Document:

Exhibit 4.1

 

EXECUTION COPY

 

 

DUANE READE ACQUISITION CORP.

(to be
Merged With and Into

DUANE READE INC.), as Issuer

 

and

 

U.S. BANK NATIONAL ASSOCIATION, as Trustee

 

 

 

INDENTURE

 

Dated as of July 30, 2004

 

 

 

$195,000,000

 

9.75% Senior Subordinated Notes due 2011

 

 

CROSS-REFERENCE TABLE*

 

	
  TRUST
  INDENTURE

  ACT SECTION

  	
   

  	
  INDENTURE

  SECTION

  
	
   

  	
   

  	
   

  
	
  310(a)(1)

  	
   

  	
  7.10

  	
   

  
	
  (a)(2)

  	
   

  	
  7.10

  	
   

  
	
  (a)(3)

  	
   

  	
  N.A.

  	
   

  
	
  (a)(4)

  	
   

  	
  N.A.

  	
   

  
	
  (a)(5)

  	
   

  	
  7.10

  	
   

  
	
  (b)

  	
   

  	
  7.10

  	
   

  
	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
  311(a)

  	
   

  	
  7.11

  	
   

  
	
  (b)

  	
   

  	
  7.11

  	
   

  
	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
  312(a)

  	
   

  	
  2.06

  	
   

  
	
  (b)

  	
   

  	
  13.03

  	
   

  
	
  (c)

  	
   

  	
  13.03

  	
   

  
	
  313(a)

  	
   

  	
  7.06

  	
   

  
	
  (b)(1)

  	
   

  	
  N.A.

  	
   

  
	
  (b)(2)

  	
   

  	
  7.06

  	
   

  
	
  (c)

  	
   

  	
  13.02

  	
   

  
	
  (d)

  	
   

  	
  7.06

  	
   

  
	
  314(a)

  	
   

  	
  4.04(b)

  	
   

  
	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
  (c)(1)

  	
   

  	
  N.A.

  	
   

  
	
  (c)(2)

  	
   

  	
  N.A.

  	
   

  
	
  (c)(3)

  	
   

  	
  N.A.

  	
   

  
	
  (d)

  	
   

  	
  N.A.

  	
   

  
	
  (e)

  	
   

  	
  13.05

  	
   

  
	
  (f)

  	
   

  	
  N.A.

  	
   

  
	
  315(a)

  	
   

  	
  N.A.

  	
   

  
	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
  (d)

  	
   

  	
  N.A.

  	
   

  
	
  (e)

  	
   

  	
  N.A.

  	
   

  
	
  316(a)(last sentence)

  	
   

  	
  N.A.

  	
   

  
	
  (a)(1)(A)

  	
   

  	
  N.A.

  	
   

  
	
  (a)(1)(B)

  	
   

  	
  6.04

  	
   

  
	
  (a)(2)

  	
   

  	
  N.A.

  	
   

  
	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
  (c)

  	
   

  	
  13.14(d)

  	
   

  
	
  317(a)(1)

  	
   

  	
  N.A.

  	
   

  
	
  (a)(2)

  	
   

  	
  N.A.

  	
   

  
	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
  318(a)

  	
   

  	
  N.A.

  	
   

  
	
  (b)

  	
   

  	
  N.A.

  	
   

  

 

i

 

	
  (c)

  	
   

  	
  13.01

  

 

N.A. means not applicable.

 

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

 

ii

 

TABLE OF CONTENTS

 

	
  CROSS-REFERENCE
  TABLE

  	
   

  
	
   

  	
   

  
	
  ARTICLE ONE

  	
   

  
	
  Definitions
  And Incorporation By Reference

  	
   

  
	
   

  	
   

  
	
  Section
  1.01.

  	
  Definitions.

  	
   

  
	
  Section
  1.02.

  	
  Other
  Definitions.

  	
   

  
	
  Section
  1.03.

  	
  Incorporation
  by Reference of Trust Indenture Act.

  	
   

  
	
  Section
  1.04.

  	
  Rules
  of Construction.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  TWO

  	
   

  
	
  The Notes

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  2.01.

  	
  Form
  and Dating.

  	
   

  
	
  Section
  2.02.

  	
  Execution
  and Authentication.

  	
   

  
	
  Section
  2.03.

  	
  Methods
  of Receiving Payments on the Notes.

  	
   

  
	
  Section
  2.04.

  	
  Registrar
  and Paying Agent.

  	
   

  
	
  Section
  2.05.

  	
  Paying
  Agent to Hold Money in Trust.

  	
   

  
	
  Section
  2.06.

  	
  Holder
  Lists.

  	
   

  
	
  Section
  2.07.

  	
  Transfer
  and Exchange.

  	
   

  
	
  Section 2.08.

  	
  Replacement Notes.

  	
   

  
	
  Section 2.09.

  	
  Outstanding
  Notes.

  	
   

  
	
  Section
  2.10.

  	
  Treasury
  Notes.

  	
   

  
	
  Section
  2.11.

  	
  Temporary
  Notes.

  	
   

  
	
  Section
  2.12.

  	
  Cancellation.

  	
   

  
	
  Section
  2.13.

  	
  Defaulted
  Interest.

  	
   

  
	
  Section
  2.14.

  	
  CUSIP
  Numbers.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  THREE

  	
   

  
	
  Redemption and Prepayment; Satisfaction and
  Discharge

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  3.01.

  	
  Notices
  to Trustee.

  	
   

  
	
  Section
  3.02.

  	
  Selection
  of Notes to Be Redeemed.

  	
   

  
	
  Section
  3.03.

  	
  Notice
  of Redemption.

  	
   

  
	
  Section
  3.04.

  	
  Effect
  of Notice of Redemption.

  	
   

  
	
  Section
  3.05.

  	
  Deposit
  of Redemption Price.

  	
   

  
	
  Section
  3.06.

  	
  Notes
  Redeemed in Part.

  	
   

  
	
  Section
  3.07.

  	
  Optional
  Redemption.

  	
   

  
	
  Section
  3.08.

  	
  Mandatory
  Redemption.

  	
   

  
	
  Section
  3.09.

  	
  Application
  of Trust Money.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  FOUR

  	
   

  
	
  Covenants

  	
   

  
	
   

  	
   

  
	
  Section
  4.01.

  	
  Payment
  of Notes.

  	
   

  

 

i

 

	
  Section
  4.02.

  	
  Maintenance
  of Office or Agency.

  	
   

  
	
  Section
  4.03.

  	
  Reports.

  	
   

  
	
  Section
  4.04.

  	
  Compliance
  Certificate.

  	
   

  
	
  Section
  4.05.

  	
  Taxes.

  	
   

  
	
  Section
  4.06.

  	
  Stay,
  Extension and Usury Laws.

  	
   

  
	
  Section
  4.07.

  	
  Incurrence
  of Indebtedness and Issuance of Disqualified Stock.

  	
   

  
	
  Section
  4.08.

  	
  Restricted
  Payments.

  	
   

  
	
  Section
  4.09.

  	
  Transactions
  with Affiliates.

  	
   

  
	
  Section 4.10.

  	
  Liens.

  	
   

  
	
  Section 4.11.

  	
  Asset
  Sales.

  	
   

  
	
  Section
  4.12.

  	
  Issuances
  of Guarantees by New Restricted Subsidiaries.

  	
   

  
	
  Section
  4.13.

  	
  Dividend
  and Other Payment Restrictions Affecting Restricted Subsidiaries.

  	
   

  
	
  Section
  4.14.

  	
  Limitation
  on Layering Debt.

  	
   

  
	
  Section
  4.15.

  	
  Unrestricted
  Subsidiaries.

  	
   

  
	
  Section
  4.16.

  	
  Payments
  for Consent.

  	
   

  
	
  Section
  4.17.

  	
  Co-Obligor.

  	
   

  
	
  Section
  4.18.

  	
  Offer
  to Repurchase upon a Change of Control.

  	
   

  
	
  Section
  4.19.

  	
  Corporate
  Existence.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE FIVE

  	
   

  
	
  Successors

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  5.01.

  	
  Consolidation,
  Merger or Sale of Assets.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE SIX

  	
   

  
	
  Defaults and Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  6.01.

  	
  Events of
  Default.

  	
   

  
	
  Section
  6.02.

  	
  Acceleration.

  	
   

  
	
  Section 6.03.

  	
  Other
  Remedies.

  	
   

  
	
  Section
  6.04.

  	
  Waiver of
  Past Defaults.

  	
   

  
	
  Section
  6.05.

  	
  Control by
  Majority.

  	
   

  
	
  Section 6.06.

  	
  Limitation on Suits.

  	
   

  
	
  Section
  6.07.

  	
  Rights of
  Holders of Notes to Receive Payment.

  	
   

  
	
  Section
  6.08.

  	
  Collection
  Suit by Trustee.

  	
   

  
	
  Section
  6.09.

  	
  Trustee May
  File Proofs of Claim.

  	
   

  
	
  Section
  6.10.

  	
  Priorities.

  	
   

  
	
  Section
  6.11.

  	
  Undertaking
  for Costs.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE SEVEN

  	
   

  
	
  Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  7.01.

  	
  Duties of
  Trustee.

  	
   

  
	
  Section
  7.02.

  	
  Certain
  Rights of Trustee.

  	
   

  
	
  Section
  7.03.

  	
  Individual
  Rights of Trustee.

  	
   

  
	
  Section
  7.04.

  	
  Trustee’s
  Disclaimer.

  	
   

  

 

ii

 

	
  Section
  7.05.

  	
  Notice of
  Defaults.

  	
   

  
	
  Section
  7.06.

  	
  Reports by
  Trustee to Holders of the Notes.

  	
   

  
	
  Section
  7.07.

  	
  Compensation
  and Indemnity.

  	
   

  
	
  Section
  7.08.

  	
  Replacement
  of Trustee.

  	
   

  
	
  Section
  7.09.

  	
  Successor
  Trustee by Merger, Etc.

  	
   

  
	
  Section
  7.10.

  	
  Eligibility;
  Disqualification.

  	
   

  
	
  Section
  7.11.

  	
  Preferential
  Collection of Claims Against Co-Obligors.

  	
   

  
	
   

  	
   

  
	
  ARTICLE EIGHT

  	
   

  
	
  Defeasance and Covenant Defeasance

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  8.01.

  	
  Option to
  Effect Legal Defeasance or Covenant Defeasance.

  	
   

  
	
  Section
  8.02.

  	
  Legal
  Defeasance and Discharge.

  	
   

  
	
  Section 8.03.

  	
  Covenant Defeasance.

  	
   

  
	
  Section
  8.04.

  	
  Conditions to
  Legal Defeasance or Covenant Defeasance.

  	
   

  
	
  Section
  8.05.

  	
  Deposited
  Money and U.S. Government Obligations to Be Held in Trust; Other
  Miscellaneous Provisions.

  	
   

  
	
  Section
  8.06.

  	
  Repayment to
  the Co-Obligors.

  	
   

  
	
  Section
  8.07.

  	
  Reinstatement.

  	
   

  
	
   

  	
   

  
	
  ARTICLE NINE

  	
   

  
	
  Amendment, Supplement and Waiver

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  9.01.

  	
  Without
  Consent of Holders of Notes.

  	
   

  
	
  Section
  9.02.

  	
  With Consent
  of Holders of Notes.

  	
   

  
	
  Section
  9.03.

  	
  Compliance
  with Trust Indenture Act.

  	
   

  
	
  Section
  9.04.

  	
  Revocation
  and Effect of Consents.

  	
   

  
	
  Section 9.05.

  	
  Notation on
  or Exchange of Notes.

  	
   

  
	
  Section
  9.06.

  	
  Trustee to
  Sign Amendments, Etc.

  	
   

  
	
   

  	
   

  
	
  ARTICLE TEN

  	
   

  
	
  Subordination

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  10.01.

  	
  Agreement to
  Subordinate.

  	
   

  
	
  Section 10.02.

  	
  Liquidation; Dissolution; Bankruptcy.

  	
   

  
	
  Section
  10.03.

  	
  Default on
  Designated Senior Indebtedness.

  	
   

  
	
  Section
  10.04.

  	
  Acceleration
  of Notes.

  	
   

  
	
  Section
  10.05.

  	
  When
  Distribution Must Be Paid Over.

  	
   

  
	
  Section
  10.06.

  	
  Notice by
  the Co-Obligors.

  	
   

  
	
  Section 10.07.

  	
  Subrogation.

  	
   

  
	
  Section 10.08.

  	
  Relative
  Rights.

  	
   

  
	
  Section
  10.09.

  	
  Subordination
  May Not Be Impaired by the Co-Obligors.

  	
   

  
	
  Section
  10.10.

  	
  Distribution
  or Notice to Representative.

  	
   

  
	
  Section
  10.11.

  	
  Rights of
  Trustee and Paying Agent.

  	
   

  
	
  Section
  10.12.

  	
  Authorization
  to Effect Subordination.

  	
   

  
	
  Section
  10.13.

  	
  Reliance by
  Holders of Senior Indebtedness on Subordination.

  	
   

  

 

iii

 

	
  ARTICLE
  ELEVEN

  	
   

  
	
  Guarantees

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  11.01.

  	
  Guarantee.

  	
   

  
	
  Section
  11.02.

  	
  Subordination
  of Guarantee.

  	
   

  
	
  Section
  11.03.

  	
  Limitation
  on Guarantor Liability.

  	
   

  
	
  Section
  11.04.

  	
  Execution
  and Delivery of Guarantee.

  	
   

  
	
  Section
  11.05.

  	
  Releases of
  Guarantors.

  	
   

  
	
   

  	
   

  
	
  ARTICLE
  TWELVE

  	
   

  
	
  Satisfaction and Discharge

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  12.01.

  	
  Satisfaction
  and Discharge.

  	
   

  
	
  Section
  12.02.

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

  	
   

  
	
  Section
  12.03.

  	
  Repayment to
  the Company.

  	
   

  
	
   

  	
   

  
	
  ARTICLE
  THIRTEEN

  	
   

  
	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  13.01.

  	
  Trust
  Indenture Act Controls.

  	
   

  
	
  Section
  13.02.

  	
  Notices.

  	
   

  
	
  Section
  13.03.

  	
  Communication
  by Holders of Notes with Other Holders of Notes.

  	
   

  
	
  Section
  13.04.

  	
  Certificate
  and Opinion as to Conditions Precedent.

  	
   

  
	
  Section
  13.05.

  	
  Statements
  Required in Certificate or Opinion.

  	
   

  
	
  Section
  13.06.

  	
  Rules by
  Trustee and Agents.

  	
   

  
	
  Section
  13.07.

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

  	
   

  
	
  Section
  13.08.

  	
  Governing
  Law.

  	
   

  
	
  Section
  13.09.

  	
  No Adverse
  Interpretation of Other Agreements.

  	
   

  
	
  Section
  13.10.

  	
  Successors.

  	
   

  
	
  Section
  13.11.

  	
  Severability.

  	
   

  
	
  Section
  13.12.

  	
  Counterpart
  Originals.

  	
   

  
	
  Section
  13.13.

  	
  Acts of
  Holders.

  	
   

  
	
  Section
  13.14.

  	
  Benefit of
  Indenture.

  	
   

  
	
  Section
  13.15.

  	
  Table of
  Contents, Headings, Etc.

  	
   

  
	
  Section
  13.16.

  	
  Trustee Not
  Fiduciary for Holders of Senior Indebtedness.

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibits:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A1

  	
  FORM OF NOTE

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A2

  	
  FORM OF REGULATION S TEMPORARY GLOBAL NOTE

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  FORM OF CERTIFICATE OF TRANSFER

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  FORM OF CERTIFICATE OF EXCHANGE

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

  	
   

  

 

iv

 

	
  Exhibit E

  	
  FORM OF NOTATION OF GUARANTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  FORM OF GUARANTOR SUPPLEMENTAL INDENTURE TO BE DELIVERED BY
  GUARANTORS

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit G

  	
  FORM OF SUCCESSOR SUPPLEMENTAL INDENTURE TO BE DELIVERED BY DUANE
  READE INC.

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit H

  	
  FORM OF CO-OBLIGOR SUPPLEMENTAL INDENTURE TO BE DELIVERED BY DUANE
  READE GP

  	
   

  

 

v

 

INDENTURE (this “Indenture”), dated as
of July 30, 2004, among Duane Reade Acquisition Corp., a Delaware corporation
(which will be merged with and into Duane Reade Inc., a Delaware corporation (“Duane
Reade”), upon consummation of the Acquisition (as defined herein) with
Duane Reade as the survivor in the Acquisition) (the “Company”) and U.S.
Bank National Association, as Trustee (the “Trustee”).

 

Upon the consummation of the Acquisition, (1)
Duane Reade will be required to execute a supplemental indenture to this
Indenture, substantially in the form attached hereto as Exhibit G (the “Successor
Supplemental Indenture”), pursuant to which it will assume all the
obligations of the Company under the Notes (as defined below) and this
Indenture as successor in the Acquisition, (2) Duane Reade, a New York general
partnership and subsidiary of Duane Reade (“Duane Reade GP” and,
together with the Company, the “Co-Obligors”) will be required to
execute a supplemental indenture to this Indenture, substantially in the form
attached hereto as Exhibit H (the “Co-Obligor Supplemental Indenture”),
pursuant to which it will agree to become a co-obligor with Duane Reade of all
the obligations under the Notes and this Indenture, and (3) DRI I Inc., a
Delaware corporation, Duane Reade International, Inc., a Delaware corporation
and Duane Reade Realty, Inc., a Delaware corporation (collectively, the “Initial
Guarantors”) will be required to execute a supplemental indenture to this
Indenture, substantially in the form attached hereto as Exhibit F (the “Guarantor
Supplemental Indenture” and, together with the Successor Supplemental
Indenture and the Co-Obligor Supplemental Indenture, the “Supplemental
Indentures”), pursuant to which each of the Initial Guarantors will
guarantee all the obligations of Duane Reade and Duane Reade GP under the Notes
and this Indenture.

 

The Company and the Trustee (as defined
below) agree as follows for the benefit of each other and for the equal and
ratable benefit of the Holders (as defined below) of the 9.75% Senior
Subordinated Notes due 2011 (the “Initial Notes” and, together with any
Exchange Notes and Additional Notes, each as defined herein, the “Notes”):

 

ARTICLE ONE

Definitions And Incorporation

By Reference

 

Section 1.01.  Definitions.

 

“144A Global Note” means a global note
substantially in the form of Exhibit A1 hereto bearing the Global Note Legend
and the Private Placement Legend and deposited with or on behalf of, and
registered in the name of, the Depositary or its nominee that shall be issued
in a denomination equal to the outstanding principal amount at maturity of the
Notes sold in reliance on Rule 144A.

 

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

 

 

“Acquisition” means the transactions
contemplated by the Agreement and Plan of Merger, as it may be amended or
modified to the Issue Date.

 

“Acquisition Closing Date” means the
date and time at which the Acquisition is consummated.

 

“Additional Notes” means any further
Notes (other than the Initial Notes issued on the date of this Indenture)
issued under this Indenture in accordance with the terms of this Indenture,
including Sections 2.02 and 4.07 hereof, as part of the same series as the
Initial Notes issued on the date hereof, ranking equally with those Initial
Notes and having identical terms and conditions to the Initial Notes (in all
respects other than the payment of interest accruing prior to the issue date of
such Additional Notes or except, in any such case, at the option of the
Company, for the first payment of interest following the issue date of such
Additional Notes), subject to compliance with Section 4.07 hereof.  The Initial Notes and any Additional Notes
subsequently issued under this Indenture shall be treated as a single class for
all purposes under this Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase.

 

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

 

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

 

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

 

“Agreement and Plan of Merger” means
the agreement and plan of merger dated December 22, 2003, as amended by
Amendment No. 1 on June 10, 2004, Amendment No. 2 on June 13, 2004 and
Amendment No. 3 on June 18, 2004, among DRS LLC, Duane Reade Acquisition Corp.,
a Delaware corporation and a wholly owned Subsidiary of DRS LLC, and Duane
Reade Inc.

 

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

 

“Asset Sale” means any sale, issuance,
conveyance, transfer, lease or other disposition (including, without
limitation, by way of merger, consolidation or sale and leaseback

 

2

 

transaction)
(collectively, a “transfer”), directly or indirectly, in one or a series of
related transactions, of:

 

(1)           any
Capital Stock of any Restricted Subsidiary;

 

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

 

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

 

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

 

(A)          that
is governed by Section 5.01 hereof,

 

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

 

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

 

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

 

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

 

(F)           that
consists of cash or Cash Equivalents,

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Capital Lease Obligation” of any
Person means any obligation of such Person and its Restricted Subsidiaries on a
Consolidated basis under any capital lease of (or other agreement conveying the
right to use) real or personal property which, in accordance with GAAP, is
required to be capitalized on a balance sheet.

 

4

 

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

 

“Cash Equivalents” means

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

reason to constitute a majority of such Board
of Directors of the Company or of any of its direct or indirect parent
companies then in office;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

“Company” means Duane Reade
Acquisition Corp. (prior to the Acquisition Closing Date) and Duane Reade Inc.
(on or after the Acquisition Closing Date), in each case, a corporation
incorporated under the laws of Delaware, until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter “Company” shall mean such successor Person.

 

“Company Request” or “Company Order”
means a written request or order signed in the name of the Company by its
Chairman, its Chief Executive Officer, its Chief Financial Officer, its Chief
Operating Officer, its President, any Vice President, its Treasurer or an
Assistant Treasurer, and delivered to the Trustee.

 

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

 

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

 

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

 

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

 

(1)           the
incurrence of the Indebtedness giving rise to the need to make such calculation
and (if applicable) the application of the net proceeds therefrom, including to

 

7

 

refinance other Indebtedness, as if such Indebtedness was incurred, and
the application of such proceeds occurred, on the first day of such period;

 

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

 

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

 

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

 

(5)           all
adjustments to “EBITDA” for such period used to calculate “Adjusted EBITDA” for
such period that are disclosed in the “Summary Unaudited Pro Forma Financial
Information and Statistical Data” section included in the Offering Memorandum;
and

 

(6)           Pro
Forma Cost Savings;

 

provided that:

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

(i)            amortization of
debt discount,

 

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

 

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

 

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

 

(v)           accrued interest,
plus

 

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

 

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

 

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

 

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

 

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

 

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

 

(1)           all
extraordinary or nonrecurring gains (or extraordinary losses or nonrecurring,
non-cash losses), together with any related provision for taxes on any such
extraordinary or nonrecurring gain (and the tax effect of any such
extraordinary loss or

 

9

 

nonrecurring, non-cash loss), realized by the Company or any Restricted
Subsidiary during such period;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(11)         deferred
rental expense which is in excess of the amount of cash rental expense actually
paid in such relevant period, provided
that any amounts excluded in any

 

10

 

period pursuant to this clause (11) shall be deducted from Consolidated
Net Income in the period for which the cash payments in respect of such
deferred rental expense are paid,

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Consolidation” means, with respect to
any Person, the consolidation of the accounts of such Person and each of its
Subsidiaries if and to the extent the accounts of such

 

11

 

Person and
each of its Subsidiaries would normally be consolidated with those of such
Person, all in accordance with GAAP. The term “Consolidated” shall have
a correlative meaning.

 

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

 

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

 

“Co-Obligor Supplemental Indenture”
has the meaning set forth in the preamble hereto.

 

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

 

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

 

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

 

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

 

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

 

12

 

“Definitive Note” means a certificated
Note registered in the name of the Holder thereof and issued in accordance with
Section 2.07 hereof, substantially in the form of Exhibit A1 hereto, except
that such Note shall not bear the Global Note Legend and shall not have the
“Schedule of Exchanges of Interests in the Global Note” attached thereto.

 

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

 

“Designated Senior Indebtedness” means
(i) all Senior Indebtedness under the Credit Agreement and the Term Loan and
(ii) any other Senior Indebtedness which at the time of determination has an
aggregate principal amount outstanding of at least $25 million and which is
specifically designated in the instrument evidencing such Senior Indebtedness
or the agreement under which such Senior Indebtedness arises as “Designated
Senior Indebtedness” by the Company or Duane Reade GP.

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

“Equity Offering” means (x) a Public
Equity Offering or (y) a private placement of Capital Stock (other than
Disqualified Capital Stock) of the Company or any of its direct or indirect
parent companies, as the case may be, pursuant to an exemption from the
registration requirements of the Securities Act, to a Person (other than an
Affiliate of the Company) in either case (x) or (y) with gross proceeds to the
Company or any of its direct or indirect parent companies of at least $50
million that are promptly contributed to the Company on a non-recourse basis.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Global Notes” means, individually and
collectively, each of the Restricted Global Notes and the Unrestricted Global
Notes, substantially in the form of Exhibit A1 or A2 hereto, as appropriate,
issued in accordance with Section 2.01, 2.07(b)(iii), 2.07(b)(iv), 2.07(d)(i),
2.07(d)(ii), 2.07(d)(iii) or 2.07(f) of this Indenture.

 

“Guarantee” means the guarantee by any
Guarantor of the Company’s Indenture Obligations.

 

“Guaranteed Debt” of any Person means,
without duplication, all Indebtedness of any other Person referred to in the
definition of Indebtedness below guaranteed directly or

 

14

 

indirectly in
any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement:

 

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

 

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

 

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

 

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

 

(e)           otherwise to assure a creditor
against loss;

 

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

 

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

 

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

 

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

 

“Holdings” means Duane Reade Holdings,
Inc., a corporation formed under the laws of Delaware, and its successors and assigns,
which is a holding company that, as of the Acquisition Closing Date, directly
owns all of the equity interests in the Company.

 

“IAI Global Note” means the global
Note substantially in the form of Exhibit A1 hereto bearing the Global Note
Legend and the Private Placement Legend and deposited with or on behalf of and
registered in the name of the Depositary or its nominee that will be issued in
a denomination equal to the outstanding principal amount of the Notes sold to
Institutional Accredited Investors.

 

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

 

15

 

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

 

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

 

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

 

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

 

(e)           all Capital Lease Obligations of such
Person,

 

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

 

(g)           all Guaranteed Debt of such Person,

 

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

 

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

 

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

 

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

 

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

 

Notwithstanding the foregoing, Indebtedness shall not include:

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

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

 

“Initial Purchasers” means (i) Banc of
America Securities LLC, Citigroup Global Markets Inc., Credit Suisse First
Boston LLC, and UBS Securities LLC, as initial purchasers under the Purchase
Agreement dated July 23, 2004, among the Company and the Initial Purchasers and
(ii) with respect to any Additional Notes issued subsequent to the Issue Date,
any investment bank acting as initial purchaser in connection with the issuance
and sale of such Additional Notes.

 

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

 

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

 

“Investment” means, with respect to
any Person, directly or indirectly, any advance, loan (including guarantees),
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or
other securities issued or owned by any other Person and all other items that would
be classified as investments on a balance sheet prepared in accordance with
GAAP. “Investment” shall exclude direct or indirect advances to customers or
suppliers in the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable, prepaid expenses or deposits on the Company’s
or any Restricted Subsidiary’s balance sheet, endorsements for collection or
deposit arising in the ordinary course of business, extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices, and
investments in payroll, travel and similar advances made in the

 

17

 

ordinary
course of business. If the Company or any Restricted Subsidiary of the Company
sells or otherwise disposes of any Capital Stock of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company
(other than the sale of all of the outstanding Capital Stock of such
Subsidiary), the Company will be deemed to have made an Investment on the date
of such sale or disposition equal to the Fair Market Value of the Company’s
Investments in such Subsidiary that were not sold or disposed of in an amount
determined as provided in Section 4.08 hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Net Cash Proceeds” means

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Offering” means the offering of the
Notes by the Company.

 

19

 

“Offering Memorandum” means the
Offering Memorandum relating to the issuance and sale of the Notes and the
Guarantees, together with the supplement thereto distributed therewith, dated
July 23, 2004, prepared by the Company and Duane Reade.

 

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

 

“Officers’ Certificate” means a
certificate signed on behalf of the Company by at least two Officers of the
Company, one of whom must be the principal executive officer, the principal
financial officer, the treasurer or the principal accounting officer of the
Company, that meets the requirements of Section 13.05 hereof.

 

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

 

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

 

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

 

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

 

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

 

“Permitted Investment” means

 

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

 

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

 

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

 

20

 

(4)           Investments in cash and Cash
Equivalents;

 

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

 

(6)           Investments in existence on the
Acquisition Closing Date;

 

(7)           Investments acquired in exchange for
the issuance of Capital Stock (other than Disqualified Capital Stock of the
Company or a Restricted Subsidiary or Preferred Stock of a Restricted
Subsidiary) or acquired with the Net Cash Proceeds received by the Company
after the Acquisition Closing Date from the issuance and sale of Capital Stock
(other than Disqualified Stock of the Company or a Restricted Subsidiary or
Preferred Stock of a Restricted Subsidiary); provided
that such Net Cash Proceeds are used to make such Investment within 60 days of
the receipt thereof and the amount of all such Net Cash Proceeds will be
excluded from clause (3)(B) of Section 4.08(a);

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

21

 

“Permitted Lien” means:

 

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

 

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

 

(3)           Liens
existing or entered into on the Issue Date and Liens in favor of the Company,
Duane Reade GP or any Guarantor;

 

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

 

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

 

(6)           Liens
on goods (and the proceeds thereof) and documents of title and the property
covered thereby securing Indebtedness in respect of commercial letters of
credit and Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;

 

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

 

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

 

22

 

(9)           Liens
securing Refinancing Indebtedness otherwise permitted to be incurred under this
Indenture where the Indebtedness being refinanced was secured by a Lien, or
amendments or renewals of Liens that were permitted to be incurred; provided, in each case, that such Liens do
not extend to any additional property or asset of the Company or a Restricted
Subsidiary of the Company;

 

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

 

(11)         Liens
with respect to Indebtedness that does not exceed $1 million at any one time
outstanding; and

 

(12)         any
extension, renewal or replacement, in whole or in part, of any Lien described
in the foregoing clauses (1) through (11) provided that the Lien so extended,
renewed or replaced does not extend to any additional property or assets.

 

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

 

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

 

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

 

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

 

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

 

23

 

otherwise
relating to equity securities issuable under any employee benefit plan of the
Company or any of its direct or indirect parent companies, as the case may be).

 

“Purchase Money Obligations” means
Indebtedness of the Company or any Restricted Subsidiary incurred for the
purpose of financing all or any part of the purchase price of property, plant
or equipment used in the business of the Company or any Restricted Subsidiary
or the cost of installation, construction or improvement thereof, and the
payment of any sales or other taxes associated therewith; provided, however, that (1) the amount of
such Indebtedness shall not exceed such purchase price or cost and payment plus
applicable taxes, and (2) such Indebtedness shall be incurred within one year
of such acquisition of such asset by the Company or such Restricted Subsidiary
or such installation, construction or improvement.

 

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

 

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

 

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

 

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

 

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

 

“Registration Rights Agreement” means
(i) the Registration Rights Agreement among the Company and the Initial
Purchasers named therein, dated as of July 30, 2004, relating to the Initial
Notes, and (ii) with respect to any Additional Notes issued subsequent to the
Issue Date, any registration rights agreement entered into for the benefit of
the holders of such Additional Notes, if any.

 

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

 

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

 

“Regulation S Permanent Global Note”
means a permanent global Note in the form of Exhibit A1 hereto bearing the
Global Note Legend and the Private Placement Legend and deposited with or on
behalf of and registered in the name of the Depositary or its nominee, issued
in a denomination equal to the outstanding principal amount at maturity of the
Regulation S Temporary Global Note upon expiration of the Restricted Period.

 

“Regulation S Temporary Global Note”
means a temporary global Note in the form of Exhibit A2 hereto bearing the
Global Note Legend, the Private Placement Legend and the Temporary Regulation S
Legend and deposited with or on behalf of and registered in the

 

24

 

name of the
Depositary or its nominee, issued in a denomination equal to the outstanding
principal amount at maturity of the Notes initially sold in reliance on Rule
903 of Regulation S.

 

“Representative” means the trustee,
agent or representative for any Senior Indebtedness or Designated Senior
Indebtedness, as the case may be, or, in the absence thereof, the holders of a
majority in principal amount of such Senior Indebtedness or Designated Senior
Indebtedness, as the case may be.

 

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

 

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

 

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

 

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

 

“Restricted Subsidiary” means any
Subsidiary of the Company that has not been designated by the Board of
Directors of the Company by a Board Resolution delivered to the Trustee as an
Unrestricted Subsidiary pursuant to and in compliance with Section 4.15 hereof.

 

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

 

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

 

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

 

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

 

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

 

“Senior Indebtedness” means the
principal of, premium, if any, and interest (including interest accruing after
the filing of a petition initiating any proceeding under any Bankruptcy Law,
whether or not allowed or allowable as a claim in any such proceeding) on, any
of the Company’s, Duane Reade GP’s or a Guarantor’s Indebtedness (other than as
otherwise provided in this definition), whether outstanding on the Issue Date
or thereafter created, incurred or assumed, and whether at any time owing,
actually or contingent, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes or the Guarantor’s Guarantee, as the case may be.
Notwithstanding the

 

25

 

foregoing,
“Senior Indebtedness” shall include all obligations arising under the Credit
Agreement and the Term Loan, or any security or other collateral documents
relating thereto, all amounts that may be or become available for drawings
under all letters of credit outstanding under the Credit Agreement, all fees,
expenses, indemnities and other amounts payable from time to time under the
Credit Agreement or the Term Loan and any other security or collateral
documents therefor and all obligations arising under Currency Hedging
Agreements, Interest Rate Agreements and Commodity Price Agreements.
Notwithstanding anything to the contrary in this definition, “Senior
Indebtedness” shall not include:

 

(1)           Indebtedness
that is subordinate or junior in right of payment to any of the Company’s,
Duane Reade GP’s or a Guarantor’s Indebtedness;

 

(2)           Indebtedness
which when incurred and without respect to any election under Section 1111(b)
of Title 11 United States Code, is without recourse to the Co-Obligors;

 

(3)           Indebtedness
which is represented by Disqualified Capital Stock;

 

(4)           any
liability for foreign, federal, state, local or other taxes owed or owing by
the Company to the extent such liability constitutes indebtedness;

 

(5)           Indebtedness
of the Company, Duane Reade GP or a Guarantor to (x) a Subsidiary of the
Company or (y) any other Affiliate of the Company or any of such Affiliate’s
Subsidiaries if such Affiliate or Subsidiary of such Affiliate holds at least a
majority of such Indebtedness;

 

(6)           to
the extent they might constitute Indebtedness, amounts owing for goods,
materials or services purchased in the ordinary course of business or
consisting of trade accounts payable owed or owing by the Company, Duane Reade
GP or a Guarantor, and amounts owed by the Company, Duane Reade GP or a
Guarantor for compensation to employees or services rendered to the Company,
Duane Reade GP or a Guarantor;

 

(7)           Indebtedness
under the Convertible Notes;

 

(8)           that
portion of any Indebtedness which at the time of incurrence is incurred in
violation of this Indenture; and

 

(9)           Indebtedness
evidenced by any guarantee of any Subordinated Indebtedness or Pari Passu
Indebtedness.

 

Obligations constituting Senior Indebtedness
shall continue to constitute Senior Indebtedness for all purposes,
notwithstanding that such Senior Indebtedness or any claim in respect thereof
may be disallowed, avoided or subordinated pursuant to any Bankruptcy Law (i)
as a claim for unmatured interest, (ii) as a fraudulent transfer or conveyance
or (iii) otherwise.

 

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

 

26

 

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

 

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

 

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

 

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

 

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

 

“Subsidiary” of a Person means

 

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

 

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

 

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

 

“Successor Supplemental Indenture” has
the meaning set forth in the preamble hereto.

 

“Supplemental Indentures” has the
meaning set forth in the preamble hereto.

 

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

 

27

 

“Term Loan” means the Senior Secured
Term Credit Agreement, to be entered into on the Acquisition Closing Date,
among the Company and Duane Reade GP, as co-borrowers thereto, the Company’s
Subsidiaries which are guarantors thereof, Banc of America Securities LLC and
Credit Suisse First Boston, as joint lead arrangers, Banc of America Securities
LLC, Credit Suisse First Boston and Citigroup Global Markets Inc. as joint book
running managers, Bank of America Bridge LLC, as second lien administrative and
collateral agent, certain lenders party thereto, and certain agents party
thereto, as such facility, in whole or in part, in one or more instances, may
be amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing and including without limitation any amendment increasing the amount
of Indebtedness incurred or available to be borrowed thereunder, extending the
maturity of any Indebtedness incurred thereunder or contemplated thereby or
deleting, adding or substituting one or more parties thereto (whether or not
such added or substituted parties are banks or other institutional lenders)),
including into one or more debt facilities, commercial paper facilities or
other debt instruments, indentures or agreements, providing for revolving
credit loans, term loans, letters of credit or other debt obligations, whether
any such extension, replacement or refinancing (1) occurs simultaneously or not
with the termination or repayment of a prior Term Loan or (2) occurs on one or
more separate occasions.

 

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

 

“Transactions” means the Acquisition
and all financing and other transactions related thereto, including, without
limitation, the issuance of the Notes and the Exchange Notes, the transactions
contemplated by the Registration Rights Agreement, the transactions
contemplated by the Credit Agreement and the Term Loan and the repurchase of
the Convertible Notes.

 

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

 

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

 

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

 

“Unrestricted Global Note” means a
permanent Global Note substantially in the form of Exhibit A1 attached hereto
that bears the Global Note Legend and that has the “Schedule of Exchanges of
Interests in the Global Note” attached thereto, and that is deposited with or
on behalf of and registered in the name of the Depositary, representing a
series of Notes that do not bear the Private Placement Legend.

 

28

 

“Unrestricted Subsidiary” means any
Subsidiary of the Company (other than Duane Reade GP or a Guarantor) designated
as such pursuant to and in compliance with Section 4.15 hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Voting Stock” of a Person means
Capital Stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the Board of Directors, managers or trustees of
such

 

29

 

Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).

 

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

 

30

 

Section 1.02.  Other Definitions.

 

	
  TERM

  	
   

  	
  DEFINED

  IN

  SECTION

  
	
  “Act”

  	
   

  	
  13.13

  
	
  “Asset Sale Offer”

  	
   

  	
  4.11

  
	
  “Asset Sale Offer Date”

  	
   

  	
  4.11

  
	
  “Asset Sale Offer Price”

  	
   

  	
  4.11

  
	
  “Authentication Order”

  	
   

  	
  2.02

  
	
  “Change of Control Offer”

  	
   

  	
  4.18

  
	
  “Change of Control Purchase Date”

  	
   

  	
  4.18

  
	
  “Change of Control Purchase Notice”

  	
   

  	
  4.18

  
	
  “Change of Control Purchase Price”

  	
   

  	
  4.18

  
	
  “Company Authentication Order”

  	
   

  	
  2.02

  
	
  “Co-Obligor Authentication Order”

  	
   

  	
  2.02

  
	
  “Covenant Defeasance”

  	
   

  	
  8.03

  
	
  “Defeasance Redemption Date”

  	
   

  	
  8.04

  
	
  “Designation”

  	
   

  	
  4.15

  
	
  “Designation Amount”

  	
   

  	
  4.15

  
	
  “DTC”

  	
   

  	
  2.01

  
	
  “Event of Default”

  	
   

  	
  6.01

  
	
  “Excess Proceeds”

  	
   

  	
  4.11

  
	
  “Funds in Trust”

  	
   

  	
  8.04

  
	
  “incur”

  	
   

  	
  4.07

  
	
  “Legal Defeasance”

  	
   

  	
  8.02

  
	
  “Liquidated Damages Notice”

  	
   

  	
  4.20

  
	
  “Non-Payment Event of Default”

  	
   

  	
  10.03

  
	
  “Offer”

  	
   

  	
  4.10

  
	
  “Offer Date”

  	
   

  	
  4.10

  
	
  “Paying Agent”

  	
   

  	
  2.04

  
	
  “Payment Blockage Notice”

  	
   

  	
  10.03

  

 

31

 

	
  “Payment Event of Default”

  	
   

  	
  10.03

  
	
  “Permitted Indebtedness”

  	
   

  	
  4.07

  
	
  “Permitted Junior Securities”

  	
   

  	
  10.02

  
	
  “Permitted Payment”

  	
   

  	
  4.08

  
	
  “refinancing”

  	
   

  	
  4.07

  
	
  “Refinancing Indebtedness”

  	
   

  	
  4.07

  
	
  “Registrar”

  	
   

  	
  2.04

  
	
  “Required Filing Date”

  	
   

  	
  4.03

  
	
  “Restricted Payments”

  	
   

  	
  4.08

  
	
  “Revocation”

  	
   

  	
  4.15

  
	
  “Surviving Entity”

  	
   

  	
  5.01

  
	
  “Surviving Guarantor Entity”

  	
   

  	
  5.01

  
	
  “Trustee”

  	
   

  	
  8.05

  

 

Section 1.03.  Incorporation by Reference of Trust
Indenture Act.

 

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

 

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

 

Section 1.04.  Rules of Construction.

 

Unless the context otherwise requires:

 

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

 

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

 

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

 

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

 

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

 

32

 

ARTICLE TWO

The Notes

 

Section 2.01.  Form and Dating.

 

(a)           General.  The Notes and the Trustee’s certificate of
authentication shall be substantially in the form of Exhibit A1 or A2 hereto.  The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage.  Each Note shall be dated the date of its
authentication.  The Notes shall be
issued in registered, global form without interest coupons and only shall be in
minimum denominations of $5,000 and integral multiples of $1,000 in excess
thereof.

 

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

 

(b)           Global Notes.  Notes issued in global form shall be
substantially in the form of Exhibit A1 or A2 attached hereto (including the
Global Note Legend thereon and the “Schedule of Exchanges of Interests in the
Global Note” attached thereto).  Notes
issued in definitive form shall be substantially in the form of Exhibit A1
attached hereto (but without the Global Note Legend thereon and without the
“Schedule of Exchanges of Interests in the Global Note” attached thereto).  Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate principal amount of outstanding Notes from time
to time endorsed thereon and that the aggregate principal amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions.  Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee in
accordance with instructions given by the Holder thereof as required by Section
2.07 hereof.

 

(c)           Temporary Global Notes.  Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S
Temporary Global Note, which shall be deposited on behalf of the purchasers of
the Notes represented thereby with the Trustee, as custodian for The Depository
Trust Company (“DTC”) in New York, New York, and registered in the name
of the Depositary or the nominee of the Depositary for the accounts of
designated agents holding on behalf of Euroclear or Clearstream, duly executed
by the Co-Obligors and authenticated by the Trustee as hereinafter
provided.  The Restricted Period shall be
terminated upon the receipt by the Trustee of (i) a written certificate from
Euroclear and Clearstream certifying that they have received certification of
non-United States Beneficial Ownership of 100% of the aggregate principal
amount at maturity of the Regulation S Temporary Global Note (except to the
extent of any Beneficial Owners thereof who acquired an interest therein during
the Restricted Period pursuant to another exemption from registration under the
Securities Act and who shall take delivery of a Beneficial Ownership interest
in a 144A Global Note bearing a Private Placement Legend, all as contemplated
by Section 2.07(a)(ii) hereof), and (ii) an Officers’ Certificate from the
Co-Obligors.  Following the

 

33

 

termination of the Restricted Period,
beneficial interests in the Regulation S Temporary Global Note shall be
exchanged for beneficial interests in Regulation S Permanent Global Notes
pursuant to the Applicable Procedures. 
Simultaneously with the authentication of Regulation S Permanent Global
Notes, the Trustee shall cancel the Regulation S Temporary Global Note.  The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be,
in connection with transfers of interest as hereinafter provided.

 

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

 

(e)           Additional Notes.  Notwithstanding anything else herein, with
respect to any Additional Notes issued subsequent to the date of this
Indenture, when the context requires, (1) all references in Article Two herein
and elsewhere in this Indenture to a Registration Rights Agreement shall be to
the registration rights agreement entered into with respect to such Additional
Notes, (2) any references in this Indenture to the Exchange Offer, Exchange
Offer Registration Statement, Shelf Registration Statement, Initial Purchasers,
and any other term related thereto shall be to such terms as they are defined
in such registration rights agreement entered into with respect to such
Additional Notes, (3) all time periods described in the Notes with respect to
the registration of such Additional Notes shall be as provided in such
Registration Rights Agreement entered into with respect to such Additional
Notes, (4) any Liquidated Damages or penalty interest, if set forth in such
Registration Rights Agreement, may be paid to the holders of the Additional Notes
immediately prior to the making or the consummation of the Exchange Offer
regardless of any other provisions regarding record dates herein and (5) all
provisions of this Indenture shall be construed and interpreted to permit the
issuance of such Additional Notes and to allow such Additional Notes to become
fungible and interchangeable with the Initial Notes originally issued under
this Indenture (and Exchange Notes issued in exchange therefor).

 

Section 2.02.  Execution and Authentication.

 

(a)           On the Issue Date, one or more
Officers of the Company shall sign the Notes (the “DRAC Notes”) for the Company
by manual or facsimile signature.  The
Trustee shall, upon a written order of the Company signed by one or more Officers
of the Company (a “Company Authentication Order”) delivered to the
Trustee from time to time, authenticate Notes for original issue without limit
as to the aggregate principal amount thereof, subject to compliance with
Section 4.07, of which $195 million will be issued on the date of this
Indenture.

 

(b)           Upon consummation of the Acquisition,
the DRAC Notes shall be surrendered by the Holder thereof to the Company, and
the Company shall surrender such DRAC Notes to the Trustee for cancellation, in
accordance with the terms of this Indenture and in lieu thereof, upon execution
of the Successor Supplemental Indenture and Co-Obligor

 

34

 

Supplemental Indenture, one or
more Officers of each of (i) Duane Reade, as the Surviving Entity (as defined in
Section 5.01 hereof) in the Acquisition and (ii) Duane Reade GP, as co-obligor
of this Indenture and the Notes, shall sign replacement Notes of a like tenor
and principal amount for the Co-Obligors by manual or facsimile signature.

 

Upon consummation of the Acquisition, the
Trustee shall, upon a written order of the Co-Obligors signed by one or more
Officers of each of the Co-Obligors (a “Co-Obligor Authentication Order”
and, together with a Company Authentication Order, an “Authentication Order”)
delivered to the Trustee from time to time, authenticate Notes for original
issue without limit as to the aggregate principal amount thereof, subject to
compliance with Section 4.07, of which $195 million of replacement Notes,
executed by the Co-Obligors pursuant to the immediately preceding sentence,
will be issued upon consummation of the Acquisition.

 

Upon authentication of such replacement Notes
in accordance with the preceding paragraph, the DRAC Notes shall automatically
be deemed to have been canceled in accordance with the terms of this Indenture,
and none of the Company, the Co-Obligors or the Guarantors shall be deemed to
have any obligations whatsoever under such canceled DRAC Notes.

 

(c)           Upon receipt of an Authentication
Order, the Trustee shall authenticate for original issue (i) Exchange Notes in
exchange for Initial Notes in an aggregate principal amount not to exceed $195
million or (ii) Exchange Notes in exchange for Additional Notes; provided that such Exchange Notes shall be
issuable only upon the valid surrender for cancellation of Initial Notes issued
on the date hereof or Additional Notes, as the case may be, of a like aggregate
principal amount in accordance with an Exchange Offer pursuant to an applicable
Registration Rights Agreement.

 

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

 

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

 

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

 

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

 

Section 2.03.  Methods of Receiving Payments on the
Notes.

 

If a Holder of Notes has given wire transfer
instructions to the Paying Agent at least 10 Business Days before payment is
due, the Co-Obligors shall pay all principal, interest and premium, if any, on
that Holder’s Notes in accordance with those instructions.  All other payments on Notes shall be made at
the office or agency of the Paying Agent and Registrar

 

35

 

within the
City and State of New York unless the Co-Obligors elect to make interest
payments by check mailed to the Holders at their addresses set forth in the register
of Holders.  Payments of interest to the
Trustee as Paying Agent, if the Trustee then acts as Paying Agent, with respect
to any Interest Payment Date (as defined in the Notes) shall be made by the
Co-Obligors in immediately available funds for receipt by the Trustee one
Business Day prior to the such Interest Payment Date (or in no event later than
12:30 p.m. Eastern Time on such Interest Payment Date).

 

Section 2.04.  Registrar and Paying Agent.

 

(a)           The Co-Obligors shall maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange (“Registrar”) and an office or agency where Notes may be
presented for payment (“Paying Agent”). 
The Registrar shall keep a register of the Notes and of their transfer
and exchange.  The Co-Obligors may
appoint one or more co-registrars and one or more additional paying
agents.  The term “Registrar” includes
any co-registrar and the term “Paying Agent” includes any additional paying
agent.  The Co-Obligors may change any
Paying Agent or Registrar without prior notice to any Holder.  The Co-Obligors shall notify the Trustee in
writing of the name and address of any Agent not a party to this
Indenture.  If the Co-Obligors fail to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such.  The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.

 

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

 

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

 

Section 2.05.  Paying Agent to Hold Money in Trust.

 

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

 

Section 2.06.  Holder Lists.

 

The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of all Holders and shall otherwise comply with TIA Section
312(a).  If the Trustee is not the
Registrar, the Co-Obligors shall

 

36

 

furnish to the
Trustee at least seven Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and
addresses of the Holders of Notes and the Co-Obligors shall otherwise comply
with TIA Section 312(a).

 

Section 2.07.  Transfer and Exchange.

 

(a)           Transfer and Exchange of Global
Notes.  A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. 
All Global Notes shall be exchanged by the Co-Obligors for Definitive
Notes if (i) the Co-Obligors deliver to the Trustee notice from the Depositary
that it is unwilling or unable to continue to act as Depositary or that it is
no longer a clearing agency registered under the Exchange Act and, in either
case, a successor Depositary is not appointed by the Co-Obligors within 90 days
after the date of such notice from the Depositary; (ii) the Co-Obligors in
their sole discretion determine that the Global Notes (in whole but not in
part) should be exchanged for Definitive Notes and deliver a written notice to
such effect to the Trustee; provided
that in no event shall the Regulation S Temporary Global Note be exchanged by the
Co-Obligors for Definitive Notes prior to (x) the expiration of the Restricted
Period and (y) the receipt by the Registrar of any certificates required
pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or (iii) there
shall have occurred and be continuing a Default or Event of Default with
respect to the Notes.  Upon the
occurrence of any of the preceding events in (i), (ii) or (iii) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee.  Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.02, 2.08
and 2.11 hereof.  Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or
any portion thereof, pursuant to this Section 2.07 or Section 2.02, 2.08 or
2.11 hereof, shall be authenticated and delivered in the form of, and shall be,
a Global Note.  Beneficial interests in a
Global Note may be transferred and exchanged as provided in Section 2.07(b),
(c) or (f) hereof.

 

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

 

(i)            Transfer of
Beneficial Interests in the Same Global Note.  Beneficial interests in any Restricted Global
Note may be transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend; provided, however, that
prior to the expiration of the Restricted Period, transfers of beneficial
interests in the Regulation S Temporary Global Note may not be made to a
U.S.  Person or for the account or
benefit of a U.S.  Person (other than an
Initial Purchaser).  Beneficial interests
in any

 

37

 

Unrestricted
Global Note may be transferred to Persons who take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note.  No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers described in
this Section 2.07(b)(i).

 

(ii)           All Other
Transfers and Exchanges of Beneficial Interests in Global Notes.  In connection with all transfers and
exchanges of beneficial interests that are not subject to Section 2.07(b)(i)
above, the transferor of such beneficial interest must deliver to the Registrar
either (A) (1) a written order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable Procedures directing
the Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant account
to be credited with such increase or (B) (1) a written order from a Participant
or an Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be transferred
or exchanged and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such Definitive Note
shall be registered to effect the transfer or exchange referred to in (1)
above; provided that in no
event shall Definitive Notes be issued upon the transfer or exchange of
beneficial interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities
Act.  Upon consummation of an Exchange
Offer by the Company in accordance with Section 2.07(f) hereof, the
requirements of this Section 2.07(b)(ii) shall be deemed to have been satisfied
upon receipt by the Registrar of the instructions contained in the Letter of
Transmittal delivered by the Holder of such beneficial interests in the
Restricted Global Notes.  Upon
satisfaction of all of the requirements for transfer or exchange of beneficial
interests in Global Notes contained in this Indenture and the Notes or
otherwise applicable under the Securities Act, the Trustee shall adjust the
principal amount at maturity of the relevant Global Notes pursuant to Section
2.07(i) hereof.

 

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

 

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

 

38

 

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

 

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

 

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

 

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

 

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

 

(D)          the Registrar receives the following:

 

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

 

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

 

and, in each such case set forth in this
subparagraph (D), if the Registrar so requests or if the Applicable Procedures
so require, an Opinion of

 

39

 

Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained herein and
in the Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

40

 

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

 

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

 

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

 

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

 

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

 

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

 

41

 

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

 

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

 

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

 

(D)          the Registrar receives the following:

 

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

 

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

 

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

 

(iv)          Beneficial
Interests in Unrestricted Global Notes to Unrestricted Definitive Notes.  If any Holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Definitive Note, then, upon satisfaction of
the conditions set forth in Section 2.07(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.07(i)

 

42

 

hereof, and
the Co-Obligors shall execute and the Trustee shall authenticate and deliver to
the Person designated in the instructions a Definitive Note in the appropriate
principal amount.  Any Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.07(c)(iv) shall be registered in such name or names and in such authorized
denomination or denominations as the Holder of such beneficial interest shall
instruct the Registrar through instructions from the Depositary and the
Participant or Indirect Participant.  The
Trustee shall deliver such Definitive Notes to the Persons in whose names such
Notes are so registered.  Any Definitive
Note issued in exchange for a beneficial interest pursuant to this Section
2.07(c)(iv) shall not bear the Private Placement Legend.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

43

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(D)          the Registrar receives the following:

 

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

 

(2)           if the Holder of such Definitive
Notes proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the Unrestricted Global Note, a

 

44

 

certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;

 

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

 

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

 

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

 

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

 

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

 

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

 

45

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(D)          the Registrar receives the following:

 

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

 

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

 

46

 

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

 

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

 

(f)            Exchange Offer.  Upon the occurrence of an Exchange Offer in
accordance with an applicable Registration Rights Agreement, the Co-Obligors
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
the beneficial interests in the Restricted Global Notes tendered for acceptance
by Persons that certify in the applicable Letters of Transmittal that (x) they
are not Broker-Dealers, (y) they are not participating in a distribution of the
Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the
Company, and accepted for exchange in such Exchange Offer and (ii) Definitive
Notes in an aggregate principal amount equal to the principal amount of the
Restricted Definitive Notes accepted for exchange in such Exchange Offer.  Concurrently with the issuance of such Notes,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Notes to be reduced accordingly, and the Co-Obligors shall
execute and the Trustee shall authenticate and deliver to the Persons
designated by the Holders of Definitive Notes so accepted Definitive Notes in
the appropriate principal amount.  Any
Notes that remain outstanding after the consummation of an Exchange Offer, and
Exchange Notes issued in connection with an Exchange Offer, shall be treated as
a single class of securities under this Indenture.

 

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

 

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

 

THIS NOTE AND THE GUARANTEES ENDORSED HEREON
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAWS. 
NEITHER THIS NOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT

 

47

 

TO THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.  THE HOLDER OF THIS NOTE
AND THE GUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCE HEREOF, AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT THAT THE NOTES AND
GUARANTEES MAY BE TRANSFERRED (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE NOTES AND THE GUARANTEES ENDORSED THEREON ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO
A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED
IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN OFFSHORE TRANSACTIONS
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE
40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT OR PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (2) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE.

 

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

 

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

 

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

 

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY
(AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR
THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY 

 

48

 

PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT
(1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO
SECTION 2.07 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE
BUT NOT IN PART PURSUANT TO SECTION 2.07(a) OF THE INDENTURE, (3) THIS GLOBAL
NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12
OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR
DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

 

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

 

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

 

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

 

(j)            General Provisions Relating to
Transfers and Exchanges.

 

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

 

(ii)           No service charge
shall be made to a Holder of a beneficial interest in a Global Note or to a
Holder of a Definitive Note for any registration of transfer or exchange, but
the Co-Obligors may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.11, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

 

49

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 2.08.  Replacement Notes.

 

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

 

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

 

50

 

Section 2.09.  Outstanding Notes.

 

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

 

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

 

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

 

(d)           If the Paying Agent (other than the
Company, a Subsidiary of the Company or an Affiliate of any of the foregoing)
holds, on a redemption date or maturity date, money sufficient to pay Notes
payable on that date, then on and after that date such Notes shall be deemed to
be no longer outstanding and shall cease to accrue interest.

 

Section 2.10.  Treasury Notes.

 

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

 

Section 2.11.  Temporary Notes.

 

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

 

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

 

Section 2.12.  Cancellation.

 

The Co-Obligors at any time may deliver Notes
to the Trustee for cancellation.  The
Registrar and Paying Agent shall forward to the Trustee any Notes surrendered
to them for registration of transfer, exchange or payment.  The Trustee and no one else shall cancel all
Notes 

 

51

 

surrendered
for registration of transfer, exchange, payment, replacement or cancellation
and shall dispose of canceled Notes in accordance with its procedures for the
disposition of canceled securities in effect as of the date of such disposition
(subject to the record retention requirement of the Exchange Act).  Certification of the disposition of all
canceled Notes shall be delivered to the Co-Obligors.  The Co-Obligors may not issue new Notes to
replace Notes that they have paid or that have been delivered to the Trustee
for cancellation.

 

Section 2.13.  Defaulted Interest.

 

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

 

Section 2.14.  CUSIP Numbers.

 

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

 

ARTICLE THREE

Redemption and Prepayment;

Satisfaction and Discharge

 

Section 3.01.  Notices to Trustee.

 

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

 

52

 

Section 3.02.  Selection of Notes to Be Redeemed.

 

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

 

(b)           The Trustee shall promptly notify the
Co-Obligors in writing of the Notes selected for redemption and, in the case of
any Note selected for partial redemption, the principal amount at maturity
thereof to be redeemed.  No Notes in
amounts of $5,000 or less shall be redeemed in part.  The Trustee may select for redemption
portions of the principal of Notes that have denominations larger than
$5,000.  Notes and portions of Notes
selected shall be in amounts of $5,000 or whole multiples of $1,000 in excess
thereof; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed.  Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.  Redemptions pursuant to
Section 3.07(b) hereof shall be made on a pro
rata basis or on as nearly a pro
rata basis as practicable (subject to the provisions of DTC or other
depositary).

 

Section 3.03.  Notice of Redemption.

 

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

 

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

 

(i)            the
redemption date;

 

(ii)           the
redemption price;

 

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

 

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

 

53

 

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

 

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

 

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

 

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

 

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

 

Section 3.04.  Effect of Notice of Redemption.

 

Once notice of
redemption is mailed in accordance with Section 3.03 hereof, Notes called for
redemption become irrevocably due and payable on the redemption date at the
redemption price.  A notice of redemption
may not be conditional other than in the case of a Change of Control Offer
pursuant to Section 4.18 herein.

 

Section 3.05.  Deposit of Redemption Price.

 

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

 

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

 

54

 

Section 3.06.  Notes Redeemed in Part.

 

Upon surrender
of a Note that is redeemed in part, the Co-Obligors shall issue and the Trustee
shall authenticate for the Holder at the expense of the Co-Obligors a new Note
equal in principal amount to the unredeemed portion of the Note
surrendered.  No Notes in denominations
of $5,000 or less shall be redeemed in part.

 

Section 3.07.  Optional Redemption.

 

(a)           After August 1, 2008, the
Co-Obligors, on one or more occasions, may redeem for cash all or a portion of
the Notes, on not less than 30 nor more than 90 days’ prior notice, in amounts
of $5,000 or whole multiples of $1,000 in excess thereof at the following
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and additional interest, if any,
thereon, to the applicable redemption date, if redeemed during the twelve-month
period beginning on August 1 of the years indicated below:

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2008

  	
   

  	
  104.875

  	
  %

  
	
  2009

  	
   

  	
  102.438

  	
  %

  
	
  2010 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

(b)           At any time after the Acquisition
Closing Date and prior to August 1, 2007, the Company, DRS LLC or Holdings, at
the Company’s option, may use the net proceeds of one or more Equity Offerings
to redeem on one or more occasions up to an aggregate of 35% of the aggregate
principal amount of Notes issued under this Indenture (including the principal
amount of any Additional Notes issued under this Indenture but without
duplication with respect to Exchange Notes) at a redemption price equal to
109.75% of the aggregate principal amount of the Notes redeemed, plus accrued
and unpaid interest, if any, to the redemption date (subject to the rights of
holders of record on relevant record dates to receive interest due on an
interest payment date); provided
that this redemption provision shall not be applicable with respect to any
transaction that results in a Change of Control; provided, further, that if the proceeds of an Equity
Offering are used for redemption, all of such proceeds are first contributed to
the equity capital of the Company on a non-recourse basis. At least 65% of the
aggregate principal amount of Notes (including the principal amount of any
Additional Notes issued under this Indenture but without duplication with
respect to Exchange Notes) must remain outstanding immediately after the
occurrence of such redemption. In order to effect this redemption, the Company,
DRS LLC or Holdings, as the case may be, must complete such redemption within
90 days after the closing of the Equity Offering.

 

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

 

Section 3.08.  Mandatory Redemption.

 

Except as set forth in Section 4.11 and 4.18
hereof, the Co-Obligors are not required to make mandatory redemption or
sinking fund payments with respect to the Notes.

 

55

 

Section 3.09.  Application of Trust Money.

 

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

 

ARTICLE FOUR

Covenants

 

Section 4.01.  Payment of Notes.

 

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

 

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

 

Section 4.02.  Maintenance of Office or Agency.

 

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

 

(b)           The Co-Obligors may also from time to
time designate one or more other offices or agencies where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however,
that no such designation or 

 

56

 

rescission shall in any manner
relieve the Co-Obligors of their obligation to maintain an office or agency in
the Borough of Manhattan, The City of New York for such purposes.  The Co-Obligors shall give prompt written
notice to the Trustee of any such designation or rescission and of any change
in the location of any such other office or agency.

 

(c)           The Co-Obligors hereby designate the
office of U.S. Bank Trust National Association at 100 Wall Street, Suite 1600,
New York, New York  10005

 

(d)           as one such office or agency of the
Co-Obligors in accordance with Section 2.04 of this Indenture.

 

Section 4.03.  Reports.

 

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

 

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

 

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

 

57

 

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

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

 

Section 4.04.  Compliance Certificate.

 

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

 

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

 

(c)           The Co-Obligors shall, so long as any
of the Notes are outstanding, deliver to the Trustee, within five Business Days
after any Officer becomes aware of any Default or Event of Default, an
Officers’ Certificate specifying such Default or Event of Default and what
action the Co-Obligors are taking or propose to take with respect thereto.

 

58

 

Section 4.05.  Taxes.

 

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

 

Section 4.06.  Stay, Extension and Usury Laws.

 

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

 

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

 

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

 

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

 

(1)           Indebtedness
of the Company or Duane Reade GP (and guarantees by Guarantors of such
Indebtedness) under the Credit Agreement or the Term Loan in an aggregate
principal amount at any one time outstanding not to exceed the greater of (i)
$405.0 million and (ii) $155.0 million plus (x) 85% of accounts receivable of
the Company and its Restricted Subsidiaries as of the end of the most recently
ended fiscal quarter for which consolidated financial statements are available,
plus (y) 80% of inventory of the Company and its Restricted Subsidiaries as of
the end of the most recently ended fiscal quarter for which consolidated
financial statements are available, less, in the case of clause (i) and clause
(ii), without duplication, the amount of any permanent repayments thereof or
permanent reductions in commitments thereunder from the proceeds of one or more
Asset Sales which are used to prepay

 

59

 

or repay the Credit
Agreement or the Term Loan, as the case may be, pursuant to clause (b)(i) of
Section 4.11 hereof;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

60

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

61

 

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

 

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

 

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

 

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

 

(15)         Indebtedness
of the Company or any Restricted Subsidiary in addition to that described in
clauses (1) through (14) above, and any renewals, extensions, substitutions,
refinancings or replacements of such Indebtedness, so long as the aggregate
principal amount of all such Indebtedness shall not exceed $25 million
outstanding at any one time in the aggregate.

 

62

 

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

 

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

 

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

 

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

 

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

 

Section 4.08.  Restricted Payments.

 

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

 

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

 

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

 

63

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(B)           the
aggregate Net Cash Proceeds received after the Acquisition Closing Date by the
Company either (1) as capital contributions in the form of common equity to the
Company or (2) in respect of the issuance or sale (other than to any of its
Subsidiaries) of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase such Qualified Capital Stock of the Company
(except, in each case, to the extent such proceeds are used to purchase, redeem
or otherwise retire Capital Stock or Subordinated Indebtedness as set forth
below in clause (2) or (3) of paragraph (b) below) (and excluding the Net Cash
Proceeds from the issuance of Qualified Capital Stock financed, directly or
indirectly, using funds borrowed from the Company or any Subsidiary until and
to the extent such borrowing is repaid);

 

64

 

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

 

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

 

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

 

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

 

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

 

65

 

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

 

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

 

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

 

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

 

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

 

(5)           the
purchase, repurchase, redemption, or other acquisition or retirement for value
of Disqualified Capital Stock of the Company made by exchange for, or out of
the proceeds of the sale of within 60 days of Disqualified Capital Stock; provided that any such new Disqualified
Capital Stock is issued in accordance with paragraph (a) of 

 

66

 

Section 4.07 hereof and has an aggregate
liquidation preference that does not exceed the aggregate liquidation
preference of the amount so refinanced plus the amount of premium or other
payment actually paid at such time to refinance such Disqualified Capital Stock
and the amount of expenses of the Company incurred in connection with such refinancing;

 

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

 

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

 

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

 

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

 

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

 

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

 

(7)           any
transaction in connection with the Acquisition as described in the Offering
Memorandum;

 

67

 

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

 

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

 

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

 

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

 

(12)         any
purchase, redemption, retirement, defeasance or other acquisition for value of
any Subordinated Indebtedness pursuant to the provisions of such Subordinated
Indebtedness upon a Change of Control or an Asset Sale after the Company shall
have complied with the provisions of Section 4.11 or Section 4.18 hereof, as
the case may be; and

 

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

 

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

 

Section 4.09.  Transactions with Affiliates.

 

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

 

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

 

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

 

68

 

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

 

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

 

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

 

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

 

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

 

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

 

(3)                                  any
issuance of Qualified Capital Stock;

 

(4)           transactions
involving the Company or any of its Restricted Subsidiaries on the one hand,
and the Equity Investors or any of their Affiliates, on the other hand, in
connection with (x) the Acquisition and transactions related thereto, (y) the
Credit Agreement, the Term Loan and any amendment, modification, supplement,
extension, refinancing, replacement, work-out, restructuring and other
transactions related to any of the foregoing, or (z) any management, financial
advisory, financing, underwriting or placement services or any other investment
banking, banking or similar services, that are 

 

69

 

either disclosed in the Offering Memorandum
or approved by a majority of the Disinterested Directors of the Board of
Directors of the Company;

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 4.10.  Liens.

 

(a)           The Company shall not, and shall not cause
or permit any Restricted Subsidiary to, directly or indirectly, create, incur
or affirm any Lien (other than Permitted Liens) of any kind securing any Pari
Passu Indebtedness or Subordinated Indebtedness (including any assumption,
guarantee or other liability with respect thereto by any Restricted Subsidiary)
upon any property or assets (including any intercompany notes) of the Company
or any Restricted Subsidiary owned on the Acquisition Closing Date or acquired
after the Acquisition Closing Date, or assign or convey any right to receive
any income or profits therefrom, unless the Notes (or a Guarantee in the case
of Liens of a Guarantor) are directly secured equally and ratably with (or, in
the case of Subordinated Indebtedness, prior or senior thereto, with the same
relative priority as the Notes shall have with respect to such Subordinated
Indebtedness) the obligation or liability secured by such Lien except for Liens

 

70

 

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

 

(2)           securing
any Indebtedness incurred in connection with any refinancing, renewal,
substitution or replacement of any such Indebtedness described in clause (1)
above, so long as the aggregate principal amount of Indebtedness represented
thereby (or if such Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness plus any
accreted value attributable thereto since the original issuance of such
Indebtedness) is not increased by such refinancing by an amount greater than
the amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus the amount of expenses of the Company incurred in
connection with such refinancing,

 

provided, however, that any such Lien only
extends to the assets that were subject to such Lien securing such Indebtedness
prior to the related acquisition by the Company or its Restricted Subsidiaries.

 

(b)           Notwithstanding the foregoing, any
Lien securing the Notes or a Guarantee granted pursuant to this Section 4.10
shall be automatically and unconditionally released and discharged upon

 

(1)           the
release by the holders of the Pari Passu Indebtedness or Subordinated
Indebtedness described above of their Lien on the property or assets of the
Company or any Restricted Subsidiary (including any deemed release upon payment
in full of all obligations under such Indebtedness), at such time as the
holders of all such Pari Passu Indebtedness or Subordinated Indebtedness also
release their Lien on the property or assets of the Company or such Restricted
Subsidiary,

 

(2)           any
sale, exchange or transfer to any Person other than the Company or any
Restricted Subsidiary of the property or assets secured by such Lien, or of all
of the Capital Stock held by the Company or any Restricted Subsidiary in, or
all or substantially all the assets of, any Restricted Subsidiary creating such
Lien in accordance with the terms of this Indenture,

 

(3)           in
the case of a Lien on assets of a Guarantor securing a Guarantee, upon the
release of such Guarantee in accordance with the terms of this Indenture,

 

(4)           payment
in full of the principal of, and accrued interest and premium on the Notes, or

 

(5)           a
defeasance or discharge of the Notes in accordance with the procedures of
Article Eight or Article Twelve hereof, as the case may be.

 

71

 

Section 4.11.  Asset Sales.

 

(a)           The Company shall not, and shall not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
consummate an Asset Sale unless (1) at least 75% of the consideration from such
Asset Sale is received in cash or Cash Equivalents and (2) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets subject to such
Asset Sale.

 

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

 

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

 

(1)           prepay
permanently or repay permanently any Indebtedness under the Credit Agreement,
the Term Loan or any other Senior Indebtedness then outstanding (and in the
case of any such Indebtedness under a revolving credit facility, effect a
permanent reduction in the availability under such revolving credit facility);

 

(2)           repay
any Indebtedness which was secured by the assets sold in such Asset Sale;
and/or

 

(3)           (A)
invest in the purchase of assets (other than securities) to be used by the
Company or any Restricted Subsidiary in a Permitted Business, (B) acquire
Equity Interests in a Person that is a Restricted Subsidiary or in a Person
engaged in a Permitted Business that shall become a Restricted Subsidiary
immediately upon the consummation of such acquisition or (C) a combination of
(A) and (B); provided that any
Net Cash Proceeds received in the form of Qualified Non-Cash Proceeds shall be
deemed an application of such Net Cash Proceeds in accordance with this clause
(3); provided, further, that the
Company or such Restricted Subsidiary shall be deemed to have applied Net Cash
Proceeds in accordance with this clause (3) within such 365-day period if,
within such 365-day period, it has entered into a binding commitment or
agreement to invest such Net Cash Proceeds and continues to use all reasonable
efforts to so apply such Net Cash Proceeds as soon as practicable thereafter,
and that upon any abandonment or termination of such commitment or agreement
after such 365-day period, the Net Cash Proceeds not applied will constitute
Excess Proceeds (as defined below). In addition, following the entering into of
a binding agreement with respect to an Asset Sale and prior to the consummation
thereof, cash (whether or not actual Net Cash Proceeds of such 

 

72

 

Asset Sale) used for the purposes described in subclauses (A), (B) and
(C) of this clause (3) that are designated as uses in accordance with this
clause (3), and not previously or subsequently so designated in respect of any
other Asset Sale, shall be deemed to be Net Cash Proceeds applied in accordance
with this clause (3).

 

The amount of such Net Cash Proceeds not used
or invested in accordance with the preceding clauses (1), (2) or (3) within 365
days after the Asset Sale constitutes “Excess Proceeds.”

 

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

 

(d)           Pending application of Net Cash Proceeds
pursuant to this Section 4.11, such Net Cash Proceeds may be invested in Cash
Equivalents or applied to temporarily reduce Senior Indebtedness of the
Company, Duane Reade GP or any Guarantor or any Indebtedness of any Restricted
Subsidiary that is not a Guarantor.

 

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

 

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

 

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

 

73

 

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

 

(2)           the
Asset Sale Offer Date;

 

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

 

(4)           the
Asset Sale Offer Price;

 

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

 

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

 

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

 

(8)           the
procedures for withdrawing a tender; and

 

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

 

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

 

(i)            The Co-Obligors shall (i) not later
than the Asset Sale Offer Date, accept for payment Notes or portions thereof
tendered pursuant to the Asset Sale Offer, (ii) not later than 10:00 a.m. (New
York time) on the Asset Sale Offer Date, deposit with the Trustee or with a
Paying Agent an amount of money in same day funds sufficient to pay the
aggregate Asset Sale Offer Price of all the Notes or portions thereof which are
to be purchased on that date and (iii) not later than 10:00 a.m. (New York
time) on the Asset Sale Offer Date, deliver to the Paying Agent an Officers’
Certificate stating the Notes or portions thereof accepted for payment by the 

 

74

 

Co-Obligors.  The Paying Agent shall promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the Asset
Sale Offer Price of the Notes purchased from each such Holder, and the
Co-Obligors shall execute and the Trustee shall promptly authenticate and mail
or deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered. 
Any Notes not so accepted shall be promptly mailed or delivered by the
Paying Agent at the Co-Obligors’ expense to the Holder thereof.  For purposes of this Section 4.11, the
Co-Obligors shall choose a Paying Agent which shall not be the Company or Duane
Reade GP.

 

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

 

(j)            Notes to be purchased shall, on the
Asset Sale Offer Date, become due and payable at the Asset Sale Offer Price and
from and after such date (unless the Co-Obligors shall default in the payment
of the Asset Sale Offer Price) such Notes shall cease to bear interest.  Such Asset Sale Offer Price shall be paid to
such Holder promptly following the later of the Asset Sale Offer Date and the
time of delivery of such Note to the relevant Paying Agent at the office of
such Paying Agent by the Holder thereof in the manner required.  Upon surrender of any such Note for purchase
in accordance with the foregoing provisions, such Note shall be paid by the
Co-Obligors at the Asset Sale Offer Price; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Asset Sale Offer Date shall be payable to
the Person in whose name the Notes are registered as such on the relevant
record dates according to the terms and the provisions of Section 2.04; provided, further, that Notes to be purchased are subject to proration
in the event the Excess Proceeds are less than the aggregate Asset Sale Offer
Price of all Notes tendered for purchase, with such adjustments as may be
appropriate by the Trustee so that only Notes in denominations of $1,000 or
integral multiples thereof, shall be purchased. 
If any Note tendered for purchase shall not be so paid upon surrender
thereof by deposit of funds with the Trustee or a Paying Agent in accordance
with paragraph (i) above, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the Asset Sale Offer Date at the rate
borne by such Note.  Any Note that is to
be purchased only in part shall be surrendered to a Paying Agent at the office
of such Paying Agent (with, if the Company, the Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Registrar or the Trustee duly executed by,
the Holder thereof or such Holder’s attorney duly authorized in writing), and
the Co-Obligors shall execute and the Trustee shall authenticate and deliver to
the Holder of such Note, without service charge, one or more new Notes of any
authorized denomination as requested by such Holder in an aggregate principal
amount equal to, and in exchange for, the portion of the principal amount of
the Note so surrendered that is not purchased. 
The Company shall publicly announce the results of the Asset Sale Offer
on or as soon as practicable after the Asset Sale Offer Date.

 

75

 

Section 4.12.  Issuances of Guarantees by New Restricted
Subsidiaries.

 

The Company shall provide to the Trustee,
within 30 days following the date that any Person other than Duane Reade GP
becomes a Restricted Subsidiary, a supplemental indenture to this Indenture
substantially in the form attached hereto as Exhibit E, executed by such new
Restricted Subsidiary, providing for a full and unconditional guarantee on a
senior subordinated basis by such new Restricted Subsidiary of the Company’s
obligations under the Notes and this Indenture to the same extent as that set
forth in Article Eleven hereof, unless such Restricted Subsidiary is not a
guarantor or obligor in respect of any Indebtedness of the Company or any other
Restricted Subsidiary (other than Indebtedness that is permitted to be incurred
by Restricted Subsidiaries that are not Guarantors under Section 4.07 hereof); provided, however, that if such Restricted
Subsidiary becomes a guarantor or obligor in respect of any Indebtedness of the
Company or any other Restricted Subsidiary (other than Indebtedness that is
permitted to be incurred by Restricted Subsidiaries that are not Guarantors
under Section 4.07 hereof), the Company shall cause such Restricted Subsidiary
to enter into a supplemental indenture to this Indenture, substantially in the
form attached hereto as Exhibit E, providing for a full and unconditional
Guarantee.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(1)           encumbrance
or restriction pursuant to (x) an agreement (including the Credit Agreement and
the Term Loan) in effect or entered into on the Acquisition Closing Date, (y)
any agreement governing Indebtedness permitted to be incurred by clause (b)(1)
of Section 4.07 hereof, and (z) any amendments, modifications, restatements,
renewals, supplements, refundings, replacements or refinancings of the
foregoing agreements pursuant to clause (x) or (y); provided that such agreements (pursuant to clause (y) above)
and such amendments, modifications, restatements, renewals, supplements,
refundings, replacements or refinancings (pursuant to clause (z) above) are not
materially more restrictive, taken as a whole, with respect to such provisions
than those contained in those agreements in effect or entered into on the
Acquisition Closing Date;

 

76

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(9)           restrictions
contained in any other credit facility governing Indebtedness of the Company,
Duane Reade GP or any Guarantor that are not (in the view of the Board of
Directors of the Company as expressed in a Board Resolution thereof) materially
more restrictive, taken as a whole, than those contained in the Credit
Agreement;

 

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

 

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

 

77

 

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

 

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

 

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

 

Section 4.14.  Limitation on Layering Debt.

 

Notwithstanding the provisions of Section
4.07 hereof, each of the Company and Duane Reade GP shall not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any of its Indebtedness and
senior in right of payment to the Notes. 
In addition, no Guarantor shall incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness of such Guarantor that is
subordinate or junior in right of payment to any Indebtedness of such Guarantor
and senior in right of payment to the Guarantee of such Guarantor.  For purposes of the foregoing, for the
avoidance of doubt, no Indebtedness shall be deemed to be subordinated in right
of payment to any other Indebtedness solely by virtue of being unsecured or
secured by a junior priority Lien or by virtue of the fact that the holders of
such Indebtedness have entered into intercreditor agreements or other
arrangements giving one or more of such holders priority over the other holders
in the collateral held by them.

 

Section 4.15.  Unrestricted Subsidiaries.

 

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

 

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

 

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

 

78

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

79

 

(f)            All Designations and Revocations
must be evidenced by a Board Resolution of the Board of Directors of the
Company delivered to the Trustee certifying compliance with the foregoing
provisions of this Section 4.15.

 

Section 4.16.  Payments for Consent.

 

Neither the
Company nor any of its Restricted Subsidiaries shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Notes
unless such consideration is offered to be paid or is paid to all Holders or
all Holders that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.

 

Section 4.17.  Co-Obligor.

 

Upon the
Acquisition Closing Date, the Company shall cause Duane Reade GP to execute the
Co-Obligor Supplemental Indenture.

 

Section 4.18.  Offer to Repurchase upon a Change of
Control.

 

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

 

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

 

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

 

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

 

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

 

80

 

(4)           that,
unless the Co-Obligors default in the payment of the Change of Control Purchase
Price, any Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Purchase Date; and

 

(5)           other
procedures that a Holder of Notes must follow to accept a Change of Control
Offer or to withdraw acceptance of the Change of Control Offer.

 

(b)           Upon receipt by the Co-Obligors of
the proper tender of Notes, the Holder of the Note in respect of which such
proper tender was made shall (unless the tender of such Note is properly
withdrawn) thereafter be entitled to receive solely the Change of Control
Purchase Price with respect to such Notes. 
Upon surrender of any such Note for purchase in accordance with the
foregoing provisions, such Note shall be paid by the Co-Obligors at the Change
of Control Purchase Price; provided,
however, that installments of
interest whose Stated Maturity is on or prior to the Change of Control Purchase
Date shall be payable to the Holders of such Notes, registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 2.03.  If any Note tendered for
purchase in accordance with the provisions of this Section 4.18 shall not be so
paid upon surrender thereof, the principal thereof (and premium, if any,
thereon) shall, until paid, bear interest from the Change of Control Purchase
Date at the rate borne by such Note. 
Holders electing to have Notes purchased will be required to surrender
such Notes to the Paying Agent at the address specified in the Change of
Control Purchase Notice at least one Business Day prior to the Change of
Control Purchase Date.  Any Note that is
to be purchased only in part shall be surrendered to a Paying Agent at the
office of such Paying Agent (with, if the Co-Obligors, the Registrar or the
Trustee so require, due endorsement by, or a written instrument of transfer in
form satisfactory to the Co-Obligors and the Registrar or the Trustee, as the
case may be, duly executed by, the Holder thereof or such Holder’s attorney
duly authorized in writing), and the Co-Obligors shall execute and the Trustee
shall authenticate and deliver to the Holder of such Note, without service
charge, one or more new Notes of any authorized denomination as requested by
such Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Note so surrendered that is not
purchased.

 

(c)           The Co-Obligors shall (i) not
later than the Change of Control Purchase Date, accept for payment Notes or
portions thereof tendered pursuant to the Change of Control Offer,
(ii) not later than 10:00 a.m. (New York time) on the Business Day
following the Change of Control Purchase Date, deposit with the Trustee or with
a Paying Agent an amount of money in same day funds sufficient to pay the
aggregate Change of Control Purchase Price of all the Notes or portions thereof
which have been so accepted for payment and (iii) not later than 10:00
a.m. (New York time) on the Business Day following the Change of Control Purchase
Date, deliver to the Paying Agent an Officers’ Certificate stating the Notes or
portions thereof accepted for payment by the Co-Obligors.  The Paying Agent shall promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the
Change of Control Purchase Price of the Notes purchased from each such Holder,
and the Co-Obligors shall execute and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered. 
Any Notes not so accepted shall be promptly mailed or delivered by the
Paying Agent at the Co-Obligors’ expense to the Holder thereof.  The Co-Obligors will publicly announce the
results of the Change of Control Offer on 

 

81

 

the Change of Control Purchase
Date.  For purposes of this Section 4.18,
the Co-Obligors shall choose a Paying Agent which shall not be the Company or
Duane Reade GP.

 

(d)           A tender made in response to a Change
of Control Purchase Notice may be withdrawn if the Co-Obligors receive, not
later than one Business Day prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter, specifying, as applicable:

 

(1)           the
name of the Holder;

 

(2)           the
certificate number of the Note in respect of which such notice of withdrawal is
being submitted;

 

(3)           the
principal amount of the Note (which shall be $1,000 or an integral multiple
thereof) delivered for purchase by the Holder as to which such notice of
withdrawal is being submitted;

 

(4)           a
statement that such Holder is withdrawing his election to have such principal
amount of such Note purchased; and

 

(5)           the
principal amount, if any, of such Note (which shall be $1,000 or an integral
multiple thereof) that remains subject to the original Change of Control
Purchase Notice and that has been or will be delivered for purchase by the
Co-Obligors.

 

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

 

(f)            The Co-Obligors shall comply with
the applicable tender offer rules, including Rule 14e-1 under the Exchange Act,
and any other applicable securities laws or regulations in connection with a
Change of Control Offer.  To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.18, the Co-Obligors shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached their obligations
under this Section 4.18 by virtue thereof.

 

(g)           Notwithstanding the foregoing, the
Co-Obligors will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer, in the
manner, at the times and otherwise in compliance with the requirements set
forth in this Indenture applicable to a Change of Control Offer made by the
Co-Obligors and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.

 

82

Section 4.19.  Corporate Existence.

 

Subject to
Article Five, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company and each Subsidiary; provided that the Company shall not be
required to preserve any such right or franchise if the Board of Directors of
the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof would not reasonably be
expected to have a material adverse effect on the Company and its Restricted
Subsidiaries, taken as a whole.

 

ARTICLE FIVE

Successors

 

Section 5.01.  Consolidation, Merger or Sale of Assets.

 

(a)           Each of the Company and Duane Reade
GP will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of Persons, or permit
any of its Restricted Subsidiaries to enter into any such transaction or series
of transactions, if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a Consolidated basis to any other
Person or group of Persons (other than the Company, Duane Reade GP or a
Guarantor), unless at the time and after giving effect thereto

 

(1)           either
(a) the Company or Duane Reade GP, as the case may be, will be the continuing
entity or (b) the Person (if other than the Company or Duane Reade GP, as the
case may be) formed by such consolidation or into which the Company or Duane
Reade GP, as the case may be, is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on
a Consolidated basis (the “Surviving Entity”) will be an entity duly
organized and validly existing under the laws of the United States of America,
any state thereof or the District of Columbia and such Person expressly
assumes, by a supplemental indenture, in a form reasonably satisfactory to the
Trustee, all the obligations of the Company or Duane Reade GP, as the case may
be, under the Notes and this Indenture and the Registration Rights Agreement,
as the case may be;

 

(2)           immediately
after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness not previously an
obligation of the Company or any of its Restricted Subsidiaries which becomes
the obligation of the Company or any of its Restricted Subsidiaries as a result
of such transaction as having been incurred at the time of such transaction),
no Default or Event of Default will have occurred and be continuing;

 

83

 

(3)           either
(i) immediately before and immediately after giving effect to such transaction
on a pro forma basis (on the
assumption that the transaction occurred on the first day of the four-quarter
period for which financial statements are available ending immediately prior to
the consummation of such transaction with the appropriate adjustments with
respect to the transaction being included in such pro forma calculation), the Company (or the Surviving Entity
if the Company is not the continuing obligor under this Indenture) could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
paragraph (a) of Section 4.07 hereof or (ii) (x) the Company’s Consolidated
Fixed Charge Coverage Ratio for the most recent four full fiscal quarters for
which financial statements are available after giving pro forma effect to such transaction as of
the beginning of such four quarter period would be not less than (y) the
Company’s Consolidated Fixed Charge Coverage Ratio for such four quarter period
immediately prior to such transaction;

 

(4)           at
the time of the transaction, each Guarantor, if any, unless it is the other
party to the transactions described above, will have by supplemental indenture
confirmed that its Guarantee shall apply to such Person’s obligations under
this Indenture and the Notes; and

 

(5)           at
the time of the transaction, the Company or Duane Reade GP, as the case may be,
or the Surviving Entity will have delivered, or caused to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers’ Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger, transfer, sale, assignment, conveyance, transfer, lease
or other transaction and the supplemental indenture in respect thereof comply
with this Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.

 

(b)           Except as provided by Section 11.05
hereof, each Guarantor will not, and the Company will not permit a Guarantor
to, in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other Person (other than the Company
or any Guarantor), unless at the time and after giving effect thereto

 

(1)           either
(a) the Guarantor will be the continuing corporation in the case of a
consolidation or merger involving the Guarantor or (b) the Person (if other
than the Guarantor) formed by such consolidation or into which such Guarantor
is merged (the “Surviving Guarantor Entity”) will be a corporation,
limited liability company, limited liability partnership, partnership or trust
duly organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and such Person
expressly assumes, by a supplemental indenture, in a form reasonably
satisfactory to the Trustee, all the obligations of such Guarantor under its
Guarantee of the Notes and this Indenture and the Registration Rights Agreement;

 

(2)           immediately
after giving effect to such transaction on a pro
forma basis, no Default or Event of Default will have occurred and
be continuing; and

 

84

 

(3)           at
the time of the transaction such Guarantor or the Surviving Guarantor Entity
will have delivered, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers’ Certificate and
an Opinion of Counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, lease or other transaction and the
supplemental indenture in respect thereof comply with this Indenture and that
all conditions precedent therein provided for relating to such transaction have
been complied with;

 

provided,
however, that this paragraph (b) shall not apply to
any Guarantor whose Guarantee of the Notes is unconditionally released and
discharged in accordance with Section 11.05 hereof.

 

(c)           In the event of any transaction
(other than a lease) described in and complying with the conditions listed in
paragraphs (a) and (b) above in which the Company, Duane Reade GP or any
Guarantor, as the case may be, is not the continuing corporation, the successor
Person formed or remaining or to which such transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
Duane Reade GP or such Guarantor, as the case may be, and the Company, Duane
Reade GP or any Guarantor, as the case may be, would be discharged from all
obligations and covenants under this Indenture and the Notes or its Guarantee,
as the case may be, and the Registration Rights Agreement.

 

(d)           Notwithstanding the foregoing, the
Company may merge with, or sell, issue, convey, transfer, lease, assign or
otherwise dispose of all or substantially all of its assets to, an Affiliate
incorporated or organized solely for the purpose of reincorporating or
reorganizing the Company in another jurisdiction and/or for the purpose of
forming a holding company, and any Guarantor or Duane Reade GP may merge with,
or sell, issue, convey, transfer, lease, assign or otherwise dispose of all or
substantially all of its assets to, an Affiliate as part of any internal
corporate reorganization of the Company.

 

ARTICLE SIX

Defaults and Remedies

 

Section 6.01.  Events of Default.

 

An Event of
Default will occur under this Indenture (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) if:

 

(1)           there
shall be a default in the payment of any interest on any Note when it becomes
due and payable, and such default shall continue for a period of 30 days
(whether or not such payment is prohibited by the provisions described under
Article Ten hereof);

 

(2)           there
shall be a default in the payment of the principal of (or premium, if any, on)
any Note at its Maturity (upon acceleration, optional or mandatory redemption,
if any, required repurchase or otherwise) (whether or not such payment is
prohibited by the provisions described under Article Ten hereof);

 

85

 

(3)           (a)
there shall be a default in the performance, or breach, of any covenant or
agreement of the Company, Duane Reade GP or any Guarantor under this Indenture
or any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (1), (2) above
or in clause (b) or (c) of this clause (3)) and such default or breach shall
continue for a period of 60 days (or 30 days if the Company and Duane Reade GP
shall have failed to make or consummate an Asset Sale Offer in accordance with
Section 4.11 hereof) after written notice has been given, by certified mail,
(i) to the Company by the Trustee or (ii) to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes; (b) there shall be a default in the performance or breach of the
provisions of Section 5.01 or (c) the Company and Duane Reade GP shall have
failed to make or consummate a Change of Control Offer in accordance with
Section 4.18 hereof;

 

(4)           one
or more defaults shall have occurred under any of the agreements, indentures or
instruments under which the Company, Duane Reade GP, any Guarantor or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $15
million, individually or in the aggregate, and either (a) such default results
from the failure to pay the principal amount of such Indebtedness at its stated
final maturity or (b) such default or defaults have resulted in the
acceleration of the maturity of such Indebtedness;

 

(5)           any
Guarantee of any Significant Subsidiary shall for any reason cease to be, or
any Guarantee shall for any reason be asserted in writing by any Guarantor, the
Company or Duane Reade GP not to be, in full force and effect and enforceable
in accordance with its terms, except to the extent contemplated by this
Indenture and any such Guarantee;

 

(6)           one
or more judgments or orders of any court of competent jurisdiction for the
payment of money in excess of $15 million (net of amounts covered by insurance
or bonded), either individually or in the aggregate, shall be rendered against
the Company, Duane Reade GP, any Guarantor or any Restricted Subsidiary or any
of their respective properties and shall not be discharged and there shall have
been a period of 60 consecutive days during which a stay of enforcement of such
judgment or order, by reason of an appeal or otherwise, shall not be in effect;

 

(7)           the
entry of a decree or order by a court having jurisdiction in the premises
adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustments or composition of or in respect of the Company or any Significant
Subsidiary under any Bankruptcy Law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company or
any Significant Subsidiary or of substantially all of its assets, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 90 consecutive days; or

 

(8)           the
institution by the Company or any Significant Subsidiary of proceedings to be
adjudicated bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under any
Bankruptcy Law, or the 

 

86

 

consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of substantially all
of its assets, or the making by it of a general assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due.

 

Section 6.02.  Acceleration.

 

(a)           If an Event of Default (other than as
specified in Sections 6.01(7) or (8) above) shall occur and be continuing with respect
to this Indenture, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such Holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all Notes to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the Holders of
the Notes) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately; provided, however, that so long as any Indebtedness
permitted to be incurred under the Credit Agreement or the Term Loan is
outstanding, that acceleration shall not be effective until the earlier of (1)
an acceleration of Indebtedness under the Credit Agreement or the Term Loan or
(2) five Business Days after receipt by the Company and the representatives of
the lenders under the Credit Agreement and the Term Loan of written notice of
the acceleration of the Notes (and such Event of Default is then continuing).
If an Event of Default specified in Sections 6.01(7) or (8) above occurs and is
continuing, then all the Notes shall ipso
facto become and be due and payable immediately in an amount equal
to the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date the Notes become due and payable, without any
declaration or other act on the part of the Trustee or any Holder. Thereupon,
the Trustee may, at its discretion, proceed to protect and enforce the rights
of the Holders of Notes by appropriate judicial proceedings.

 

(b)           After a declaration
of acceleration, but before a judgment or decree for payment of the money due
has been obtained by the Trustee, the Holders of a majority in aggregate
principal amount of Notes outstanding by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:

 

(1)           the Company has paid or deposited with the Trustee a sum
sufficient to pay (A) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (B) all overdue interest on all Notes
then outstanding, (C) the principal of, and premium, if any, on any Notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes and (D) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Notes;

 

(2)           the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and

 

87

 

(3)           all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the Notes which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in this Indenture.

 

No such rescission shall affect any subsequent default or impair any
right consequent thereon.

 

Section 6.03.  Other Remedies.

 

(a)           If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.

 

(b)           The Trustee may maintain a proceeding
even if it does not possess any of the Notes or does not produce any of them in
the proceeding.  A delay or omission by
the Trustee or any Holder of a Note in exercising any right or remedy accruing
upon and during the continuance of an Event of Default shall not impair the
right or remedy or constitute a waiver of or acquiescence in the Event of
Default.  All remedies are cumulative to
the extent permitted by law.

 

Section 6.04.  Waiver of Past Defaults.

 

The Holders of
not less than a majority in aggregate principal amount of the Notes outstanding
may on behalf of the Holders of all outstanding Notes waive any past Default or
Event of Default under this Indenture and its consequences, except a Default or
Event of Default (1) in the payment of the principal of, premium, if any, or
interest on any Note (which may only be waived with the consent of each Holder
of Notes affected) or (2) in respect of a covenant or provision which under
this Indenture cannot be modified or amended without the consent of the Holder
of each Note affected by such modification or amendment.  The Company shall deliver to the Trustee an
Officers’ Certificate stating that the requisite percentage of Holders have
consented to such waiver and attaching copies of such consents.  In case of any such waiver, the Company, the
Trustee and the Holders shall be restored to their former positions and rights
hereunder and under the Notes, respectively. 
This Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA
and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from this
Indenture and the Notes, as permitted by the TIA.  Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.

 

Section 6.05.  Control by Majority.

 

Holders of a
majority in principal amount of the then outstanding Notes may direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee or exercising any trust or power conferred on it.  However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes or
that may involve the Trustee in personal liability.  The Trustee may withhold from Holders of the
Notes notice of 

 

88

 

any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.

 

Section 6.06.  Limitation on Suits.

 

(a)           A Holder has a right to institute any
proceeding with respect to this Indenture, or the Notes or any Guarantees, only
if:

 

(1)           the
Holder gives to the Trustee written notice of a continuing Event of Default;

 

(2)           the
Holders of at least 25% in principal amount of the then outstanding Notes make
a written request to the Trustee to pursue the remedy;

 

(3)           such
Holder of a Note or Holders of Notes offer and, if requested, provide to the
Trustee reasonable indemnity against any loss, liability or expense that might
be incurred by it in connection with the request or direction;

 

(4)           the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer and, if requested, the provision of indemnity; and

 

(5)           during
such 60-day period the Holders of a majority in principal amount of the then
outstanding Notes do not give the Trustee a direction inconsistent with the
written request.

 

(b)           A Holder of a Note may not use this
Indenture to prejudice the rights of another Holder of a Note or to obtain a
preference or priority over another Holder of a Note.

 

Section 6.07.  Rights of Holders of Notes to Receive
Payment.

 

Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of principal, premium, if any, or interest on such Note, on or
after the respective due dates expressed in such Note (including in connection
with an offer to purchase), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.

 

Section 6.08.  Collection Suit by Trustee.

 

If an Event of
Default specified in Section 6.01 (1) or (2) above occurs and is continuing,
the Trustee is authorized to recover judgment in its own name and as trustee of
an express trust against the Co-Obligors for the whole amount of principal of,
premium, if any, interest remaining unpaid on the Notes and interest on overdue
principal and premium, if any, and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

 

89

 

Section 6.09.  Trustee May File Proofs of Claim.

 

The Trustee is
authorized to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders of the Notes allowed in
any judicial proceedings relative to the Co-Obligors or any Guarantor (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
securities or property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof.  To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof
out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of,
any and all distributions, dividends, money, securities and other properties
that the Holders may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or
otherwise.  Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.

 

Section 6.10.  Priorities.

 

(a)           If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following
order:

 

First:  to the Trustee, its agents and attorneys for
amounts due under Section 7.07 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;

 

Second:  to Holders of Notes for amounts due and
unpaid on the Notes for principal, premium, if any, interest ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Notes for principal, premium, if any, and interest, respectively; and

 

Third:  to the Company or to such party as a court of
competent jurisdiction shall direct.

 

(b)           The Trustee may fix a record date and
payment date for any payment to Holders of Notes pursuant to this Section 6.10.

 

90

 

Section 6.11.  Undertaking for Costs.

 

In any suit
for the enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken or omitted by it as a Trustee, a court
in its discretion may require the filing by any party litigant in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys’ fees and expenses,
against any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant.  This Section does not apply to a suit by the
Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a
suit by Holders of more than ten percent in principal amount of the then
outstanding Notes.

 

ARTICLE
SEVEN

Trustee

 

Section 7.01.  Duties of Trustee.

 

(a)           If an Event of Default has occurred
and is continuing, and is actually known to the Trustee, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person’s own
affairs.

 

(b)           Except during the continuance of an
Event of Default:

 

(i)            the duties of the
Trustee shall be determined solely by the express provisions of this Indenture
and the Trustee need perform only those duties that are specifically set forth
in this Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and

 

(ii)           in the absence of
bad faith on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture.  However,
the Trustee shall examine the certificates and opinions to determine whether or
not they conform on their face to the requirements of this Indenture.

 

(c)           The Trustee may not be relieved from
liabilities for its own negligent action, its own negligent failure to act, or
its own willful misconduct, except that:

 

(i)            this paragraph does
not limit the effect of paragraph (b) of this Section 7.01;

 

(ii)           the Trustee shall
not be liable for any error of judgment made in good faith by a Responsible
Officer, unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and

 

(iii)          the Trustee shall
not be liable with respect to any action it takes or omits to take in good
faith in accordance with a direction received by it pursuant to Section 6.05
hereof.

 

91

 

(d)           Whether or not therein expressly so
provided, every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.

 

(e)           No provision of this Indenture shall
require the Trustee to expend or risk its own funds or incur any
liability.  The Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Indenture unless such Holders shall have offered to the Trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.

 

(f)            Money held in trust by the Trustee
need not be segregated from other funds and need not be held in an
interest-bearing account, in each case except to the extent required by law or
by any other provision of this Indenture. 
The Trustee (acting in any capacity hereunder) shall not be liable for
interest on any money received by it hereunder unless the Trustee otherwise
agrees in writing with the Company.

 

Section 7.02.  Certain Rights of Trustee.

 

(a)           The Trustee may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person.  The
Trustee need not investigate any fact or matter stated in the document.

 

(b)           Before the Trustee acts or refrains
from acting, it may require an Officers’ Certificate or an Opinion of Counsel
or both.  The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers’ Certificate or Opinion of Counsel. 
The Trustee may consult with counsel and the advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
from liability in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.

 

(c)           The Trustee may act through its
attorneys and agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.

 

(d)           The Trustee shall not be liable for
any action it takes or omits to take in good faith that it believes to be
authorized or within the rights or powers conferred upon it by this Indenture.

 

(e)           Unless otherwise specifically
provided in this Indenture, any demand, request, direction or notice from
either Co-Obligor shall be sufficient if signed by an Officer of such
Co-Obligor.

 

(f)            The Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Indenture unless such Holders shall have offered to the Trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.

 

(g)           The Trustee shall not be deemed to
have notice of any Default or Event of Default unless a Responsible Officer of
the Trustee has actual knowledge thereof or unless

 

92

 

written notice of such event is sent to the Trustee in accordance with
Section 13.02 hereof, and such notice references the Notes.

 

(h)           Subject to Section 7.01(b)(ii)
hereof, the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records, and premises of the Company, personally or by agent or attorney
at the sole cost of the Company and shall incur no liability or additional
liability of any kind by reasons of such inquiry or investigation.

 

(i)            The rights, privileges, protections,
immunities and benefits given to the Trustee, including, without limitation,
its right to be indemnified, are extended to, and shall be enforceable by, the
Trustee in each of its capacities hereunder, and to each agent, custodian and
other Person employed to act hereunder.

 

Section 7.03.  Individual Rights of Trustee.

 

The Trustee in
its individual or any other capacity may become the owner or pledgee of Notes
and may become a creditor of, or otherwise deal with, the Company or any of its
Affiliates with the same rights it would have if it were not Trustee.  However, in the event that the Trustee
acquires any conflicting interest as described in the Trust Indenture Act, it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as trustee or resign. 
Any Agent may do the same with like rights and duties.  The Trustee is also subject to Sections 7.10
and 7.11 hereof.

 

Section 7.04.  Trustee’s Disclaimer.

 

The Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture, it shall not be accountable for the Co-Obligors’
use of the proceeds from the Notes or any money paid to the Co-Obligors or upon
the Co-Obligor’s direction under any provision of this Indenture, it shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.

 

Section 7.05.  Notice of Defaults.

 

If a Default
or Event of Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to Holders of Notes a notice of the Default or Event of
Default within 45 days after it occurs. 
Except in the case of a Default or Event of Default in payment of
principal of, premium or interest on any Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Notes.

 

93

 

Section 7.06.  Reports by Trustee to Holders of the
Notes.

 

(a)           Within 60 days after each May 15
beginning with the May 15 following the date hereof, and for so long as Notes
remain outstanding, the Trustee shall mail to the Holders of the Notes a brief
report dated as of such reporting date that complies with TIA Section 313(a) (but
if no event described in TIA Section 313(a) has occurred within the twelve
months preceding the reporting date, no report need be transmitted).  The Trustee also shall comply with TIA
Section 313(b)(2).  The Trustee shall
also transmit by mail all reports as required by TIA Section 313(c).

 

(b)           A copy of each report at the time of
its mailing to the Holders of Notes shall be mailed to the Co-Obligors and
filed with the Commission and each stock exchange on which the Notes are listed
in accordance with TIA Section 313(d). 
The Co-Obligors shall promptly notify the Trustee when the Notes are
listed on any stock exchange or any delisting thereof.

 

Section 7.07.  Compensation and Indemnity.

 

(a)           The Co-Obligors shall pay to the
Trustee (in its capacity as Trustee, and, to the extent it has been appointed
as such, as Paying Agent and Registrar) from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder in
accordance with a written schedule provided by the Trustee to the
Co-Obligors.  The Trustee’s compensation
shall not be limited by any law on compensation of a trustee of an express
trust.  The Co-Obligors shall reimburse
the Trustee promptly upon request for all reasonable and customary
disbursements, advances and reasonable out-of-pocket expenses incurred or made
by it in addition to the compensation for its services, except those resulting
from its own negligent action, negligent failure to act or willful
misconduct.  Such expenses shall include
the reasonable and customary compensation, disbursements and expenses of the
Trustee’s agents and counsel.

 

(b)           The Co-Obligors shall indemnify the
Trustee against any and all losses, liabilities or reasonable out-of-pocket
expenses incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Co-Obligors (including this
Section 7.07) or any Guarantor and defending itself against any claim (whether
asserted by either of the Co-Obligors or any Holder or any other person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder, except to the extent any such loss, liability or expense
may be attributable to its negligence or bad faith.  The Trustee shall notify the Co-Obligors
promptly of any claim for which it may seek indemnity.  Failure by the Trustee to so notify the
Co-Obligors shall not relieve the Co-Obligors of their obligations
hereunder.  The Co-Obligors shall defend
the claim and the Trustee shall cooperate in the defense.  The Trustee may have separate counsel and the
Co-Obligors shall pay the reasonable and customary fees and expenses of such
counsel.  The Co-Obligors need not pay
for any settlement made without its consent, which consent shall not be
unreasonably withheld.

 

(c)           The obligations of the Co-Obligors
under this Section 7.07 shall survive the satisfaction and discharge of this
Indenture.

 

94

 

(d)                                 To
secure the Co-Obligors’ payment obligations in this section, the Trustee shall
have a Lien prior to the Notes on all money or property held or collected by
the Trustee, except that held in trust to pay principal and interest on
particular Notes.  Such Lien shall
survive the satisfaction and discharge of this Indenture.

 

(e)                                  When
the Trustee incurs expenses or renders services after an Event of Default
specified in Section 6.01(7) or (8) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

 

Section 7.08.                             Replacement
of Trustee.

 

(a)                                  A
resignation or removal of the Trustee and appointment of a successor Trustee
shall become effective only upon the successor Trustee’s acceptance of
appointment as provided in this Section 7.08.

 

(b)                                 The
Trustee may resign in writing at any time and be discharged from the trust
hereby created by so notifying the Co-Obligors. 
The Holders of a majority in principal amount of the then outstanding
Notes may remove the Trustee by so notifying the Trustee and the Co-Obligors in
writing.  The Co-Obligors may remove the
Trustee if:

 

(i)                                     the Trustee fails
to comply with Section 7.10 hereof;

 

(ii)                                  the Trustee is
adjudged a bankrupt or an insolvent or an order for relief is entered with
respect to the Trustee under any Bankruptcy Law;

 

(iii)                               a custodian or public
officer takes charge of the Trustee or its property; or

 

(iv)                              the Trustee becomes
incapable of acting.

 

(c)                                  If
the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Co-Obligors shall promptly appoint a successor
Trustee.  Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount
of the then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Co-Obligors.

 

(d)                                 If
a successor Trustee does not take office within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Co-Obligors, or the
Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition at the expense of the Co-Obligors any court of competent
jurisdiction for the appointment of a successor Trustee.

 

(e)                                  If
the Trustee, after written request by any Holder who has been a Holder for at
least three months, fails to comply with Section 7.10, such Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.

 

95

 

(f)                                    A
successor Trustee shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Co-Obligors. 
Thereupon, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. 
The successor Trustee shall mail a notice of its succession to
Holders.  The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.07 hereof.  Notwithstanding
replacement of the Trustee pursuant to this Section 7.08, the Co-Obligors’
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.

 

Section 7.09.                             Successor
Trustee by Merger, Etc.

 

If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another Person, the successor Person without
any further act shall be the successor Trustee.

 

Section 7.10.                             Eligibility;
Disqualification.

 

There shall at
all times be a Trustee hereunder that is a corporation organized and doing
business under the laws of the United States of America or of any state thereof
that is authorized under such laws to exercise corporate trustee power, that is
subject to supervision or examination by federal or state authorities and that
has (or its corporate parent shall have) a combined capital and surplus of at
least $100.0 million as set forth in its most recent published annual report of
condition.

 

This Indenture
shall always have a Trustee who satisfies the requirements of TIA Section
310(a)(1), (2) and (5).  The Trustee is
subject to TIA Section 310(b).

 

Section 7.11.                             Preferential
Collection of Claims Against Co-Obligors.

 

The Trustee is
subject to TIA Section 311(a), excluding any creditor relationship listed in
TIA Section 311(b).  A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.  The Trustee hereby
waives any right to set-off any claim that it may have against the Co-Obligors
in any capacity (other than as Trustee and Paying Agent) against any of the
assets of the Co-Obligors held by the Trustee; provided,
however, that if the Trustee is
or becomes a lender of any other Indebtedness permitted hereunder to be pari
passu with the Notes, then such waiver shall not apply to the extent of such
Indebtedness.

 

ARTICLE
EIGHT

Defeasance and Covenant Defeasance

 

Section 8.01.                             Option
to Effect Legal Defeasance or Covenant Defeasance.

 

The
Co-Obligors may, at the option of their Boards of Directors evidenced by a
Board Resolution set forth in an Officers’ Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes
upon compliance with the conditions set forth below in this Article Eight.

 

96

 

Section 8.02.                             Legal
Defeasance and Discharge.

 

Upon the
Co-Obligors’ exercise of the option applicable to this Section 8.02, the
Co-Obligors shall, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, be deemed to have been discharged from their obligations
with respect to all outstanding Notes and all obligations of the Guarantors
shall be deemed to have been discharged with respect to their obligations under
the Guarantees on the date the conditions set forth below are satisfied
(hereinafter, “Legal Defeasance”). 
For this purpose, Legal Defeasance means that the Co-Obligors and the
Guarantors shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes and Guarantees, respectively, which shall
thereafter be deemed to be “outstanding” only for the purposes of Section 8.05
hereof and the other Sections of this Indenture referred to in clauses (a) and
(b) below, and to have satisfied all of their other obligations under such
Notes and this Indenture (and the Trustee, on demand of and at the expense of
the Co-Obligors, shall execute proper instruments acknowledging the same),
except for the following provisions which shall survive until otherwise
terminated or discharged hereunder:  (a)
the rights of Holders of outstanding Notes to receive solely from Funds in
Trust (as defined in Section 8.04 hereof and as more fully set forth in such
Section) payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due, (b) the Co-Obligors’ obligations with
respect to such Notes under Article Two and Section 4.02 hereof, (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Co-Obligors’ obligations in connection therewith and (d) this Article
Eight.  Subject to compliance with this
Article Eight, the Co-Obligors may exercise their option under this Section
8.02 notwithstanding the prior exercise of their option under Section 8.03 hereof.

 

Section 8.03.                             Covenant
Defeasance.

 

Upon the
Co-Obligors’ exercise under Section 8.01 hereof of the option applicable to
this Section 8.03, the Co-Obligors shall, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, be released from their
obligations, and each Restricted Subsidiary shall be released from its
obligations, under the covenants contained in Sections 4.03, 4.04(a) (to the
extent not required by the TIA), 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.18, 4.19 and 5.01 hereof with respect to the outstanding
Notes on and after the date the conditions set forth in Section 8.04 are
satisfied (hereinafter, “Covenant Defeasance”), and the Notes shall
thereafter be deemed not “outstanding” for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
“outstanding” for all other purposes hereunder (it being understood that such Notes
shall not be deemed outstanding for accounting purposes).  For this purpose, Covenant Defeasance means
that, with respect to the outstanding Notes, the Co-Obligors and each
Restricted Subsidiary may omit to comply with and shall have no liability in respect
of any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby.  In addition, upon
the Co-Obligors’ exercise under Section 8.01 hereof of the option applicable to
this Section 8.03, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(3) through (6) shall not constitute Events
of Default.

 

97

 

Section 8.04.                             Conditions
to Legal Defeasance or Covenant Defeasance.

 

The following
shall be the conditions to the application of either Section 8.02 or 8.03
hereof to the outstanding Notes:

 

(a)                                  the
Co-Obligors must irrevocably deposit or cause to be deposited with the Trustee,
in trust, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Notes cash in United States dollars, U.S.
Government Obligations, or a combination thereof (“Funds in Trust”), in
such amounts as, in the aggregate, will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the Stated Maturity
(or on any date after August 1, 2008 (such date being referred to as the “Defeasance
Redemption Date”), if at or prior to electing either Legal Defeasance or
Covenant Defeasance, the Co-Obligors have delivered to the Trustee an
irrevocable notice to redeem all of the outstanding Notes on the Defeasance
Redemption Date);

 

(b)                                 in
the case of Legal Defeasance, the Co-Obligors shall have delivered to the
Trustee an opinion of independent counsel in the United States stating that (A)
the Co-Obligors have received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this Indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion of independent counsel
in the United States shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;

 

(c)                                  in
the case of Covenant Defeasance, the Co-Obligors shall have delivered to the
Trustee an opinion of independent counsel in the United States to the effect
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;

 

(d)                                 no
Default or Event of Default shall have occurred and be continuing on the date
of such deposit (other than any such Default resulting solely from the
borrowing of funds to be applied to the Funds in Trust);

 

(e)                                  such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a Default under, this Indenture or any other
material agreement or instrument to which the Company, Duane Reade GP, any
Guarantor or any Restricted Subsidiary is a party or by which any of them is
bound (other than any such Default resulting solely from the borrowing of funds
to be applied to the Funds in Trust);

 

(f)                                    the
Co-Obligors shall have delivered to the Trustee an Officers’ Certificate
stating that the deposit was not made by the Co-Obligors with the intent of
preferring the holders of the Notes or any Guarantee over the other creditors
of the Company, Duane Reade GP or any 

 

98

 

Guarantor with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, Duane
Reade GP, any Guarantor or others; and

 

(g)                                 the
Co-Obligors will have delivered to the Trustee an Officers’ Certificate and an
opinion of independent counsel, each stating that all conditions precedent
provided for relating to either the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with.

 

Section 8.05.                             Deposited
Money and U.S.  Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions.

 

(a)                                  Subject
to Section 8.06 hereof, all money and non-callable U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the “Trustee”)
pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the provisions of
such Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium and interest, but such money need not
be segregated from other funds except to the extent required by law.

 

(b)                                 The
Co-Obligors shall pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against the cash or non-callable U.S. Government
Obligations deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

 

(c)                                  Anything
in this Article Eight to the contrary notwithstanding, the Trustee shall
deliver or pay to the Co-Obligors from time to time upon the request of the
Co-Obligors any money or non-callable U.S. Government Obligations held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants, investment bank, or
appraisal firm expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.

 

Section 8.06.                             Repayment
to the Co-Obligors.

 

Any money
deposited with the Trustee or any Paying Agent, or then held by the Company or
Duane Reade GP, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Co-Obligors upon their request or (if then held by either of the
Co-Obligors) shall be discharged from such trust; and the Holder of such Note
shall thereafter look only to the Co-Obligors for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Co-Obligors as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense
of the Co-

 

99

 

Obligors cause
to be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Co-Obligors.

 

Section 8.07.                             Reinstatement.

 

If the Trustee
or Paying Agent is unable to apply any United States dollars or non-callable
U.S. Government Obligations in accordance with Section 8.02 or 8.03 hereof, as
the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Co-Obligors’ obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Co-Obligors make any payment of principal of,
premium, if any, or interest on any Note following the reinstatement of its
obligations, the Co-Obligors shall be subrogated to the rights of the Holders
of such Notes to receive such payment from the money held by the Trustee or
Paying Agent.

 

ARTICLE NINE
Amendment, Supplement and Waiver

 

Section 9.01.                             Without Consent of Holders of Notes.

 

(a)                                  Notwithstanding
Section 9.02 hereof, the Co-Obligors, the Guarantors, any other obligor under
the Notes and the Trustee may modify, supplement or amend this Indenture or the
Notes without the consent of any Holder of a Note:

 

(1)                                  to evidence the
succession of another Person to the Company, Duane Reade GP, a Guarantor or any
other obligor under the Notes, and the assumption by any such successor of the
covenants of the Company, Duane Reaade GP, or such Guarantor or such obligor in
this Indenture and in the Notes and in any Guarantee in accordance with Section
5.01 hereof;

 

(2)                                  to add to the
covenants of the Company, Duane Reade GP, any Guarantor or any other obligor
upon the Notes for the benefit of the Holders of the Notes or to surrender any
right or power conferred upon the Company, Duane Reade GP or any Guarantor or
any other obligor upon the Notes, as applicable, in this Indenture, in the
Notes or in any Guarantee;

 

(3)                                  to cure any
ambiguity, or to correct or supplement any provision in this Indenture, the
Notes or any Guarantee which may be defective or inconsistent with any other
provision in this Indenture, the Notes or any Guarantee;

 

(4)                                  to make any other
provisions with respect to matters or questions arising under this Indenture,
the Notes or any Guarantee; provided
that such provisions shall not adversely affect in any material respect the
interest of the Holders of the Notes;

 

100

 

(5)                                  to comply with the
requirements of the Commission in order to effect or maintain the qualification
of this Indenture under the Trust Indenture Act;

 

(6)                                  to add a Guarantor or
additional obligor under this Indenture or permit any Person to guarantee the
Notes and/or obligations under this Indenture;

 

(7)                                  to release a
Guarantor as provided in this Indenture;

 

(8)                                  to comply with the
rules of any applicable securities depositary;

 

(9)                                  to evidence and
provide the acceptance of the appointment of a successor Trustee under this
Indenture;

 

(10)                            to mortgage, pledge,
hypothecate or grant a security interest in favor of the Trustee for the
benefit of the Holders of the Notes as additional security for the payment and
performance of the Company’s, Duane Reade GP’s and any Guarantor’s obligations
under this Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to this Indenture or
otherwise;

 

(11)                            to provide for the issuance
of Additional Notes under this Indenture in accordance with the limitations set
forth in this Indenture; or

 

(12)                            to provide for the issuance
of the Exchange Notes pursuant to the terms of this Indenture and the
Registration Rights Agreement.

 

Notwithstanding
the foregoing, and so long as the Credit Agreement or Term Loan is outstanding,
no amendment may be made to the subordination provisions of this Indenture that
adversely affects the rights of any holder of Senior Indebtedness then
outstanding unless holders of such Senior Indebtedness (or any group or
representative thereof authorized to give such consent) consent thereto.

 

(b)                                 Upon
the request of the Co-Obligors accompanied by a resolution of their Boards of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in
Section 7.02 and Section 9.06 hereof, the Trustee shall join with the
Co-Obligors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that adversely affects its own rights, duties or immunities under
this Indenture.

 

Section 9.02.                             With
Consent of Holders of Notes.

 

(a)                                  Except
as provided below in this Section 9.02, the Co-Obligors, the Guarantors, any
other obligor under the Notes and the Trustee may amend or supplement this
Indenture or the Notes with the consent of the Holders of at least a majority
in principal amount of the Notes (including Additional Notes, if any) then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and, 

 

101

 

subject to Sections 6.04 and
6.07 hereof, any existing Default or Event of Default or compliance with any
provision of this Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including Additional Notes, if any) (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes).  However, without the
consent of each Holder affected, an amendment or waiver under this Section 9.02
may not (with respect to any Notes held by a non-consenting Holder):

 

(1)                                  reduce the principal
of or change the fixed maturity of any Note or alter the provisions, or waive
any payment, with respect of the redemption of the Notes;

 

(2)                                  reduce the rate of or
change the time for payment of interest of any Note;

 

(3)                                  waive a Default or
Event of Default in the payment of principal of, or interest or premium, if
any, on the Notes (except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration);

 

(4)                                  make any Note payable
in money other than U.S. dollars;

 

(5)                                  reduce the percentage
in principal amount of such outstanding Notes, the consent of whose Holders is
required for any such amendment or supplemental indenture, or the consent of
whose Holders is required for any waiver or compliance with certain provisions
of this Indenture;

 

(6)                                  modify any of the
provisions relating to supplemental indentures requiring the consent of Holders
or relating to the waiver of past Defaults or relating to the waiver of certain
covenants, except to increase the percentage of such outstanding Notes required
for such actions or to provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of each such Note
affected thereby;

 

(7)                                  except in connection
with the completion of the Acquisition on the Acquisition Closing Date or as
otherwise permitted under Section 5.01 hereof, consent to the assignment or
transfer by the Company, Duane Reade GP or any Guarantor of any of its rights
and obligations under this Indenture;

 

(8)                                  amend or modify any
of the provisions of this Indenture in any manner which makes any change to the
subordination provisions of the Notes or makes any change to the subordination
provisions of any Guarantee and that in either case, adversely affects the
Holders of the Notes; or

 

(9)                                  voluntarily release,
other than in accordance with this Indenture, any Guarantee of any Significant
Subsidiary.

 

(b)                                 The
Co-Obligors may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to consent to any indenture
supplemental hereto.  If a record date is
fixed, the Holders on such record date, or its duly designated proxies, and
only 

 

102

 

such Persons, shall be entitled
to consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided that
unless such consent shall have become effective by virtue of the requisite
percentage having been obtained prior to the date which is 90 days after such
record date, any such consent previously given shall automatically and without
further action by any Holder be cancelled and of no further effect.

 

(c)                                  Upon
the request of the Co-Obligors accompanied by a resolution of their Boards of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence reasonably
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.06 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture unless such amended or supplemental
Indenture directly affects the Trustee’s own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.

 

(d)                                 It
shall not be necessary for the consent of the Holders of Notes under this
Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.

 

(e)                                  After
an amendment, supplement or waiver under this Section becomes effective, the
Co-Obligors shall mail to the Holders of Notes affected thereby a notice
briefly describing the amendment, supplement or waiver.  Any failure of the Co-Obligors to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amended or supplemental Indenture or waiver.

 

Section 9.03.                             Compliance
with Trust Indenture Act.

 

Every
amendment or supplement to this Indenture or the Notes shall be set forth in an
amended or supplemental Indenture that complies with the TIA as then in effect.

 

Section 9.04.                             Revocation
and Effect of Consents.

 

Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder of a Note and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder’s Note, even if notation of the consent is not made on any
Note.  However, any such Holder of a Note
or subsequent Holder of a Note may revoke the consent as to its Note if the
Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. 
An amendment, supplement or waiver becomes effective in accordance with
its terms and thereafter binds every Holder.

 

Section 9.05.                             Notation
on or Exchange of Notes.

 

(a)                                  The
Trustee may place an appropriate notation about an amendment, supplement or
waiver on any Note thereafter authenticated. 
The Co-Obligors in exchange for all Notes may issue and the Trustee
shall, upon receipt of an Authentication Order, authenticate new Notes that
reflect the amendment, supplement or waiver.

 

103

 

(b)                                 Failure
to make the appropriate notation or issue a new Note shall not affect the
validity and effect of such amendment, supplement or waiver.

 

Section 9.06.                             Trustee
to Sign Amendments, Etc.

 

The Trustee
shall sign any amended or supplemental indenture or Note authorized pursuant to
this Article Nine if the amendment or supplement does not adversely affect the
rights, duties, liabilities or immunities of the Trustee.  The Co-Obligors may not sign an amendment or
supplemental Indenture or Note until their Boards of Directors approve it.  In executing any amended or supplemental
indenture or Note, the Trustee shall be entitled to receive and (subject to
Section 7.01 hereof) shall be fully protected in relying upon an Officers’
Certificate and an Opinion of Counsel stating that the execution of such
amended or supplemental indenture is authorized or permitted by this Indenture.

 

ARTICLE TEN

Subordination

 

Section 10.01.                       Agreement
to Subordinate.

 

The
Co-Obligors agree, and each Holder by accepting a Note agrees, that the
Indebtedness evidenced by the Notes and any other payment obligations on or
with respect to the Notes (including any obligation to repurchase the Notes) is
subordinated in right of payment, to the extent and in the manner provided in
this Article Ten, to the prior payment in full in cash or Cash Equivalents of
all Senior Indebtedness (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for
the benefit of the holders of Senior Indebtedness.  The provisions of this Article Ten shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Senior Indebtedness is rescinded or must otherwise be
returned by a holder of Senior Indebtedness upon any Proceeding or otherwise,
all as though such payment had not been made.

 

Section 10.02.                       Liquidation; Dissolution; Bankruptcy.

 

The holders of
Senior Indebtedness of the Co-Obligors will be entitled to receive payment in
full in cash or Cash Equivalents of all Obligations due in respect of Senior
Indebtedness of the Co-Obligors (including interest after the commencement of
any bankruptcy, reorganization, insolvency, receivership or similar proceeding
whether or not allowed or allowable as a claim in any such proceeding at the
rate specified in the applicable Senior Indebtedness) before the Holders will
be entitled to receive any direct or indirect payment in respect of any
Indenture Obligations (except that Holders may receive and retain payments made
from the trust pursuant to Article Eight or Article Twelve hereunder), in the
event of any distribution to creditors of the Company, Duane Reade GP or a
Guarantor:

 

(1)                                  in
a liquidation or dissolution of the Company, Duane Reade GP or a Guarantor;

 

(2)                                  in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company, Duane Reade GP or a Guarantor or its property;

 

(3)                                  in
an assignment for the benefit of creditors; or

 

104

 

(4)                                  in
any marshaling of the Company’s, Duane Reade GP’s or a Guarantor’s assets and
liabilities.

 

Any payment or
distribution of any kind or character, whether in cash, property or securities,
which may be payable or deliverable in respect of the Indenture Obligations in
any case, proceeding, dissolution, liquidation or other winding up or event of
the type referred to in clauses (1) through (4) above, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other Indebtedness of the Company, Duane Reade GP or a Guarantor
which is subordinated to the payment of the Indenture Obligations, shall be
paid by the Company, Duane Reade GP or Guarantor, as applicable, or by the trustee
in bankruptcy, debtor-in-possession, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of assets of the
Company, Duane Reade GP or a Guarantor directly to the holders of the Senior
Indebtedness or their Representative or Representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the aggregate
amounts remaining unpaid, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in cash or Cash Equivalents after giving effect to any
concurrent payment or distribution to or for the benefit of the holders of the
Senior Indebtedness, except that (1) in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company, Duane
Reade GP or a Guarantor or its property, Holders may receive any payment or
distribution (i) authorized by an unstayed, final, nonappealable order or
decree stating that effect is being given to the subordination of the Indenture
Obligations to the Senior Indebtedness and made by a court of competent
jurisdiction in a reorganization proceeding under any applicable Bankruptcy Law
or (ii) consists of securities (“Permitted Junior Securities”) which, if
debt securities, are subordinated to at least the same extent as the Indenture
Obligations are to (x) Senior Indebtedness or (y) any securities issued in
exchange for Senior Indebtedness; and (2) Holders may receive and retain
payments made from the trust pursuant to Article Eight or Article Twelve
hereof.

 

Section 10.03.                       Default
on Designated Senior Indebtedness.

 

(a)                                  The
Company and Duane Reade GP may not make any direct or indirect payment upon or
in respect of the Notes (except from the trust pursuant to Article Eight or
Article Twelve hereof) if:

 

(1)                                  a default (a “Payment
Event of Default”) in the payment of principal of, premium, if any, or
interest on Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace; or

 

(2)                                  any other default (a
“Non-Payment Event of Default”) occurs and is continuing with respect to
Designated Senior Indebtedness which permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a “Payment Blockage Notice”)
from the required holders under such Designated Senior Indebtedness or the
Representative of any such Designated Senior Indebtedness.

 

105

 

(b)                                 Payments
on the Notes may and shall be resumed:

 

(1)                                  in
the case of a Payment Event of Default, upon the date on which such default is
cured or waived or, if the Designated Senior Indebtedness has been accelerated,
such acceleration has been rescinded;

 

(2)                                  in
case of a Non-Payment Event of Default, upon the earlier of the date on which
such Non-Payment Event of Default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received unless the maturity
of any Designated Senior Indebtedness has been accelerated; or

 

(3)                                  when
the Designated Senior Indebtedness has been paid in full in cash or Cash
Equivalents.

 

No new period
of payment blockage may be commenced by a Payment Blockage Notice unless and
until 360 days have elapsed since the first day of the effectiveness of the
immediately prior Payment Blockage Notice; provided
that the delivery of a Payment Blockage Notice by the Representatives of
Designated Senior Indebtedness other than under the Credit Agreement or the
Term Loan shall not bar the delivery of another Payment Blockage Notice by the
applicable Representative for the Credit Agreement or the Term Loan within such
period of 360 days; provided, further,
that no period of payment blockage shall exceed 179 days in any one year and no
two consecutive interest payments on the Notes may be blocked by delivery of a
Payment Blockage Notice.

 

No Non-Payment
Event of Default which existed or was continuing on the date of the delivery of
a Payment Blockage Notice with respect to the Designated Senior Indebtedness
delivering such Payment Blockage Notice shall be, or be made, the basis for the
commencement of a second Payment Blockage Notice by the Representative for or
the holders of such Designated Senior Indebtedness whether or not within a
period of 360 days unless such default has been cured or waived for a period of
not less than 90 days.

 

Section 10.04.                       Acceleration
of Notes.

 

If payment of
the Notes is accelerated because of an Event of Default, the Company or Duane
Reade GP shall promptly notify the Representative or holders of Designated
Senior Indebtedness of the acceleration. 
If any Designated Senior Indebtedness is outstanding, neither the
Company, Duane Reade GP nor any of the Guarantors may pay the Notes until five
Business Days after the Representative of such Designated Senior Indebtedness
receives notice of such acceleration and, thereafter, may pay the Notes only if
this Article Ten otherwise permits payment at that time.

 

Section 10.05.                       When
Distribution Must Be Paid Over.

 

(a)                                  In
the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Notes (except (i) for Permitted Junior
Securities or (ii) from the trust pursuant to Article Eight or Article Twelve
hereof) at a time when such payment is prohibited by this Article Ten and the
Trustee or such Holder, as applicable, has actual knowledge that such payment
is prohibited by this Article Ten, such payment shall be held by 

 

106

 

the Trustee or such Holder, as
applicable, in trust for the benefit of the holders of Senior
Indebtedness.  Upon proper written
request of the holders of Senior Indebtedness, the Trustee or such Holder, as
the case may be, shall deliver the amounts in trust to the holders of Senior
Indebtedness or their proper Representative under the agreement or indenture
(if any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Indebtedness remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Indebtedness.

 

(b)                                 With
respect to the holders of Senior Indebtedness, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically
set forth in this Article Ten, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read into this Indenture
against the Trustee.  The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and
shall not be liable to any such holders if the Trustee shall pay over or
distribute to or on behalf of Holders or the Co-Obligors or any other Person
money or assets to which any holders of Senior Indebtedness shall be entitled
by virtue of this Article Ten, except if such payment is made as a result of
the willful misconduct or gross negligence of the Trustee.

 

Section 10.06.                       Notice
by the Co-Obligors.

 

The Company or
Duane Reade GP shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Company or Duane Reade GP that would cause a
payment of any Obligations with respect to the Notes to violate this Article
Ten, which notice shall specifically reference this Article Ten, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article Ten.

 

Section 10.07.                       Subrogation.

 

After all
Senior Indebtedness is paid in full in cash or Cash Equivalents and until the
Notes are paid in full, Holders shall be subrogated (equally and ratably with
the holders of all Indebtedness of the Co-Obligors which by its express terms
is subordinated to Senior Indebtedness of the Co-Obligors to the same extent as
the Notes are subordinated and which is entitled to like rights of subrogation)
to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Holders have been applied to the payment of Senior
Indebtedness.  A distribution made under
this Article Ten to holders of Senior Indebtedness that otherwise would have
been made to Holders is not, as between the Co-Obligors, their creditors other
than the holders of Senior Indebtedness and Holders, a payment by the
Co-Obligors on the Notes.

 

Section 10.08.                       Relative
Rights.

 

(a)                                  This
Article Ten defines the relative rights of Holders and holders of Senior
Indebtedness.  Nothing in this Indenture
shall:

 

107

 

(i)                                     impair, as between
the Co-Obligors and Holders, the obligation of the Co-Obligors, which is
absolute and unconditional, to pay principal of and interest on the Notes in
accordance with their terms;

 

(ii)                                  affect the relative
rights of Holders of Notes and creditors of the Co-Obligors other than their
rights in relation to holders of Senior Indebtedness; or

 

(iii)                               prevent the Trustee or
any Holder of Notes from exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and owners of Senior
Indebtedness to receive distributions and payments otherwise payable to
Holders.

 

(b)                                 If
the Co-Obligors fail because of this Article Ten to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.

 

Section 10.09.                       Subordination
May Not Be Impaired by the Co-Obligors.

 

No right of
any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Co-Obligors or any Holder or by the failure of the Co-Obligors or
any Holder to comply with this Indenture.

 

Section 10.10.                       Distribution
or Notice to Representative.

 

(a)                                  Whenever
a distribution is to be made or a notice given to Holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representatives.

 

(b)                                 Upon
any payment or distribution of assets of the Co-Obligors referred to in this
Article Ten, the Trustee and the Holders of Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon
any certificate of such Representative or of the liquidating trustee or agent
or other Person making any distribution to the Trustee or to the Holders of
Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Co-Obligors, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Ten.

 

Section 10.11.                       Rights
of Trustee and Paying Agent.

 

(a)                                  Notwithstanding
the provisions of this Article Ten or any other provision of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
that would prohibit the making of any payment or distribution by the Trustee,
and the Trustee and the Paying Agent may continue to make payments on the
Notes, unless the Trustee shall have received at its Corporate Trust Office at
least five Business Days prior to the date of such payment written notice of
facts that would cause the payment of any Obligations with respect to the Notes
to violate this Article Ten, which notice shall specifically reference this
Article Ten.  Only the Co-Obligors or a
Representative may give the notice. 
Nothing in this Article Ten shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof, and 

 

108

 

such claims or payments shall
not constitute Indenture Obligations for purposes of this Article Ten.

 

(b)                                 The
Trustee in its individual or any other capacity may hold Senior Indebtedness
with the same rights it would have if it were not Trustee.  Any Agent may do the same with like rights.

 

Section 10.12.                       Authorization
to Effect Subordination.

 

Each Holder,
by the Holder’s acceptance thereof, agrees and directs the Trustee on such
Holder’s behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article Ten, and appoints the
Trustee to act as such Holder’s attorney-in-fact for any and all such
purposes.  If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding referred
to in Section 6.09 hereof at least 30 days before the expiration of the time to
file such claim, the lenders under the Credit Agreement and the Term Loan are
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Notes.

 

Section 10.13.                       Reliance
by Holders of Senior Indebtedness on Subordination.

 

Each Holder of
a Note, by accepting such Note, acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of any Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of the Note,
to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness, and such holder of such Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness.  The provisions of this Article Ten (including
the defined terms used herein) are for the benefit of the holders of any Senior
Indebtedness and shall be enforceable by each of them directly against any
Holder.

 

 

ARTICLE ELEVEN
Guarantees

 

Section 11.01.                       Guarantee.

 

(a)                                  Subject
to this Article Eleven, each of the Guarantors hereby, jointly and severally,
fully and unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Co-Obligors hereunder or thereunder, that:  (i) the principal of, premium, if any, and
interest, on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful (subject in all cases
to any applicable grace period provided herein), and all other obligations of
the Co-Obligors to the Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; and (ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same 

 

109

 

will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise.  Failing payment when due of any amount so
guaranteed or any performance so guaranteed for whatever reason, the Guarantors
shall be jointly and severally obligated to pay the same immediately.  Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.

 

(b)                                 The
Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against either of the
Co-Obligors, any action to enforce the same or any other circumstance which
might otherwise constitute a legal or equitable discharge or defense of a
Guarantor.  Subject to Section 6.06
hereof, each Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of
either of the Co-Obligors, any right to require a proceeding first against
either of the Co-Obligors, protest, notice and all demands whatsoever and
covenant that this Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture.

 

(c)                                  If
any Holder or the Trustee is required by any court or otherwise to return to
the Co-Obligors, the Guarantors or any custodian, trustee, liquidator or other
similar official acting in relation to either of the Co-Obligors or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.

 

(d)                                 Each
Guarantor agrees that it shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.  Each Guarantor further agrees that, as
between the Guarantors, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six hereof for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article Six hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Guarantee.  Each Guarantor that makes a
payment or distribution under its Guarantee shall have the right to seek
contribution from any non-paying Guarantor, in a pro rata amount based on the net assets of each Guarantor
determined in accordance with GAAP, so long as the exercise of such right does
not impair the rights of the Holders under the Guarantee.

 

Section 11.02.                       Subordination
of Guarantee.

 

The
Obligations of each Guarantor under its Guarantee pursuant to this Article
Eleven shall be junior and subordinated to the prior payment in full in cash or
Cash Equivalents of all Senior Indebtedness of such Guarantor (including Senior
Indebtedness of the Guarantor incurred after the date hereof) on the same basis
as the Notes are junior and subordinated to the prior payment in full all
Senior Indebtedness of the Co-Obligors, as described in Article Ten
hereof.  For the purposes of the
foregoing sentence, the Trustee and the Holders shall have the right to receive
and/or retain payments by any of the Guarantors only at such times as they may
receive 

 

110

 

and/or retain payments in
respect of the Notes pursuant to this Indenture, including Article Ten hereof.

 

Section 11.03.                       Limitation
on Guarantor Liability.

 

Each
Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it
is the intention of all such parties that the Guarantee of such Guarantor not
constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to any Guarantee.  To effectuate the foregoing intention, the
Trustee, the Holders and the Guarantors hereby irrevocably agree that the
obligations of such Guarantor will be limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor, and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
this Article Eleven, will result in the obligations of such Guarantor under its
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
Federal or state law.  Until such time as
the Notes are paid in full, each Guarantor hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under federal Bankruptcy
Law) or otherwise by reason of any payment by it pursuant to the provisions of
this Article Eleven.

 

Section 11.04.                       Execution
and Delivery of Guarantee.

 

(a)                                  To
evidence its Guarantee set forth in Section 11.01, upon consummation of the
Acquisition (i) each Initial Guarantor shall be required to have a notation of
such Guarantee substantially in the form included in Exhibit E endorsed by an
Officer of such Initial Guarantor by manual or facsimile signature on each Note
authenticated and delivered by the Trustee upon consummation of the
Acquisition, and (ii) the Guarantor Supplemental Indenture shall be executed on
behalf of such Initial Guarantor by any of its executive officers by manual or
facsimile signature.

 

(b)                                 Each
Guarantor hereby agrees that its Guarantee set forth in Section 11.01 shall
remain in full force and effect notwithstanding any failure to endorse on each
Note a notation of such Guarantee.

 

(c)                                  If
an Officer whose signature is on this Indenture or on the Guarantee no longer
holds that office at the time the Trustee authenticates the Note on which a
Guarantee is endorsed, the Guarantee shall be valid nevertheless.

 

(d)                                 The
delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Guarantee set forth in this
Indenture on behalf of the Guarantors.

 

(e)                                  In
the event that the Company creates or acquires any new Restricted Subsidiary
(other than Duane Reade GP) subsequent to the date of this Indenture, if
required by Section 4.12 hereof, the Company shall cause such Restricted
Subsidiary to execute a supplemental indenture to this Indenture substantially
in the form included in Exhibit F and Guarantees in accordance with Section
4.12 hereof and this Article Eleven, to the extent applicable.

 

111

 

Section 11.05.                       Releases
of Guarantors.

 

(a)                                  A
Guarantor will be deemed automatically and unconditionally released and
discharged from all of its obligations under its Guarantee without any further
action on the part of the Trustee or any Holder of the Notes:

 

(1)                                  in connection with
any sale or other disposition of all or substantially all of the assets of that
Guarantor (including by way of merger or consolidation) to a Person that is not
(either before or after giving effect to such transaction) the Company or a
Restricted Subsidiary, if the sale or other disposition of all or substantially
all of the assets of that Guarantor complies with Section 4.11 and Section 4.09
hereof;

 

(2)                                  in connection with
any sale of all of the Capital Stock of a Guarantor to a Person that is not
(either before or after giving effect to such transaction) the Company or a
Restricted Subsidiary, if the sale of all such Capital Stock of that Guarantor
complies with Section 4.11 and Section 4.09 hereof;

 

(3)                                  in connection with
any sale of Capital Stock of a Guarantor to a Person that results in the
Guarantor no longer being a Subsidiary of the Company, if (i) the sale of such
Capital Stock of that Guarantor complies with Section 4.11 hereof; and (ii)
following such sale, such Guarantor is no longer the obligor under or guarantor
of any Indebtedness of the Company or any Restricted Subsidiary (other than
Indebtedness that is permitted to be incurred by Restricted Subsidiaries that
are not Guarantors under Section 4.07 hereof) (and no commitments in respect of
such Indebtedness are outstanding);

 

(4)                                  if the Company
properly designates any Restricted Subsidiary that is a Guarantor as an
Unrestricted Subsidiary;

 

(5)                                  if such Guarantor is
no longer the obligor under or guarantor of any Indebtedness of the Company or
any Restricted Subsidiary (other than Indebtedness that is permitted to be
incurred by Restricted Subsidiaries that are not Guarantors under Section 4.07
hereof) (and no commitments in respect of such Indebtedness are outstanding)
and such Guarantor no longer pledges assets or other security interests which
secure any Indebtedness of the Company or any Restricted Subsidiary (other than
Indebtedness that is permitted to be incurred by Restricted Subsidiaries that
are not Guarantors under Section 4.07 hereof); or

 

(6)                                  if the Notes are
discharged in accordance with the procedures of Article Eight or Article Twelve
hereof.

 

(b)                                 Any
Guarantor not released from its obligations under its Guarantee shall remain
liable for the full amount of principal of and interest on the Notes and for
the other obligations of any Guarantor under this Indenture as provided in this
Article Eleven.

 

112

 

ARTICLE
TWELVE

Satisfaction and Discharge

 

Section 12.01.                       Satisfaction
and Discharge.

 

(a)                                  This
Indenture will be discharged and will cease to be of further effect (except as
to surviving rights of registration of transfer or exchange of the Notes as
expressly provided for in this Indenture) as to all outstanding Notes under
this Indenture when

 

(i)                                     either

 

(1)                                  all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid or Notes whose payment has been deposited in
trust or segregated and held in trust by the Co-Obligors and thereafter repaid
to the Co-Obligors or discharged from such trust as provided for in this
Indenture) have been delivered to the Trustee for cancellation or

 

(2)                                  all Notes not
theretofore delivered to the Trustee for cancellation (a) have become due and
payable, (b) will become due and payable at their Stated Maturity within one
year, or (c) are to be called for redemption within one year under arrangements
reasonably satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Co-Obligors;

 

(b)                                 either
of the Co-Obligors or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as funds in trust an amount in United States dollars
(whether in the form of cash or Cash Equivalents) sufficient to pay and
discharge the entire Indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, including principal of, premium, if any, and accrued
interest at such Maturity, Stated Maturity or redemption date;

 

(c)                                  no
Default or Event of Default shall have occurred and be continuing on the date
of such deposit;

 

(d)                                 the
Company, Duane Reade GP or any Guarantor has paid or caused to be paid all other
sums payable under this Indenture by the Company, Duane Reade GP and any
Guarantor;

 

(e)                                  the
Co-Obligors have delivered to the Trustee an Officers’ Certificate and an
opinion of independent counsel each stating that all conditions precedent under
this Indenture relating to the satisfaction and discharge of this Indenture
have been complied with;  and

 

(f)                                    the
Co-Obligors have delivered irrevocable instructions to the Trustee hereunder to
apply any deposited money described in clause (b) above to the payment of the
Notes at Maturity, Stated Maturity or the redemption date, as the case may be.

 

113

 

Section 12.02.                       Deposited
Money and U.S. Government Obligations to be held in Trust; Other Miscellaneous
Provisions.

 

Subject to
Section 12.03 hereof, all money and non-callable U.S.  Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 12.02, the “Trustee”) pursuant to
Section 12.01 hereof in respect of the outstanding Notes shall be held in trust
and applied by the Trustee, in accordance with the provisions of such Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium and interest, but such money need not be segregated from
other funds except to the extent required by law.

 

Section 12.03.                       Repayment
to the Company.

 

Any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, premium or interest on any Note and
remaining unclaimed for two years after such principal, and premium, if any, or
interest has become due and payable shall be paid to the Company on its request
or (if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense
of the Company cause to be published once, in the New York Times or The Wall
Street Journal (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification or publication, any unclaimed balance of such
money then remaining shall be repaid to the Company.

 

ARTICLE THIRTEEN

Miscellaneous

 

Section 13.01.                       Trust
Indenture Act Controls.

 

If and to the
extent that any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.

 

Section 13.02.                       Notices.

 

(a)                                  Any
notice or communication by either of the Co-Obligors or any Guarantor, on the
one hand, or the Trustee on the other hand, to the other is duly given if in
writing and delivered in Person or mailed by first class mail (registered or
certified, return receipt requested), facsimile or overnight air courier
guaranteeing next day delivery, to the others’ address:

 

If to the
Company (prior to the Acquisition Closing Date):

 

114

 

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022

Facsimile:  (212) 754-5685

Attention:  Tyler Wolfram

 

with copies
to:

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas

New York, New York  10019
Facsimile:  212-757-3990

Attention:  John C. Kennedy, Esq.

 

 

If to Duane
Reade, Duane GP or any Guarantor (upon consummation of the Acquisition):

 

Duane Reade Inc.

440 Ninth Avenue

New York, New York  10001

Facsimile: 
212-594-0832

Attention:  John K. Henry, Chief Financial Officer

 

with copies
to:

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas

New York, New York  10019
Facsimile:  212-757-3990

Attention:  John C. Kennedy, Esq.

 

 

If to the
Trustee:

 

U.S. Bank
National Association

225 Asylum
Street 23rd Floor

Hartford,
Connecticut  06103

Fax:  (860) 241-6897

Attention:  Susan C. Merker

 

(b)                                 The
Company, Duane Reade GP, the Guarantors or the Trustee, by notice to the others
may designate additional or different addresses for subsequent notices or
communications.

 

(c)                                  All
notices and communications (other than those sent to Holders) shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; five 

 

115

 

Business Days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.

 

(d)                                 Any
notice or communication to a Holder shall be mailed by first class mail, certified
or registered, return receipt requested, or by overnight air courier
guaranteeing next day delivery to its address shown on the register kept by the
Registrar.  Any notice or communication
shall also be so mailed to any Person described in TIA Section 313(c), to the
extent required by the TIA.  Failure to
mail a notice or communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders.

 

(e)                                  If
a notice or communication is mailed in the manner provided above within the
time prescribed, it is duly given, whether or not the addressee receives it.

 

(f)                                    If
either of the Co-Obligors mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

 

Section 13.03.                       Communication
by Holders of Notes with Other Holders of Notes.

 

Holders may
communicate pursuant to TIA Section 312(b) with other Holders with respect to
its rights under this Indenture or the Notes. 
The Co-Obligors, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).

 

Section 13.04.                       Certificate
and Opinion as to Conditions Precedent.

 

(a)                                  Upon
any request or application by the Co-Obligors to the Trustee to take any action
under this Indenture, the Co-Obligors shall furnish to the Trustee:

 

(i)                                     an Officers’
Certificate in form and substance reasonably satisfactory to the Trustee (which
shall include the statements set forth in Section 13.05 hereof) stating that,
in the opinion of the signers, all conditions precedent and covenants, if any,
provided for in this Indenture relating to the proposed action have been
satisfied; and

 

(ii)                                  to the extent
required under Section 314 of the Trust Indenture Act, an Opinion of Counsel in
form and substance reasonably satisfactory to the Trustee (which shall include
the statements set forth in Section 13.05 hereof) stating that, in the opinion
of such counsel, all such conditions precedent and covenants have been
satisfied.

 

Section 13.05.                       Statements
Required in Certificate or Opinion.

 

(a)                                  Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e)
and shall include:

 

(i)                                     a statement that
the Person making such certificate or opinion has read such covenant or
condition;

 

116

 

(ii)                                  a brief statement as
to the nature and scope of the examination or investigation upon which the
statements or opinions contained in such certificate or opinion are based;

 

(iii)                               a statement that, in the
opinion of such Person, he or she has made such examination or investigation as
is necessary to enable him to express an informed opinion as to whether or not
such covenant or condition has been satisfied; and

 

(iv)                              a statement as to whether
or not, in the opinion of such Person, such condition or covenant has been
satisfied.

 

Such opinion
may be rendered subject to exceptions and qualifications that are customary for
opinions of like tenor.

 

Section 13.06.                       Rules by
Trustee and Agents.

 

The Trustee
may make reasonable rules for action by or at a meeting of Holders.  The Registrar or Paying Agent may make
reasonable rules and set reasonable requirements for its functions.

 

Section 13.07.                       No
Personal Liability of Directors, Officers, Employees and Stockholders.

 

No director,
officer, employee, member or stockholder of the Company or any Restricted
Subsidiary, as such, will have any liability for any obligations of the Company
or the Restricted Subsidiaries under the Notes, this Indenture, the Guarantees
to which they are a party or the Registration Rights Agreement, or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. The waiver may not be effective to waive liabilities under the
federal securities laws.

 

Section 13.08.                       Governing
Law.

 

THIS INDENTURE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF
THAT WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

 

Section 13.09.                       No
Adverse Interpretation of Other Agreements.

 

This Indenture
may not be used to interpret any other indenture, loan or debt agreement of the
Company or any of its Subsidiaries or of any other Person.  Any such indenture, loan or debt agreement
may not be used to interpret this Indenture.

 

Section 13.10.                       Successors.

 

All agreements
of the Co-Obligors in this Indenture and the Notes shall bind their successors,
except as otherwise provided in Section 5.01.  All agreements of the Trustee in this 

 

117

 

Indenture shall bind its
successors.  All agreements of each
Guarantor in this Indenture shall bind its successors, except as otherwise
provided in Section 5.01.

 

Section 13.11.                       Severability.

 

In case any
provision in this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 

Section 13.12.                       Counterpart
Originals.

 

The parties
may sign any number of copies of this Indenture.  Each signed copy shall be an original, but
all of them together represent the same agreement.

 

Section 13.13.                       Acts of
Holders.

 

(a)                                  Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by the Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing,
and may be given or obtained in connection with a purchase of, or tender offer
or exchange offer for, outstanding Notes; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Co-Obligors.  Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the “Act” of the Holders
signing such instrument or instruments. 
Proof of execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and conclusive
in favor of the Trustee and the Co-Obligors if made in the manner provided in
this Section 13.13.

 

(b)                                 The
fact and date of the execution by any Person of any such instrument or writing
may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to such witness, notary or officer the
execution thereof.  Where such execution
is by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of
authority.  The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.

 

(c)                                  Notwithstanding
anything to the contrary contained in this Section 13.13, the principal amount
and serial numbers of Notes held by any Holder, and the date of holding the
same, shall be proved by the register of the Notes maintained by the Registrar
as provided in Section 2.04 hereof.

 

(d)                                 If
the Co-Obligors shall solicit from the Holders of the Notes any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Co-Obligors may, at their option, by or pursuant to a resolution of its Board
of Directors, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, 

 

118

 

notice, consent, waiver or
other Act, but the Co-Obligors shall have no obligation to do so.  Notwithstanding TIA Section 316(c), such
record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to
the first solicitation of Holders generally in connection therewith or the date
of the most recent list of Holders forwarded to the Trustee prior to such
solicitation pursuant to Section 2.06 hereof and not later than the date such
solicitation is completed.  If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall
be deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of the then outstanding Notes have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the then outstanding Notes shall be
computed as of such record date; provided
that no such authorization, agreement or consent by the Holders on such record
date shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than eleven months after the record
date.

 

(e)                                  Any
request, demand, authorization, direction, notice, consent, waiver or other Act
of the Holder of any Note shall bind every future Holder of the same Note and
the Holder of every Note issued upon the registration or transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Co-Obligors in reliance thereon, whether
or not notation of such action is made upon such Note.

 

(f)                                    Without
limiting the foregoing, a Holder entitled hereunder to take any action
hereunder with regard to any particular Note may do so itself with regard to
all or any part of the principal amount of such Note or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.

 

(g)                                 For
purposes of this Indenture, any action by the Holders which may be taken in writing
may be taken by electronic means or as otherwise reasonably acceptable to the
Trustee.

 

Section 13.14.                       Benefit
of Indenture.

 

Nothing in
this Indenture or in the Notes, express or implied, shall give to any Person,
other than the parties hereto, any Paying Agent, any Registrar and its
successors hereunder, and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture.

 

Section 13.15.                       Table of
Contents, Headings, Etc.

 

The Table of
Contents, Cross-Reference Table and Headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part of this Indenture and shall in no way modify or restrict
any of the terms or provisions hereof.

 

119

 

Section 13.16.                       Trustee
Not Fiduciary for Holders of Senior Indebtedness.

 

The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders or the Company or to any
other Person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Agreement or otherwise.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

120

 

SIGNATURES

 

	
   

  	
  DUANE READE
  ACQUISITION CORP., a 

  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tyler J.
  Wolfram

  	
   

  
	
   

  	
   

  	
   Name: Tyler J. Wolfram

  
	
   

  	
   

  	
   Title: Vice President and Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK
  NATIONAL ASSOCIATION, 

  as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Elizabeth C. Hammer

  	
   

  
	
   

  	
   

  	
   Name:
  Elizabeth C. Hammer

  
	
   

  	
   

  	
   Title:
  Vice President

  
					

 

121

 

EXHIBIT
A1

 

[Face of Note]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE
[COMPANY OR ITS]† [CO-OBLIGORS OR
THEIR]†† AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO.  OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO.  OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

 

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

 

THIS NOTE AND THE GUARANTEES ENDORSED HEREON HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY STATE SECURITIES LAWS.  NEITHER THIS
NOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT.  THE HOLDER OF THIS NOTE AND THE
GUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCE HEREOF, AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT THAT THE NOTES AND GUARANTEES MAY BE
TRANSFERRED (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES AND THE GUARANTEES 

 

†   For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-1

 

ENDORSED THEREON ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A
PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED
IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S.  PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES IN OFFSHORE TRANSACTIONS WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND
THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO
CLAUSE (D) PRIOR TO THE END OF THE 40-DAY “DISTRIBUTION COMPLIANCE PERIOD”
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO
CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (2) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE.

 

A1-2

 

CUSIP
[      ]

 

	
  No.     

  	
   

  	
  $                       

  

 

[DUANE READE ACQUISITION CORP.]†

[DUANE READE INC.

DUANE READE]††

 

9.75% Senior Subordinated Notes due 2011

 

[Duane Reade Acquisition Corp., a Delaware corporation (the “Company”)]† [Duane Reade Inc., a Delaware corporation (the “Company”)
and Duane Reade, a New York general partnership (“Duane Reade GP”, and
together with the Company, the “Co-Obligors”)]††,
which terms include any successor under the Indenture hereinafter referred to,
for value received, promises to pay to CEDE & CO., or its registered
assigns, the principal sum of [Amount of Note]
($[         ]) UNITED STATES
DOLLARS on August 1, 2011.

 

Interest Payment Dates:  February
1 and August 1 of each year, commencing February 1, 2005.

 

Regular Record Dates:  January 15
and July 15 of each year.

 

Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

 

 

Date of Issuance:
                 

 

†   For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-3

 

IN WITNESS WHEREOF, the [Company has]† [Co-Obligors
have]†† caused this Note to be signed manually or by facsimile by their duly
authorized officers.

 

	
   

  	
  [DUANE READE
  ACQUISITION CORP., a 

  Delaware corporation

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
  ]†

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [DUANE READE
  INC. (as successor by merger to 

  Duane Reade Acquisition Corp.), a Delaware 

  corporation

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  Duane Reade Inc., as
  General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
  ]††

  
					

 

†   For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-4

 

(Form of Trustee’s Certificate of
Authentication)

 

 

This is one of the 9.75% Senior Subordinated Notes due 2011 described
in the within-mentioned Indenture.

 

 

	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Authorized Signatory

  
	
   

  	
   

  
	
  Date:                      

  	
   

  

 

A1-5

 

[Reverse Side of Note]

 

[DUANE READE ACQUISITION CORP.]†

[DUANE READE INC.

DUANE READE]††

 

9.75% Senior Subordinated Notes due 2011

 

Capitalized
terms used herein shall have the meanings assigned to them in the Indenture
referred to below unless otherwise indicated.

 

1.  Interest.  The [Company promises]†
[Co-Obligors promise]†† to pay
interest on the principal amount of this Note at 9.75% per annum from the date
hereof until maturity [and shall pay the Liquidated Damages, if any, payable
pursuant to the Registration Rights Agreement, dated July 30, 2004‡ referred to
below]*.  The [Company]† [Co-Obligors]†† shall pay
interest [and Liquidated Damages, if any,]* semi-annually in arrears on
February 1 and August 1 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an “Interest Payment Date”).  Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance; provided
that if there is no existing Default in the payment of interest, and if this
Note is authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided
further that the first Interest Payment Date shall be February 1, 2005.  The [Company]†
[Co-Obligors]†† shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest [and Liquidated Damages]* (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful.  Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.  If a payment date is not a Business Day,
payment may be made on the next succeeding day that is a Business Day, and no
interest shall accrue on such payment for the intervening period.

 

[This Exchange
Note was issued in connection with the Exchange Offer pursuant to which the
9.75% Senior Subordinated Notes due 2011 in like principal amount were
exchanged for Exchange Notes.  The
Exchange Notes rank pari passu in
right of payment with the Initial Notes. 
For any period in which the Initial Note exchanged for this Exchange
Note was outstanding, Liquidated Damages may be due and owing on the Initial
Note in connection with the Registration Rights Agreement.]**

 

2.  Method of Payment.  The [Company]†
[Co-Obligors]†† shall pay interest on the Notes
(except defaulted interest [and Liquidated Damages]*, if any) to the Persons
who are registered Holders of Notes at the close of business on the January
15th or July 15th immediately 

 

†   For Notes issued on the Issue Date.

††  For Notes issued upon consummation of the
Acquisition.

‡  For Additional Notes, insert the date of the
Registration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

** For Exchange Notes.

 

A1-6

 

preceding the Interest Payment
Date, even if such Notes are canceled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.13 of the Indenture
with respect to defaulted interest.  [The
[Company]† [Co-Obligors]††
shall pay all Liquidated Damages, if any, on the Interest Payment Date of its
choosing and in the amounts set forth in the Registration Rights
Agreement.]*  The Notes shall be payable
as to principal, premium [and Liquidated Damages]*, if any, and interest at the
office or agency of the [Company]† [Co-Obligors]†† maintained for such purpose
in The City of New York, or, at the option of the Company, payment of interest
[and Liquidated Damages, if any,]* may be made by check mailed to the Holders
at their addresses set forth in the register of Holders, and provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of and interest, premium [and Liquidated Damages]*, if
any, on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the [Company]†
[Co-Obligors]†† or the Paying Agent.  Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.

 

3.  Paying Agent and Registrar.  Initially, U.S. Bank National Association,
the Trustee under the Indenture, shall act as Paying Agent and Registrar.  The [Company]†
[Co-Obligors]†† may change any Paying Agent or
Registrar without notice to any Holder. 
The Company or any of its Subsidiaries may act in any such capacity.

 

4.  Indenture.  [The Company issued the Notes under an
Indenture dated as of July 30, 2004 (the “Indenture”) among the Company
and the Trustee.]† 
[The Co-Obligors issued the Notes pursuant to Supplemental Indentures,
dated as of July 30, 2004, to the Indenture, dated as of July 30, 2004 (as
supplemented, the “Indenture”) among Duane Reade Acquisition Corp. (“DRAC”)
and the Trustee, wherein such Supplemental Indentures the Co-Obligors assumed
the obligations of DRAC under the Indenture and the Notes originally issued
under the Indenture.]††  The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended.  The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. 
To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and
be controlling.  The Indenture pursuant
to which this Note is issued provides that an unlimited amount of Additional
Notes may be issued thereunder, subject to compliance with the covenants
therein.

 

*  Not to be included for
Exchange Notes.

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-7

 

5.  Optional Redemption.  [(a)]††  After August 1, 2008, the [Company]† [Co-Obligors],††, on one or
more occasions may redeem for cash all or a portion of the Notes, on not less
than 30 nor more than 90 days’ prior notice, in amounts of $5,000 or whole
multiples of $1,000 in excess thereof at the following redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and additional interest, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of the years indicated below:

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2008

  	
   

  	
  104.875

  	
  %

  
	
  2009

  	
   

  	
  102.438

  	
  %

  
	
  2010 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

[(b)                             At
any time prior to August 1, 2007, the Company, DRS LLC or Holdings, at the
Company’s option, may use the net proceeds of one or more Equity Offerings to
redeem on one or more occasions up to an aggregate of 35% of the aggregate
principal amount of Notes issued under the Indenture (including the principal
amount of any Additional Notes issued under the Indenture but without
duplication with respect to any Exchange Notes issued under the Indenture) at a
redemption price equal to 109.75% of the aggregate principal amount of the
Notes redeemed, plus accrued and unpaid interest, if any, to the redemption
date (subject to the rights of holders of record on relevant record dates to
receive interest due on an interest payment date); provided that this redemption provision shall not be
applicable with respect to any transaction that results in a Change of Control;
provided, further, that if the
proceeds of an Equity Offering are used for redemption, all of such proceeds
are first contributed to the equity capital of the Company on a non-recourse
basis. At least 65% of the aggregate principal amount of Notes (including the
principal amount of any Additional Notes issued under the Indenture but without
duplication with respect to any Exchange Notes issued under the Indenture) must
remain outstanding immediately after the occurrence of such redemption. In
order to effect this redemption, the Company, DRS LLC or Holdings, as the case
may be, must complete such redemption within 90 days after the closing of the
Equity Offering.] ††

 

6.  Mandatory Redemption.  The [Company]† [Co-Obligors]†† shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.

 

7.  Repurchase at Option of Holders.

 

(a)                                  Upon
the occurrence of a Change of Control, each Holder may require the [Company]† [Co-Obligors]†† to purchase
such Holder’s Notes in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to a Change of Control Offer in accordance with the procedures set
forth in the Indenture.

 

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-8

 

(b)                                 Under
certain circumstances described in the Indenture, the [Company]† [Co-Obligors]†† will be
required to apply the proceeds of Asset Sales to the repayment of the Notes
and/or Pari Passu Indebtedness.

 

8.  Selection and Notice of Redemption.  If less than all of the Notes are to be
redeemed or purchased in an offer to purchase at any time, the Trustee shall
select the Notes to be redeemed or purchased among the Holders of the Notes not
more than 90 days prior to the redemption date in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other
method the Trustee considers fair and reasonable.  Redemptions pursuant to Section 3.07(b) of
the Indenture shall be made on a pro rata
basis or on as nearly a pro rata
basis as practicable (subject to the provisions of the Depositary).  In the event of partial redemption by lot,
the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 90 days prior to the redemption
date by the Trustee from the outstanding Notes not previously called for
redemption.  Notices of redemption may
not be conditional.  If any Note is to be
redeemed in part only, the notice of redemption that relates to that Note will
state the portion of the principal amount thereof to be redeemed.  A new Note in principal amount equal to the
unredeemed portion of the original Note will be issued in the name of the
Holder thereof upon cancellation of the original Note.  Notes called for redemption become due on the
date fixed for redemption.  On and after
the redemption date, interest [and Liquidated Damages, if any,]* if any, cease
to accrue on Notes or portions of them called for redemption.

 

9.  Denominations, Transfer, Exchange.  The Notes are in registered form without
coupons in denominations of $5,000 and integral multiples of $1,000 in excess
thereof.  The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture.  The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the [Company]† [Co-Obligors]†† may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture.  The [Company is]†
[Co-Obligors are]†† not required to transfer or
exchange any Note selected for redemption. 
Also, the [Company is]† [Co-Obligors
are]†† not required to transfer or exchange
any Note for a period of 15 days before a selection of Notes to be redeemed.

 

10.  Persons Deemed Owners.  The registered Holder of a Note will be
treated as its owner for all purposes.

 

11.  Amendment, Supplement and Waiver.  The Indenture or the Notes may be amended or
supplemented only as provided in the Indenture.

 

12.  Defaults.  In the case of an Event of Default arising
from certain events of bankruptcy or insolvency specified in the Indenture,
with respect to the Company or any Significant Subsidiary, all outstanding
Notes will become due and payable immediately without 

 

*  Not to be included for
Exchange Notes.

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-9

 

further action or notice.  If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may, and the Trustee at the request of such Holders
shall, declare all unpaid principal of premium, if any, and accrued interest on
all Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Holders of the Notes) and upon any
such declaration, such principal, premium, if any, and interest shall become
due and payable immediately; provided,
however, that so long as any Indebtedness permitted to be incurred
under the Credit Agreement or the Term Loan is outstanding, that acceleration
shall not be effective until the earlier of (1) an acceleration of Indebtedness
under the Credit Agreement or the Term Loan or (2) five Business Days after
receipt by the Company and the representatives of the lenders under the Credit
Agreement and the Term Loan of written notice of the acceleration of the Notes
(and such Event of Default is then continuing). 
The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. 
The Holders of not less than a majority in aggregate principal amount of
the Notes outstanding by notice to the Trustee may on behalf of the Holders of
all outstanding Notes waive any past Default and its consequences under the
Indenture except a Default (1) in the payment of the principal of, premium, if
any, or interest on any Note (which may only be waived with the consent of each
Holder of Notes affected) or (2) in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
Holder of each Note affected by such modification or amendment.

 

13.  Subordination.                                           The Notes are subordinated, as provided in the
Indenture, to Senior Indebtedness, as defined in the Indenture.  Each of the [Company]† [Co-Obligors]†† and
the Guarantors agrees, and each Holder by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect.

 

14.  Trustee Dealings with the [Company]† [Co-Obligors]††.  The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
[Company or its]† [Co-Obligors or their]†† Affiliates, and may otherwise deal with the [Company or
its]† [Co-Obligors or their]†† Affiliates, as if it were not the Trustee.

 

15.  No Recourse Against Others.  No director, officer, employee, member or
stockholder of [the Company]† [either of
the Co-Obligors or any Guarantor, ]†† as such,
will have any liability for any obligations of the [Company]† [Co-Obligors or the Guarantors]†† under
the Notes, the Indenture[, the Guarantees]†† or the
Registration Rights Agreement, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. 
Each holder of Notes by accepting a Note waives and releases all such
liability.  The waiver and release are
part of the consideration for issuance of the Notes.  The waiver may not be effective to waive
liabilities under the federal securities laws.

 

16.  Authentication.  This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.

 

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-10

 

17.  Additional Rights of Holders of Restricted
Global Notes and Restricted Definitive Notes.  [In addition to the rights provided to
Holders under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes issued on the Issue Date shall have all the rights set forth
in the Registration Rights Agreement dated as of July 30, 2004‡, among the
[Company]† [Co-Obligors, the Guarantors]†† and the parties named on the signature pages thereof.]*

 

18.  CUSIP Numbers.  Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the [Company has]†
[Co-Obligors have]†† caused CUSIP numbers to be printed on the Notes and the
Trustee may use CUSIP numbers in notices of redemption as a convenience to
Holders.  No representation is made as to
the accuracy of such numbers either as printed on the Notes or as contained in
any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.

 

19.  Governing Law.  This Note shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflicts of laws principles thereof that would indicate the applicability
of the laws of any other jurisdiction.

 

The [Company]† [Co-Obligors]†† shall
furnish to any Holder upon written request and without charge a copy of the
Indenture and/or the Registration Rights Agreement.  Requests may be made to:

 

[DUANE READE
ACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022

Facsimile:  (212) 754-5685

Attention:  Tyler Wolfram]†

 

[DUANE READE
INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

Facsimile: 
212-594-0832

Attention:  Chief Financial
Officer]††

 

‡  For Additional Notes, insert the date of the
Registration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

†  For Notes issued on the Issue Date.

††  For Notes issued upon consummation of the
Acquisition.

 

A1-11

 

ASSIGNMENT FORM

 

To assign this Note, fill in the form below:

 

	
  (I) or (we) assign and transfer this Note to:

  	
   

  	
   

  
	
   

  	
  (Insert assignee’s legal name)

  	
   

  
	
   

  
	
  (Insert 

  
	
  assignee’s soc. sec. or tax I.D. no.)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  (Print 

  
	
  or type assignee’s name, address and zip
  code)

  
	
   

  
	
  and irrevocably appoint

  
	
   

  
	
  to transfer this Note on the books of the Company.  The agent may substitute another to act for
  

  him.

  
	
   

  
	
  Date: 

  
	
   

  
	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
     (Sign exactly as your name appears on

     the face of this Note)

  	
   

  
	
   

  
	
   

  
	
  Signature Guarantee*:

  
							

 

* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).

 

A1-12

 

OPTION OF HOLDER TO ELECT PURCHASE

 

If you want to
elect to have this Note purchased by the [Company]† [Co-Obligors]†† pursuant to
Section 4.11 or 4.18 of the Indenture, check the appropriate box below:

 

o
Section 4.11      o
Section 4.18

 

If you want to
elect to have only part of the Note purchased by the [Company]† [Co-Obligors]†† pursuant to
Section 4.11 or Section 4.18 of the Indenture, state the amount you elect to
have purchased:

 

$
          

 

Date:             

 

	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
     (Sign exactly as your name appears on 

     the face of this Note)

  
	
   

  	
   

  
	
   

  	
  Tax Identification
  No.:                  

  
	
   

  
	
  Signature
  Guarantee*:              

  

 

*  Participant in a recognized
Signature Guarantee Medallion Program (or other signature guarantor acceptable
to the Trustee).

 

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A1-13

 

SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL
NOTE

 

The following
exchanges of a part of this Global Note for an interest in another Global Note
or for a Definitive Note, or exchanges of a part of another Global Note or
Definitive Note for an interest in this Global Note, have been made:

 

	
  Date of Exchange

  	
   

  	
  Amount of Decrease 

  in Principal Amount 

  at Maturity of this
 Global Note

  	
   

  	
  Amount of Increase in 

  Principal Amount at 

  Maturity of this 

  Global Note

  	
   

  	
  Principal Amount 

  Maturity of this 

  Global Note 

  Following such 

  Decrease (or Increase)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

A1-14

 

EXHIBIT
A2

 

[Face of Note]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE
[COMPANY OR ITS]† [CO-OBLIGORS OR
THEIR]†† AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO.  OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO.  OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

 

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

 

THIS NOTE AND THE GUARANTEES ENDORSED HEREON
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAWS. 
NEITHER THIS NOTE, THE GUARANTEES ENDORSED HEREON, NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.  THE
HOLDER OF THIS NOTE AND THE GUARANTEES ENDORSED HEREON, BY ITS ACCEPTANCE
HEREOF, AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT
THAT THE NOTES AND GUARANTEES MAY BE TRANSFERRED (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES AND THE GUARANTEES 

 

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-1

 

ENDORSED
THEREON ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
(“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED
INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN
OFFSHORE TRANSACTIONS WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES
ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO CLAUSE (D) PRIOR
TO THE END OF THE 40-DAY “DISTRIBUTION COMPLIANCE PERIOD” WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (2) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.

 

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

 

A2-2

 

CUSIP
[     ]

 

	
  No.

  	
   

  	
  $

  

 

[DUANE READE ACQUISITION CORP.]†

[DUANE READE INC.

DUANE READE]††

 

9.75% Senior Subordinated Notes due 2011

 

[Duane Reade Acquisition Corp., a Delaware corporation (the “Company”)]† [Duane Reade Inc., a Delaware corporation (the “Company”)
and Duane Reade, a New York general partnership (“Duane Reade GP”, and
together with the Company, the “Co-Obligors”)]††,
which terms include any successor under the Indenture hereinafter referred to,
for value received, promises to pay to CEDE & CO., or its registered
assigns, the principal sum of [Amount of Note]
($[      ]) UNITED STATES DOLLARS on August 1,
2011.

 

Interest Payment Dates:  February
1 and August 1 of each year, commencing February 1, 2005.

 

Regular Record Dates:  January 15
and July 15 of each year.

 

Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

 

 

Date of Issuance:
              

 

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-3

 

IN WITNESS WHEREOF, the [Company has]† [Co-Obligors
have]†† caused this Note to be signed manually or by facsimile by their duly
authorized officers.

 

	
   

  	
  [DUANE READE
  ACQUISITION CORP., a 

  Delaware corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
  ]†

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [DUANE READE
  INC. (as successor by merger to 

  Duane Reade Acquisition Corp.), a Delaware 

  corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:  Duane Reade Inc., as
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
  ]††

  
					

 

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-4

 

(Form of Trustee’s Certificate of
Authentication)

 

This is one of the 9.75% Senior Subordinated Notes due 2011 described
in the within-mentioned Indenture.

 

 

	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Authorized Signatory

  
	
   

  	
   

  
	
  Date:         

  	
   

  

 

 

A2-5

 

[Reverse Side of Note]

 

[DUANE READE ACQUISITION CORP.]†

[DUANE READE INC.

DUANE READE]††

 

9.75% Senior Subordinated Notes due 2011

 

Capitalized
terms used herein shall have the meanings assigned to them in the Indenture
referred to below unless otherwise indicated.

 

1.  Interest.  The [Company promises]†
[Co-Obligors promise]†† to pay
interest on the principal amount of this Note at 9.75% per annum from the date
hereof until maturity [and shall pay the Liquidated Damages, if any, payable
pursuant to the Registration Rights Agreement, dated July 30, 2004‡ referred to
below]*.  The [Company]† [Co-Obligors]†† shall pay
interest [and Liquidated Damages, if any,]* semi-annually in arrears on
February 1 and August 1 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an “Interest Payment Date”).  Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance; provided
that if there is no existing Default in the payment of interest, and if this
Note is authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided
further that the first Interest Payment Date shall be February 1, 2005.  The [Company]†
[Co-Obligors]†† shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest [and Liquidated Damages]* (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful.  Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.  If a payment date is not a Business Day, payment
may be made on the next succeeding day that is a Business Day, and no interest
shall accrue on such payment for the intervening period.

 

[This Exchange
Note was issued in connection with the Exchange Offer pursuant to which the
9.75% Senior Subordinated Notes due 2011 in like principal amount were
exchanged for Exchange Notes.  The
Exchange Notes rank pari passu in
right of payment with the Initial Notes. 
For any period in which the Initial Note exchanged for this Exchange
Note was outstanding, Liquidated Damages may be due and owing on the Initial
Note in connection with the Registration Rights Agreement.]**

 

2.  Method of Payment.  The [Company]†
[Co-Obligors]†† shall pay interest on the Notes
(except defaulted interest [and Liquidated Damages]*, if any) to the Persons
who are registered Holders of Notes at the close of business on the January
15th or July 15th immediately 

 

†   For Notes issued on the Issue Date.

††  For Notes issued upon consummation of the
Acquisition.

‡  For Additional Notes, insert the date of the
Registration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

** For Exchange Notes.

 

A2-6

 

preceding the Interest Payment
Date, even if such Notes are canceled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.13 of the Indenture
with respect to defaulted interest.  [The
[Company]† [Co-Obligors]††
shall pay all Liquidated Damages, if any, on the Interest Payment Date of its
choosing and in the amounts set forth in the Registration Rights
Agreement.]*  The Notes shall be payable
as to principal, premium [and Liquidated Damages]*, if any, and interest at the
office or agency of the [Company]† [Co-Obligors]†† maintained for such purpose in
The City of New York, or, at the option of the Company, payment of interest
[and Liquidated Damages, if any,]* may be made by check mailed to the Holders
at their addresses set forth in the register of Holders, and provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of and interest, premium [and Liquidated Damages]*, if
any, on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the [Company]†
[Co-Obligors]†† or the Paying Agent.  Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.

 

3.  Paying Agent and Registrar.  Initially, U.S. Bank National Association,
the Trustee under the Indenture, shall act as Paying Agent and Registrar.  The [Company]†
[Co-Obligors]†† may change any Paying Agent or
Registrar without notice to any Holder. 
The Company or any of its Subsidiaries may act in any such capacity.

 

4.  Indenture.  [The Company issued the Notes under an
Indenture dated as of July 30, 2004 (the “Indenture”) among the Company
and the Trustee.]† 
[The Co-Obligors issued the Notes pursuant to Supplemental Indentures,
dated as of July 30, 2004, to the Indenture, dated as of July 30, 2004 (as
supplemented, the “Indenture”) among Duane Reade Acquisition Corp. (“DRAC”)
and the Trustee, wherein such Supplemental Indentures the Co-Obligors assumed
the obligations of DRAC under the Indenture and the Notes originally issued
under the Indenture.]††  The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended.  The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. 
To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and
be controlling.  The Indenture pursuant
to which this Note is issued provides that an unlimited amount of Additional
Notes may be issued thereunder, subject to compliance with the covenants
therein.

 

*  Not to be included for
Exchange Notes.

†  For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-7

 

5.  Optional Redemption.  [(a)]††  After August 1, 2008, the [Company]† [Co-Obligors],††, on one or
more occasions may redeem for cash all or a portion of the Notes, on not less
than 30 nor more than 90 days’ prior notice, in amounts of $5,000 or whole
multiples of $1,000 in excess thereof at the following redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and additional interest, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of the years indicated below:

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2008

  	
   

  	
  104.875

  	
  %

  
	
  2009

  	
   

  	
  102.438

  	
  %

  
	
  2010 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

[(b)                             At
any time prior to August 1, 2007, the Company, DRS LLC or Holdings, at the
Company’s option, may use the net proceeds of one or more Equity Offerings to
redeem on one or more occasions up to an aggregate of 35% of the aggregate
principal amount of Notes issued under the Indenture (including the principal
amount of any Additional Notes issued under the Indenture but without
duplication with respect to any Exchange Notes issued under the Indenture) at a
redemption price equal to 109.75% of the aggregate principal amount of the
Notes redeemed, plus accrued and unpaid interest, if any, to the redemption
date (subject to the rights of holders of record on relevant record dates to
receive interest due on an interest payment date); provided that this redemption provision shall not be
applicable with respect to any transaction that results in a Change of Control;
provided, further, that if the
proceeds of an Equity Offering are used for redemption, all of such proceeds
are first contributed to the equity capital of the Company on a non-recourse
basis. At least 65% of the aggregate principal amount of Notes (including the
principal amount of any Additional Notes issued under the Indenture but without
duplication with respect to any Exchange Notes issued under the Indenture) must
remain outstanding immediately after the occurrence of such redemption. In
order to effect this redemption, the Company, DRS LLC or Holdings, as the case
may be, must complete such redemption within 90 days after the closing of the Equity
Offering.] ††

 

6.  Mandatory Redemption.  The [Company]† [Co-Obligors]†† shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.

 

7.  Repurchase at Option of Holders.

 

(c)                                  Upon
the occurrence of a Change of Control, each Holder may require the [Company]† [Co-Obligors]†† to purchase
such Holder’s Notes in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to a Change of Control Offer in accordance with the procedures set
forth in the Indenture.

 

†   For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-8

 

(d)                                 Under
certain circumstances described in the Indenture, the [Company]† [Co-Obligors]†† will be
required to apply the proceeds of Asset Sales to the repayment of the Notes
and/or Pari Passu Indebtedness.

 

8.  Selection and Notice of Redemption.  If less than all of the Notes are to be
redeemed or purchased in an offer to purchase at any time, the Trustee shall
select the Notes to be redeemed or purchased among the Holders of the Notes not
more than 90 days prior to the redemption date in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance
with any other method the Trustee considers fair and reasonable.  Redemptions pursuant to Section 3.07(b) of
the Indenture shall be made on a pro rata
basis or on as nearly a pro rata
basis as practicable (subject to the provisions of the Depositary).  In the event of partial redemption by lot,
the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 90 days prior to the redemption
date by the Trustee from the outstanding Notes not previously called for
redemption.  Notices of redemption may
not be conditional.  If any Note is to be
redeemed in part only, the notice of redemption that relates to that Note will
state the portion of the principal amount thereof to be redeemed.  A new Note in principal amount equal to the
unredeemed portion of the original Note will be issued in the name of the
Holder thereof upon cancellation of the original Note.  Notes called for redemption become due on the
date fixed for redemption.  On and after
the redemption date, interest [and Liquidated Damages, if any,]* if any, cease
to accrue on Notes or portions of them called for redemption.

 

9.  Denominations, Transfer, Exchange.  The Notes are in registered form without
coupons in denominations of $5,000 and integral multiples of $1,000 in excess
thereof.  The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture.  The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the [Company]† [Co-Obligors]†† may require a Holder to pay any
taxes and fees required by law or permitted by the Indenture.  The [Company is]†
[Co-Obligors are]†† not required to transfer or
exchange any Note selected for redemption. 
Also, the [Company is]† [Co-Obligors
are]†† not required to transfer or exchange
any Note for a period of 15 days before a selection of Notes to be redeemed.

 

10.  Persons Deemed Owners.  The registered Holder of a Note will be
treated as its owner for all purposes.

 

11.  Amendment, Supplement and Waiver.  The Indenture or the Notes may be amended or
supplemented only as provided in the Indenture.

 

12.  Defaults.  In the case of an Event of Default arising
from certain events of bankruptcy or insolvency specified in the Indenture,
with respect to the Company or any Significant Subsidiary, all outstanding
Notes will become due and payable immediately without 

 

*  Not to be included for
Exchange Notes.

†   For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-9

 

further action or notice.  If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may, and the Trustee at the request of such Holders
shall, declare all unpaid principal of premium, if any, and accrued interest on
all Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Holders of the Notes) and upon any
such declaration, such principal, premium, if any, and interest shall become
due and payable immediately; provided,
however, that so long as any Indebtedness permitted to be incurred
under the Credit Agreement or the Term Loan is outstanding, that acceleration
shall not be effective until the earlier of (1) an acceleration of Indebtedness
under the Credit Agreement or the Term Loan or (2) five Business Days after
receipt by the Company and the representatives of the lenders under the Credit
Agreement and the Term Loan of written notice of the acceleration of the Notes
(and such Event of Default is then continuing). 
The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. 
The Holders of not less than a majority in aggregate principal amount of
the Notes outstanding by notice to the Trustee may on behalf of the Holders of
all outstanding Notes waive any past Default and its consequences under the
Indenture except a Default (1) in the payment of the principal of, premium, if
any, or interest on any Note (which may only be waived with the consent of each
Holder of Notes affected) or (2) in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
Holder of each Note affected by such modification or amendment.

 

13.  Subordination.                                           The Notes are subordinated, as provided in the
Indenture, to Senior Indebtedness, as defined in the Indenture.  Each of the [Company]† [Co-Obligors]†† and
the Guarantors agrees, and each Holder by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give them effect.

 

14.  Trustee Dealings with the [Company]† [Co-Obligors]††.  The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
[Company or its]† [Co-Obligors or their]†† Affiliates, and may otherwise deal with the [Company or
its]† [Co-Obligors or their]†† Affiliates, as if it were not the Trustee.

 

15.  No Recourse Against Others.  No director, officer, employee, member or
stockholder of [the Company]† [either of
the Co-Obligors or any Guarantor, ]†† as such,
will have any liability for any obligations of the [Company]† [Co-Obligors or the Guarantors]†† under
the Notes, the Indenture[, the Guarantees]†† or the
Registration Rights Agreement, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. 
Each holder of Notes by accepting a Note waives and releases all such
liability.  The waiver and release are
part of the consideration for issuance of the Notes.  The waiver may not be effective to waive
liabilities under the federal securities laws.

 

16.  Authentication.  This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.

 

†   For
Notes issued on the Issue Date.

††  For
Notes issued upon consummation of the Acquisition.

 

A2-10

 

17.  Additional Rights of Holders of Restricted
Global Notes and Restricted Definitive Notes.  [In addition to the rights provided to
Holders under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes issued on the Issue Date shall have all the rights set forth
in the Registration Rights Agreement dated as of July 30, 2004‡, among the [Company]† [Co-Obligors, the Guarantors]††
and the parties named on the signature pages thereof.]*

 

18.  CUSIP Numbers.  Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the [Company has]†
[Co-Obligors have]†† caused CUSIP numbers to be printed on the Notes and the
Trustee may use CUSIP numbers in notices of redemption as a convenience to
Holders.  No representation is made as to
the accuracy of such numbers either as printed on the Notes or as contained in
any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.

 

19.  Governing Law.  This Note shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflicts of laws principles thereof that would indicate the applicability
of the laws of any other jurisdiction.

 

The [Company]† [Co-Obligors]†† shall
furnish to any Holder upon written request and without charge a copy of the
Indenture and/or the Registration Rights Agreement.  Requests may be made to:

 

[DUANE READE
ACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022

Facsimile:  (212) 754-5685

Attention:  Tyler Wolfram]†

 

[DUANE READE
INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001

Facsimile: 
212-594-0832

Attention:  Chief Financial Officer]††

 

‡  For Additional Notes, insert the date of the
Registration Rights Agreement for those Additional Notes.

*  Not to be included for Exchange Notes.

†  For Notes issued on the Issue Date.

†† For Notes issued upon
consummation of the Acquisition.

 

A2-11

 

ASSIGNMENT FORM

 

To assign this Note, fill in the form below:

 

	
  (I) or (we) assign and transfer this Note to: 

  
	
   

  	
  (Insert assignee’s legal name)

  
	
   

  
	
  (Insert 

  
	
  assignee’s soc. sec. or tax I.D. no.)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  (Print 

  
	
  or type assignee’s name, address and zip
  code)

  
	
   

  
	
  and irrevocably appoint

  
	
   

  
	
  to transfer this Note on the books of the Company.  The agent may substitute another to act for
  

  him.

  
	
   

  
	
  Date:
                           

  
	
   

  
	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign exactly as your name appears on 

  the face of this Note)

  
	
   

  	
   

  
	
   

  	
  Tax Identification No.:

  
	
   

  	
   

  
	
  Signature Guarantee*:

  	
   

  
					

 

*  Participant in a recognized Signature
Guarantee Medallion Program (or other signature guarantor acceptable to the
Trustee).

 

A2-12

 

OPTION OF HOLDER TO ELECT PURCHASE

 

If you want to
elect to have this Note purchased by the [Company]† [Co-Obligors]†† pursuant to
Section 4.11 or 4.18 of the Indenture, check the appropriate box below:

 

o
Section 4.11      o
Section 4.18

 

If you want to
elect to have only part of the Note purchased by the [Company]† [Co-Obligors]†† pursuant to
Section 4.11 or Section 4.18 of the Indenture, state the amount you elect to
have purchased:

 

$
              

 

Date:               

 

	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign exactly as your name appears on 

  the face of this Note)

  
	
   

  	
   

  
	
   

  	
  Tax Identification No.:

  
	
   

  	
   

  
	
  Signature Guarantee*:            

  

 

*  Participant in a recognized
Signature Guarantee Medallion Program (or other signature guarantor acceptable
to the Trustee).

 

†  For
Notes issued on the Issue Date.

†† For Notes issued upon consummation of the
Acquisition.

 

A2-13

 

SCHEDULE OF EXCHANGES OF INTERESTS IN THE
GLOBAL NOTE

 

The following
exchanges of a part of this Global Note for an interest in another Global Note
or for a Definitive Note, or exchanges of a part of another Global Note or
Definitive Note for an interest in this Global Note, have been made:

 

	
  Date of Exchange

  	
   

  	
  Amount of Decrease

  in Principal Amount 

  at Maturity of this

  Global Note

  	
   

  	
  Amount of Increase in

  Principal Amount at

  Maturity of this

  Global Note

  	
   

  	
  Principal Amount

  Maturity of this

  Global Note

  Following such

  Decrease (or Increase)

  	
   

  

 

A2-114

 

EXHIBIT
B

 

FORM OF CERTIFICATE OF TRANSFER

 

[DUANE READE ACQUISITION CORP.

 

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022]†

 

[DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001]††

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

 

Attention:  Susan C. Merker

 

Re:   
9.75% Senior Subordinated Notes due 2011

 

Reference is
hereby made to the Indenture, dated as of July 30, 2004[, as supplemented]†† (the “Indenture”), among [Duane Reade Acquisition
Corp. (the “Company”)]† [Duane Reade Inc., a Delaware corporation (as
successor by merger to Duane Reade Acquisition Corp.) (the “Company”)
and Duane Reade, a New York general partnership (“Duane Reade GP”, and
together with the Company, the “Co-Obligors”), the Guarantors]†† and
U.S. Bank National Association, as trustee. 
Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

 

                   
(the “Transferor”) owns and proposes to transfer the Note[s] or interest
in such Note[s] specified in Annex A hereto, in the principal amount at
maturity of $           
in such Note[s] or interests (the “Transfer”), to
                           
(the “Transferee”), as further specified in Annex A hereto.  In connection with the Transfer, the
Transferor hereby certifies that:

 

[CHECK ALL THAT APPLY]

 

o            1.             Check if Transferee will take
delivery of a beneficial interest in the 144A Global Note or a Definitive Note
Pursuant to Rule 144A.  The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the “Securities Act”), and,
accordingly, the Transferor hereby further certifies that the 

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

B-1

 

beneficial interest or
Definitive Note is being transferred to a Person that the Transferor reasonably
believed and believes is purchasing the beneficial interest or Definitive Note
for its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each such
account is a “qualified institutional buyer” within the meaning of Rule 144A in
a transaction meeting the requirements of Rule 144A and such Transfer is in
compliance with any applicable blue sky securities laws of any state of the
United States.  Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the 144A Global Note and/or the Definitive Note and in the Indenture and the
Securities Act.

 

o            2.             Check if Transferee will take
delivery of a beneficial interest in the Regulation S Temporary Global Note,
the Regulation S Permanent Global Note or a Definitive Note pursuant to
Regulation S.  The Transfer is being
effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and, accordingly, the Transferor hereby further certifies that
(i) the Transfer is not being made to a person in the United States and (x) at
the time the buy order was originated, the Transferee was outside the United
States or such Transferor and any Person acting on its behalf reasonably
believed and believes that the Transferee was outside the United States or (y)
the transaction was an offshore transaction executed in, on or through the
facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a
U.S.  Person or for the account or
benefit of a U.S.  Person (other than an
Initial Purchaser).  Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Permanent Global Note, the Regulation S Temporary Global Note
and/or the Definitive Note and in the Indenture and the Securities Act.

 

o            3.             Check and complete if Transferee
will take delivery of a beneficial interest in the IAI Global Note or a
Definitive Note pursuant to any provision of the Securities Act other than Rule
144A or Regulation S.  The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):

 

(a)           such Transfer is being effected
pursuant to and in accordance with Rule 144 under the Securities Act;

 

or

 

(b)           such Transfer is being effected to
the Company or a subsidiary thereof;

 

B-2

or

 

(c)           such Transfer is being effected
pursuant to an effective registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the Securities Act;

 

or

 

(d)           such Transfer is being effected to an
Institutional Accredited Investor and pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, Rule 144
or Rule 904, and the Transferor hereby further certifies that it has not
engaged in any general solicitation within the meaning of Regulation D under
the Securities Act and the Transfer complies with the transfer restrictions
applicable to beneficial interests in a Restricted Global Note or Restricted
Definitive Notes and the requirements of the exemption claimed, which
certification is supported by (1) a certificate executed by the Transferee in
the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided
by the Transferor or the Transferee (a copy of which the Transferor has
attached to this certification), to the effect that such Transfer is in
compliance with the Securities Act.  Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the IAI Global Note and/or the Definitive Notes and in the
Indenture and the Securities Act.

 

o            4.             Check if Transferee will take
delivery of a beneficial interest in an Unrestricted Global Note or of an
Unrestricted Definitive Note.

 

(a)           Check if Transfer is Pursuant to Rule
144.  (i) The Transfer is being effected
pursuant to and in accordance with Rule 144 under the Securities Act and in
compliance with the transfer restrictions contained in the Indenture and any
applicable blue sky securities laws of any state of the United States and (ii)
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act.  Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.                              o

 

(b)           Check if Transfer is
Pursuant to Regulation S.  (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. 
Upon consummation of the proposed Transfer in accordance with the terms of
the Indenture, the transferred beneficial interest or Definitive Note will no
longer be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.           o

 

(c)           Check if Transfer is Pursuant to
Other Exemption.  (i) The Transfer is
being effected pursuant to and in compliance with an exemption from the
registration 

 

B-3

 

requirements
of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in
compliance with the transfer restrictions contained in the Indenture and any
applicable blue sky securities laws of any State of the United States and (ii)
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act.  Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will not be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes or Restricted Definitive Notes and in the
Indenture.                                                                                                                             o

 

This
certificate and the statements contained herein are made for your benefit and
the benefit of the [Company]† [Co-Obligors]††.

 

	
   

  	
   

  	
   

  
	
   

  	
  [Insert Name of Transferor]

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
							

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

B-4

 

ANNEX A TO CERTIFICATE OF TRANSFER

 

1.             The Transferor owns
and proposes to transfer the following:

 

[CHECK ONE OF (A) OR (B)]

 

o                            (A)          a beneficial interest in the:

 

(i)            144A Global Note
(CUSIP
             );
or

 

(ii)           Regulation S Global
Note (CUSIP           ); or

 

(iii)          IAI Global Note
(CUSIP           ); or

 

o                            (B)           a Restricted Definitive Note.

 

2.             After the Transfer
the Transferee will hold:

 

[CHECK ONE]

 

o                            (A)          a beneficial interest in the:

 

(iv)          144A Global Note
(CUSIP           ); or

 

(v)           Regulation S Global
Note (CUSIP           ); or

 

(vi)          IAI Global Note
(CUSIP        ); or

 

(vii)         Unrestricted Global
Note (CUSIP           );
or

 

o                            (B)           a Restricted Definitive Note; or

 

o                            (C)           an Unrestricted Definitive Note,

 

in accordance with the terms of the Indenture.

 

B-5

 

EXHIBIT
C

 

FORM OF CERTIFICATE OF EXCHANGE

 

[DUANE READE ACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022]†

 

[DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001]††

 

U.S. Bank National Association

225 Asylum Street 23rd Floor

Hartford, Connecticut  06103

Fax:  (860) 241-6897

Attention:  Susan C. Merker

 

Re:   
9.75% Senior Subordinated Notes due 2011

 

Reference is
hereby made to the Indenture, dated as of July 30, 2004[, as supplemented]†† (the “Indenture”), among [Duane Reade Acquisition
Corp. (the “Company”)]† [Duane Reade Inc., a Delaware corporation (as
successor by merger to Duane Reade Acquisition Corp.) (the “Company”)
and Duane Reade, a New York general partnership (“Duane Reade GP”, and
together with the Company, the “Co-Obligors”), the Guarantors]†† and
U.S. Bank National Association, as trustee. 
Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

 

                              
(the “Owner”) owns and proposes to exchange the Note[s] or interest in
such Note[s] specified herein, in the principal amount at maturity of
$             in
such Note[s] or interests (the “Exchange”).  In connection with the Exchange, the Owner
hereby certifies that:

 

1.             Exchange of Restricted Definitive
Notes or Beneficial Interests in a Restricted Global Note for Unrestricted
Definitive Notes or Beneficial Interests in an Unrestricted Global Note

 

(a)           Check if Exchange is from beneficial
interest in a Restricted Global Note to beneficial interest in an Unrestricted
Global Note.  In connection with the
Exchange of the Owner’s beneficial interest in a Restricted Global Note for a
beneficial interest in an Unrestricted 

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

C-1

 

Global Note in an equal
principal amount at maturity, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner’s own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with the United
States Securities Act of 1933, as amended (the “Securities Act”), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any
state of the United States.  o

 

(b)           Check if Exchange is from beneficial
interest in a Restricted Global Note to Unrestricted Definitive Note.  In connection with the Exchange of the
Owner’s beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner’s own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.  o

 

(c)           Check if Exchange is from Restricted
Definitive Note to beneficial interest in an Unrestricted Global Note.  In connection with the Owner’s Exchange of a
Restricted Definitive Note for a beneficial interest in an Unrestricted Global
Note, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner’s own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act,
(iii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the beneficial interest is being acquired in compliance
with any applicable blue sky securities laws of any state of the United
States.  o

 

(d)           Check if Exchange is from Restricted
Definitive Note to Unrestricted Definitive Note.  In connection with the Owner’s Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner’s own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.  o

 

2.             Exchange of Restricted Definitive
Notes or Beneficial Interests in Restricted Global Notes for Restricted
Definitive Notes or Beneficial Interests in Restricted Global Notes

 

(a)           Check if Exchange is from beneficial
interest in a Restricted Global Note to Restricted Definitive Note.  In connection with the Exchange of the
Owner’s beneficial

 

C-2

 

interest in a Restricted Global
Note for a Restricted Definitive Note with an equal principal amount at
maturity, the Owner hereby certifies that the Restricted Definitive Note is
being acquired for the Owner’s own account without transfer.  Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Definitive Note and
in the Indenture and the Securities Act. 
o

 

(b)           Check if Exchange is from Restricted
Definitive Note to beneficial interest in a Restricted Global Note.  In connection with the Exchange of the
Owner’s Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
[ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an
equal principal amount at maturity, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner’s own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States.  Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the beneficial interest issued will
be subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the relevant Restricted Global Note and in the Indenture and
the Securities Act.  o

 

This
certificate and the statements contained herein are made for your benefit and
the benefit of the [Company]† [Co-Obligors]††.

 

	
   

  	
   

  	
   

  
	
   

  	
  [Insert Name of Transferor]

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
							

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

C-3

 

EXHIBIT
D

 

FORM OF CERTIFICATE FROM

ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

 

[DUANE READE ACQUISITION CORP.

c/o Oak Hill Capital Partners

65 East 55th Street

36th Floor

New York, New York  10022]†

 

[DUANE READE INC.

DUANE READE

440 Ninth Avenue

New York, New York  10001]††

 

Re:  9.75% Senior Subordinated Notes due 2012

 

Reference is
hereby made to the Indenture, dated as of July 30, 2004[, as supplemented]†† (the “Indenture”), among [Duane Reade Acquisition
Corp. (the “Company”)]† [Duane Reade Inc., a Delaware corporation (as
successor by merger to Duane Reade Acquisition Corp.) (the “Company”)
and Duane Reade, a New York general partnership (“Duane Reade GP”, and
together with the Company, the “Co-Obligors”), the Guarantors]†† and
U.S. Bank National Association, as trustee.  Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.

 

In connection
with our proposed purchase of
$            
aggregate principal amount at maturity of:

 

(a)           beneficial interest in a Global Note,
or

 

(b)           a Definitive Note,

 

we confirm
that:

 

1.             We understand that any subsequent
transfer of the Notes or any interest therein is subject to certain
restrictions and conditions set forth in the Indenture and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Notes or any interest therein except in compliance with, such restrictions and
conditions and the United States Securities Act of 1933, as amended (the “Securities
Act”).

 

2.             We understand that the offer and
sale of the Notes have not been registered under the Securities Act, and that
the Notes and any interest therein may not be 

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

D-1

 

offered or sold except as
permitted in the following sentence.  We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest
therein, we will do so only (A) to the Company or any subsidiary thereof, (B)
in accordance with Rule 144A under the Securities Act to a “qualified
institutional buyer” (as defined therein), (C) to an institutional “accredited
investor” (as defined below) that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to you and to the Company a
signed letter substantially in the form of this letter and an Opinion of
Counsel in form reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United
States in accordance with Rule 904 of Regulation S under the Securities Act,
(E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
pursuant to an effective registration statement under the Securities Act, and
we further agree to provide to any person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising
such purchaser that resales thereof are restricted as stated herein.

 

3.             We understand that, on any proposed
resale of the Notes or beneficial interest therein, we will be required to
furnish to you and the Company such certifications, legal opinions and other
information as you and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions.  We further understand that the Notes
purchased by us will bear a legend to the foregoing effect.

 

4.             We are an institutional “accredited
investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) and have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment.

 

5.             We are acquiring the Notes or
beneficial interest therein purchased by us for our own account or for one or
more accounts (each of which is an institutional “accredited investor”) as to
each of which we exercise sole investment discretion.

 

You and the
[Company]† [Co-Obligors]†† are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.

 

	
   

  	
   

  	
   

  
	
   

  	
  [Insert Name of Accredited Investor]

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
						

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

D-2

 

EXHIBIT
E

 

FORM OF NOTATION OF GUARANTEE

 

For value
received, each Guarantor (which term includes any successor Person under the
Indenture) has, jointly and severally, fully and unconditionally and
irrevocably guaranteed, to the extent set forth in the Indenture, dated as of
July 30, 2004[, as supplemented]†† (the “Indenture”),
among [Duane Reade Acquisition Corp. (the “Company”)]† [Duane Reade
Inc., a Delaware corporation (as successor by merger to Duane Reade Acquisition
Corp.) (the “Company”) and Duane Reade, a New York general partnership
(“Duane Reade GP”, and together with the Company, the “Co-Obligors”),
the Guarantors]†† and U.S. Bank National Association, as trustee (the “Trustee”),
and subject to the provisions in the Indenture, (a) the due and punctual
payment of the principal of, premium, if any, and interest on the Notes (as
defined in the Indenture), whether at maturity, by acceleration, redemption or
otherwise, the due and punctual payment of interest on overdue principal and
premium, and, to the extent permitted by law, interest, and the due and
punctual performance of all other obligations of the [Company]† [Co-Obligors]†† to the
Holders or the Trustee all in accordance with the terms of the Indenture and
(b) in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, that the same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at stated maturity, by acceleration or otherwise.  The obligations of the Guarantors to the
Holders of Notes and to the Trustee pursuant to the Guarantee and the Indenture
are expressly set forth in Article Eleven of the Indenture and reference is
hereby made to the Indenture for the precise terms of the Guarantee.  The Indebtedness evidenced by these
Guarantees is, to the extent and in the manner provided in the Indenture, subordinate
and subject in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness of the Guarantors, whether outstanding
on the date of the Indenture or thereafter, and the Guarantees are issued
subject to such provisions.  Each Holder
of a Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf of such Holder,
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee as
attorney-in-fact of such Holder for such purpose; provided that the
Indebtedness evidenced by this Guarantee shall cease to be so subordinated and
subject in right of payment upon any defeasance of this Note in accordance with
the provisions of the Indenture.  This
Guarantee shall be governed by and construed in accordance with the laws of the
State of New York.

 

	
   

  	
  [Name of Guarantor]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

† For Guarantees, if any, issued prior to the consummation of the
Acquisition.

†† For Guarantees issued upon consummation of the Acquisition.

 

E-1

 

EXHIBIT
F

 

FORM OF GUARANTOR SUPPLEMENTAL INDENTURE

TO BE DELIVERED BY GUARANTORS

 

GUARANTOR SUPPLEMENTAL INDENTURE (this “Guarantor Supplemental Indenture”), dated as of
               ,
among [Duane Reade Acquisition Corp. (the “Company”)]† [Duane Reade
Inc., a Delaware corporation (as successor by merger to Duane Reade Acquisition
Corp. (“DRAC”)) (the “Company”), Duane Reade, a New York general
partnership (“Duane Reade GP”, and together with the Company, the “Co-Obligors”),
]††, the Company’s subsidiaries listed on Schedule A hereto (each, a “New
Guarantor”), [the Company’s subsidiaries listed on Schedule B hereto
(collectively the “Existing Guarantors”)]‡ and U.S. Bank National
Association, as trustee under the Indenture referred to below (the “Trustee”).

 

W I T N E S S
E T H

 

WHEREAS, [the Company]† [the
Co-Obligors]††[, the Existing Guarantors]‡ and the Trustee are parties to an indenture[, as
supplemented]†† (the “Indenture”), dated as of July 30,
2004, providing for the issuance of 9.75% Senior Subordinated Notes due 2011
(the “Notes”);

 

WHEREAS, Section 9.01 of the Indenture provides that, without the
consent of any Holders, [the Company]† [the
Co-Obligors]†† [and the Existing Guarantors]‡, when authorized by a Board Resolution, and the Trustee,
at any time and from time to time, may modify, supplement or amend the
Indenture to add a Guarantor or additional obligor under the Indenture or
permit any Person to guarantee the Notes and/or obligations under the
Indenture;

 

WHEREAS, each
New Guarantor wishes to guarantee the Notes pursuant to the Indenture;

 

WHEREAS,
pursuant to the Indenture [the Company]† [the
Co-Obligors]††, [the Existing Guarantors]‡, the New Guarantors and the Trustee have agreed to enter
into this Guarantor Supplemental Indenture for the purposes stated herein; and

 

WHEREAS, all
things necessary have been done to make this Guarantor Supplemental Indenture,
when executed and delivered by [the Company]†
[the Co-Obligors]†† [,the Existing Guarantors]‡, each New Guarantor and the Trustee, the legal, valid and
binding agreement of [the Company]† [the
Co-Obligors]†† [, the Existing Guarantors]‡ and each New Guarantor, in accordance with its terms.

 

NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, [the
Company]† [the Co-Obligors]††,

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

‡ If any.

 

F-1

 

each New Guarantor[, the Existing Guarantors]‡ and
the Trustee mutually covenant and agree for the equal and ratable benefit of
the Holders of the Notes as follows:

 

(1)           Capitalized Terms.  Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

 

(2)           Guarantee.  Each New Guarantor hereby agrees to guarantee
the Indenture and the Notes related thereto pursuant to the terms and
conditions of Article Eleven of the Indenture, such Article Eleven being
incorporated by reference herein as if set forth at length herein (each such
guarantee, a “Guarantee”) and such New Guarantor agrees to be bound as a
Guarantor under the Indenture as if it had been an initial signatory thereto.

 

(3)           GOVERNING LAW.  THIS GUARANTOR SUPPLEMENTAL INDENTURE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THAT
WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

 

(4)           Counterparts.  The parties may sign any number of copies of
this Guarantor Supplemental Indenture. 
Each signed copy shall be an original, but all of them together
represent the same agreement.

 

(5)           Effect of Headings.  The section headings herein are for
convenience only and shall not affect the construction hereof.

 

(6)           The Trustee.  The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Guarantor Supplemental Indenture or for or in respect of the recitals contained
herein, all of which recitals are made solely by [the Company]† [the
Co-Obligors]†† [, Existing Guarantors]‡ and the New Guarantors.

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

‡ If any.

 

F-2

 

IN WITNESS
WHEREOF, the parties hereto have caused this Guarantor Supplemental Indenture
to be duly executed and attested, all as of the date first above written.

 

	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [DUANE READE
  ACQUISITION CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
  ]†

  
	
   

  	
   

  	
   

  
	
   

  	
  [DUANE READE
  INC. (as successor by merger to

  Duane Reade Acquisition Corp.), a Delaware corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:  Duane Reade Inc., as
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
  ]††

  
	
   

  	
   

  	
   

  
	
   

  	
  EACH GUARANTOR LISTED ON

  	
   

  
	
   

  	
  SCHEDULE A HERETO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

† Prior to the consummation of the Acquisition.

†† Upon consummation of the Acquisition.

 

F-3

 

	
   

  	
  [EACH
  GUARANTOR LISTED ON

  	
   

  
	
   

  	
  SCHEDULE B
  HERETO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
  ]‡

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION, as Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Authorized Signatory

  	
   

  	
   

  
					

 

F-4

 

EXHIBIT
G

 

FORM OF SUCCESSOR SUPPLEMENTAL INDENTURE

TO BE DELIVERED BY DUANE READE INC.

 

SUCCESSOR SUPPLEMENTAL INDENTURE (this “Successor Supplemental Indenture”), dated
as of July 30, 2004, among Duane Reade Inc., a Delaware corporation (as
successor by merger to Duane Reade Acquisition Corp. (“DRAC”)) (the “Company”
or “Duane Reade”) and U.S. Bank National Association, as trustee under
the Indenture referred to below (the “Trustee”).

 

W I T N E S S
E T H

 

WHEREAS, DRAC and the Trustee are parties to an indenture (the “Indenture”), dated as of July 30,
2004, providing for the issuance of 9.75% Senior Subordinated Notes due 2011
(the “Notes”);

 

WHEREAS, pursuant to the Agreement and Plan of Merger, upon the
Acquisition Closing Date, DRAC was merged with and into Duane Reade, with Duane
Reade as the Surviving Entity in the Acquisition;

 

WHEREAS, Section 5.01 of the Indenture provides that any such Surviving
Entity expressly assume, by a supplemental indenture, all the obligations of
DRAC under the Notes and the Indenture;

 

WHEREAS,
immediately after giving effect to the Acquisition on a pro forma basis, no Default or Event of
Default will have occurred and be continuing under the Indenture;

 

WHEREAS,
immediately before and immediately after giving effect to the Acquisition on a pro forma basis, Duane Reade could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
paragraph (a) of Section 4.07 of the Indenture;

 

WHEREAS, at the time of the Acquisition, Duane Reade delivered to the
Trustee an Officers’ Certificate and an Opinion of Counsel, each to the effect that
the Acquisition and this Successor Supplemental Indenture comply with the
Indenture and that all conditions precedent therein provided for relating to
the Acquisition have been complied with;

 

WHEREAS, Section 9.01 of the Indenture provides that, without the
consent of any Holders, DRAC, when authorized by a Board Resolution, and the
Trustee, at any time and from time to time, may modify, supplement or amend the
Indenture to evidence the succession of another Person to DRAC, and the
assumption by any such successor of the covenants of DRAC in the Indenture and
in the Notes in accordance with Section 5.01 of the Indenture;

 

WHEREAS, Duane
Reade wishes to assume all the obligations of DRAC under the Notes and the
Indenture;

 

WHEREAS,
pursuant to the Indenture the Duane Reade and the Trustee have agreed to enter
into this Successor Supplemental Indenture for the purposes stated herein; and

 

G-1

 

WHEREAS, all
things necessary have been done to make this Successor Supplemental Indenture,
when executed and delivered by Duane Reade, the legal, valid and binding
agreement of Duane Reade, in accordance with its terms.

 

NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Duane
Reade and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:

 

(1)           Capitalized Terms.  Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

 

(2)           Successor.  Duane Reade, as the Surviving Entity to DRAC
in the Acquisition, hereby assumes all the obligations of DRAC under the Notes
and the Indenture pursuant to the terms and conditions of the Indenture, and
Duane Reade agrees to be bound as an obligor under the Indenture as if it had
been an initial signatory thereto.  In
accordance with Section 5.01(c) of the Indenture, Duane Reade shall hereby
succeed to, and be substituted for, and may exercise every right and power of,
DRAC.

 

(3)           GOVERNING LAW.  THIS SUCCESSOR SUPPLEMENTAL INDENTURE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THAT
WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

 

(4)           Counterparts.  The parties may sign any number of copies of
this Successor Supplemental Indenture. 
Each signed copy shall be an original, but all of them together
represent the same agreement.

 

(5)           Effect of Headings.  The section headings herein are for
convenience only and shall not affect the construction hereof.

 

(6)           The Trustee.  The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Successor Supplemental Indenture or for or in respect of the recitals contained
herein, all of which recitals are made solely by Duane Reade.

 

G-2

 

IN WITNESS
WHEREOF, the parties hereto have caused this Successor Supplemental Indenture
to be duly executed and attested, all as of the date first above written.

 

Dated:

 

 

	
   

  	
  DUANE READE
  INC. (as successor by merger to

  Duane Reade Acquisition Corp.), a Delaware

  corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. BANK
  NATIONAL ASSOCIATION, as

  Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Authorized Signatory

  	
   

  	
   

  
					

 

G-3

 

EXHIBIT
H

 

FORM OF CO-OBLIGOR SUPPLEMENTAL INDENTURE

TO BE DELIVERED BY DUANE READE GP

 

CO-OBLIGOR SUPPLEMENTAL INDENTURE (this “Co-Obligor Supplemental Indenture”), dated
as of July 30, 2004, among Duane Reade Inc., a Delaware corporation (as
successor by merger to Duane Reade Acquisition Corp.) (the “Company”),
Duane Reade, a New York general partnership (“Duane Reade GP”) and U.S.
Bank National Association, as trustee under the Indenture referred to below
(the “Trustee”).

 

W I T N E S S
E T H

 

WHEREAS, the Company and the Trustee are parties to an indenture, as
supplemented (the “Indenture”),
dated as of July 30, 2004, providing for the issuance of 9.75% Senior
Subordinated Notes due 2011 (the “Notes”);

 

WHEREAS, Section 4.17 of the Indenture provides that the Company shall
cause Duane Reade GP to execute this Co-Obligor Supplemental Indenture;

 

WHEREAS, Section 9.01 of the Indenture provides that, without the
consent of any Holders, the Company, when authorized by a Board Resolution, and
the Trustee, at any time and from time to time, may modify, supplement or amend
the Indenture to add an additional obligor under the Indenture;

 

WHEREAS, Duane
Reade GP wishes to become a co-obligor with the Company of all the obligations
under the Notes and the Indenture;

 

WHEREAS,
pursuant to the Indenture the Company, Duane Reade GP and the Trustee have
agreed to enter into this Co-Obligor Supplemental Indenture for the purposes
stated herein; and

 

WHEREAS, all
things necessary have been done to make this Co-Obligor Supplemental Indenture,
when executed and delivered by the Company and Duane Reade GP, the legal, valid
and binding agreement of the Company and Duane Reade GP, in accordance with its
terms.

 

 

 

NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, Duane Reade GP and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
Holders of the Notes as follows:

 

(1)           Capitalized Terms.  Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

 

(2)           Co-Obligor.  Duane Reade GP hereby agrees to become a
co-obligor with the Company of all the obligations under the Notes and the
Indenture pursuant to the terms and

H-1

 

conditions of the Indenture, and
Duane Reade GP agrees to be bound as a co-obligor under the Indenture as if it
had been an initial signatory thereto.

 

(3)           GOVERNING LAW.  THIS CO-OBLIGOR SUPPLEMENTAL INDENTURE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THAT
WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION.

 

(4)           Counterparts.  The parties may sign any number of copies of
this Co-Obligor Supplemental Indenture. 
Each signed copy shall be an original, but all of them together
represent the same agreement.

 

(5)           Effect of Headings.  The section headings herein are for
convenience only and shall not affect the construction hereof.

 

(6)           The Trustee.  The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Co-Obligor Supplemental Indenture or for or in respect of the recitals
contained herein, all of which recitals are made solely by the Company and Duane
Reade GP.

 

H-2

 

IN WITNESS
WHEREOF, the parties hereto have caused this Co-Obligor Supplemental Indenture
to be duly executed and attested, all as of the date first above written.

 

Dated:

 

 

 

	
   

  	
  DUANE READE
  INC. (as successor by merger to

  Duane Reade Acquisition Corp.), a Delaware

  corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DUANE READE, a New York general partnership

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:  Duane Reade Inc., as
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. BANK
  NATIONAL ASSOCIATION, as Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Authorized
  Signatory

  	
   

  	
   

  
						

 

H-3Exhibit
4.2

 

SUCCESSOR
SUPPLEMENTAL INDENTURE

 

SUCCESSOR SUPPLEMENTAL INDENTURE (this “Successor
Supplemental Indenture”),
dated as of July 30, 2004, among Duane Reade Inc., a Delaware corporation
(as successor by merger to Duane Reade Acquisition Corp. (“DRAC”)) (the “Company”
or “Duane Reade”) and U.S. Bank National Association, as trustee under
the Indenture referred to below (the “Trustee”).

 

W I T N E S S E T H

 

WHEREAS, DRAC
and the Trustee are parties to an indenture (the “Indenture”), dated as of July 30, 2003, providing for
the issuance of 9.75% Senior Subordinated Notes due 2011 (the “Notes”);

 

WHEREAS,
pursuant to the Agreement and Plan of Merger, upon the Acquisition Closing
Date, DRAC was merged with and into Duane Reade, with Duane Reade as the
Surviving Entity in the Acquisition;

 

WHEREAS, Section 5.01
of the Indenture provides that any such Surviving Entity expressly assume, by a
supplemental indenture, all the obligations of DRAC under the Notes and the
Indenture;

 

WHEREAS,
immediately after giving effect to the Acquisition on a pro forma basis, no Default or Event of
Default will have occurred and be continuing under the Indenture;

 

WHEREAS,
immediately before and immediately after giving effect to the Acquisition on a pro forma basis, Duane Reade could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
paragraph (a) of Section 4.07 of the Indenture;

 

WHEREAS, at
the time of the Acquisition, Duane Reade delivered to the Trustee an Officers’
Certificate and an Opinion of Counsel, each to the effect that the Acquisition
and this Successor Supplemental Indenture comply with the Indenture and that
all conditions precedent therein provided for relating to the Acquisition have
been complied with;

 

WHEREAS, Section 9.01
of the Indenture provides that, without the consent of any Holders, DRAC, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may modify, supplement or amend the Indenture to evidence the succession
of another Person to DRAC, and the assumption by any such successor of the
covenants of DRAC in the Indenture and in the Notes in accordance with Section 5.01
of the Indenture;

 

WHEREAS, Duane
Reade wishes to assume all the obligations of DRAC under the Notes and the
Indenture;

 

WHEREAS,
pursuant to the Indenture the Duane Reade and the Trustee have agreed to enter
into this Successor Supplemental Indenture for the purposes stated herein; and

 

 

WHEREAS, all
things necessary have been done to make this Successor Supplemental Indenture,
when executed and delivered by Duane Reade, the legal, valid and binding
agreement of Duane Reade, in accordance with its terms.

 

NOW THEREFORE,
in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, Duane Reade and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
Holders of the Notes as follows:

 

(1)                                  Capitalized
Terms.  Capitalized terms used herein
without definition shall have the meanings assigned to them in the Indenture.

 

(2)                                  Successor.  Duane Reade, as the Surviving Entity to DRAC
in the Acquisition, hereby assumes all the obligations of DRAC under the Notes
and the Indenture pursuant to the terms and conditions of the Indenture, and
Duane Reade agrees to be bound as an obligor under the Indenture as if it had
been an initial signatory thereto.  In
accordance with Section 5.01(c) of the Indenture, Duane Reade shall hereby
succeed to, and be substituted for, and may exercise every right and power of,
DRAC.

 

(3)                                  GOVERNING
LAW.  THIS SUCCESSOR SUPPLEMENTAL
INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF THAT WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY
OTHER JURISDICTION.

 

(4)                                  Counterparts.  The parties may sign any number of copies of
this Successor Supplemental Indenture. 
Each signed copy shall be an original, but all of them together
represent the same agreement.

 

(5)                                  Effect
of Headings.  The section headings
herein are for convenience only and shall not affect the construction hereof.

 

(6)                                  The
Trustee.  The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Successor Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by Duane
Reade.

 

 

                IN WITNESS WHEREOF, the parties hereto have
caused this Successor Supplemental Indenture to be duly executed and attested,
all as of the date first above written.

 

Dated: July 30, 2004

 

	
   

  	
  DUANE READE HOLDINGS, INC. (as successor by

  merger to Duane Reade Acquisition Corp.), 

  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michelle D. Bergman

  
	
   

  	
   

  	
  Name: 

  	
   Michelle D. Bergman

  
	
   

  	
   

  	
  Title:

  	
   Assistant Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION, 

  as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elizabeth C.
  Hammer

  
	
   

  	
   

  	
  Name: 

  	
   Elizabeth C. Hammer

  
	
   

  	
   

  	
  Title:

  	
   Authorized Signatory

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00074-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00074-of-00352.parquet"}]]