregate
principal amount of Notes and such other Pari Passu Indebtedness tendered. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.  If the Asset Sale
generating Excess Proceeds involves only Primary Collateral, the Asset Sale
Offer using such Excess Proceeds will be made only to the Holders of Note/Term
Obligations and not to holders of Pari Passu Indebtedness.

 

(d)           Pending
application of Net Cash Proceeds pursuant to this Section 4.11, such Net Cash
Proceeds may be invested in Cash Equivalents or applied to temporarily reduce

 

78

 

Senior Indebtedness of the Company, Duane
Reade GP or any Subsidiary Guarantor or any Indebtedness of any Restricted
Subsidiary that is not a Guarantor.

 

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

 

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

 

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

 

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

 

(2)           the
Asset Sale Offer Date;

 

(3)           the
instructions a Holder must follow in order to have his or her Notes purchased
in accordance with paragraph (c) above;

 

(4)           the
Asset Sale Offer Price;

 

(5)           the
names and addresses of the Paying Agent and the offices or agencies referred to
in Section 4.02;

 

(6)           that
Notes must be surrendered prior to the Asset Sale Offer Date to the Paying
Agent at the office of the Paying Agent or to an office or agency referred to
in Section 4.02 to collect payment;

 

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

 

79

 

(8)           the
procedures for withdrawing a tender; and

 

(9)           that
the Asset Sale Offer Price for any Note which has been properly tendered and
not withdrawn and which has been accepted for payment pursuant to the Asset
Sale Offer will be paid promptly following the Asset Sale Offer Date.

 

(h)           Holders
electing to have Notes purchased hereunder will be required to surrender such
Notes at the address specified in the notice prior to the Asset Sale Offer
Date.  Holders will be entitled to withdraw
their election to have their Notes purchased pursuant to this Section 4.11 if
the Co-Obligors receive, not later than one Business Day prior to the Asset
Sale Offer Date, a telegram, telex, facsimile transmission or letter setting
forth (1) the name of the Holder, (2) the certificate number of the Note in
respect of which such notice of withdrawal is being submitted, (3) the
principal amount of the Note (which shall be $5,000 or integral multiples of
$1,000 in excess thereof) delivered for purchase by the Holder as to which his
election is to be withdrawn, (4) a statement that such Holder is withdrawing
his election to have such principal amount of such Note purchased, and (5) the
principal amount, if any, of such Note (which shall be $5,000 or integral
multiples of $1,000 in excess thereof) that remains subject to the original
notice of the Asset Sale Offer and that has been or will be delivered for
purchase by the Co-Obligors.

 

(i)            The
Co-Obligors shall (i) not later than the Asset Sale Offer Date, accept for
payment Notes or portions thereof tendered pursuant to the Asset Sale Offer,
(ii) not later than 10:00 a.m. (New York time) on the Asset Sale Offer Date,
deposit with the Trustee or with a Paying Agent an amount of money in same day
funds sufficient to pay the aggregate Asset Sale Offer Price of all the Notes
or portions thereof which are to be purchased on that date and (iii) not later
than 10:00 a.m. (New York time) on the Asset Sale Offer Date, deliver to the
Paying Agent an Officers’ Certificate stating the Notes or portions thereof
accepted for payment by the Co-Obligors. 
The Paying Agent shall promptly mail or deliver to Holders of Notes so
accepted payment in an amount equal to the Asset Sale Offer Price of the Notes
purchased from each such Holder, and the Co-Obligors shall execute and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered.  Any Notes not so accepted
shall be promptly mailed or delivered by the Paying Agent at the Co-Obligors’
expense to the Holder thereof.  For
purposes of this Section 4.11, the Co-Obligors shall choose a Paying Agent
which shall not be the Company or Duane Reade GP.

 

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

 

80

 

(k)           Notes
to be purchased shall, on the Asset Sale Offer Date, become due and payable at
the Asset Sale Offer Price and from and after such date (unless the Co-Obligors
shall default in the payment of the Asset Sale Offer Price) such Notes shall
cease to bear interest.  Such Asset Sale
Offer Price shall be paid to such Holder promptly following the later of the Asset
Sale Offer Date and the time of delivery of such Note to the relevant Paying
Agent at the office of such Paying Agent by the Holder thereof in the manner
required.  Upon surrender of any such
Note for purchase in accordance with the foregoing provisions, such Note shall
be paid by the Co-Obligors at the Asset Sale Offer Price; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Asset Sale Offer Date shall be payable to
the Person in whose name the Notes are registered as such on the relevant
record dates according to the terms and the provisions of Section 2.07; provided, further, that Notes to be purchased are subject to proration
in the event the Excess Proceeds are less than the aggregate Asset Sale Offer
Price of all Notes tendered for purchase, with such adjustments as may be
appropriate by the Trustee so that only Notes in denominations of $5,000 or
integral multiples of $1,000 in excess thereof, shall be purchased.  If any Note tendered for purchase shall not
be so paid upon surrender thereof by deposit of funds with the Trustee or a
Paying Agent in accordance with paragraph (i) above, the principal thereof (and
premium, if any, thereon) shall, until paid, bear interest from the Asset Sale
Offer Date at the rate borne by such Note. 
Any Note that is to be purchased only in part shall be surrendered to a
Paying Agent at the office of such Paying Agent (with, if the Company, the
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Registrar or
the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly
authorized in writing), and the Co-Obligors shall execute and the Trustee shall
authenticate and deliver to the Holder of such Note, without service charge,
one or more new Notes of any authorized denomination as requested by such
Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Note so surrendered that is not
purchased.  The Company shall publicly
announce the results of the Asset Sale Offer on or as soon as practicable after
the Asset Sale Offer Date.

 

Section 4.12.          Issuances
of Guarantees by New Restricted Subsidiaries and Non-Guarantor Restricted
Subsidiaries.

 

(a)           The
Company shall provide to the Trustee, promptly following the date that any
Person other than Duane Reade GP becomes a Restricted Subsidiary (other than
any Non-Guarantor Restricted Subsidiary if the Fair Market Value of such
Non-Guarantor Restricted Subsidiary, together with the Fair Market Value of all
other Non-Guarantor Restricted Subsidiaries, as of such date, does not exceed
in the aggregate $30.0 million), a supplemental indenture to this Indenture,
substantially in the form attached hereto as Exhibit F, and a joinder agreement
related to the Collateral Documents, executed by such new Restricted
Subsidiary, providing for a full and unconditional guarantee on a senior
secured basis by such new Restricted Subsidiary of the Company’s obligations
under the Notes and this Indenture and a pledge of its assets as Collateral for
the Notes to the same extent as that set forth in Article Eleven and the
Collateral Documents.

 

(b)           To
the extent the collective Fair Market Value of the Company’s Non-Guarantor
Restricted Subsidiaries, as of the date of the creation of, acquisition of or
Investment in a Non-Guarantor Restricted Subsidiary, exceeds $30.0 million, the
Company shall cause,

 

81

 

within 10 Business Days after such date, one or
more of such Non-Guarantor Restricted Subsidiaries to deliver a supplemental
indenture to this Indenture, substantially in the form attached hereto as
Exhibit F, and a joinder agreement related to the Collateral Documents,  providing for a full and unconditional
guarantee on a senior secured basis by such Non-Guarantor Restricted Subsidiary
of the Company’s obligations under the Notes and this Indenture and a pledge of
its assets as Collateral for the Notes such that the collective Fair Market
Value of all remaining Non-Guarantor Restricted Subsidiaries does not exceed
$30.0 million.

 

(c)                                  The
Company shall not permit any Non-Guarantor Restricted Subsidiary to guarantee
the payment of any Indebtedness of the Company or any other Restricted
Subsidiary unless such Non-Guarantor Restricted Subsidiary simultaneously
delivers a supplemental indenture to this Indenture, substantially in the form
attached hereto as Exhibit F, and a joinder agreement related to the Collateral
Documents, executed by such Non-Guarantor Restricted Subsidiary, providing for
a full and unconditional Guarantee on a senior secured basis by such
Non-Guarantor Restricted Subsidiary of the Company’s obligations under the
Notes and this Indenture and a pledge of its assets as Collateral for the Notes
to the same extent as that set forth in Article Eleven and the Collateral
Documents. Such Guarantee shall automatically be released on the date such
Subsidiary no longer guarantees the payment of any Indebtedness of the Company
or any other Restricted Subsidiary and shall otherwise be subject to release in
accordance with this Indenture.

 

Section 4.13.                             Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries.

 

(a)                                  The
Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to exist or
become effective any consensual encumbrance or restriction on the ability of
any Restricted Subsidiary to:

 

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

 

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

 

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

 

(4)                                  transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary.

 

(b)                                 However,
paragraph (a) above shall not prohibit any:

 

(1)                                  encumbrance
or restriction pursuant to (x) an agreement (including the Revolving Credit
Agreement, this Indenture and the indenture governing the Existing Notes) in
effect or entered into on the Issue Date, (y) any agreement governing
Indebtedness permitted to be incurred by clause (b)(1) of Section 4.07
hereof, and (z) any amendments, modifications, restatements, renewals,
supplements, refundings, replacements or refinancings of the foregoing
agreements pursuant to clause (x) or (y); provided
that such agreements (pursuant to clause (y) above) and such amendments,
modifications, restatements, renewals, supplements, refundings, replacements or

 

82

 

refinancings
(pursuant to clause (z) above) are not materially more restrictive, taken as a
whole, with respect to such provisions than those contained in those agreements
in effect or entered into on the Issue Date;

 

(2)                                  encumbrance
or restriction with respect to a Restricted Subsidiary that is not a Restricted
Subsidiary of the Company on the Issue Date, in existence at the time such
Person becomes a Restricted Subsidiary of the Company and not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, provided that such encumbrances and restrictions are not applicable
to the Company or any Restricted Subsidiary or the properties or assets of the
Company or any Restricted Subsidiary other than such Subsidiary which is
becoming a Restricted Subsidiary;

 

(3)                                  encumbrance
or restriction pursuant to any agreement governing any Indebtedness permitted
by clause (7) of the definition of Permitted Indebtedness as to the assets
financed with the proceeds of such Indebtedness;

 

(4)                                  encumbrance
or restriction contained in any Acquired Indebtedness, Capital Stock or other
agreement of any entity or related to assets acquired by or merged into or
consolidated with the Company or any Restricted Subsidiaries, so long as such
encumbrance or restriction (A) was not entered into in contemplation of the
acquisition, merger or consolidation transaction, and (B) is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, so long as the agreement
containing such restriction does not violate any other provision of this
Indenture;

 

(5)                                  encumbrance
or restriction existing under applicable law or any requirement of any
regulatory body;

 

(6)                                  encumbrance
or restriction pursuant to the security documents evidencing any Lien securing
Indebtedness otherwise permitted to be incurred under the provisions of
Section 4.10 hereof, including Permitted Liens;

 

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

 

(8)                                  customary
restrictions contained in (A) asset sale agreements permitted to be incurred
under Section 4.11 hereof that limit the transfer of such assets or
otherwise impose limitations pending the closing of such sale and (B) any other
agreement for the sale or other disposition of a Restricted Subsidiary that
restricts that Restricted Subsidiary pending its sale or other disposition;

 

(9)                                  [Intentionally
omitted];

 

(10)                            encumbrance
pursuant to the subordination provisions of any Indebtedness permitted to be
incurred by clause (b)(4) of Section 4.07 hereof;

 

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

 

83

 

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

 

(12)                            restrictions
on cash or other deposits or net worth imposed by suppliers or landlords under
contracts entered into in the ordinary course of business;

 

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

 

Section 4.14.                             Sale
and Leaseback Transaction.

 

The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, enter
into any sale and leaseback transaction; provided, that
the Company or one of its Restricted Subsidiaries may enter into a sale and
leaseback transaction if:

 

(1)                                  the
Company or such Restricted Subsidiary could have (a) incurred Indebtedness in
an amount equal to the Attributable Indebtedness relating to such sale and
leaseback transaction pursuant to Section 4.07 hereof and (b) incurred a
Lien to secure such Indebtedness pursuant to Section 4.10 hereof;

 

(2)                                  the
gross cash proceeds of such sale and leaseback transactions are at least equal
to the Fair Market Value of the property that is the subject of such sale and
leaseback transaction; and

 

(3)                                  the
transfer of assets in such sale and leaseback transaction is permitted by, and
the Company or the applicable Restricted Subsidiary applies the proceeds of
such transaction in compliance with Section 4.11 hereof.

 

Section 4.15.                             Events
of Loss.

 

(a)                                  In the event of an Event of Loss with respect to any
Collateral, the Company or  the affected
Guarantor, as the case may be, shall apply the Net Loss Proceeds from such
Event of Loss, within 365 days after receipt, at its option to:

 

(1)                                  if
the Event of Loss relates to Primary Collateral, the permanent prepayment or
repayment of any Note/Term Obligations;

 

(2)                                  if
the Event of Loss relates to Secondary Collateral, the permanent prepayment or
repayment of any Revolving Loan Obligations, subject to the Intercreditor
Agreement,

 

84

 

(3)                                  the
rebuilding, repair, replacement or construction of improvements to the affected
property or facility; or

 

(4)                                  (A)
with respect to any Event of Loss, whether or not involving Collateral, invest
in the purchase of assets (other than securities) to be used by the Company or
any Restricted Subsidiary in a Permitted Business, (B) acquire Equity
Interests in a Person that is a Restricted Subsidiary or in a Person engaged in
a Permitted Business that shall become a Restricted Subsidiary immediately upon
the consummation of such acquisition provided, that, in the case of assets or
Equity Interests acquired by the Company, Duane Reade GP or a Guarantor as
described in (A) and/or (B), the relevant party must execute such collateral
documents as are required by the Collateral Documents or (C) a combination of
(A) and (B); provided that any
Net Loss Proceeds received in the form of Qualified Non-Cash Proceeds shall be
deemed an application of such Net Loss Proceeds in accordance with this clause
(4); provided, further, that the
Company or such Restricted Subsidiary shall be deemed to have applied Net Loss
Proceeds in accordance with this clause (4) within such 365-day period if,
within such 365-day period, it has entered into a binding commitment or
agreement to invest such Net Loss Proceeds and continues to use all reasonable
efforts to so apply such Net Loss Proceeds as soon as practicable thereafter,
and that upon any abandonment or termination of such commitment or agreement
after such 365-day period, the Net Loss Proceeds not applied will constitute
Excess Loss Proceeds.

 

 (b)                              On the 366th
day after an Event of Loss (the “Loss Proceeds Offer Trigger Date”),    such aggregate amount of  Net Loss Proceeds which have not been applied
or invested on or before such Loss Proceeds Offer Trigger Date as permitted in
the preceding paragraph hereof (the “Excess Loss Proceeds”) shall be
applied by the Company and Duane Reade GP to make an offer to all holders of
Note/Term Obligations (a “Loss Proceeds Offer”) to purchase the maximum
principal amount of Notes that may be purchased out of such Excess Loss
Proceeds, at an offer price in cash in an amount equal to 100% of their
principal amount plus accrued and unpaid interest, if any, to the date of
purchase.  If the aggregate principal
amount of Note/Term Obligations surrendered by holders exceeds the Excess Loss
Proceeds to be used to purchase Note/Term Obligations, the Trustee shall select
the Note/Term Obligations to be purchased on a pro rata
basis.  To the extent that the aggregate
principal amount of Note/Term Obligations surrendered pursuant to a Loss
Proceeds Offer is less than the Excess Loss Proceeds, the Co-Obligors may apply
any remaining Net Loss Proceeds to any purpose consistent with this Indenture
and, following the consummation of the Loss Proceeds Offer, the Excess Loss
Proceeds amount shall be reset to zero. Pending the final application of any
Net Loss Proceeds, the Company or the affected Guarantor shall deposit such Net
Loss Proceeds in accordance with the Collateral Documents.  Notwithstanding anything to the contrary in
the foregoing, the Co-Obligors and the Guarantors may commence a Loss Proceeds
Offer prior to the expiration of 365 days after the occurrence of an Event of
Loss.

 

(c)                                  The
Co-Obligors and the Guarantors may defer any Loss Proceeds Offer until there is
an aggregate unutilized amount of Excess Loss Proceeds equal to or in excess of
$10.0 million (at which time, the entire unutilized amount of Excess Loss
Proceeds, and not just the amount in excess of $10.0 million, shall be applied
as required pursuant to the preceding paragraph).

 

85

 

(d)                                 The Company and
Duane Reade GP shall comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Loss Proceeds Offer.  To the extent that the provisions of any
applicable securities laws or regulations conflict with the provisions of this
Indenture, the Co-Obligors and the Guarantors shall comply with such securities
laws and regulations and shall not be deemed to have breached their obligations
described in this Indenture by virtue thereof.

 

Section 4.16.                             Impairment
of Collateral.

 

Neither the
Company nor any of its Restricted Subsidiaries shall take or omit to take any
action which action or omission could reasonably be expected to have the result
of materially adversely affecting or impairing the lien in favor of the
Collateral Agent for the benefit of the Trustee in the Collateral, other than
as expressly contemplated by this Indenture, the Term Loan Agreement, the
Hedging Obligations or the Collateral Documents.

 

Section 4.17.                             Limitation
on Activities.

 

Holdings shall
not engage in any business activity other than acting as a direct holding
company of the Company, including such activities as are undertaken on the
Issue Date in connection with the Transactions, and such activities that are
ancillary to or related to such role. The Company shall at all times remain a
wholly-owned Subsidiary of Holdings. Holdings shall at all times Guarantee the
Notes and provide a pledge of the Capital Stock of the Company, which Guarantee
and pledge shall not be released other than upon (a) satisfaction and
discharge of this Indenture as set forth in Article Twelve or
(b) legal defeasance or covenant defeasance of this Indenture as set forth
in Article Eight.

 

Section 4.18.                             Unrestricted
Subsidiaries.

 

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

 

(1)                                  no
Default or Event of Default shall occur and be continuing as a result of giving
effect to such Designation;

 

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

 

(3)                                  such
Unrestricted Subsidiary does not own any Capital Stock in any Restricted
Subsidiary of the Company which is not simultaneously being designated an
Unrestricted Subsidiary; and

 

(4)                                  such
Unrestricted Subsidiary is not liable, directly or indirectly, with respect to
any Indebtedness other than Unrestricted Subsidiary Indebtedness, provided that an Unrestricted Subsidiary
may provide a Guarantee for the Notes.

 

86

 

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

 

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

 

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

 

(2)                                  be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary.

 

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

 

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

 

(1)                                  no
Default shall occur and be continuing as a result of giving effect to such
Revocation;

 

(2)                                  all
Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately
following such Revocation would, if incurred at such time, have been permitted
to be incurred by a Restricted Subsidiary for all purposes of this Indenture;
and

 

(3)                                  unless
such redesignated Subsidiary shall not have any Indebtedness outstanding (other
than Indebtedness that is simultaneously with such redesignation being
designated as Permitted Indebtedness), immediately after giving effect to such
proposed Revocation, and after giving pro
forma effect to the incurrence of any such Indebtedness of such
redesignated Subsidiary as if such Indebtedness was incurred on the date of the
Revocation, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to paragraph (a) of Section 4.07
hereof.

 

(f)                                    All
Designations and Revocations must be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions of this Section 4.18.

 

Section 4.19.                             Payments
for Consent.

 

Neither the
Company nor any of its Restricted Subsidiaries shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any

 

87

 

Holder for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders or all Holders that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.

 

Section 4.20.                             Offer
to Repurchase upon a Change of Control.

 

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

 

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

 

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

 

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

 

(3)                                  that
any Note not tendered will continue to accrue interest;

 

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

 

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

 

(b)                                 Upon
receipt by the Co-Obligors of the proper tender of Notes, the Holder of the
Note in respect of which such proper tender was made shall (unless the tender
of such Note is properly withdrawn) thereafter be entitled to receive solely
the Change of Control Purchase Price with respect to such Notes.  Upon surrender of any such Note for purchase
in accordance with

 

88

 

the foregoing
provisions, such Note shall be paid by the Co-Obligors at the Change of Control
Purchase Price; provided, however, that installments of interest
whose Stated Maturity is on or prior to the Change of Control Purchase Date
shall be payable to the Holders of such Notes, registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 2.03.  If any Note tendered
for purchase in accordance with the provisions of this Section 4.20 shall
not be so paid upon surrender thereof, the principal thereof (and premium, if
any, thereon) shall, until paid, bear interest from the Change of Control
Purchase Date at the rate borne by such Note. 
Holders electing to have Notes purchased will be required to surrender
such Notes to the Paying Agent at the address specified in the Change of
Control Purchase Notice at least one Business Day prior to the Change of
Control Purchase Date.  Any Note that is
to be purchased only in part shall be surrendered to a Paying Agent at the
office of such Paying Agent (with, if the Co-Obligors, the Registrar or the
Trustee so require, due endorsement by, or a written instrument of transfer in
form satisfactory to the Co-Obligors and the Registrar or the Trustee, as the
case may be, duly executed by, the Holder thereof or such Holder’s attorney
duly authorized in writing), and the Co-Obligors shall execute and the Trustee
shall authenticate and deliver to the Holder of such Note, without service
charge, one or more new Notes of any authorized denomination as requested by such
Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Note so surrendered that is not
purchased.

 

(c)                                  The
Co-Obligors shall (i) not later than the Change of Control Purchase Date,
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer, (ii) not later than 10:00 a.m. (New York time) on the
Business Day following the Change of Control Purchase Date, deposit with the
Trustee or with a Paying Agent an amount of money in same day funds sufficient
to pay the aggregate Change of Control Purchase Price of all the Notes or
portions thereof which have been so accepted for payment and (iii) not
later than 10:00 a.m. (New York time) on the Business Day following the Change
of Control Purchase Date, deliver to the Paying Agent an Officers’ Certificate
stating the Notes or portions thereof accepted for payment by the
Co-Obligors.  The Paying Agent shall
promptly mail or deliver to Holders of Notes so accepted payment in an amount
equal to the Change of Control Purchase Price of the Notes purchased from each
such Holder, and the Co-Obligors shall execute and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered.  Any Notes not so accepted shall be promptly
mailed or delivered by the Paying Agent at the Co-Obligors’ expense to the
Holder thereof.  The Co-Obligors will
publicly announce the results of the Change of Control Offer on the Change of
Control Purchase Date.  For purposes of
this Section 4.20, the Co-Obligors shall choose a Paying Agent which shall
not be the Company or Duane Reade GP.

 

(d)                                 A
tender made in response to a Change of Control Purchase Notice may be withdrawn
if the Co-Obligors receive, not later than one Business Day prior to the Change
of Control Purchase Date, a telegram, telex, facsimile transmission or letter,
specifying, as applicable:

 

(1)                                  the
name of the Holder;

 

(2)                                  the
certificate number of the Note in respect of which such notice of withdrawal is
being submitted;

 

89

 

(3)                                  the
principal amount of the Note (which shall be $5,000 or integral multiples of
$1,000 in excess thereof) delivered for purchase by the Holder as to which such
notice of withdrawal is being submitted;

 

(4)                                  a
statement that such Holder is withdrawing his election to have such principal
amount of such Note purchased; and

 

(5)                                  the
principal amount, if any, of such Note (which shall be $5,000 or integral
multiples of $1,000 in excess thereof) that remains subject to the original
Change of Control Purchase Notice and that has been or will be delivered for
purchase by the Co-Obligors.

 

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

 

(f)                                    The
Co-Obligors shall comply with the applicable tender offer rules, including Rule
14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.  To the extent that the provisions of any
securities laws or regulations conflict with this Section 4.20, the
Co-Obligors shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached their obligations under this
Section 4.20 by virtue thereof.

 

(g)                                 Notwithstanding
the foregoing, the Co-Obligors will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control Offer,
in the manner, at the times and otherwise in compliance with the requirements
set forth in this Indenture applicable to a Change of Control Offer made by the
Co-Obligors and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.

 

Section 4.21.                             Corporate
Existence.

 

Subject to
Article Five, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect the corporate (or other
organizational) existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; provided
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
and its Restricted Subsidiaries as a whole and that the loss thereof would not
reasonably be expected to have a material adverse effect on the Company and its
Restricted Subsidiaries, taken as a whole.

 

90

 

ARTICLE FIVE

Successors

 

Section 5.01.                             Consolidation,
Merger or Sale of Assets.

 

(a)                                  Each
of the Company and Duane Reade GP will not, in a single transaction or through
a series of related transactions, consolidate with or merge with or into any
other Person or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person or group of
Persons, or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of the Company and its Restricted Subsidiaries on a Consolidated
basis to any other Person or group of Persons (other than the Company, Duane
Reade GP or a Subsidiary Guarantor), unless at the time and after giving effect
thereto

 

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

 

(2)                                  immediately
after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness not previously an
obligation of the Company or any of its Restricted Subsidiaries which becomes
the obligation of the Company or any of its Restricted Subsidiaries as a result
of such transaction as having been incurred at the time of such transaction),
no Default or Event of Default will have occurred and be continuing;

 

(3)                                  either
(i) immediately before and immediately after giving effect to such transaction
on a pro forma basis (on the
assumption that the transaction occurred on the first day of the four-quarter
period for which financial statements are available ending immediately prior to
the consummation of such transaction with the appropriate adjustments with
respect to the transaction being included in such pro forma calculation), the Company (or the Surviving Entity
if the Company is not the continuing obligor under this Indenture) could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
paragraph (a) of Section 4.07 hereof or (ii) (x) the Company’s
Consolidated Fixed Charge Coverage Ratio for the most recent four full fiscal
quarters for which financial

 

91

 

statements are available after giving pro forma effect to such transaction as of
the beginning of such four quarter period would be not less than (y) the
Company’s Consolidated Fixed Charge Coverage Ratio for such four quarter period
immediately prior to such transaction;

 

(4)                                  at
the time of the transaction, each Guarantor, if any, unless it is the other
party to the transactions described above, will have by supplemental indenture
confirmed that its Guarantee shall apply to such Person’s obligations under
this Indenture and the Notes;

 

(5)                                  at
the time of the transaction, the Company or Duane Reade GP, as the case may be,
or the Surviving Entity will have delivered, or caused to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers’ Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger, transfer, sale, assignment, conveyance, transfer, lease
or other transaction and the supplemental indenture in respect thereof comply
with this Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with;

 

(6)                                  at
the time of the transaction if any of the property or assets of the Company or
any of its Restricted Subsidiaries would thereupon become subject to any Lien,
the provisions of Section 4.10 hereof are complied with;

 

(7)                                  the
Collateral owned by or transferred to the Surviving Entity will, following such
transfer, (a) constitute Collateral under this Indenture and the Collateral
Documents, (b) be subject to the Lien in favor of the Trustee for the benefit
of the holders of the Notes, and (c) not be subject to any Lien, other than
Permitted Liens; and

 

(8)                                  to
the extent that the assets of the Person which is merged or consolidated with
or into the Surviving Entity are assets of the type which would constitute
Collateral under the Collateral Documents, the Surviving Entity will take such
action as may be reasonably necessary to cause such property and assets to be
made subject to the Lien of the Collateral Documents in the manner and to the
extent required in this Indenture.

 

(b)                                 Except
as provided by Section 11.04 hereof, each Guarantor will not, and the
Company will not permit a Guarantor to, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any
other Person (other than the Company or any Guarantor), unless at the time and
after giving effect thereto

 

(1)                                  either
(a) the Guarantor will be the continuing corporation in the case of a
consolidation or merger involving the Guarantor or (b) the Person (if other
than the Guarantor) formed by such consolidation or into which such Guarantor
is merged (the “Surviving Guarantor Entity”) will be a corporation,
limited liability company, limited liability partnership, partnership or trust
duly organized and validly existing under the laws of the United States of
America,

 

92

 

any state thereof or the District of Columbia
and such Person expressly assumes, by a supplemental indenture, in a form
reasonably satisfactory to the Trustee, all the obligations of such Guarantor
under its Guarantee of the Notes and this Indenture, the Registration Rights
Agreement and the Collateral Documents;

 

(2)           immediately
after giving effect to such transaction on a pro
forma basis, no Default or Event of Default will have occurred and
be continuing; and

 

(3)           at
the time of the transaction such Guarantor or the Surviving Guarantor Entity
will have delivered, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers’ Certificate and
an Opinion of Counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, lease or other transaction and the
supplemental indenture in respect thereof comply with this Indenture and that
all conditions precedent therein provided for relating to such transaction have
been complied with; provided, however,
that this paragraph (b) shall not apply to any Guarantor whose Guarantee of the
Notes is unconditionally released and discharged in accordance with
Section 11.04 hereof.

 

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

 

(d)           Notwithstanding the
foregoing but subject to the Collateral Documents, the Company may merge with,
or sell, issue, convey, transfer, lease, assign or otherwise dispose of all or
substantially all of its assets to, an Affiliate incorporated or organized
solely for the purpose of reincorporating or reorganizing the Company in
another jurisdiction and/or for the purpose of forming a holding company, and
any Guarantor or Duane Reade GP may merge with, or sell, issue, convey,
transfer, lease, assign or otherwise dispose of all or substantially all of its
assets to, an Affiliate as part of any internal corporate reorganization of the
Company.

 

ARTICLE SIX

Defaults and Remedies

 

Section 6.01.          Events
of Default.

 

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

 

93

 

(1)           there
shall be a default in the payment of any interest on any Note when it becomes
due and payable, and such default shall continue for a period of 30 days;

 

(2)           there
shall be a default in the payment of the principal of (or premium, if any, on)
any Note at its Maturity (upon acceleration, optional or mandatory redemption,
if any, required repurchase or otherwise);

 

(3)           (a)
there shall be a default in the performance, or breach, of any covenant or
agreement of the Company, Duane Reade GP or any Guarantor under this Indenture
or any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (1) or (2)
above or in clause (b) or (c) of this clause (3)) and such default or breach
shall continue for a period of 60 days (or 30 days if the Company and Duane
Reade GP shall have failed to make or consummate an Asset Sale Offer in
accordance with Section 4.11 hereof) after written notice has been given,
by certified mail, (i) to the Company by the Trustee or (ii) to the Company and
the Trustee by the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes; (b) there shall be a default in the performance or
breach of the provisions of Section 5.01 or (c) the Company and Duane
Reade GP shall have failed to make or consummate a Change of Control Offer in
accordance with Section 4.20 hereof;

 

(4)           (a)           one
or more defaults shall have occurred under any of the agreements, indentures or
instruments under which the Company, Duane Reade GP, any Guarantor or any
Restricted Subsidiary then has issued or by which there has been secured
outstanding Indebtedness in excess of $15 million, individually or in the
aggregate, and either (x) such default results from the failure to pay the
principal of such Indebtedness at its final stated maturity or (y) such default
or defaults have resulted in the acceleration of the maturity of such
Indebtedness (or such Indebtedness shall have already matured at its final
maturity in accordance with its terms) or (b) any holder of secured
Indebtedness of the Company, Duane Reade GP, any Guarantor or any Restricted
Subsidiary in excess of $15 million, individually or in the aggregate, shall
commence foreclosure proceedings with respect to any Collateral;

 

(5)           any
Guarantee of Holdings or any Significant Subsidiary shall for any reason cease
to be, or any Guarantee shall for any reason be asserted in writing by any
Guarantor, the Company or Duane Reade GP not to be, in full force and effect
and enforceable in accordance with its terms, except to the extent contemplated
by this Indenture and any such Guarantee;

 

(6)           one
or more judgments or orders of any court of competent jurisdiction for the
payment of money in excess of $15 million (net of amounts covered by insurance
or bonded), either individually or in the aggregate, shall be rendered against
the Company, Duane Reade GP, any Guarantor or any Restricted Subsidiary or any
of their respective properties and shall not be discharged and 

 

94

 

there shall have been a period of 60
consecutive days during which a stay of enforcement of such judgment or order,
by reason of an appeal or otherwise, shall not be in effect;

 

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

 

(8)           the
institution by Holdings, the Company or any Significant Subsidiary of
proceedings to be adjudicated bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under any Bankruptcy Law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of Holdings, the Company or any Significant
Subsidiary or of substantially all of its assets, or the making by it of a
general assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due; or

 

(9)           (a)
there shall be a default in the performance, or breach, of any covenant or
agreement of the Company, Duane Reade GP or any Guarantor, in any material
respect, under any Collateral Document and such default or breach shall
continue for a period of 60 days after written notice has been given, by
certified mail, (1) to the Company by the Trustee or (2) to the
Company and the Trustee by the holders of at least 25% in aggregate principal
amount of the then outstanding Notes or (b) any Collateral Document shall for
any reason cease to be, or any Collateral Document shall for any reason be
asserted in writing by any Guarantor, the Company or Duane Reade GP not to be,
in full force and effect and enforceable in accordance with its terms, except
to the extent contemplated by this Indenture and any such Collateral Document.

 

Section 6.02.          Acceleration.

 

(a)           If an Event of Default
(other than as specified in Sections 6.01(7) or (8) above) shall occur and be continuing
with respect to this Indenture, the Trustee or the Holders of not less than 25%
in aggregate principal amount of the Notes then outstanding may, and the
Trustee at the request of such Holders shall, declare all unpaid principal of,
premium, if any, and accrued interest on all Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by the Holders of the Notes) and upon any such declaration, such principal,
premium, if any, and interest shall become due and payable 

 

95

 

immediately.
If an Event of Default specified in Sections 6.01(7) or (8) above occurs and is
continuing, then all the Notes shall ipso
facto become and be due and payable immediately in an amount equal
to the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date the Notes become due and payable, without any
declaration or other act on the part of the Trustee or any Holder. Thereupon,
the Trustee may, at its discretion, proceed to protect and enforce the rights
of the Holders of Notes by appropriate judicial proceedings.

 

In addition to
acceleration of maturity of the Notes, if an Event of Default occurs and is
continuing, the Trustee will have the right to exercise remedies with respect
to the Collateral, such as foreclosure, as are available under this Indenture,
the Collateral Documents and at law, subject to the terms of the Collateral
Documents and the Intercreditor Agreement.

 

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

 

(1)           the Company has paid or deposited with the
Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee
under this Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (B) all overdue interest
on all Notes then outstanding, (C) the principal of, and premium, if any, on
any Notes then outstanding which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Notes
and (D) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes;

 

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

 

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

 

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

 

Section 6.03.          Other
Remedies.

 

(a)           If an Event of Default
occurs and is continuing, subject to the terms of the Intercreditor Agreement
and the Collateral Documents, the Trustee may pursue any available remedy to
collect the payment of principal, premium, if any, or interest on the Notes or
to enforce the performance of any provision of the Notes or this Indenture.

 

(b)           The Trustee may
maintain a proceeding even if it does not possess any of the Notes or does not
produce any of them in the proceeding.  A
delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon and during the continuance of an Event of Default
shall not impair the right or remedy or constitute a waiver of 

 

96

 

or acquiescence in the Event of Default.  All remedies are cumulative to the extent
permitted by law.

 

Section 6.04.          Waiver
of Past Defaults.

 

The Holders of
not less than a majority in aggregate principal amount of the Notes outstanding
may on behalf of the Holders of all outstanding Notes waive any past Default or
Event of Default under this Indenture and its consequences, except a Default or
Event of Default (1) in the payment of the principal of, premium, if any, or
interest on any Note (which may only be waived with the consent of each Holder
of Notes affected) or (2) in respect of a covenant or provision which under
this Indenture cannot be modified or amended without the consent of the Holder
of each Note affected by such modification or amendment.  The Company shall deliver to the Trustee an
Officers’ Certificate stating that the requisite percentage of Holders have
consented to such waiver and attaching copies of such consents.  In case of any such waiver, the Company, the
Trustee and the Holders shall be restored to their former positions and rights
hereunder and under the Notes, respectively. 
This Section 6.04 shall be in lieu of Section 316(a)(1)(B) of
the TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly
excluded from this Indenture and the Notes, as permitted by the TIA.  Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.

 

Section 6.05.          Control
by Majority.

 

Subject to the
terms of the Intercreditor Agreement and the Collateral Documents, Holders of a
majority in principal amount of the then outstanding Notes may direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee or exercising any trust or power conferred on it.  However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes or
that may involve the Trustee in personal liability.  The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.

 

Section 6.06.          Limitation on Suits.

 

(a)           A Holder has a right to
institute any proceeding with respect to this Indenture, or the Notes or any
Guarantees, only if:

 

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

 

(2)           the
Holders of at least 25% in principal amount of the then outstanding Notes make
a written request to the Trustee to pursue the remedy;

 

(3)           such
Holder of a Note or Holders of Notes offer and, if requested, provide to the
Trustee reasonable indemnity against any loss, liability or expense that might
be incurred by it in connection with the request or direction;

 

97

 

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

 

(5)           during
such 60-day period the Holders of a majority in principal amount of the then
outstanding Notes do not give the Trustee a direction inconsistent with the
written request.

 

(b)           A Holder of a Note may
not use this Indenture to prejudice the rights of another Holder of a Note or
to obtain a preference or priority over another Holder of a Note.

 

(c)           The rights of Holders
pursuant to this Section 6.06 are subject to the Intercreditor Agreement
and the Collateral Documents.

 

Section 6.07.          Rights
of Holders of Notes to Receive Payment.

 

Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of principal, premium, if any, or interest on such Note, on or
after the respective due dates expressed in such Note (including in connection
with an offer to purchase), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.

 

Section 6.08.          Collection
Suit by Trustee.

 

Subject to the
terms of the Intercreditor Agreement and the Collateral Documents, if an Event
of Default specified in Section 6.01 (1) or (2) above occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Co-Obligors for the whole amount of
principal of, premium, if any, interest remaining unpaid on the Notes and
interest on overdue principal and premium, if any, and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

 

Section 6.09.          Trustee
May File Proofs of Claim.

 

Subject to the
terms of the Intercreditor Agreement and the Collateral Documents, the Trustee
is authorized to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders of the Notes allowed in
any judicial proceedings relative to the Co-Obligors or any Guarantor (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
securities or property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof. 
Subject to the terms of the Intercreditor Agreement and 

 

98

 

the Collateral Documents, to the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07
hereof out of the estate in any such proceeding, shall be denied for any
reason, payment of the same shall be secured by a Lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.  Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.

 

Section 6.10.          Priorities.

 

(a)           Subject to the terms of
the Intercreditor Agreement and the Collateral Documents, if the Trustee
collects any money pursuant to this Article Six, it shall pay out the
money in the following order:

 

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

 

Second:  to Holders of Notes for amounts due and
unpaid on the Notes for principal, premium, if any, interest ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Notes for principal, premium, if any, and interest, respectively; and

 

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

 

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

 

Section 6.11.          Undertaking
for Costs.

 

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

 

99

 

ARTICLE SEVEN

Trustee

 

Section 7.01.          Duties
of Trustee.

 

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

 

(b)           Except during the
continuance of an Event of Default:

 

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

 

(ii)           in
the absence of bad faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. 
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform on their face to the requirements of this
Indenture.

 

(c)           The Trustee may not be
relieved from liabilities for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:

 

(i)            this
paragraph does not limit the effect of paragraph (b) of this Section 7.01;

 

(ii)           the
Trustee shall not be liable for any error of judgment made in good faith by a
Responsible Officer, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and

 

(iii)          the
Trustee shall not be liable with respect to any action it takes or omits to
take in good faith in accordance with a direction received by it pursuant to
Section 6.05 hereof.

 

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

 

(e)           No provision of this
Indenture shall require the Trustee to expend or risk its own funds or incur
any liability.  The Trustee shall be
under no obligation to exercise any of the rights or powers vested in it by
this Indenture unless such Holders shall have offered to the Trustee security
or indemnity reasonably satisfactory to it against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.

 

100

 

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

 

Section 7.02.          Certain
Rights of Trustee.

 

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

 

(b)           Before the Trustee acts
or refrains from acting, it may require an Officers’ Certificate or an Opinion
of Counsel or both.  The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers’ Certificate or Opinion of Counsel.  The Trustee may consult with counsel and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.

 

(c)           The Trustee may act
through its attorneys and agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.

 

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

 

(e)           Unless otherwise
specifically provided in this Indenture, any demand, request, direction or
notice from either Co-Obligor shall be sufficient if signed by an Officer of
such Co-Obligor.

 

(f)            The Trustee shall be
under no obligation to exercise any of the rights or powers vested in it by
this Indenture unless such Holders shall have offered to the Trustee security
or indemnity reasonably satisfactory to it against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.

 

(g)           The Trustee shall not
be deemed to have notice of any Default or Event of Default unless a
Responsible Officer of the Trustee has actual knowledge thereof or unless written
notice of such event is sent to the Trustee in accordance with
Section 13.02 hereof, and such notice references the Notes.

 

(h)           Subject to
Section 7.01(b)(ii) hereof, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records, and premises of the Company, personally
or by agent or attorney at

 

101

 

the sole cost
of the Company and shall incur no liability or additional liability of any kind
by reasons of such inquiry or investigation.

 

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

 

Section 7.03.          Individual
Rights of Trustee.

 

The Trustee in
its individual or any other capacity may become the owner or pledgee of Notes
and may become a creditor of, or otherwise deal with, the Company or any of its
Affiliates with the same rights it would have if it were not Trustee.  However, in the event that the Trustee
acquires any conflicting interest as described in the TIA, it must eliminate
such conflict within 90 days, apply to the Commission for permission to
continue as trustee or resign.  Any Agent
may do the same with like rights and duties. 
The Trustee is also subject to Sections 7.10 and 7.11 hereof.

 

Section 7.04.          Trustee’s
Disclaimer.

 

The Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture, it shall not be accountable for the Co-Obligors’
use of the proceeds from the Notes or any money paid to the Co-Obligors or upon
the Co-Obligor’s direction under any provision of this Indenture, it shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication. The Trustee makes no representation as to
the existence, validity, value, genuineness, perfection, priority or the
collectibility of any security or other document or other instrument held by or
delivered to the Trustee or the Collateral Agent under this Indenture, the
Collateral Documents or the Intercreditor Agreement.

 

Section 7.05.          Notice
of Defaults.

 

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

 

Section 7.06.          Reports
by Trustee to Holders of the Notes.

 

(a)           Within 60 days after
each May 15 beginning with the May 15 following the date hereof, and for so
long as Notes remain outstanding, the Trustee shall mail to the Holders of the
Notes a brief report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be
transmitted).  The Trustee also shall 

 

102

 

comply with
TIA Section 313(b)(2).  The Trustee
shall also transmit by mail all reports as required by TIA Section 313(c).

 

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

 

Section 7.07.          Compensation
and Indemnity.

 

(a)           The Co-Obligors shall
pay to the Trustee (in its capacity as Trustee, and, to the extent it has been
appointed as such, as Paying Agent and Registrar) from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder in
accordance with a written schedule provided by the Trustee to the
Co-Obligors.  The Trustee’s compensation
shall not be limited by any law on compensation of a trustee of an express
trust.  The Co-Obligors shall reimburse
the Trustee promptly upon request for all reasonable and customary
disbursements, advances and reasonable out-of-pocket expenses incurred or made
by it in addition to the compensation for its services, except those resulting
from its own negligent action, negligent failure to act or willful
misconduct.  Such expenses shall include
the reasonable and customary compensation, disbursements and expenses of the
Trustee’s agents and counsel.

 

(b)           The Co-Obligors shall
indemnify the Trustee against any and all losses, liabilities or reasonable out-of-pocket
expenses incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Co-Obligors (including this
Section 7.07) or any Guarantor and defending itself against any claim
(whether asserted by either of the Co-Obligors or any Holder or any other
person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence or bad faith.  The Trustee shall notify the Co-Obligors
promptly of any claim for which it may seek indemnity.  Failure by the Trustee to so notify the
Co-Obligors shall not relieve the Co-Obligors of their obligations
hereunder.  The Co-Obligors shall defend
the claim and the Trustee shall cooperate in the defense.  The Trustee may have separate counsel and the
Co-Obligors shall pay the reasonable and customary fees and expenses of such
counsel.  The Co-Obligors need not pay
for any settlement made without its consent, which consent shall not be
unreasonably withheld.

 

(c)           The obligations of the
Co-Obligors under this Section 7.07 shall survive the satisfaction and
discharge of this Indenture.

 

(d)           To secure the
Co-Obligors’ payment obligations in this section, the Trustee shall have a Lien
prior to the Notes on all money or property held or collected by the Trustee,
except that held in trust to pay principal and interest on particular
Notes.  Such Lien shall survive the
satisfaction and discharge of this Indenture.

 

(e)           When the Trustee incurs
expenses or renders services after an Event of Default specified in
Section 6.01(7) or (8) hereof occurs, the expenses and the compensation
for

 

103

 

the services
(including the fees and expenses of its agents and counsel) are intended to
constitute expenses of administration under any Bankruptcy Law.

 

Section 7.08.          Replacement
of Trustee.

 

(a)           A resignation or
removal of the Trustee and appointment of a successor Trustee shall become
effective only upon the successor Trustee’s acceptance of appointment as
provided in this Section 7.08.

 

(b)           The Trustee may resign
in writing at any time and be discharged from the trust hereby created by so
notifying the Co-Obligors.  The Holders
of a majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Co-Obligors in writing.  The Co-Obligors may remove the Trustee if:

 

(i)            the
Trustee fails to comply with Section 7.10 hereof;

 

(ii)           the
Trustee is adjudged a bankrupt or an insolvent or an order for relief is
entered with respect to the Trustee under any Bankruptcy Law;

 

(iii)          a
custodian or public officer takes charge of the Trustee or its property; or

 

(iv)          the
Trustee becomes incapable of acting.

 

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

 

(d)           If a successor Trustee
does not take office within 30 days after the retiring Trustee resigns or is
removed, the retiring Trustee, the Co-Obligors, or the Holders of Notes of at
least 10% in principal amount of the then outstanding Notes may petition at the
expense of the Co-Obligors any court of competent jurisdiction for the
appointment of a successor Trustee.

 

(e)           If the Trustee, after
written request by any Holder who has been a Holder for at least three months,
fails to comply with Section 7.10, such Holder may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.

 

(f)            A successor Trustee
shall deliver a written acceptance of its appointment to the retiring Trustee
and to the Co-Obligors.  Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture.  The successor
Trustee shall mail a notice of its succession to Holders.  The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.07 hereof. 
Notwithstanding replacement

 

104

 

of the Trustee
pursuant to this Section 7.08, the Co-Obligors’ obligations under
Section 7.07 hereof shall continue for the benefit of the retiring
Trustee.

 

Section 7.09.          Successor
Trustee by Merger, Etc.

 

If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another Person, the successor Person without
any further act shall be the successor Trustee.

 

Section 7.10.          Eligibility;
Disqualification.

 

There shall at
all times be a Trustee hereunder that is a corporation organized and doing
business under the laws of the United States of America or of any state thereof
that is authorized under such laws to exercise corporate trustee power, that is
subject to supervision or examination by federal or state authorities and that
has (or its corporate parent shall have) a combined capital and surplus of at
least $100.0 million as set forth in its most recent published annual report of
condition.

 

This Indenture
shall always have a Trustee who satisfies the requirements of TIA
Section 310(a)(1), (2) and (5).  The
Trustee is subject to TIA Section 310(b).

 

Section 7.11.          Preferential
Collection of Claims Against Co-Obligors.

 

The Trustee is
subject to TIA Section 311(a), excluding any creditor relationship listed
in TIA Section 311(b).  A Trustee
who has resigned or been removed shall be subject to TIA Section 311(a) to
the extent indicated therein.  The
Trustee hereby waives any right to set-off any claim that it may have against
the Co-Obligors in any capacity (other than as Trustee and Paying Agent)
against any of the assets of the Co-Obligors held by the Trustee; provided, however,
that if the Trustee is or becomes a lender of any other Indebtedness permitted
hereunder to be pari passu with the Notes, then such waiver shall not apply to
the extent of such Indebtedness.

 

ARTICLE EIGHT

Defeasance and Covenant Defeasance

 

Section 8.01.          Option
to Effect Legal Defeasance or Covenant Defeasance.

 

The
Co-Obligors may, at the option of their Boards of Directors evidenced by a
Board Resolution set forth in an Officers’ Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this
Article Eight.

 

Section 8.02.          Legal
Defeasance and Discharge.

 

Upon the
Co-Obligors’ exercise of the option applicable to this Section 8.02, the
Co-Obligors shall, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, be deemed to have been discharged from their
obligations with respect to all outstanding Notes and all obligations of the
Guarantors shall be deemed to have been discharged with respect to their

 

105

 

obligations
under the Guarantees on the date the conditions set forth below are satisfied
(hereinafter, “Legal Defeasance”). 
For this purpose, Legal Defeasance means that the Co-Obligors and the
Guarantors shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes and Guarantees, respectively, which shall
thereafter be deemed to be “outstanding” only for the purposes of
Section 8.05 hereof and the other Sections of this Indenture referred to
in clauses (a) and (b) below, and to have satisfied all of their other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Co-Obligors, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder:  (a) the rights of Holders of outstanding
Notes to receive solely from Funds in Trust (as defined in Section 8.04
hereof and as more fully set forth in such Section) payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Co-Obligors’ obligations with respect to such Notes under
Article Two and Section 4.02 hereof, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and the Co-Obligors’ obligations
in connection therewith and (d) this Article Eight.  Subject to compliance with this
Article Eight, the Co-Obligors may exercise their option under this
Section 8.02 notwithstanding the prior exercise of their option under
Section 8.03 hereof.

 

Section 8.03.          Covenant
Defeasance.

 

Upon the
Co-Obligors’ exercise under Section 8.01 hereof of the option applicable
to this Section 8.03, the Co-Obligors shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from their
obligations, and each Restricted Subsidiary shall be released from its
obligations, under the covenants contained in Sections 4.03, 4.04(a) (to the
extent not required by the TIA), 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.20, 4.21, 5.01 and Article Ten
hereof with respect to the outstanding Notes on and after the date the
conditions set forth in Section 8.04 are satisfied (hereinafter, “Covenant
Defeasance”), and the Notes shall thereafter be deemed not “outstanding”
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed “outstanding” for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes).  For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Co-Obligors and each Restricted Subsidiary may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference
in any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder
of this Indenture and such Notes shall be unaffected thereby.  In addition, upon the Co-Obligors’ exercise
under Section 8.01 hereof of the option applicable to this
Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, Sections 6.01(3) through (6) shall not constitute Events of Default.

 

Section 8.04.          Conditions
to Legal Defeasance or Covenant Defeasance.

 

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

 

106

 

(a)           the Co-Obligors must
irrevocably deposit or cause to be deposited with the Trustee, in trust,
specifically pledged as security for, and dedicated solely to, the benefit of the
Holders of the Notes cash in United States dollars, U.S. Government
Obligations, or a combination thereof (“Funds in Trust”), in such
amounts as, in the aggregate, will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the Stated Maturity
(or on any date after December 15, 2006 (such date being referred to as
the “Defeasance Redemption Date”), if at or prior to electing either
Legal Defeasance or Covenant Defeasance, the Co-Obligors have delivered to the
Trustee an irrevocable notice to redeem all of the outstanding Notes on the
Defeasance Redemption Date);

 

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

 

(c)           in the case of Covenant
Defeasance, the Co-Obligors shall have delivered to the Trustee an opinion of
independent counsel in the United States to the effect that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;

 

(d)           no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than any such Default resulting solely from the borrowing of funds to be
applied to the Funds in Trust);

 

(e)           such Legal Defeasance
or Covenant Defeasance shall not result in a breach or violation of, or
constitute a Default under, this Indenture or any other material agreement or
instrument to which the Company, Duane Reade GP, any Guarantor or any
Restricted Subsidiary is a party or by which any of them is bound (other than
any such Default resulting solely from the borrowing of funds to be applied to
the Funds in Trust);

 

(f)            the Co-Obligors shall
have delivered to the Trustee an Officers’ Certificate stating that the deposit
was not made by the Co-Obligors with the intent of preferring the holders of
the Notes or any Guarantee over the other creditors of the Company, Duane Reade
GP or any Guarantor with the intent of defeating, hindering, delaying or
defrauding creditors of the Company, Duane Reade GP, any Guarantor or others;
and

 

(g)           the Co-Obligors will
have delivered to the Trustee an Officers’ Certificate and an opinion of
independent counsel, each stating that all conditions precedent provided for 

 

107

 

relating to
either the Legal Defeasance or the Covenant Defeasance, as the case may be,
have been complied with.

 

Section 8.05.          Deposited
Money and U.S.  Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions.

 

(a)           Subject to
Section 8.06 hereof, all money and non-callable U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05,
the “Trustee”) pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium and interest, but such money need not be segregated from other funds
except to the extent required by law.

 

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

 

(c)           Anything in this
Article Eight to the contrary notwithstanding, the Trustee shall deliver
or pay to the Co-Obligors from time to time upon the request of the Co-Obligors
any money or non-callable U.S. Government Obligations held by it as provided in
Section 8.04 hereof which, in the opinion of a nationally recognized firm
of independent public accountants, investment bank, or appraisal firm expressed
in a written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.04(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.

 

Section 8.06.          Repayment
to the Co-Obligors.

 

Any money
deposited with the Trustee or any Paying Agent, or then held by the Company or
Duane Reade GP, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Co-Obligors upon their request or (if then held by either of the
Co-Obligors) shall be discharged from such trust; and the Holder of such Note
shall thereafter look only to the Co-Obligors for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Co-Obligors as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense
of the Co-Obligors cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining shall be repaid to the Co-Obligors.

 

108

 

Section 8.07.          Reinstatement.

 

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

 

ARTICLE NINE

Amendment, Supplement and Waiver

 

Section 9.01.          Without
Consent of Holders of Notes.

 

(a)           Notwithstanding
Section 9.02 hereof, the Co-Obligors, the Guarantors, any other obligor
under the Notes and the Trustee may modify, supplement or amend this Indenture,
the Notes, the Intercreditor Agreement or any of the Collateral Documents
without the consent of any Holder of a Note:

 

(1)           to
evidence the succession of another Person to the Company, Duane Reade GP, a
Guarantor or any other obligor under the Notes, and the assumption by any such
successor of the covenants of the Company, Duane Reade GP or such Guarantor or
such obligor in this Indenture and in the Notes and in any Guarantee in
accordance with Section 5.01 hereof;

 

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

 

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

 

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

 

(5)           to
comply with the requirements of the Commission in order to effect or maintain
the qualification of this Indenture under the TIA;

 

109

 

(6)           to
add a Guarantor or additional obligor under this Indenture or permit any Person
to guarantee the Notes and/or obligations under this Indenture;

 

(7)           to
release a Guarantor as provided in this Indenture;

 

(8)           to
comply with the rules of any applicable securities depositary;

 

(9)           to
evidence and provide the acceptance of the appointment of a successor Trustee
under this Indenture;

 

(10)         to
mortgage, pledge, hypothecate or grant a security interest in favor of the
Trustee or the Collateral Agent for the benefit of the Holders of the Notes as
additional security for the payment and performance of the Company’s, Duane
Reade GP’s and any Guarantor’s obligations under this Indenture, in any
property, or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required to be
granted to the Trustee pursuant to this Indenture, the Collateral Documents or
otherwise;

 

(11)         to
provide for the issuance of Additional Notes under this Indenture in accordance
with the limitations set forth in this Indenture;

 

(12)         to
provide for the issuance of the Exchange Notes pursuant to the terms of this
Indenture and the Registration Rights Agreement;

 

(13)         to
provide for the accession or succession of any parties to the Collateral
Documents or the Intercreditor Agreement (and other amendments that are
administrative or ministerial in nature) in connection with an amendment,
renewal, extension, substitution, refinancing, restructuring, replacement,
supplementing or other modification from time to time of the Revolving Credit
Agreement, the Term Loan Agreement or any other agreement or action that is not
prohibited by this Indenture;

 

(14)         to
provide for the release or addition of Collateral in accordance with the terms
of this Indenture and the Collateral Documents; and

 

(15)         to
provide security for additional Term Loans or borrowings under the Revolving
Credit Agreement that are incurred in accordance with this Indenture.

 

(b)           Upon the request of the
Co-Obligors accompanied by a resolution of their Boards of Directors
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.02 and
Section 9.06 hereof, the Trustee shall join with the Co-Obligors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that adversely
affects its own rights, duties or immunities under this Indenture.

 

110

 

Section 9.02.          With
Consent of Holders of Notes.

 

(a)           Except as provided
below in this Section 9.02, the Co-Obligors, the Guarantors, any other
obligor under the Notes and the Trustee may amend or supplement this Indenture,
the Collateral Documents, the Intercreditor Agreement or the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
(including Additional Notes, if any) then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default or compliance with any provision of
this Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including
Additional Notes, if any) (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).  However, without the consent of each Holder
affected, an amendment or waiver under this Section 9.02 may not (with
respect to any Notes held by a non-consenting Holder):

 

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

 

(2)           reduce
the rate of or change the time for payment of interest of any Note;

 

(3)           waive
a Default or Event of Default in the payment of principal of, or interest or
premium, if any, on the Notes (except a rescission of acceleration of the Notes
by the holders of at least a majority in aggregate principal amount of the
Notes and a waiver of the payment default that resulted from such
acceleration);

 

(4)           make
any Note payable in money other than U.S. dollars;

 

(5)           reduce
the percentage in principal amount of such outstanding Notes, the consent of
whose Holders is required for any such amendment or supplemental indenture, or
the consent of whose Holders is required for any waiver or compliance with certain
provisions of this Indenture or the Collateral Documents;

 

(6)           modify
any of the provisions relating to supplemental indentures requiring the consent
of Holders or relating to the waiver of past Defaults or relating to the waiver
of certain covenants, except to increase the percentage of such outstanding
Notes required for such actions or to provide that certain other provisions of
this Indenture or the Collateral Documents cannot be modified or waived without
the consent of the Holder of each such Note affected thereby;

 

(7)           except
as otherwise permitted under Section 5.01 hereof, consent to the
assignment or transfer by the Company, Duane Reade GP or any Guarantor of any
of its rights and obligations under this Indenture;

 

111

 

(8)           voluntarily
release, other than in accordance with this Indenture, any Guarantee of any
Significant Subsidiary; or

 

(9)           permit
the release of Collateral or amend or modify any provisions of the Collateral
Documents in any material respect other than (x) in accordance with the terms
of the Collateral Documents, the Intercreditor Agreement and this Indenture and
(y) as permitted by Section 9.01.

 

(b)           The Co-Obligors may,
but shall not be obligated to, fix a record date for the purpose of determining
the Persons entitled to consent to any indenture supplemental hereto.  If a record date is fixed, the Holders on
such record date, or its duly designated proxies, and only such Persons, shall
be entitled to consent to such supplemental indenture, whether or not such
Holders remain Holders after such record date; provided
that unless such consent shall have become effective by virtue of the requisite
percentage having been obtained prior to the date which is 90 days after such
record date, any such consent previously given shall automatically and without
further action by any Holder be cancelled and of no further effect.

 

(c)           Upon the request of the
Co-Obligors accompanied by a resolution of their Boards of Directors
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence reasonably satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt
by the Trustee of the documents described in Section 9.06 hereof, the
Trustee shall join with the Company in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee’s own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.

 

(d)           It shall not be
necessary for the consent of the Holders of Notes under this Section 9.02
to approve the particular form of any proposed amendment or waiver, but it
shall be sufficient if such consent approves the substance thereof.

 

(e)           After an amendment,
supplement or waiver under this Section becomes effective, the Co-Obligors
shall mail to the Holders of Notes affected thereby a notice briefly describing
the amendment, supplement or waiver.  Any
failure of the Co-Obligors to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver.

 

Section 9.03.          Compliance
with Trust Indenture Act.

 

Every
amendment or supplement to this Indenture or the Notes shall be set forth in an
amended or supplemental Indenture that complies with the TIA as then in effect.

 

Section 9.04.          Revocation
and Effect of Consents.

 

Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder of a Note and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder’s Note, even if notation of the consent is not made on any
Note.  However, any such Holder of a Note
or

 

112

 

subsequent Holder of a Note may revoke the consent as to its Note if
the Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. 
An amendment, supplement or waiver becomes effective in accordance with
its terms and thereafter binds every Holder.

 

Section 9.05.          Notation
on or Exchange of Notes.

 

(a)           The
Trustee may place an appropriate notation about an amendment, supplement or
waiver on any Note thereafter authenticated. 
The Co-Obligors in exchange for all Notes may issue and the Trustee
shall, upon receipt of an Authentication Order, authenticate new Notes that
reflect the amendment, supplement or waiver.

 

(b)           Failure
to make the appropriate notation or issue a new Note shall not affect the validity
and effect of such amendment, supplement or waiver.

 

Section 9.06.          Trustee
to Sign Amendments, Etc.

 

The Trustee shall sign any amended or supplemental indenture or Note
authorized pursuant to this Article Nine if the amendment or supplement
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee.  The Trustee shall authorize
and direct the Collateral Agent to sign amendments approved under the
Indenture.  The Co-Obligors may not sign
an amendment or supplemental Indenture or Note or amendment to any Collateral
Document or the Intercreditor Agreement until their Boards of Directors approve
it.  In executing any amended or
supplemental indenture or Note or amendment to any Collateral Document or the
Intercreditor Agreement, the Trustee shall be entitled to receive and (subject
to Section 7.01 hereof) shall be fully protected in relying upon an
Officers’ Certificate and an Opinion of Counsel stating that the execution of
such amended or supplemental indenture or amendment to any Collateral Document
or the Intercreditor Agreement is authorized or permitted by this Indenture,
the Intercreditor Agreement and the Collateral Documents.

 

ARTICLE TEN

Collateral

 

Section 10.01.        Collateral Documents.

 

(a)           The
payment of all Note/Term Obligations under this Indenture, the Notes and the
Guarantees, when due (whether on an interest payment date, at Stated Maturity,
upon repurchase, upon acceleration, redemption or otherwise) shall be secured
as provided in the Collateral Documents which the Co-Obligors and the
Guarantors have entered into simultaneously with the execution of this
Indenture and shall be secured as provided in by all Collateral Documents
hereafter delivered as required by this Indenture.

 

(b)           Each Holder of Notes,
by its acceptance of a Note, consents and agrees to the terms of each
Collateral Document and the Intercreditor Agreement, authorizes and directs the
Trustee to appoint U.S. Bank National Association as Collateral Agent on the
Issue Date and directs the Collateral Agent to enter into the Collateral
Documents and the Intercreditor Agreement, and authorizes and empowers each of
the Trustee and the Collateral Agent to bind 

 

113

 

the Holders of Notes as set forth in the Collateral Documents and the
Intercreditor Agreement and to perform its respective obligations and exercise
its respective rights and powers thereunder.

 

Section 10.02.        Opinions
of Counsel. 

 

(a)           The
Company shall furnish to the Trustee and the Collateral Agent on
November 30 of each year, beginning November 30, 2005, an Opinion or
Opinions of Counsel, dated as of such date, either stating that, in the opinion
of such counsel, such action has been taken to maintain the Liens of this
Indenture and the Collateral Documents and reciting the details of such action
or referring to prior opinions of counsel in which such details are given, or
stating that, in the opinion of such counsel, no such action is necessary to
maintain such Liens.

 

(b)           The
Co-Obligors and the Guarantors acknowledge that all After-Acquired Property
shall be subject to the terms and conditions of the Collateral Documents.  The Co-Obligors and the Guarantors shall
comply with the provisions of the Collateral Documents with respect to Liens on
After-Acquired Property.

 

Section 10.03.        Possession
and Use of the Collateral. 

 

So long as the Collateral Agent, the Trustee, the Noteholders or other
lenders have not exercised their rights with respect to the Collateral, upon
the occurrence and during the continuance of an Event of Default, the Company,
Duane Reade GP and the Guarantors shall have the right to remain in possession
and retain exclusive control of the Collateral, to operate the Collateral, to
alter or repair the Collateral and to collect, invest and dispose of any income
therefrom.

 

Section 10.04.        Suits to
Protect the Collateral. 

 

Subject
to the terms of the Intercreditor Agreement and the Collateral Documents, the
Trustee shall have power, but without the obligation to exercise such power, to
institute in its name and to maintain such suits and proceedings as it may deem
expedient to prevent any impairment of the Collateral by any acts which may be
unlawful or in violation of this Indenture or any of the Collateral Documents,
and such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders of the Notes in the
Collateral and in the principal, interest, issues, profits, rents, revenues and
other income arising therefrom, including power to institute and maintain suits
or proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid, if the enforcement of, or compliance
with, such enactment, rule or order would impair the security under any of the
Collateral Documents, or be prejudicial to the interests of the Holders of the
Notes or the Trustee.

 

Section 10.05.        Release of
Collateral. 

 

(a)           The
release of any Collateral from the Lien granted under the Collateral Documents
or the release of, in whole or in part, the Liens granted by any of the
Collateral Documents, shall not be deemed to impair the security interests in
contravention of the provisions of the Indenture if and to the extent the
Collateral or Liens are released in accordance with the terms of this Indenture
or of the Collateral Documents and the Intercreditor Agreement.

 

114

 

To the extent applicable and subject to Section 10.06 and
paragraph (c) of this Section 10.05, the Company and the Guarantors shall
comply with Section 314(d) of the TIA, relating to the release of property
or securities from the Lien and security interest of the Collateral Documents and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Collateral Documents.  Any certificate or opinion required by
Section 314(d) of the TIA may be made by an Officer of the Company or the
relevant Guarantor except in cases where Section 314(d) of the TIA
requires that such certificate or opinion be made by an independent Person,
which Person will be an independent engineer, appraiser or other expert
selected or approved by the Trustee in the exercise of reasonable care.  Liens securing the Note/Term Obligations
under the Indenture, the Notes and the Guarantees and the Hedging Obligations
shall, upon compliance with the condition that the Company or Duane Reade GP
delivers to the Trustee all documents required by the Trust Indenture Act,
automatically and without the need for any further action by any Person be
released (so long as such release is in compliance with the Trust Indenture
Act):

 

(1)           in
whole, as to all property subject to such Liens which has been taken by eminent
domain, condemnation or other similar circumstances;

 

(2)           in
whole, as to all property subject to such Liens, upon:

 

(i)            payment
in full of the principal of, accrued and unpaid interest and premium on the
Notes and all other Indenture Obligations; or

 

(ii)           satisfaction
and discharge of this Indenture as set forth under Article Twelve hereof;
or

 

(iii)          Legal
Defeasance or Covenant Defeasance of this Indenture as set forth under
Article Eight hereof;

 

(3)           in
part, as to any property that (a) is sold, transferred or otherwise disposed of
by Holdings, the Company, Duane Reade GP or one of their Subsidiaries in a
transaction not prohibited by this Indenture, at the time of such sale,
transfer or disposition, to the extent of the interest sold, transferred or
disposed of or (b) is owned or at any time acquired by a Guarantor that has
been released from its Guarantee, concurrently with the release of such
Guarantee;

 

(4)           as
to property that constitutes all or substantially all of the Collateral
securing Note/Term Obligations, with the consent of at least 75% in aggregate
principal amount of the then outstanding Note/Term Obligations as a single
class (including, without limitation, consents obtained in connection with a tender
offer or exchange offer for, or purchase of, Notes);

 

(5)           as
to property that constitutes less than all or substantially all of the
Collateral securing Note/Term Obligations, with the consent of at least a
majority in aggregate principal amount of the Notes/Term Obligations then
outstanding voting as a single class (including, without limitation, consents
obtained in connection with a tender offer or exchange offer for, purchase of,
the Notes);

 

115

 

(6)           on
any or all of the Secondary Collateral, upon any release of a first priority
Lien thereon by the Revolving Credit Agent or as otherwise authorized or
directed by the Revolving Credit Agent; provided, however, that if there is
reinstated a Lien securing obligations under the Revolving Credit Agreement on
any or all of the Secondary Collateral upon which the Lien securing Note/Term
Obligations has been released pursuant to this clause (6) then, the Lien
securing the Note/Term Obligations on such Secondary Collateral will also be
deemed reinstated on a second priority basis; and

 

(7)           as
to any Capital Stock or other Securities if such Capital Stock or Securities
(or any portion thereof) shall, after the Issue Date, meet the criteria of any
of clause (ii), (iv) or (v) of the proviso of Section 2.01 of the Security
Agreement.

 

(b)           The
Trustee shall execute and deliver to the Co-Obligors and the Guarantors, at the
Co-Obligor’s and Guarantors’ expense, all documents that such parties shall
reasonably request to evidence such release. 
Such documents shall be without recourse to or warranty by the Trustee.

 

(c)           Notwithstanding
anything to the contrary herein, the Company and Duane Reade GP will not be
required to comply with all or any portion of Section 314(d) of the Trust
Indenture Act if they determine, in good faith based on advice of counsel, that
under the terms of that section and/or any interpretation or guidance as
to the meaning thereof of the Commission and its staff, including “no action”
letters or exemptive orders, all or any portion of Section 314(d) of the
Trust Indenture Act is inapplicable to the released Collateral.

 

(d)           If
any Collateral is released in accordance with the Collateral Documents and the
Intercreditor Agreement (other than as permitted by this Indenture) and if the
Company or Duane Reade GP has delivered the certificates and documents required
by the Collateral Documents and the Intercreditor Agreement, the Trustee shall
determine whether it has received all documentation required by Section 314(d)
of the Trust Indenture Act in connection with such release and, based upon such
determination and the opinion of counsel delivered pursuant to this Indenture,
shall deliver a certificate to the Collateral Agent setting forth such determination.

 

Section 10.06.        Permitted
Ordinary Course Activities with respect to Collateral.

 

(a)           So long as no Default
or Event of Default under this Indenture would result therefrom and such
transaction would not violate the Trust Indenture Act, the Company, Duane Reade
GP and the Guarantors may, without any release or consent by the Trustee or the
Collateral Agent, conduct ordinary course activities with respect to
Collateral, including, without limitation,

 

(i)            selling or otherwise
disposing of, in any transaction or series of related transactions, any
property subject to the Lien of the Collateral Documents which has become worn
out, defective or obsolete or not used or useful in the business;

 

(ii)           abandoning,
terminating, canceling, releasing or making alterations in or substitutions of
any leases or contracts subject to the Lien of this Indenture or any of the
Collateral Documents;

 

116

 

(iii)          surrendering or
modifying any franchise, license or permit subject to the Lien of this
Indenture or any of the Collateral Documents which it may own or under which it
may be operating;

 

(iv)          altering, repairing,
replacing, changing the location or position of and adding to its structures,
machinery, systems, equipment, fixtures and appurtenances;

 

(v)           granting a license of
any intellectual property;

 

(vi)          selling, transferring or
otherwise disposing of inventory in the ordinary course of business;

 

(vii)         selling, collecting,
liquidating, factoring or otherwise disposing of accounts receivable in the
ordinary course of business;

 

(viii)        making cash payments
(including for the scheduled repayment of Indebtedness) from cash that is at
any time part of the Collateral in the ordinary course of business that are not
otherwise prohibited by the Indenture and the Collateral Documents;

 

(ix)           abandoning any
intellectual property which is no longer used or useful in the Company’s
business; and

 

(x)            engage in any other
release of any Collateral as to which release any Commission regulation or
interpretation (including any no-action letter issued by the Staff of the
Commission or exemption order issued by the Commission or pursuant to its
delegated authority, whether issued to the Company or any other Person)
provides that delivery of such opinions or certificates need not be made.

 

(b)           The Co-Obligors and the
Guarantors shall not be required to comply with the requirement to deliver
certificates pursuant to Section 10.05(a) in respect of the release of
Collateral or Liens as described in paragraph (a) of this Section 10.06,
provided that the Company and Duane Reade GP shall deliver to the Collateral
Agent, within 30 calendar days following the end of each six-month period
beginning on January 1 and July 1 of any year, an Officers’
Certificate to the effect that all releases and withdrawals during the
preceding six-month period (or since the Issue Date, in the case of the first
such certificate) in which no release or consent of the Trustee or the
Collateral Agent was obtained were in the ordinary course of the Company’s,
Duane Reade GP’s and the Guarantors’ business and were not prohibited by this
Indenture.

 

Section 10.07.        Actions by
the Trustee. 

 

Subject to the provisions of the Intercreditor Agreement and the
Collateral Documents and Article Six, the Trustee may, but without any
obligation to do so, in its sole discretion and without the consent of the
Holders take all actions it deems necessary or appropriate in order to (i)
enforce any of the terms of the Collateral Documents and (ii) to collect and
receive all amounts payable in respect of the Obligations of the Company, Duane
Reade GP and any Guarantors under the Collateral Documents and this Indenture.
The Trustee shall have the power to institute and maintain such suits and
proceedings as it may deem expedient in order to prevent 

 

117

 

any impairment of the Collateral by any act that may be unlawful or in
violation of this Indenture or the Collateral Documents, and such suits and
proceedings as the Trustee may deem expedient to preserve or protect its
interests and those of the Holders in the Collateral. No duty beyond that set
forth in Section 7.01 is imposed on the Trustee pursuant to this
Section 10.07.  All items to be
delivered to the Trustee pursuant to this Article Ten shall also be
delivered to the Collateral Agent.

 

Section 10.08.        Purchaser
Protected.

 

In no event shall any purchaser in good faith
or other transferee of any Collateral purported to be released hereunder be
bound to ascertain the authority (if any) of the Trustee to direct the
Collateral Agent to execute the release or to inquire as to the satisfaction of
any conditions required by the provisions hereof for the exercise of such
authority or to see to the application of any consideration given by such
purchaser or other transferee; nor shall any purchaser or other transferee of
any Collateral permitted to be sold, disposed of or transferred by this
Article Ten, be under obligation to ascertain or inquire into the authority
of any Co-Obligor or any Guarantor, as applicable, to make any such sale or
other transfer.

 

ARTICLE ELEVEN

Guarantees

 

Section 11.01.        Guarantee.

 

(a)           Subject
to this Article Eleven, each of the Guarantors hereby, jointly and
severally, fully and unconditionally, guarantees on a senior secured basis, to
each Holder of a Note authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, irrespective of the validity and
enforceability of this Indenture, the Notes or the Obligations of the
Co-Obligors hereunder or thereunder, that: 
(i) the principal of, premium, if any, and interest, on the Notes will
be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and interest
on the Notes, if any, if lawful (subject in all cases to any applicable grace
period provided herein), and all other obligations of the Co-Obligors to the
Holders or the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (ii) in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, that same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. 
Failing payment when due of any amount so guaranteed or any performance
so guaranteed for whatever reason, the Guarantors shall be jointly and
severally obligated to pay the same immediately.  Each Guarantor agrees that this is a guarantee of payment and not
a guarantee of collection.

 

(b)           The
Guarantors hereby agree that their Obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against

 

118

 

either of the Co-Obligors, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor.  Subject to
Section 6.06 hereof, each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of either of the Co-Obligors, any right to require a proceeding
first against either of the Co-Obligors, protest, notice and all demands
whatsoever and covenant that this Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and this
Indenture.

 

(c)           If
any Holder or the Trustee is required by any court or otherwise to return to
the Co-Obligors, the Guarantors or any custodian, trustee, liquidator or other
similar official acting in relation to either of the Co-Obligors or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.

 

(d)           Each
Guarantor agrees that it shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all Obligations guaranteed hereby.  Each Guarantor further agrees that, as between the Guarantors, on
the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the Obligations guaranteed hereby may be accelerated as provided in
Article Six hereof for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect
of the Obligations guaranteed hereby, and (y) in the event of any declaration
of acceleration of such Obligations as provided in Article Six hereof,
such Obligations (whether or not due and payable) shall forthwith become due
and payable by the Guarantors for the purpose of this Guarantee.  Each Guarantor that makes a payment or
distribution under its Guarantee shall have the right to seek contribution from
any non-paying Guarantor, in a pro rata
amount based on the net assets of each Guarantor determined in accordance with
GAAP, so long as the exercise of such right does not impair the rights of the
Holders under the Guarantee.

 

(e)           The
Obligations of each Guarantor under its Guarantee pursuant to this
Article Eleven shall rank equally in right of payment with other existing
and future Senior Indebtedness of each of the Guarantors, including the Term
Loans, the Hedging Obligations and guarantees in respect thereof, and senior in
right of payment to all existing and future Subordinated Indebtedness of the
Guarantors.  The Notes shall be
Designated Senior Indebtedness for purposes of the Existing Notes.

 

Section 11.02.        Limitation
on Guarantor Liability.

 

Each Guarantor, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Guarantee of
such Guarantor not constitute a fraudulent transfer or conveyance for purposes
of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar federal or state law to the extent
applicable to any Guarantee.  To
effectuate the foregoing intention, the Trustee, the Holders and the Guarantors
hereby irrevocably agree that the Obligations of such Guarantor will be limited
to the maximum amount which, after giving effect to all other contingent and
fixed liabilities of such Guarantor, and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee 

 

119

 

or pursuant to its contribution Obligations under this
Article Eleven, will result in the Obligations of such Guarantor under its
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
Federal or state law.  Until such time
as the Notes are paid in full, each Guarantor hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under federal Bankruptcy
Law) or otherwise by reason of any payment by it pursuant to the provisions of
this Article Eleven.

 

Section 11.03.        Execution
and Delivery of Guarantee.

 

(a)           To
evidence its Guarantee set forth in Section 11.01, on the Issue Date (i)
each Initial Guarantor shall be required to have a notation of such Guarantee
substantially in the form included in Exhibit F endorsed by one or more
Officers of such Initial Guarantor by manual or facsimile signature on each
Note authenticated and delivered by the Trustee, and (ii) this Indenture shall
be executed on behalf of such Initial Guarantor by one or more of its Officers by
manual or facsimile signature.

 

(b)           Each
Guarantor hereby agrees that its Guarantee set forth in Section 11.01
shall remain in full force and effect notwithstanding any failure to endorse on
each Note a notation of such Guarantee.

 

(c)           If
an Officer whose signature is on this Indenture or on the Guarantee no longer
holds that office at the time the Trustee authenticates the Note on which a
Guarantee is endorsed, the Guarantee shall be valid nevertheless.

 

(d)           The
delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Guarantee set forth in this
Indenture on behalf of the Guarantors.

 

(e)           In
the event that the Company creates or acquires any new Restricted Subsidiary
(other than a Non-Guarantor Restricted Subsidiary that is not required to issue
a Guarantee as described under Section 4.12 hereof) subsequent to the date
of this Indenture, if required by Section 4.12 hereof, the Company shall
cause such Restricted Subsidiary to execute a supplemental indenture to this
Indenture substantially in the form included in Exhibit F and a Guarantee in
accordance with Section 4.12 hereof and this Article Eleven, to the
extent applicable.

 

Section 11.04.        Release of
Guarantors.

 

(a)           A
Guarantor will be deemed automatically and unconditionally released and
discharged from all of its obligations under its Guarantee, without any further
action on the part of the Trustee or any Holder of the Notes:

 

(1)           in connection with any
sale of all of the Capital Stock of a Guarantor to a Person that is not (either
before or after giving effect to such transaction) the Company or a Restricted
Subsidiary, if the sale of all such Capital Stock of that Guarantor complies
with Section 4.11 and Section 4.09 hereof;

 

120

 

(2)           if
such Guarantor is properly designated as a Non-Guarantor Restricted Subsidiary
and is not required to issue a Guarantee of the Notes pursuant to the
provisions of Section 4.12 hereof;

 

(3)           if
the Company properly designates any Restricted Subsidiary that is a Guarantor
as an Unrestricted Subsidiary; or

 

(4)           if
the Notes are discharged or defeased in accordance with the procedures of
Article Eight or Article Twelve hereof.

 

(b)           Any
Guarantor not released from its Obligations under its Guarantee shall remain
liable for the full amount of principal of and interest on the Notes and for
the other Obligations of any Guarantor under this Indenture as provided in this
Article Eleven.

 

ARTICLE TWELVE

Satisfaction and Discharge

 

Section 12.01.        Satisfaction
and Discharge.

 

(a)           This
Indenture will be discharged and will cease to be of further effect (except as
to surviving rights of registration of transfer or exchange of the Notes as
expressly provided for in this Indenture) as to all outstanding Notes under
this Indenture when

 

(i)            either

 

(1)           all
such Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid or Notes whose payment has
been deposited in trust or segregated and held in trust by the Co-Obligors and
thereafter repaid to the Co-Obligors or discharged from such trust as provided
for in this Indenture) have been delivered to the Trustee for cancellation or

 

(2)           all
Notes not theretofore delivered to the Trustee for cancellation (a) have become
due and payable, (b) will become due and payable at their Stated Maturity
within one year, or (c) are to be called for redemption within one year under
arrangements reasonably satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Co-Obligors;

 

(b)           either
of the Co-Obligors or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as funds in trust an amount in United States dollars
(whether in the form of cash or Cash Equivalents) sufficient to pay and
discharge the entire Indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, including principal of, premium, if any, and accrued
interest at such Maturity, Stated Maturity or redemption date;

 

(c)           no
Default or Event of Default shall have occurred and be continuing on the date
of such deposit;

 

121

 

(d)           the
Company, Duane Reade GP or any Guarantor has paid or caused to be paid all
other sums payable under this Indenture by the Company, Duane Reade GP and any
Guarantor;

 

(e)           the
Co-Obligors have delivered to the Trustee an Officers’ Certificate and an
opinion of independent counsel each stating that all conditions precedent under
this Indenture relating to the satisfaction and discharge of this Indenture
have been complied with;  and

 

(f)            the
Co-Obligors have delivered irrevocable instructions to the Trustee hereunder to
apply any deposited money described in clause (b) above to the payment of the
Notes at Maturity, Stated Maturity or the redemption date, as the case may be.

 

Section 12.02.        Deposited
Money and U.S. Government Obligations to be held in Trust; Other Miscellaneous
Provisions.

 

Subject to Section 12.03 hereof, all money and non-callable
U.S.  Government Obligations (including
the proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 12.02, the “Trustee”) pursuant
to Section 12.01 hereof in respect of the outstanding Notes shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium and interest, but such money need not
be segregated from other funds except to the extent required by law.

 

Section 12.03.        Repayment
to the Company.

 

Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to
the Company on its request or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense of the Company cause to be published once, in the New York Times or The
Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.

 

ARTICLE THIRTEEN

Miscellaneous

 

Section 13.01.        Trust
Indenture Act Controls.

 

If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Section 318(c) of the
TIA, the imposed duties shall control.

 

122

 

Section 13.02.        Notices.

 

(a)           Any
notice or communication by either of the Co-Obligors or any Guarantor, on the
one hand, or the Trustee on the other hand, to the other is duly given if in
writing and delivered in Person or mailed by first class mail (registered or
certified, return receipt requested), facsimile or overnight air courier
guaranteeing next day delivery, to the others’ address:

 

If to Duane Reade, Duane GP or any Guarantor:

 

Duane Reade Inc.

440 Ninth Avenue

New York, New York  10001

Facsimile:  212-594-0832

Attention:  John K. Henry, Chief Financial Officer, with
copies to Michelle D. Bergman, Esq., General Counsel

 

with copies to:

 
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas

New York, New York  10019
Facsimile:  212-757-3990

Attention: 
Lawrence G. Wee, Esq.

 

If to the Trustee:

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

Attention:  Susan C. Merker

 

(b)           The
Company, Duane Reade GP, the Guarantors or the Trustee, by notice to the others
may designate additional or different addresses for subsequent notices or
communications.

 

(c)           All
notices and communications (other than those sent to Holders) shall be deemed
to have been duly given: at the time delivered by hand, if personally delivered;
five Business Days after being deposited in the mail, postage prepaid, if
mailed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.

 

(d)           Any
notice or communication to a Holder shall be mailed by first class mail,
certified or registered, return receipt requested, or by overnight air courier
guaranteeing next day delivery to its address shown on the register kept by the
Registrar.  Any notice or communication
shall also be so mailed to any Person described in TIA Section 313(c), to
the 

 

123

 

extent required by the TIA. 
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.

 

(e)           If
a notice or communication is mailed in the manner provided above within the
time prescribed, it is duly given, whether or not the addressee receives it.

 

(f)            If
either of the Co-Obligors mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

 

Section 13.03.        Communication
by Holders of Notes with Other Holders of Notes.

 

Holders may communicate pursuant to Section 312(b) of the TIA with
other Holders with respect to its rights under this Indenture or the
Notes.  The Co-Obligors, the Trustee,
the Registrar and anyone else shall have the protection of Section 312(c)
of the TIA.

 

Section 13.04.        Certificate
and Opinion as to Conditions Precedent.

 

(a)           Upon
any request or application by the Co-Obligors to the Trustee to take any action
under this Indenture, the Co-Obligors shall furnish to the Trustee:

 

(i)            an
Officers’ Certificate in form and substance reasonably satisfactory to the
Trustee (which shall include the statements set forth in Section 13.05
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the proposed
action have been satisfied; and

 

(ii)           to
the extent required under Section 314 of the TIA, an Opinion of Counsel in
form and substance reasonably satisfactory to the Trustee (which shall include
the statements set forth in Section 13.05 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants have been
satisfied.

 

Section 13.05.        Statements
Required in Certificate or Opinion.

 

(a)           Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
Section 314(a)(4)) of the TIA shall comply with the provisions of
Section 314(e) of the TIA and shall include:

 

(i)            a
statement that the Person making such certificate or opinion has read such
covenant or condition;

 

(ii)           a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based;

 

(iii)          a
statement that, in the opinion of such Person, he or she has made such
examination or investigation as is necessary to enable him to express an 

 

124

 

informed
opinion as to whether or not such covenant or condition has been satisfied; and

 

(iv)          a
statement as to whether or not, in the opinion of such Person, such condition
or covenant has been satisfied.

 

Such opinion may be rendered subject to
exceptions and qualifications that are customary for opinions of like tenor.

 

Section 13.06.        Rules by
Trustee and Agents.

 

The Trustee may make reasonable rules for action by or at a meeting of
Holders.  The Registrar or Paying Agent
may make reasonable rules and set reasonable requirements for its functions.

 

Section 13.07.        No
Personal Liability of Directors, Officers, Employees and Stockholders.

 

No director, officer, employee, member or stockholder of either of the
Co-Obligors or any Guarantor, as such, will have any liability for any
obligations of the Co-Obligors or the Guarantors under the Notes, this
Indenture, the Guarantees to which they are a party or the Registration Rights
Agreement, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.

 

Section 13.08.        Governing
Law.

 

THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF THAT WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY
OTHER JURISDICTION.

 

Section 13.09.        No Adverse
Interpretation of Other Agreements.

 

This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or any of its Subsidiaries or of any other
Person.  Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.

 

Section 13.10.        Successors.

 

All agreements of the Co-Obligors in this Indenture and the Notes shall
bind their successors, except as otherwise provided in Section 5.01.  All agreements of the Trustee in this
Indenture shall bind its successors. 
All agreements of each Guarantor in this Indenture shall bind its
successors, except as otherwise provided in Section 5.01.

 

125

 

Section 13.11.        Severability.

 

In case any provision in this Indenture or the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

 

Section 13.12.        Counterpart
Originals.

 

The parties may sign any number of copies of this Indenture.  Each signed copy shall be an original, but
all of them together represent the same agreement.

 

Section 13.13.        Acts of
Holders.

 

(a)           Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by the Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing,
and may be given or obtained in connection with a purchase of, or tender offer
or exchange offer for, outstanding Notes; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Co-Obligors.  Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the “Act” of the Holders
signing such instrument or instruments. 
Proof of execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and conclusive
in favor of the Trustee and the Co-Obligors if made in the manner provided in
this Section 13.13.

 

(b)           The
fact and date of the execution by any Person of any such instrument or writing
may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to such witness, notary or officer the
execution thereof.  Where such execution
is by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of
authority.  The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.

 

(c)           Notwithstanding
anything to the contrary contained in this Section 13.13, the principal
amount and serial numbers of Notes held by any Holder, and the date of holding
the same, shall be proved by the register of the Notes maintained by the
Registrar as provided in Section 2.04 hereof.

 

(d)           If
the Co-Obligors shall solicit from the Holders of the Notes any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Co-Obligors may, at their option, by or pursuant to a resolution of its Board
of Directors, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Co-Obligors shall have no obligation to
do so.  Notwithstanding
Section 316(c) of the TIA, such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days 

 

126

 

prior to the first solicitation of Holders generally in connection
therewith or the date of the most recent list of Holders forwarded to the
Trustee prior to such solicitation pursuant to Section 2.06 hereof and not
later than the date such solicitation is completed.  If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of the then
outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the then outstanding Notes shall be computed as of such record
date; provided that no such
authorization, agreement or consent by the Holders on such record date shall be
deemed effective unless it shall become effective pursuant to the provisions of
this Indenture not later than eleven months after the record date.

 

(e)           Any
request, demand, authorization, direction, notice, consent, waiver or other Act
of the Holder of any Note shall bind every future Holder of the same Note and
the Holder of every Note issued upon the registration or transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Co-Obligors in reliance thereon,
whether or not notation of such action is made upon such Note.

 

(f)            Without
limiting the foregoing, a Holder entitled hereunder to take any action
hereunder with regard to any particular Note may do so itself with regard to
all or any part of the principal amount of such Note or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.

 

(g)           For
purposes of this Indenture, any action by the Holders which may be taken in
writing may be taken by electronic means or as otherwise reasonably acceptable
to the Trustee.

 

Section 13.14.        Benefit of
Indenture.

 

Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any
Registrar and its successors hereunder, and the Holders, any benefit or any
legal or equitable right, remedy or claim under this Indenture.

 

Section 13.15.        Table of
Contents, Headings, Etc.

 

The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

 

Section 13.16.        Intercreditor
Agreement and Collateral Documents.

 

In the event of any conflict between (a) this Indenture (on the one
hand) and (b) the Intercreditor Agreement and the Collateral Documents (on the
other hand), the provisions of the Intercreditor Agreement and the Collateral
Documents shall control unless such compliance would violate the TIA.

 

127

 

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INTENTIONALLY LEFT BLANK]

 

128

 

SIGNATURES

 

	
   

  	
  DUANE READE Inc., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K. Henry

  	
   

  
	
   

  	
  Name: John K. Henry

  
	
   

  	
  Title:  
  Senior Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  
	
   

  	
   

  
	
   

  	
  By: Duane Reade Inc., as General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K. Henry

  	
   

  
	
   

  	
  Name: John K. Henry

  
	
   

  	
  Title:  
  Senior Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DRI I Inc., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K. Henry

  	
   

  
	
   

  	
  Name: John K. Henry

  
	
   

  	
  Title:  
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Duane Reade International, Inc., a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K. Henry

  	
   

  
	
   

  	
  Name: John K. Henry

  
	
   

  	
  Title:  
  Senior Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Duane Reade Realty, Inc., a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K. Henry

  	
   

  
	
   

  	
  Name: John K. Henry

  
	
   

  	
  Title:  
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
					

 

129

 

	
   

  	
  Duane Reade Holdings, Inc., a Delaware
  corporation

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K. Henry

  	
   

  
	
   

  	
  Name: John K. Henry

  
	
   

  	
  Title:  
  Senior Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. Bank National Association,

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Hopkins

  	
   

  
	
   

  	
  Name: Michael Hopkins

  
	
   

  	
  Title:  
  Vice President

  

 

130

 

EXHIBIT A

 

FORM
OF NOTE

 

[Face of Note]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE
CO-OBLIGORS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.  OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO.  OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

 

THIS GLOBAL
NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS
NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS
HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT
THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT
TO SECTION 2.07 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN
WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.07(a) OF THE INDENTURE, (3)
THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.12 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED
TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE CO-OBLIGORS.

 

THIS NOTE AND
THE GUARANTEES ENDORSED HEREON HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES
LAWS.  NEITHER THIS NOTE, THE GUARANTEES
ENDORSED HEREON, NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  THE HOLDER OF THIS NOTE AND THE GUARANTEES
ENDORSED HEREON, BY ITS ACCEPTANCE HEREOF, AGREES NOT TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, EXCEPT THAT THE NOTES AND GUARANTEES MAY BE
TRANSFERRED (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES AND THE GUARANTEES ENDORSED THEREON ARE ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON IT
REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A

 

A1-1

 

THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES TO NON-U.S. 
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN OFFSHORE TRANSACTIONS
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE
40-DAY “DISTRIBUTION COMPLIANCE PERIOD” WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND (2) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.

 

[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).](1) 

 

(1) Insert if a Regulation S Temporary Global Note.

 

A1-2

 

CUSIP
[        ]

 

	
  No.
             

  	
  $                    

  

 

DUANE
READE INC.

 

DUANE
READE

 

Senior Secured Floating Rate
Notes due 2010

 

Duane Reade
Inc., a Delaware corporation (the “Company”) and Duane Reade, a New York
general partnership (“Duane Reade GP”, and together with the Company,
the “Co-Obligors”), which terms include any successor under the
Indenture hereinafter referred to, for value received, promises to pay to CEDE
& CO., or its registered assigns, the principal sum of [Amount of Note]
($[         ]) UNITED STATES DOLLARS on
December 15, 2010.

 

Interest Payment Dates: 
March 15, June 15, September 15 and December 15 of
each year, commencing March 15, 2005.

 

Regular Record Dates: 
March 1, June 1, September 1 and December 1 of each
year.

 

Reference is
hereby made to the further provisions of this Note set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as
if set forth at this place.

 

 

	
  Date of
  Issuance: 

  	
   

  	
   

  

 

A1-3

 

IN WITNESS
WHEREOF, the Co-Obligors have caused this Note to be signed manually or by
facsimile by their duly authorized officers.

 

	
   

  	
  DUANE READE INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  
	
   

  	
   

  
	
   

  	
  By: Duane Reade Inc., as General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
					

 

A1-4

 

(Form of Trustee’s Certificate
of Authentication)

 

This is one of the Senior Secured Floating
Rate Notes due 2010 described in the within-mentioned Indenture.

 

	
   

  	
  U.S. Bank National Association,

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
  Authorized
  Signatory

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
						

 

A1-5

 

[Reverse Side of Note]

 

DUANE
READE INC.

DUANE
READE

 

Senior Secured Floating Rate
Notes due 2010

 

Capitalized
terms used herein shall have the meanings assigned to them in the Indenture referred
to below unless otherwise indicated.

 

1.  Interest.  The Co-Obligors promise to pay interest on the principal amount
of this Note at a floating rate per annum, reset quarterly, equal to LIBOR (as
defined below) plus 4.50%, as determined by the calculation agent (the “Calculation
Agent”), which shall initially be the Trustee [and shall pay the Liquidated
Damages, if any, payable pursuant to the Registration Rights Agreement, dated
December 20, 2004 referred to below]*. 
The Co-Obligors shall pay interest [and Liquidated Damages, if any,]*
quarterly in cash on each March 15, June 15, September 15 and
December 15, or if any such day is not a Business Day, on the next
succeeding Business Day (each an “Interest Payment Date”), to the
Holders of record on the immediately preceding March 1, June 1,
September 1 and December 1. 
Interest on the Notes shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance (the “Issue Date”); provided
that if there is no existing Default in the payment of interest, and if this
Note is authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided
further that the first Interest Payment Date shall be March 15, 2005.  The Co-Obligors shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest [and Liquidated Damages]* (without regard
to any applicable grace periods) from time to time on demand at the same rate
to the extent lawful.  If a payment date
is not a Business Day, payment may be made on the next succeeding day that is a
Business Day, and no interest shall accrue on such payment for the intervening
period.

 

“Determination
Date” means, with respect to an Interest Period, the second London Banking
Day preceding the first day of such Interest Period.

 

“Interest
Period” means the period commencing on and including an interest payment
date and ending on and including the day immediately preceding the next
succeeding interest payment date, with the exception that the first Interest
Period shall commence on and include the Issue Date and end on and include
March 14, 2005.

 

“LIBOR,” with respect to an Interest Period,
will be the rate (expressed as a percentage per annum) for deposits in United
States dollars for a three-month period beginning on the second London Banking
Day after the Determination Date that appears on Telerate Page 3750 as of 11:00
a.m., London time, on the Determination Date. 
If Telerate Page 3750 does not include such a rate or is unavailable on
a Determination Date, the Calculation Agent will request

* Not to be included for Exchange Notes.

 

A1-6

 

the principal
London office of each of four major banks in the London interbank market, as
selected by the Calculation Agent, to provide such bank’s offered quotation
(expressed as a percentage per annum), as of approximately 11:00 a.m., London
time, on such Determination Date, to prime banks in the London interbank market
for deposits in a Representative Amount in United States dollars for a
three-month period beginning on the second London Banking Day after the
Determination Date.  If at least two
such offered quotations are so provided, LIBOR for the Interest Period will be
the arithmetic mean of such quotations. 
If fewer than two such quotations are so provided, the Calculation Agent
will request each of three major banks in New York City, as selected by the
Calculation Agent, to provide such bank’s rate (expressed as a percentage per
annum), as of approximately 11:00 a.m., New York City time, on such
Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a three-month period beginning on the
second London Banking Day after the Determination Date.  If at least two such rates are so provided,
LIBOR for the Interest Period will be the arithmetic mean of such rates.  If fewer than two such rates are so
provided, then LIBOR for the Interest Period will be LIBOR in effect with
respect to the immediately preceding Interest Period.

 

“London
Banking Day” is any day in which dealings in United States dollars are
transacted or, with respect to any future date, are expected to be transacted
in the London interbank market.

 

“Representative
Amount” means a principal amount of not less than U.S. $1,000,000 for a
single transaction in the relevant market at the relevant time.

 

“Telerate
Page 3750” means the display designated as “Page 3750” on the Moneyline
Telerate service (or such other page as may replace Page 3750 on that service).

 

The amount of
interest for each day that the Notes are outstanding (the “Daily Interest
Amount”) will be calculated by dividing the interest rate in effect for
such day by 365 and multiplying the result by the principal amount of the
Notes.  The amount of interest to be
paid on the Notes for each Interest Period will be calculated by adding the
Daily Interest Amounts for each day in the Interest Period.

 

All
percentages resulting from any of the above calculations will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point being rounded upwards (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or. 0987655)) and all
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent being rounded upwards).

 

The interest
rate on the Notes will in no event be higher than the maximum rate permitted by
New York law as the same may be modified by United States law of general
application.

 

The
Calculation Agent will, upon the request of the Holder of any Note, provide the
interest rate then in effect with respect to the Notes.  All calculations made by the Calculation
Agent in the absence of manifest error will be conclusive for all purposes and
binding on the Company, Duane Reade GP, the Guarantors and the Holders of the
Notes.

 

A1-7

 

[This Exchange
Note was issued in connection with the Exchange Offer pursuant to which the
Senior Secured Floating Rate Notes due 2010 in like principal amount were exchanged
for Exchange Notes.  The Exchange Notes
rank pari passu in right of
payment with the Initial Notes.  For any
period in which the Initial Note exchanged for this Exchange Note was
outstanding, Liquidated Damages may be due and owing on the Initial Note in
connection with the Registration Rights Agreement.]**

 

2.  Method of Payment.  The Co-Obligors shall pay interest on the
Notes (except defaulted interest [and Liquidated Damages]*, if any) to the
Persons who are registered Holders of Notes at the close of business on the
March 1, June 1, September 1 and December immediately
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.13 of the Indenture with respect to defaulted interest.  [The Co-Obligors shall pay all Liquidated
Damages, if any, on the Interest Payment Date of its choosing and in the
amounts set forth in the Registration Rights Agreement.]*  The Notes shall be payable as to principal,
premium [and Liquidated Damages]*, if any, and interest at the office or agency
of the Co-Obligors maintained for such purpose in The City of New York, or, at
the option of the Company, payment of interest [and Liquidated Damages, if
any,]* may be made by check mailed to the Holders at their addresses set forth
in the register of Holders, and provided that payment by wire transfer of
immediately available funds shall be required with respect to principal of and
interest, premium [and Liquidated Damages]*, if any, on, all Global Notes and
all other Notes the Holders of which shall have provided wire transfer
instructions to the Co-Obligors or the Paying Agent.  Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.

 

3.  Paying Agent and Registrar.  Initially, U.S. Bank National Association,
the Trustee under the Indenture, shall act as Paying Agent and Registrar.  The Co-Obligors may change any Paying Agent
or Registrar without notice to any Holder. 
The Company or any of its Subsidiaries may act in any such capacity.

 

4.  Indenture.  The Co-Obligors issued the Notes pursuant to an Indenture, dated
as of December 20, 2004 (the “Indenture”) among the Co-Obligors,
the Guarantors and the Trustee. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the TIA of
1939, as amended.  The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms.  To the extent
any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling.  The Indenture pursuant to which this Note is
issued provides that an unlimited amount of Additional Notes may be issued
thereunder, subject to compliance with the covenants therein.  The Co-Obligors hereby designate the
Obligations under this Indenture, the Notes and the Guarantees to be
“Designated Senior Indebtedness” for purposes of the Existing Notes Indenture.

 

** For Exchange Notes.

* Not to be included for Exchange Notes.

 

A1-8

 

5. Option
to Purchase.  Upon or after the
occurrence of an Event of Default or event of default under any Term Loan
Agreement and the acceleration of any Note/Term Obligations, persons designated
by the Revolving Credit Agent shall have the option to purchase all of the
Notes. The purchase price for the Notes shall be the full amount of such Notes
outstanding (including principal, interest, fees and expenses, including
reasonable attorneys’ fees and legal expenses but excluding any premium). The
terms and procedure for such a purchase shall be as set forth in the
Intercreditor Agreement. Such a repurchase may occur notwithstanding the
limitations on optional redemptions of Notes set forth below. Similarly,
Holders of the Notes may purchase Revolving Loan Obligations under similar
circumstances and at similar terms.

 

6.  Optional Redemption.  (a) 
After December 15, 2006, the Co-Obligors, on one or more occasions
may redeem for cash all or a portion of the Notes, on not less than 30 nor more
than 90 days’ prior notice, in amounts of $1,000 or whole multiples of $1,000
in excess thereof at the following redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
additional interest, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 15 of the
years indicated below:

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
  2006

  	
   

  	
  102.00

  	
  %

  
	
  2007

  	
   

  	
  101.00

  	
  %

  
	
  2008 and
  thereafter

  	
   

  	
  100.00

  	
  %

  

 

(b)           At
any time prior to December 15, 2006, the Company, DRS LLC or Holdings, at
the Company’s option, may use the net proceeds of one or more Equity Offerings
to redeem on one or more occasions up to an aggregate of 35% of the aggregate
principal amount of Notes issued under the Indenture (including the principal
amount of any Additional Notes issued under the Indenture but without
duplication with respect to any Exchange Notes issued under the Indenture) at a
redemption price equal to 100% of the principal amount thereof plus a premium
equal to the interest rate per annum on the Notes applicable on the date on
which notice is given, plus accrued and unpaid interest, if any, to the
redemption date (subject to the rights of holders of record on relevant record
dates to receive interest due on an interest payment date); provided that this redemption provision
shall not be applicable with respect to any transaction that results in a
Change of Control; provided, further,
that if the proceeds of an Equity Offering are used for redemption, all of such
proceeds are first contributed to the equity capital of the Company on a
non-recourse basis. At least 65% of the aggregate principal amount of Notes
(including the principal amount of any Additional Notes issued under the
Indenture but without duplication with respect to any Exchange Notes issued
under the Indenture) must remain outstanding immediately after the occurrence
of such redemption. In order to effect this redemption, the Company, DRS LLC or
Holdings, as the case may be, must complete such redemption within 90 days
after the closing of the Equity Offering.

 

7.  Mandatory Redemption.  The Co-Obligors shall not be required to
make mandatory redemption or sinking fund payments with respect to the Notes.

 

A1-9

 

8.  Repurchase at Option of Holders.

 

(a)           Upon the occurrence of
a Change of Control, each Holder may require the Co-Obligors to purchase such
Holder’s Notes in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to a Change of Control Offer in accordance with the procedures set
forth in the Indenture.

 

(b)           Under certain
circumstances described in the Indenture, the Co-Obligors will be required to
apply the proceeds of Asset Sales to the repayment of the Notes and/or Pari
Passu Indebtedness.

 

9.  Selection and Notice of Redemption.  If less than all of the Notes are to be
redeemed or purchased in an offer to purchase at any time, the Trustee shall
select the Notes to be redeemed or purchased among the Holders of the Notes not
more than 90 days prior to the redemption date in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance
with any other method the Trustee considers fair and reasonable.  Redemptions pursuant to Section 3.07(b)
of the Indenture shall be made on a pro rata
basis or on as nearly a pro rata
basis as practicable (subject to the provisions of the Depositary).  In the event of partial redemption by lot,
the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 90 days prior to the redemption
date by the Trustee from the outstanding Notes not previously called for
redemption.  Notices of redemption may
not be conditional.  If any Note is to
be redeemed in part only, the notice of redemption that relates to that Note
will state the portion of the principal amount thereof to be redeemed.  A new Note in principal amount equal to the
unredeemed portion of the original Note will be issued in the name of the
Holder thereof upon cancellation of the original Note.  Notes called for redemption become due on
the date fixed for redemption.  On and
after the redemption date, interest [and Liquidated Damages, if any,]* if any,
cease to accrue on Notes or portions of them called for redemption.

 

10.  Denominations, Transfer, Exchange.  The Notes are in registered form without
coupons in denominations of $5,000 and integral multiples of $1,000 in excess
thereof.  The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture.  The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Co-Obligors may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. 
The Co-Obligors are  not required to transfer or exchange any
Note selected for redemption.  Also, the
Co-Obligors are  not required to transfer or exchange any Note for a period of
15 days before a selection of Notes to be redeemed.

 

11.  Persons Deemed Owners.  The registered Holder of a Note will be treated
as its owner for all purposes.

 

* Not to be included for Exchange Notes.

 

A1-10

 

12.  Amendment, Supplement and Waiver.  The Indenture, the Collateral Documents, the
Intercreditor Agreement or the Notes may be amended or supplemented only as
provided in the Indenture.

 

13.  Defaults.  In the case of an Event of Default arising from certain events of
bankruptcy or insolvency specified in the Indenture, with respect to the
Company or any Significant Subsidiary, all outstanding Notes will become due
and payable immediately without further action or notice.  If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may, and the Trustee at the request of such Holders
shall, declare all unpaid principal of premium, if any, and accrued interest on
all Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Holders of the Notes) and upon any
such declaration, such principal, premium, if any, and interest shall become
due and payable immediately. The Trustee may withhold from Holders of the Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest. 
The Holders of not less than a majority in aggregate principal amount of
the Notes outstanding by notice to the Trustee may on behalf of the Holders of
all outstanding Notes waive any past Default and its consequences under the
Indenture except a Default (1) in the payment of the principal of, premium, if
any, or interest on any Note (which may only be waived with the consent of each
Holder of Notes affected) or (2) in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
Holder of each Note affected by such modification or amendment.

 

14.  Security
Interest.  The Notes will be
secured, to the extent and in the manner provided in the Collateral Documents,
by (i) a first priority Lien on the Primary Collateral, and (ii) a second
priority Lien on the Secondary Collateral. 
Each Noteholder, by its acceptance of a Note, consents and agrees to the
terms of each Collateral Document and the Intercreditor Agreement,  authorizes and directs the Trustee to
appoint U.S. Bank National Association as Collateral Agent on the Issue Date and
directs the Collateral Agent to enter into the Collateral Documents and the
Intercreditor Agreement, and authorizes and empowers each of the Trustee and
the Collateral Agent to bind the Holders of Notes as set forth in the
Collateral Documents and the Intercreditor Agreement and to perform its respective
obligations and exercise its respective rights and powers thereunder.  In the event of any conflict between (a) the
Indenture (on the one hand) and (b) the Intercreditor Agreement and the
Collateral Documents (on the other hand), the provisions of the Intercreditor
Agreement and Collateral Documents shall control unless such compliance would
violate the TIA.

 

15.  Trustee Dealings with the Co-Obligors.  The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Co-Obligors or their  Affiliates, and may otherwise deal with
the Co-Obligors or their  Affiliates, as if it were not the Trustee.

 

16.  No Recourse Against Others.  No director, officer, employee, member or
stockholder of either of the Co-Obligors or any Guarantor, as such, will have
any liability for any obligations of the Co-Obligors or the Guarantors under
the Notes, the Indenture, the Guarantees  or the Registration Rights Agreement, or
for any claim based on, in respect of, or by reason of,

 

A1-11

 

such
obligations or their creation.  Each
holder of Notes by accepting a Note waives and releases all such
liability.  The waiver and release are
part of the consideration for issuance of the Notes.  The waiver may not be effective to waive liabilities under the
federal securities laws.

 

17.  Authentication.  This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.

 

18.  Additional Rights of Holders of
Restricted Global Notes and Restricted Definitive Notes.  In addition to the rights provided to
Holders under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes issued on the Issue Date shall have all the rights set forth
in the Registration Rights Agreement dated as of December 20, 2004, among
the Co-Obligors, the Guarantors and the parties named on the signature pages
thereof.

 

19.  CUSIP Numbers.  Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Co-Obligors
have caused CUSIP numbers to be printed on the Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders.  No representation is made as to the accuracy
of such numbers either as printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification numbers
placed thereon.

 

20.  Governing Law.  This Note shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflicts of laws principles thereof that would indicate the applicability
of the laws of any other jurisdiction.

 

The
Co-Obligors  shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.  Requests may be made to:

 

DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

Facsimile:  212-594-0832

Attention:  Chief Financial Officer

 

A1-12

 

ASSIGNMENT FORM

 

To assign this
Note, fill in the form below:

 

	
  (I) or (we) assign and transfer this Note
  to: 

  	
   

  
	
  (Insert
  assignee’s legal name)

  
	
   

  
	
   

  
	
  (Insert
  assignee’s soc. sec. or tax I.D. no.)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  (Print or
  type assignee’s name, address and zip code)

  
	
   

  
	
  and irrevocably appoint

  
	
   

  
	
  to transfer this Note on the books of the
  Company.  The agent may substitute
  another to act for him.

  

 

	
  Date:

  	
   

  	
   

  
	
   

  
	
   

  	
  Your Signature:

  	
   

  
	
   

  	
   

  	
  (Sign exactly as your name appears on the face
  of this Note)

  
					

 

Signature Guarantee*:

 

* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).

 

A1-13

 

OPTION
OF HOLDER TO ELECT PURCHASE

 

If you want to
elect to have this Note purchased by the Co-Obligors pursuant to
Section 4.11 or 4.20 of the Indenture, check the appropriate box below:

 

o Section 4.11      o
Section 4.20

 

If you want to
elect to have only part of the Note purchased by the Co-Obligors  pursuant
to Section 4.11 or Section 4.20 of the Indenture, state the amount
you elect to have purchased:

 

	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Your Signature:

  	
   

  
	
   

  	
   

  	
  (Sign exactly as your name appears on the
  face of this Note)

  
	
   

  	
   

  
	
   

  	
  Tax Identification No.:

  	
   

  
	
   

  	
   

  
	
  Signature Guarantee*:

  	
   

  	
   

  	
   

  
											

 

*  Participant in a recognized
Signature Guarantee Medallion Program (or other signature guarantor acceptable
to the Trustee).

 

A1-14

 

SCHEDULE OF
EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

 

The following
exchanges of a part of this Global Note for an interest in another Global Note
or for a Definitive Note, or exchanges of a part of another Global Note or
Definitive Note for an interest in this Global Note, have been made:

 

	
  Date of Exchange

  	
   

  	
  Amount of Decrease

  in Principal Amount

  at Maturity of this

  Global Note

  	
   

  	
  Amount of Increase in

  Principal Amount at

  Maturity of this

  Global Note

  	
   

  	
  Principal Amount

  Maturity of this

  Global Note

  Following such

  Decrease (or Increase)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

A1-15

 

EXHIBIT B

 

FORM
OF CERTIFICATE OF TRANSFER

 

DUANE READE
INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

Attention: Susan C. Merker

 

Re:    Senior Secured Floating Rate Notes due 2010

 

Reference is hereby made to the
Indenture, dated as of December 20, 2004 (the “Indenture”), among
Duane Reade Inc., a Delaware corporation (the “Company”) and Duane
Reade, a New York general partnership (“Duane Reade GP”, and together
with the Company, the “Co-Obligors”), the Guarantors and U.S. Bank
National Association, as trustee. 
Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

 

                                              
(the “Transferor”) owns and proposes to transfer the Note[s] or interest
in such Note[s] specified in Annex A hereto, in the principal amount at
maturity of $                    
in such Note[s] or interests (the “Transfer”), to                                                     
(the “Transferee”), as further specified in Annex A hereto.  In connection with the Transfer, the
Transferor hereby certifies that:

 

[CHECK ALL THAT APPLY]

 

o                             1.             Check
if Transferee will take delivery of a beneficial interest in the 144A Global
Note or a Definitive Note Pursuant to Rule 144A.  The Transfer is being effected pursuant to and in accordance with
Rule 144A under the United States Securities Act of 1933, as amended (the “Securities
Act”), and, accordingly, the Transferor hereby further certifies that the
beneficial interest or Definitive Note is being transferred to a Person that
the Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a “qualified institutional buyer” within
the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A
and such Transfer is in compliance with any applicable blue sky securities laws
of any state of the United States.  Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.

 

B-1

 

o                             2.             Check
if Transferee will take delivery of a beneficial interest in the Regulation S
Temporary Global Note, the Regulation S Permanent Global Note or a Definitive
Note pursuant to Regulation S.  The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor hereby further
certifies that (i) the Transfer is not being made to a person in the United
States and (x) at the time the buy order was originated, the Transferee was
outside the United States or such Transferor and any Person acting on its
behalf reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was an offshore transaction executed in, on or
through the facilities of a designated offshore securities market and neither
such Transferor nor any Person acting on its behalf knows that the transaction
was prearranged with a buyer in the United States, (ii) no directed selling
efforts have been made in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is
not part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a
U.S.  Person or for the account or
benefit of a U.S.  Person (other than an
Initial Purchaser).  Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Permanent Global Note, the Regulation S Temporary Global Note
and/or the Definitive Note and in the Indenture and the Securities Act.

 

o                             3.             Check
and complete if Transferee will take delivery of a beneficial interest in the IAI
Global Note or a Definitive Note pursuant to any provision of the Securities
Act other than Rule 144A or Regulation S. 
The Transfer is being effected in compliance with the transfer
restrictions applicable to beneficial interests in Restricted Global Notes and
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act and any applicable blue sky securities laws of any state of the
United States, and accordingly the Transferor hereby further certifies that
(check one):

 

(a)           such Transfer is being
effected pursuant to and in accordance with Rule 144 under the Securities Act;

 

or

 

(b)           such Transfer is being
effected to the Company or a subsidiary thereof;

 

or

 

(c)           such Transfer is being
effected pursuant to an effective registration statement under the Securities
Act and in compliance with the prospectus delivery requirements of the
Securities Act;

 

or

 

(d)           such Transfer is being
effected to an Institutional Accredited Investor and pursuant to an exemption
from the registration requirements of the Securities Act other than Rule 144A,
Rule 144 or Rule 904, and the Transferor hereby further certifies that it has
not engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the

 

B-2

 

Transfer
complies with the transfer restrictions applicable to beneficial interests in a
Restricted Global Note or Restricted Definitive Notes and the requirements of
the exemption claimed, which certification is supported by (1) a certificate
executed by the Transferee in the form of Exhibit D to the Indenture and (2) an
Opinion of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act.  Upon consummation of the proposed transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the IAI Global Note
and/or the Definitive Notes and in the Indenture and the Securities Act.

 

o                             4.             Check
if Transferee will take delivery of a beneficial interest in an Unrestricted
Global Note or of an Unrestricted Definitive Note.

 

(a)           Check if Transfer is
Pursuant to Rule 144.  (i) The Transfer
is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. 
Upon consummation of the proposed Transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Note will
no longer be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.              o

 

(b)           Check if Transfer is
Pursuant to Regulation S.  (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. 
Upon consummation of the proposed Transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Note will no
longer be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.           o

 

(c)           Check if Transfer is
Pursuant to Other Exemption.  (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. 
Upon consummation of the proposed Transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Note will
not be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes or Restricted
Definitive Notes and in the Indenture.  o

 

This
certificate and the statements contained herein are made for your benefit and
the benefit of the Co-Obligors.

 

B-3

 

	
   

  	
   

  
	
   

  	
  [Insert Name of Transferor]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
					

 

B-4

 

ANNEX
A TO CERTIFICATE OF TRANSFER

 

1.             The Transferor owns
and proposes to transfer the following:

 

[CHECK ONE OF (A) OR (B)]

 

o                             (A)          a
beneficial interest in the:

 

(i)            144A
Global Note (CUSIP           );
or

 

(ii)           Regulation
S Global Note (CUSIP           );
or

 

(iii)          IAI
Global Note (CUSIP                 );
or

 

o                             (B)           a
Restricted Definitive Note.

 

2.             After the Transfer
the Transferee will hold:

 

[CHECK ONE]

 

o                             (A)          a
beneficial interest in the:

 

(iv)          144A
Global Note (CUSIP           );
or

 

(v)           Regulation
S Global Note (CUSIP           );
or

 

(vi)          IAI
Global Note (CUSIP           );
or

 

(vii)         Unrestricted
Global Note (CUSIP           );
or

 

o                             (B)           a
Restricted Definitive Note; or

 

o                             (C)           an
Unrestricted Definitive Note,

 

in accordance with the terms of the Indenture.

 

B-5

 

EXHIBIT C

 

FORM
OF CERTIFICATE OF EXCHANGE

 

DUANE READE
INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

Attention:     Susan C. Merker

 

Re:    Senior Secured Floating Rate Notes due 2010

 

Reference is hereby made to the
Indenture, dated as of December 20, 2004 (the “Indenture”), among
Duane Reade Inc., a Delaware corporation (the “Company”) and Duane
Reade, a New York general partnership (“Duane Reade GP”, and together
with the Company, the “Co-Obligors”), the Guarantors and U.S. Bank
National Association, as trustee. 
Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

 

                                          
(the “Owner”) owns and proposes to exchange the Note[s] or interest in
such Note[s] specified herein, in the principal amount at maturity of $               
in such Note[s] or interests (the “Exchange”).  In connection with the Exchange, the Owner hereby certifies that:

 

1.             Exchange
of Restricted Definitive Notes or Beneficial Interests in a Restricted Global
Note for Unrestricted Definitive Notes or Beneficial Interests in an
Unrestricted Global Note

 

(a)           Check if Exchange is
from beneficial interest in a Restricted Global Note to beneficial interest in
an Unrestricted Global Note.  In
connection with the Exchange of the Owner’s beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an
equal principal amount at maturity, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner’s own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and in accordance
with the United States Securities Act of 1933, as amended (the “Securities
Act”), (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the beneficial interest in an Unrestricted Global
Note is being acquired in compliance with any applicable blue sky securities
laws of any state of the United States.   
o

 

(b)           Check if Exchange is
from beneficial interest in a Restricted Global Note to Unrestricted Definitive
Note.  In connection with the Exchange
of the Owner’s beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby

 

C-1

 

certifies (i)
the Definitive Note is being acquired for the Owner’s own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Restricted Global Notes and pursuant to and in
accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the Definitive
Note is being acquired in compliance with any applicable blue sky securities
laws of any state of the United States.                            o

 

(c)                           Check
if Exchange is from Restricted Definitive Note to beneficial interest in an
Unrestricted Global Note.  In connection
with the Owner’s Exchange of a Restricted Definitive Note for a beneficial
interest in an Unrestricted Global Note, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner’s own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to Restricted Definitive Notes and pursuant to and in
accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.           o

 

(d)           Check if Exchange is
from Restricted Definitive Note to Unrestricted Definitive Note.  In connection with the Owner’s Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner’s own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.       o

 

2.             Exchange
of Restricted Definitive Notes or Beneficial Interests in Restricted Global
Notes for Restricted Definitive Notes or Beneficial Interests in Restricted
Global Notes

 

(a)           Check if Exchange is
from beneficial interest in a Restricted Global Note to Restricted Definitive
Note.  In connection with the Exchange
of the Owner’s beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount at maturity, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner’s
own account without transfer.  Upon
consummation of the proposed Exchange in accordance with the terms of the
Indenture, the Restricted Definitive Note issued will continue to be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on the Restricted Definitive Note and in the Indenture and the Securities
Act.   o

 

(b)           Check if Exchange is
from Restricted Definitive Note to beneficial interest in a Restricted Global
Note.  In connection with the Exchange
of the Owner’s Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global
Note with an equal principal amount at maturity, the Owner hereby certifies (i)
the beneficial interest is being acquired for the Owner’s own account

 

C-2

 

without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States.  Upon consummation of the proposed Exchange
in accordance with the terms of the Indenture, the beneficial interest issued
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.         o

 

This
certificate and the statements contained herein are made for your benefit and
the benefit of the Co-Obligors.

 

	
   

  	
   

  
	
   

  	
  [Insert Name of Transferor]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
					

 

C-3

 

EXHIBIT D

 

FORM
OF CERTIFICATE FROM

ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

 

DUANE READE
INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

 

Re:  Senior Secured Floating Rate Notes due 2010

 

Reference is
hereby made to the Indenture, dated as of December 20, 2004, as
supplemented (the “Indenture”), among Duane Reade Inc., a Delaware
corporation (the “Company”) and Duane Reade, a New York general
partnership (“Duane Reade GP”, and together with the Company, the “Co-Obligors”),
the Guarantors and U.S. Bank National Association, as trustee.  Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

 

In connection
with our proposed purchase of
$                       
aggregate principal amount at maturity of:

 

(a)           beneficial interest in
a Global Note, or

 

(b)           a Definitive Note,

 

we confirm
that:

 

1.             We
understand that any subsequent transfer of the Notes or any interest therein is
subject to certain restrictions and conditions set forth in the Indenture and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes or any interest therein except in compliance with, such
restrictions and conditions and the United States Securities Act of 1933, as
amended (the “Securities Act”).

 

2.             We
understand that the offer and sale of the Notes have not been registered under
the Securities Act, and that the Notes and any interest therein may not be
offered or sold except as permitted in the following sentence.  We agree, on our own behalf and on behalf of
any accounts for which we are acting as hereinafter stated, that if we should
sell the Notes or any interest therein, we will do so only (A) to the Company
or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a “qualified institutional buyer” (as defined therein), (C)
to an institutional “accredited investor” (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you and to the Company a signed letter substantially in the
form of this letter and an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144(k) under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further

 

D-1

 

agree to
provide to any person purchasing the Definitive Note or beneficial interest in
a Global Note from us in a transaction meeting the requirements of clauses (A)
through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.

 

3.             We
understand that, on any proposed resale of the Notes or beneficial interest
therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions.  We further
understand that the Notes purchased by us will bear a legend to the foregoing
effect.

 

4.             We
are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act) and have such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of our investment in the Notes, and we and any accounts
for which we are acting are each able to bear the economic risk of our or its
investment.

 

5.             We
are acquiring the Notes or beneficial interest therein purchased by us for our
own account or for one or more accounts (each of which is an institutional
“accredited investor”) as to each of which we exercise sole investment
discretion.

 

You and the
Co-Obligors are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.

 

	
   

  	
   

  
	
   

  	
  [Insert Name of Transferor]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
					

 

D-2

 

EXHIBIT E

 

FORM
OF NOTATION OF GUARANTEE

 

For value
received, each Guarantor (which term includes any successor Person under the
Indenture) has, jointly and severally, fully and unconditionally and
irrevocably guaranteed on a senior secured basis, to the extent set forth in
the Indenture, dated as of December 20, 2004 (the “Indenture”),
among Duane Reade Inc., a Delaware corporation (the “Company”) and Duane
Reade, a New York general partnership (“Duane Reade GP”, and together
with the Company, the “Co-Obligors”), the Guarantors and U.S. Bank
National Association, as trustee (the “Trustee”), and subject to the
provisions in the Indenture, (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Notes (as defined in the Indenture),
whether at maturity, by acceleration, redemption or otherwise, the due and
punctual payment of interest on overdue principal and premium, and, to the extent
permitted by law, interest, and the due and punctual performance of all other
obligations of the Co-Obligors  to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.  The
obligations of the Guarantors to the Holders of Notes and to the Trustee
pursuant to the Guarantee and the Indenture (i) are expressly set forth in
Article Eleven of the Indenture, and (ii) are secured to the extent set
forth in Article Ten of the Indenture, and reference is hereby made to the
Indenture for the precise terms of the Guarantee.  This Guarantee shall be governed by and construed in accordance
with the laws of the State of New York. 
The Obligations under the Indenture, the Notes and the Guarantees are
hereby designated as “Designated Senior Indebtedness” for purposes of the
Existing Notes Indenture.

 

	
   

  	
  [Name of
  Guarantor]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

E-1

 

EXHIBIT
F

 

FORM OF SUPPLEMENTAL INDENTURE

 

SUPPLEMENTAL INDENTURE (this “Supplemental
Indenture”), dated as of                     ,
among Duane Reade Inc., a Delaware corporation (the “Company”), Duane
Reade, a New York general partnership (“Duane Reade GP”, and together
with the Company, the “Co-Obligors”), the Company’s subsidiaries listed
on Schedule A hereto (each, a “New Guarantor”), [the Company’s
subsidiaries listed on Schedule B hereto (collectively the “Existing
Guarantors”) and U.S. Bank National Association, as trustee under the
Indenture referred to below (the “Trustee”).

 

W I T N E S S
E T H

 

WHEREAS, the Co-Obligors, the Existing Guarantors and the Trustee are
parties to an indenture (the “Indenture”),
dated as of December 20, 2004, providing for the issuance of Senior Secured
Floating Rate Notes due 2010 (the “Notes”);

 

WHEREAS, Section 9.01 of the Indenture provides that, without the
consent of any Holders, the Co-Obligors and the Existing Guarantors, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may modify, supplement or amend the Indenture to add a Guarantor or
additional obligor under the Indenture or permit any Person to guarantee the
Notes and/or obligations under the Indenture;

 

WHEREAS, each
New Guarantor wishes to guarantee the Notes pursuant to the Indenture;

 

WHEREAS,
pursuant to the Indenture the Co-Obligors, the Existing Guarantors, the New
Guarantors and the Trustee have agreed to enter into this Guarantor
Supplemental Indenture for the purposes stated herein; and

 

WHEREAS, all
things necessary have been done to make this Guarantor Supplemental Indenture,
when executed and delivered by the Co-Obligors, the Existing Guarantors, each
New Guarantor and the Trustee, the legal, valid and binding agreement of the
Co-Obligors, the Existing Guarantors  and each New Guarantor, in accordance with
its terms.

 

NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Co-Obligors, each New Guarantor, the Existing Guarantors  and the Trustee mutually
covenant and agree for the equal and ratable benefit of the Holders of the
Notes as follows:

 

(1)           Capitalized Terms.  Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

 

(2)           Guarantee.  Each New Guarantor hereby agrees to
guarantee the Indenture and the Notes related thereto pursuant to the terms and
conditions of Article Eleven of the Indenture, such Article Eleven being
incorporated by reference herein as if set forth at length herein (each

 

F-1

 

such guarantee, a “Guarantee”) and to
execute a joinder agreement to the Collateral Documents as required by Section
4.12, and such New Guarantor agrees to be bound as a Guarantor under the
Indenture as if it had been an initial signatory thereto. This Guarantee may be
released in accordance with Section 11.04 of the Indenture.

 

(3)           GOVERNING LAW.  THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THAT
WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

 

(4)           Counterparts.  The parties may sign any number of copies of
this Guarantor Supplemental Indenture. 
Each signed copy shall be an original, but all of them together
represent the same agreement.

 

(5)           Effect of Headings.  The section headings herein are for
convenience only and shall not affect the construction hereof.

 

(6)           The Trustee.  The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Co-Obligors, Existing Guarantors
and the New Guarantors.

 

F-2

 

IN WITNESS
WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed and attested, all as of the date first above written.

 

Dated:

 

	
   

  	
  DUANE READE
  INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  
	
   

  	
   

  
	
   

  	
  By: Duane Reade Inc., as General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  EACH GUARANTOR LISTED ON

  
	
   

  	
  SCHEDULE A HERETO

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  EACH
  GUARANTOR LISTED ON

  
	
   

  	
  SCHEDULE B
  HERETO

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION, as

  Trustee

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Authorized Signatory

  	
   

  
	
   

  	
   

  
					

 

F-3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}]]