Document:

Exhibit 10.20

 

SECURITY AGREEMENT

 

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

 

WITNESSETH:

 

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

 

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

 

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

 

I

 

Definitions

 

I.01                             Definition
of Terms Used Herein. Unless the context otherwise requires, all capitalized
terms used but not defined herein shall have the meanings set forth in the
Credit Agreement, and all references to the UCC shall mean the Uniform
Commercial Code as in effect from time to time in the State of New York.

 

I.02                             Definition
of Certain Terms Used Herein.  As
used herein, the following terms shall have the following meanings:

 

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

 

1

 

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

 

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

 

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

 

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

 

“Credit
Agreement” shall have the meaning assigned to such term in the preliminary
statement of this Agreement.

 

“Deposit
Account” shall have the meaning given that term in the UCC and shall also
include all demand, time, savings, passbook, or similar accounts maintained
with a bank or other financial institution.

 

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

 

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

 

“Excluded
Collateral” shall mean (i) all rights to payment under any and all key-man
life insurance policies, split-level insurance policies or similar policies
maintained for the benefit of, and providing retirement or casualty benefits
for, directors and officers of the Borrower, and the spouses, heirs and direct
descendants of such Persons and (ii) all proceeds of, and payments due and
payable with respect to, the foregoing.

 

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

 

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

 

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

 

“Health-Care-Insurance
Receivables” shall have the meaning given that term in the UCC, and shall
also mean an interest in, or claim under, a policy of insurance or otherwise
which is a right to payment of a monetary obligation for health-care goods or
services provided.

 

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

 

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

 

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

 

3

 

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

 

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

 

“Perfection
Certificate” shall mean a certificate substantially in the form of Annex
1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer of the Borrower.

 

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

 

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

 

“Supporting
Obligation” shall have the meaning given that term in the UCC and shall
also refer to a Letter-of-Credit Right or secondary obligation that supports
the payment or performance of an Account, Chattel Paper, a Document, a General
Intangible, an Instrument, or Investment Property.

 

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

 

I.03                             Rules
of Interpretation.  The rules of
interpretation specified in Section 1.02 of the Credit Agreement shall be
applicable to this Agreement.

 

ARTICLE II

 

Security Interest

 

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

 

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II.02                         No
Assumption of Liability.  The
Security Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way alter or modify,
any obligation or liability of any Grantor with respect to or arising out of
the Collateral.

 

ARTICLE III

 

Representations and Warranties

 

The Grantors
jointly and severally represent and warrant to the Collateral Agent and the
other Secured Parties that:

 

III.01                     Representations
and Warranties Incorporated by Reference. 
Each Grantor hereby makes each of the representations and warranties set
forth in Article III of the Credit Agreement with respect to the Grantor as a
Loan Party.  Each such warranty and
representation is incorporated herein by reference.

 

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

 

III.03                     Filings.  The Perfection Certificate has been duly
prepared, completed and executed, and the information set forth therein is
correct and complete.  UCC financing
statements or other appropriate filings, recordings or registrations containing
a description of the Collateral have been provided to the Collateral Agent for
filing in each governmental, municipal or other office as is necessary to
publish notice of and protect the validity of and to establish a legal, valid
and perfected security interest in favor of the Collateral Agent (for the
benefit of the Secured Parties) in respect of all Collateral in which the
Security Interest may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under Applicable Law with respect to the
filing of continuation statements.

 

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

 

III.05                     Absence of
Other Liens.  The Collateral is
owned by the Grantors free and clear of any Lien, except for Liens expressly
permitted pursuant to Section 6.02 of the Credit Agreement.  The Grantors have not filed or consented to
the filing of (a) any financing statement or analogous document under the UCC
or any other Applicable Law covering any Collateral, (b) any assignment in
which any Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with the United States Patent and Trademark
Office or the United States Copyright Office or (c) any assignment in which any
Grantor assigns any Collateral or any security agreement or similar instrument
covering any Collateral with any foreign governmental, municipal or other
office, which financing statement or analogous document, assignment, security
agreement or similar

 

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instrument is still in effect, except, in
each case, for Liens expressly permitted pursuant to Section 6.02 of the Credit
Agreement.

 

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

 

III.07                     Consignments.  Other than pharmaceutical Inventory on
consignment from AmerisourceBergen Drug Corporation, no Grantor has, and none
shall have, possession of any material property on consignment.

 

ARTICLE IV

 

Covenants

 

IV.01                  Covenants
Incorporated by Reference.  Each
Grantor hereby covenants and agrees that each Grantor shall perform, observe and
otherwise comply with the covenants set forth in Articles V and VI of the
Credit Agreement with respect to such Grantor as a Loan Party.

 

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

 

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

 

(b)                                 Each
Grantor agrees to maintain, at its own cost and expense, such complete and
accurate records with respect to the Collateral owned by it as is consistent
with its current practices and in accordance with such prudent and standard
practices used in industries that are the same as, or similar to, those in
which such Grantor is engaged, but in any event to include complete accounting
records indicating all payments and proceeds received with respect to any part
of the Collateral, and, at such time or times as the Collateral Agent may
reasonably request, promptly to prepare and deliver to the Collateral Agent a
duly certified schedule or schedules in form and detail reasonably satisfactory
to the Collateral Agent showing the identity, amount and location of any and
all Collateral.

 

IV.03                     Periodic
Certification.   Each year, at the
time of delivery of annual financial statements with respect to the preceding
fiscal year pursuant to Section 5.01 of the Credit Agreement, the Borrower
shall deliver to the Collateral Agent a certificate executed by a Financial
Officer of the

 

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Borrower (a) setting forth the information
required pursuant to Section 2 of the Perfection Certificate or confirming that
there has been no change in such information since the date of the Perfection
Certificate delivered on the Closing Date or the date of the most recent
certificate delivered pursuant to this Section 4.03 and (b) certifying that all
UCC financing statements (including Fixture filings, as applicable) or other
appropriate filings, recordings or registrations, including all refilings,
rerecordings and reregistrations, containing a description of the Collateral
have been filed of record in each governmental, municipal or other appropriate
office in each jurisdiction to the extent necessary to protect and perfect the
Security Interest.

 

IV.04                     Protection
of Security.  Each Grantor shall, at
its own cost and expense, take any and all actions reasonably necessary to
defend title to the Collateral against all Persons and to defend the Security
Interest of the Collateral Agent in the Collateral and the priority thereof
against any Lien not expressly permitted pursuant to Section 6.02 of the Credit
Agreement.

 

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

 

IV.06                     Inspection
and Verification.  Subject to, but
without limiting, the terms and conditions of Sections 5.09 and 5.10 of the
Credit Agreement, the Collateral Agent and such Persons as the Collateral Agent
may reasonably designate shall have the right, at the Grantors’ own cost and
expense, to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantors’ affairs with the officers of
the Grantors and their independent accountants and to verify  the validity, amount, quality, quantity,
value, condition and status of, or any other matter relating to, the
Collateral, including, in the case of Accounts or Collateral in the possession
of any third Person, by contacting Account Debtors or the third Person
possessing such Collateral for the purpose of making such a verification. The
Collateral Agent shall have the absolute right to share any information it
gains from such inspection or verification with any Secured Party.

 

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

 

7

 

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

 

IV.08                     Assignment
of Security Interest.

 

(a)                                  If
at any time any Grantor shall take a security interest in any property of an
Account Debtor or any other Person to secure payment and performance of an
Account, such Grantor shall promptly assign such security interest to the
Collateral Agent.  Such assignment need
not be filed of public record unless necessary to continue the perfected status
of the security interest against creditors of, and transferees from, the
Account Debtor or other Person granting the security interest.

 

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

 

IV.09                     Continuing
Obligations of the Grantors.  Each
Grantor shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it under each contract, agreement
or instrument relating to the Collateral, all in accordance with the terms and
conditions thereof, and each Grantor jointly and severally agrees to indemnify
and hold harmless the Collateral Agent and the Secured Parties from and against
any and all liability for such performance.

 

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

 

IV.11                     Limitation
on Modification of Accounts.  None
of the Grantors will, without the Collateral Agent’s prior written consent,
grant any material extension of the time of payment of any of the Accounts,
compromise, compound or settle the same for less than the full amount thereof,
release, wholly or partly, any Person liable for the payment thereof or allow
any credit or discount whatsoever thereon, other than extensions, releases,
credits, discounts, compromises or settlements

 

8

 

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

 

IV.12                     Insurance.

 

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

 

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

 

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

 

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

 

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

 

9

 

ARTICLE V

 

Collections

 

V.01                         Collections.

 

(a)                                  Each
Grantor shall at all times comply with the Cash Receipts provisions of Section
2.22 of the Credit Agreement including, without limitation, causing the sweep
on each Business Day of all Cash Receipts into the FRF Concentration Account.

 

(b)                                 Without
the prior written consent of the Collateral Agent, no Grantor shall modify or
amend the instructions pursuant to any of the DDA Notifications, the Credit
Card Notifications, or the Blocked Account Agreements.  Until the Collateral Agent shall have
advised the Grantors to the contrary, each Grantor shall, and the Collateral
Agent hereby authorizes each Grantor to, enforce and collect all amounts owing
on the Inventory and Accounts, for the benefit and on behalf of the Collateral
Agent and the other Secured Parties; provided, however, that such
privilege may, at the option of the Collateral Agent, be terminated upon the
occurrence and during the continuance of any Event of Default.

 

V.02                         Power
of Attorney.  Each Grantor
irrevocably makes, constitutes and appoints the Collateral Agent (and all
officers, employees or agents designated by the Collateral Agent) as such
Grantor’s true and lawful agent and attorney-in-fact, and in such capacity the
Collateral Agent shall have the right, with power of substitution for each
Grantor and in each Grantor’s name or otherwise, for the use and benefit of the
Collateral Agent and the other Secured Parties, (a) at any time, whether or not
a Default or Event of Default has occurred, to take actions required to be
taken by the Grantors under Sections 2.01 and 5.01 of this Agreement, and (b)
upon the occurrence and during the continuance of an Event of Default or as
otherwise permitted under the Credit Agreement, (i) to receive, endorse, assign
and/or deliver any and all notes, acceptances, checks, drafts, money orders or
other evidences of payment relating to the Collateral or any part thereof;
(ii) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (iii) to sign the
name of any Grantor on any invoices, schedules of Collateral, freight or
express receipts, or bills of lading storage receipts, warehouse receipts or
other documents of title relating to any of the Collateral; (iv) to sign the
name of any Grantor on any notice to such Grantor’s Account Debtors; (v) to
sign the name of any Grantor on any Proof of Claim in bankruptcy against
Account Debtors, and on notices of lien, claims of mechanic’s liens, or
assignments or releases of mechanic’s liens securing the Accounts; (vi) to sign
change of address forms to change the address to which each Grantor’s mail is
to be sent to such address as the Collateral Agent shall designate; (vii) to
receive and open each Grantor’s mail, remove any Proceeds of Collateral
therefrom and turn over the balance of such mail either to the Borrower or to
any trustee in bankruptcy or receiver of a Grantor, or other legal
representative of a Grantor whom the Collateral Agent determines to be the
appropriate person to whom to so turn over such mail; (viii) to commence
and prosecute any and all suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect or otherwise realize on all or
any of the Collateral or to enforce any rights in respect of any Collateral;
(ix) to settle, compromise, compound, adjust or defend any actions, suits
or proceedings relating to all or any of the Collateral; (x) to take all such
action as may be necessary to obtain the payment of any letter of credit and/or
banker’s acceptance of which any Grantor is a beneficiary; (xi) to repair,
manufacture, assemble, complete, package, deliver, alter or supply goods, if
any, necessary to fulfill in whole or in part the purchase order of any
customer of any Grantor; (xii) to use, license or transfer any or all General
Intangibles of any Grantor; and (xiii) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes; provided,
however, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent or any other Secured Party to make any commitment
or to make any inquiry as to the nature or sufficiency of any payment received
by the Collateral Agent or any other Secured Party, or to present or file any
claim or notice.  It is understood and
agreed that the appointment of the Collateral Agent

 

10

 

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

 

V.03                         No
Obligation to Act.  The Collateral
Agent shall not be obligated to do any of the acts or to exercise any of the
powers authorized by Section 5.02, but if the Collateral Agent elects to do any
such act or to exercise any of such powers, it shall not be accountable for
more than it actually receives as a result of such exercise of power, and shall
not be responsible to any Grantor for any act or omission to act except for any
act or omission to act as to which there is a final determination made in a
judicial proceeding, which determination includes a specific finding that the
subject act or omission to act had been grossly negligent or in actual bad
faith.  The provisions of Section 5.02
shall in no event relieve any Grantor of any of its obligations hereunder or
under any other Loan Document with respect to the Collateral or any part
thereof or impose any obligation on the Collateral Agent or any other Secured
Party to proceed in any particular manner with respect to the Collateral or any
part thereof, or in any way limit the exercise by the Collateral Agent or any other
Secured Party of any other or further right which it may have on the date of
this Agreement or hereafter, whether hereunder, under any other Loan Document,
by law or otherwise.

 

ARTICLE VI

 

Remedies

 

VI.01                     Remedies
upon Default.  Upon the occurrence of
an Event of Default, it is agreed that the Collateral Agent shall have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the UCC
or other Applicable Law.  The rights and
remedies of the Collateral Agent shall include, without limitation, the right
to take any of or all the following actions at the same or different times:

 

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

 

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

 

(c)                                  With or without legal
process and with or without prior notice or demand for performance, the
Collateral Agent may enter upon, occupy, and use any premises owned or occupied
by each Grantor, and may exclude the Grantors from such premises or portion

 

11

 

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

 

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

 

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

 

(f)                                    Unless the
Collateral is perishable or threatens to decline speedily in value, or is of a
type customarily sold on a recognized market (in which event the Collateral
Agent shall provide the Grantors such notice as may be practicable under the
circumstances), the Collateral Agent shall give the Grantors at least ten (10) days’
prior written notice, by authenticated record, of the date, time and place of
any proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. 
Each Grantor agrees that such written notice shall satisfy all
requirements for notice to that Grantor which are imposed under the UCC or
other Applicable Law with respect to the exercise of the Collateral Agent’s
rights and remedies upon default.  The
Collateral Agent shall not be obligated to make any sale or other disposition
of any Collateral if it shall determine not to do so, regardless of the fact
that notice of sale or other disposition of such Collateral shall have been
given.  The Collateral Agent may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned.

 

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

 

(h)                                 At any public (or, to
the extent permitted by Applicable Law, private) sale made pursuant to this
Section 6.01, the Collateral Agent or any other Secured Party may bid for or
purchase, free (to the extent permitted by Applicable Law) from any right of
redemption, stay, valuation or appraisal on the part of any Grantor (all said
rights being also

 

12

 

hereby waived and released to the extent
permitted by Applicable Law), the Collateral or any part thereof offered for
sale and may make payment on account thereof by using any claim then due and
payable to the Collateral Agent or such other Secured Party from any Grantor on
account of the Obligations as a credit against the purchase price, and the
Collateral Agent or such other Secured Party may, upon compliance with the
terms of sale, hold, retain and dispose of such property without further
accountability to any Grantor therefor.

 

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

 

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

 

VI.02                     Application
of Proceeds.  After the occurrence
of an Event of Default and acceleration of the Obligations, the Collateral
Agent shall apply the proceeds of any collection or sale of the Collateral, as
well as any Collateral consisting of cash, or any Collateral granted under any
other of the Security Documents as follows:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

ARTICLE VII

 

Perfection of Security Interest

 

VII.01                 Perfection by
Filing.  This Agreement constitutes
an authenticated record,  and each
Grantor hereby authorizes the Collateral Agent, pursuant to the provisions of
Sections 2.01 and 5.02, to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral, in such filing offices as the Collateral Agent shall deem
appropriate, and the Grantors shall deliver to the Collateral Agent such
financing or continuation statements, and amendments thereto, promptly upon the
reasonable request of the Collateral Agent and shall pay the Collateral Agent’s
reasonable costs and expenses incurred in connection therewith.  Each Grantor hereby further authorizes the Collateral
Agent to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
such Grantor, and each Grantor agrees that a carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by such
Grantor shall be sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions.

 

VII.02                 Other
Perfection, etc.  The Grantors shall at any time and from time to
time take such steps as the Collateral Agent may reasonably request for the
Collateral Agent (a) to obtain an acknowledgment, in form and substance
reasonably satisfactory to the Collateral Agent, of any bailee having
possession of any of the Collateral that the bailee holds such Collateral for
the Collateral Agent, (b) to obtain “control” of any Investment Property,
Deposit Accounts, Letter-of-Credit Rights or electronic Chattel Paper (as such
terms are defined in the UCC), with any agreements establishing control to be
in form and substance satisfactory to the Collateral Agent, and (c) otherwise
to insure the continued perfection of the Collateral Agent’s security interest
in any of the Collateral with the priority described in Section 3.04 and of the
preservation of its rights therein.

 

VII.03                 Savings Clause. Nothing
contained in this Article VII shall be construed to narrow the scope of the
Collateral Agent’s Security Interest in any of the Collateral or the perfection
or priority thereof or to impair or otherwise limit any of the Collateral
Agent’s Rights and Remedies hereunder except (and then only to the extent) as
mandated by the UCC.

 

14

 

ARTICLE VIII

 

Miscellaneous

 

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

 

VIII.02             Grant of
Non-Exclusive License.  Upon an
Event of Default, each Grantor hereby grants to the Collateral Agent a royalty
free, non-exclusive, irrevocable license to use, apply, and affix any
trademark, trade name, logo, or the like in which any Grantor now or hereafter
has rights, such license being with respect to the Collateral Agent’s exercise
of the Collateral Agent’s Rights and Remedies hereunder including, without
limitation, in connection with any completion of the manufacture of Inventory
or any sale or other disposition of Inventory.

 

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

 

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

 

VIII.05             Binding Effect;
Several Agreement; Assignments. 
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party, and all covenants, promises and agreements by or on behalf of the
Grantors that are contained in this Agreement shall bind and inure to the
benefit of each Grantor and its respective successors and assigns.  This Agreement shall be binding upon each
Grantor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of each Grantor, the Collateral Agent and the
other Secured Parties and their respective successors and assigns, except that
no Grantor shall have the right to assign or transfer its rights or obligations
hereunder or any interest herein or in the Collateral (and any such attempted
assignment or transfer shall be void) except as expressly permitted by this
Agreement or the Credit Agreement.  This
Agreement shall be construed as a separate agreement with respect to each
Grantor and may be

 

15

 

amended, modified, supplemented, waived or
released with respect to any Grantor without the approval of any other Grantor
and without affecting the obligations of any other Grantor hereunder.

 

VIII.06             Successors and
Assigns.  Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.

 

VIII.07             Collateral Agent’s
Fees and Expenses; Indemnification.

 

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

 

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

 

(c)                                  Any
such amounts payable as provided hereunder shall be additional Obligations
secured hereby and by the other Security Documents.  All amounts due under this Section 8.07 shall be payable on
written demand therefor.

 

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

 

VIII.09             Waivers;
Amendment.

 

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

 

16

 

Agent of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement.  No single or partial exercise of any of the Collateral Agent’s Rights
or Remedies, and no express or implied agreement or transaction of whatever
nature entered into between the Collateral Agent and any Person, at any time,
shall preclude the other or further exercise of the Collateral Agent’s Rights
and Remedies.  No waiver by the
Collateral Agent of any of the Collateral Agent’s Rights and Remedies on any
one occasion shall be deemed a waiver on any subsequent occasion, nor shall it
be deemed a continuing waiver.  The
Collateral Agent’s Rights and Remedies 
may be exercised at such time or times and in such order of preference
as the Collateral Agent may determine. The Collateral Agent’s Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Obligations.  No
waiver of any provisions of this Agreement or any other Loan Document or
consent to any departure by any Grantor therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and
then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  No
notice to or demand on any Grantor in any case shall entitle such Grantor or
any other Grantor to any other or further notice or demand in similar or other
circumstances.

 

(b)                                 Neither
this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to a written agreement entered into between the Collateral
Agent and the Grantor or Grantors with respect to whom such waiver, amendment
or modification is to apply, subject to any consent required in accordance with
Section 9.02 of the Credit Agreement.

 

VIII.10             WAIVER OF JURY
TRIAL.  EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURY
IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH ANY PARTY HERETO IS OR BECOMES
A PARTY (WHETHER
SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST ANY PARTY HERETO OR IN
WHICH ANY PARTY HERETO, IS JOINED AS A PARTY LITIGANT), WHICH CASE
OR CONTROVERSY ARISES OUT OF OR RELATES TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT.  EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SET
FORTH IN THIS SECTION 8.10.

 

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

 

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

 

17

 

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

 

VIII.14             Jurisdiction;
Consent to Service of Process.

 

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

 

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

 

VIII.15             Termination;
Release of Collateral.  This
Agreement and the Security Interest shall terminate when all the Obligations
have been paid in full in cash, the Lenders have no further commitment to lend,
the Letter of Credit Outstandings have been reduced to zero or fully cash
collateralized in a manner satisfactory to the Issuing Bank and the
Administrative Agent, and the Issuing Bank has no further obligation to issue
Letters of Credit under the Credit Agreement, at which time the Collateral
Agent shall execute and deliver to the Grantors, at the Grantors’ expense, all
UCC termination statements and similar documents that the Grantors shall
reasonably request to evidence such termination.  Any execution and delivery of termination statements or documents
pursuant to this Section 8.15 shall be without recourse to, or warranty
by, the Collateral Agent.

 

[SIGNATURE PAGES FOLLOW]

 

18

 

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

 

	
  BORROWER:

  	
  DUANE READE

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Duane Reade
  Inc., its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  DRI I Inc.,
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  FACILITY GUARANTORS:

  	
  DUANE READE
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DRI I INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
					

 

19

 

	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DUANE READE
  REALTY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DUANE READE
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COLLATERAL AGENT:

  	
  FLEET RETAIL
  FINANCE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark
  Forti

  	
   

  
	
   

  	
  Name:

  	
  Mark Forti

  
	
   

  	
  Title:

  	
  Director

  
					

 

20

 

SCHEDULE I

 

 

Facility Guarantors

 

 

Duane Reade Inc.

DRI I Inc.

Duane Reade Realty, Inc.

Duane Reade International, Inc.

 

21

 

Annex 1 to the

Security Agreement

 

 

Form of Perfection Certificate

 

22Exhibit 10.21

 

OWNERSHIP INTEREST PLEDGE AGREEMENT

 

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

 

WITNESSETH:

 

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

 

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

 

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

 

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

 

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

 

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

 

1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5.                                       Voting
Rights; Dividends and Interest, etc.

 

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

 

3

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

8.                                       Reimbursement
of Collateral Agent.

 

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

 

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

 

6

 

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

 

9.                                       Collateral
Agent Appointed Attorney-in-Fact.

 

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

 

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

 

10.                                 Waivers;
Amendment.

 

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

 

7

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

14.                                 Termination
or Release.

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

18.                                 Survival
of Agreement; Severability.

 

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

 

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

 

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

 

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

 

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

 

10

 

22.                                 Jurisdiction;
Consent to Service of Process.

 

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

 

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

 

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

 

[SIGNATURE PAGE FOLLOWS]

 

11

 

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

 

 

	
  PLEDGORS:

  	
  DUANE READE
  INC.

  
	
   

  
	
   

  	
  By:

  	
  Duane Reade
  Inc., its General Partner

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  DRI I Inc.,
  its General Partner

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  
	
   

  
	
   

  	
  DRI I INC.

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ John K.
  Henry

  	
   

  
	
   

  	
  Name:

  	
  John K.
  Henry

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Michelle
  D. Bergman

  	
   

  
	
   

  	
  Name:

  	
  Michelle D.
  Bergman

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  
	
   

  
	
  COLLATERAL AGENT:

  	
  FLEET RETAIL
  FINANCE INC., as Collateral

  Agent

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Mark
  Forti

  	
   

  
	
   

  	
  Name:

  	
  Mark Forti

  
	
   

  	
  Title:

  	
  Director

  
							

 

12

 

SCHEDULE I

 

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

 

	
  Issuer

  	
   

  	
  Record

  Owner

  	
   

  	
  Type of Interest

  held by Record

  Owner

  	
   

  	
  Percentage of

  Partnership Interests

  held by Record

  Owner

  	
   

  
	
  Duane Reade

  	
   

  	
  Duane Reade Inc.

  	
   

  	
  General Partnership

  	
   

  	
  99.0

  	
  %

  
	
  Duane Reade

  	
   

  	
  DRI I Inc.

  	
   

  	
  General Partnership

  	
   

  	
  1.0

  	
  %

  

 

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

 

	
  Issuer

  	
   

  	
  Record

  Owner

  	
   

  	
  Class of

  Shares

  	
   

  	
  Number

  of Shares

  held by

  Record

  Owner

  	
   

  	
  Number of

  Issued and

  Outstanding

  Shares

  	
   

  	
  Percentage
  of

  Shares

  held by

  Record

  Owner

  	
   

  
	
  DRI I Inc.

  	
   

  	
  Duane Reade

  Inc.

  	
   

  	
  Common

  	
   

  	
  1,000

  	
   

  	
  1,000

  	
   

  	
  100.0

  	
  %

  
	
  Duane Reade Realty, Inc.

  	
   

  	
  Duane Reade

  Inc.

  	
   

  	
  Common

  	
   

  	
  990

  	
   

  	
  1,000

  	
   

  	
  99.0

  	
  %

  
	
  Duane Reade Realty, Inc.

  	
   

  	
  DRI I Inc.

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  1,000

  	
   

  	
  1.0

  	
  %

  
	
  Duane Reade International, Inc.

  	
   

  	
  Duane Reade

  Inc.

  	
   

  	
  Common

  	
   

  	
  990

  	
   

  	
  1,000

  	
   

  	
  99.0

  	
  %

  
	
  Duane Reade International, Inc.

  	
   

  	
  DRI I Inc.

  	
   

  	
  Common

  	
   

  	
  10

  	
   

  	
  1,000

  	
   

  	
  1.0

  	
  %

  

 

13

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