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$155,000,000 Senior Secured Term Credit Agreement

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CONFORMED COPY







Published CUSIP Number: 26358GAA5



$155,000,000 SENIOR SECURED TERM CREDIT AGREEMENT



dated as of July 30, 2004



among



DUANE READE HOLDINGS, INC.,



DUANE READE, INC.,



DUANE READE
(a New York general partnership),



THE CO-BORROWERS FROM TIME TO TIME PARTY HERETO,



THE LENDERS FROM TIME TO TIME PARTY HERETO,



BANK OF AMERICA, N.A.,
as Administrative Agent,



CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH,
as Syndication Agent,



and



CITICORP NORTH AMERICA INC.

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agents








BANC OF AMERICA SECURITIES LLC

CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH,
as Joint Lead Arrangers



BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH
CITIGROUP GLOBAL MARKETS INC.,
as Joint Book Managers














Table of Contents*



ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

Section 1.01 Defined Terms
Section 1.02 Other Interpretative Provisions
Section 1.03 Accounting Terms and Determinations
Section 1.04 Annualization; Rounding
Section 1.05 References to Agreements and Laws
Section 1.06 Times of Day

ARTICLE II
THE CREDIT FACILITY

Section 2.01 Commitments to Lend
Section 2.02 Notice of Borrowing
Section 2.03 Funding of Loans.
Section 2.04 Evidence of Loans.
Section 2.05 Interest.
Section 2.06 Extension and Conversion.
Section 2.07 Maturity of Loans
Section 2.08 Prepayments; Change of Control.
Section 2.09 Replacement of Lenders
Section 2.10 Fees
Section 2.11 Pro-rata Treatment
Section 2.12 Sharing of Payments
Section 2.13 Payments; Computations.

ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY

Section 3.01 Taxes.
Section 3.02 Illegality
Section 3.03 Inability to Determine Rates
Section 3.04 Increased Costs and Reduced Return; Capital Adequacy.
Section 3.05 Funding Losses
Section 3.06 Base Rate Loans Substituted for Affected Eurodollar Loans
Section 3.07 Survival

ARTICLE IV
CONDITIONS PRECEDENT TO LOANS

Section 4.01 Conditions to Closing







* The Table of Contents is not part of the Credit Agreement.








ARTICLE V
REPRESENTATIONS AND WARRANTIES

Section 5.01 Existence, Qualification and Power; Compliance with Laws
Section 5.02 Authorization; No Contravention
Section 5.03 Governmental Authorization; Other Consents
Section 5.04 Binding Effect
Section 5.05 Financial Condition; No Material Adverse Effect.
Section 5.06 Litigation
Section 5.07 No Default
Section 5.08 Ownership of Property; Liens
Section 5.09 Environmental Compliance
Section 5.10 Insurance
Section 5.11 Taxes
Section 5.12 ERISA Compliance.
Section 5.13 Subsidiaries
Section 5.14 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.
Section 5.15 Disclosure
Section 5.16 Compliance with Law
Section 5.17 Intellectual Property
Section 5.18 Purpose of Loans
Section 5.19 Labor Matters
Section 5.20 Solvency
Section 5.21 Collateral Documents.
Section 5.22 Securities of the Company
Section 5.23 Certain Transactions.

ARTICLE VI
AFFIRMATIVE COVENANTS

Section 6.01 Financial Statements
Section 6.02 Certificates; Other Information
Section 6.03 Notices
Section 6.04 Payment of Obligations
Section 6.05 Preservation of Existence Etc
Section 6.06 Maintenance of Properties
Section 6.07 Insurance; Certain Proceeds.
Section 6.08 Compliance with Law
Section 6.09 Books and Records; Lender Meeting
Section 6.10 Inspection Rights
Section 6.11 Use of Proceeds
Section 6.12 Additional Loan Parties; Additional Security.
Section 6.13 Interest Rate Protection Agreements
Section 6.14 Contributions
Section 6.15 Repurchase of Existing Convertible Notes; Maintenance of Minimum Availability Under ABL Credit Agreement
Section 6.16 Co-Borrowers




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ARTICLE VII
NEGATIVE COVENANTS

Section 7.01 Incurrence of Indebtedness
Section 7.02 Restriction on Liens
Section 7.03 Nature of Business
Section 7.04 Consolidation, Merger and Dissolution
Section 7.05 Asset Dispositions
Section 7.06 Investments.
Section 7.07 Restricted Payments, etc
Section 7.08 Prepayments of Indebtedness, etc.
Section 7.09 Transactions with Affiliates
Section 7.10 Fiscal Year; Organizational and Other Documents
Section 7.11 Restrictions with Respect to Intercorporate Transfers
Section 7.12 Ownership of Subsidiaries; Limitations on Holdings and the Borrower.
Section 7.13 Sale and Leaseback Transactions
Section 7.14 Impairment of Security Interests
Section 7.15 No Other "Designated Senior Indebtedness"
Section 7.16 Financial Covenants.
Section 7.17 Independence of Covenants

ARTICLE VIII
DEFAULTS

Section 8.01 Events of Default
Section 8.02 Acceleration; Remedies
Section 8.03 Allocation of Payments After Event of Default.

ARTICLE IX
AGENCY PROVISIONS

Section 9.01 Appointment and Authorization of the Administrative Agent.
Section 9.02 Delegation of Duties
Section 9.03 Exculpatory Provisions
Section 9.04 Reliance on Communications.
Section 9.05 Notice of Default
Section 9.06 Credit Decision; Disclosure of Information by Administrative Agent; No Reliance on Arranger92s or Agents92 Customer Identification Program.
Section 9.07 Indemnification
Section 9.08 Administrative Agent in Its Individual Capacity
Section 9.09 Successor Agents
Section 9.10 Administrative Agent May File Proofs of Claim
Section 9.11 Collateral and Guaranty Matters
Section 9.12 Other Agents; Arrangers and Managers
Section 9.13 Agents92 Fees; Joint Lead Arranger Fee

ARTICLE X
MISCELLANEOUS

Section 10.01 Amendments, Etc.
Section 10.02 Notices and Other Communications; Facsimile Copies.




iii






Section 10.03 No Waiver; Cumulative Remedies
Section 10.04 Attorney Costs, Expenses and Taxes
Section 10.05 Indemnification
Section 10.06 Payments Set Aside
Section 10.07 Successors and Assigns.
Section 10.08 Confidentiality and Disclosure
Section 10.09 Set-off
Section 10.10 Interest Rate Limitation
Section 10.11 Counterparts
Section 10.12 Integration
Section 10.13 Survival of Representations and Warranties
Section 10.14 Severability
Section 10.15 Tax Forms.
Section 10.16 Headings
Section 10.17 Governing Law; Submission to Jurisdiction.
Section 10.18 Waiver of Right to Trial by Jury
Section 10.19 USA Patriot Act Notice; Lenders92 Compliance Certification.
Section 10.20 Defaulting Lenders
Section 10.21 Binding Effect
Section 10.22 Conflict




Schedules:

Schedule 1.01A - Consolidated EBITDA
Schedule 1.01B - Management Group
Schedule 1.01C - Fixed Charge Coverage Ratio
Schedule 1.01D - ABL Priority Collateral
Schedule 2.01 - Lenders and Commitments
Schedule 5.03 - Required Consents, Authorizations, Notices and Filings
Schedule 5.06 - Litigation
Schedule 5.12 - ERISA Matters
Schedule 5.13 - Subsidiaries
Schedule 5.17 - Intellectual Property
Schedule 5.22 - Ownership of the Company
Schedule 7.01 - Existing Indebtedness
Schedule 7.02 - Existing Liens
Schedule 7.06 - Investments
Schedule 7.07(iii) - Redemption/repurchase of Equity Interests: Employment Agreements
Schedule 7.07(vii) - Restricted Payments to be made on the Closing Date
Schedule 7.09 - Transactions with Affiliates
Schedule 10.02 - Administrative Agent92s Office, Certain Addresses for Notices

Exhibits:

Exhibit A-1 - Form of Notice of Borrowing
Exhibit A-2 - Form of Notice of Extension/Conversion

Exhibit B - Form of Note




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Exhibit C - Form of Assignment and Assumption

Exhibit D - Form of Compliance Certificate

Exhibit E - Form of Opinion of Counsel for the Borrower and the Other Loan Parties

Exhibit F - Form of Guaranty

Exhibit G-1 - Form of Security Agreement
Exhibit G-2 - Form of Pledge Agreement
Exhibit G-3 - Form of Perfection Certificate

Exhibit H - Form of Intercompany Note

Exhibit I - Form of Intercompany Note Subordination Provisions

Exhibit J - Form of Loan Party Accession Agreement

Exhibit K - Form of OFAC/Anti-Terrorism Compliance Certificate

Exhibit L - [Reserved]

Exhibit M - Form of Co-Borrower Agreement

Exhibit N - Form of Solvency Certificate




v






CREDIT AGREEMENT



This Credit Agreement is entered into as of July 30, 2004 among DUANE READE HOLDINGS, INC., a Delaware corporation (" Holdings "), DUANE READE, INC., a Delaware corporation ("the " Company "), DUANE READE, a New York general partnership (" Duane Reade "), the other Co-Borrowers from time to time party hereto, each lender from time to time party hereto (collectively, the " Lenders " and, individually, a " Lender "), BANK OF AMERICA, N.A., as Administrative Agent, CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH, as Syndication Agent, and CITICORP NORTH AMERICA INC. and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Co-Documentation Agents.



Holdings, the Company and Duane Reade have requested the Lenders to provide a term loan facility in the aggregate principal amount of $155,000,000 for the purposes described herein. The Lenders are willing to make the requested credit facility available on the terms and conditions set forth herein. Accordingly, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:



ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS



Section 1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:



" ABL Collateral Release Agreement " means the Collateral Release Agreement dated as of the date hereof among Duane Reade, the Company, their respective subsidiaries and the ABL Facility Agent.



" ABL Credit Agreement " means the Credit Agreement dated as of July 21, 2003 among Duane Reade, as borrower, the Company, DRI I, DR International and DR Realty, as facility guarantors, the banks and other lending institutions party thereto from time to time, 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, and Fleet Securities Inc., as arranger, as amended by Amendment No. 1 thereto dated as of the date hereof and as the same may be further amended, modified or supplemented from time to time in accordance with the provisions thereof and of this Agreement.



" ABL Documents " means, collectively, the ABL Credit Agreement, together with any notes, guaranties, pledge agreements, security agreements, assignments, control agreements, lockbox letters or other instruments and agreements executed pursuant thereto, and the Collateral Release Agreement, in each case together with all schedules and exhibits thereto and as the same may be amended, modified or supplemented from time to time.



" ABL Facility Agent " means Fleet Retail Group Inc., as collateral agent for the lenders party from time to time to the ABL Credit Agreement.



" ABL Priority Collateral " has the meaning set forth on Schedule 1.01D .



" ABL Security Agreement Amendment " means Amendment No. 1 dated as of July 30, 2004 to the Security Agreement dated as of July 21, 2003 among Duane Reade, the Company, DRI I, DR International and DR Realty in favor of the ABL Facility Agent.








" Accession Agreement " means a Loan Party Accession Agreement, substantially in the form of Exhibit J hereto, executed and delivered by an Additional Subsidiary Guarantor after the Closing Date in accordance with Section 6.12(a) .



" Acquisition " means the transactions contemplated by the DRI Merger Agreement.



" Acquisition Documents " means the DRI Merger Agreement, including all schedules and exhibits thereto, and all other documents, agreements and instruments relating to the Acquisition, in each case as the same may be amended, modified or supplemented from time to time in accordance with the provisions thereof and of this Agreement.



" Additional Collateral Documents " has the meaning set forth in Section 6.12 .



" Additional Subsidiary Guarantor " means each Person that becomes a Subsidiary Guarantor after the Closing Date by execution of an Accession Agreement as provided in Section 6.12 .



" Adjusted Eurodollar Rate " means, for each Interest Period for each Eurodollar Loan comprising part of the same Group, the quotient obtained (expressed as a decimal, carried out to five decimal places) by dividing (i) the applicable Eurodollar Rate for such Interest Period by (ii) 1.00 minus the Eurodollar Reserve Percentage.



" Administrative Agent " means Bank of America, N.A., in its capacity as administrative agent under the Term Loan Documents, or any successor administrative agent.



" Administrative Agent92s Office " means the Administrative Agent92s address and, as appropriate, account as set forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify the Company and the Lenders.



" Administrative Questionnaire " means an Administrative Questionnaire in a form supplied by the Administrative Agent.



" Affiliate " means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.



" Agent " means the Administrative Agent, the Syndication Agent, the Co-Documentation Agents or the Collateral Agent, and " Agents " means any two or more of them.



" Agent-Related Persons " means the Administrative Agent or the Collateral Agent, together with their respective Affiliates (including, in the case of Bank of America in its capacity as the Administrative Agent, each of Banc of America Bridge LLC and Banc of America Securities LLC), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.



" Agreement " means this Credit Agreement, as amended, modified or supplemented from time to time.



" Amerisource Bergen " means Amerisource Bergen Drug Corporation, a Delaware corporation and successor to Bergen Brunswig Drug Company, and its successors and assigns.



" Amerisource Bergen Agreement " means the Prime Vendor and Consignment Agreement dated November 12, 1999 between Amerisource Bergen and Duane Reade, as amended.



2






modified or supplemented from time to time.



" Anti-Terrorism Laws " means any Laws relating to terrorism or money-laundering, including, without limitation, (i) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 and relating to Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, (ii) the U.S. Patriot Act, (iii) the International Emergency Economic Power Act, 50 U.S.C. a71701 et seq., (iv) the Bank Secrecy Act, (v) the Trading with the Enemy Act, 50 U.S.C. App. 1 et seq. and (vi) any related rules and regulations of the U.S. Treasury Department92s Office of Foreign Assets Control or any other Governmental Authority, in each case as the same may be amended, supplemented, modified, replaced or otherwise in effect from time to time.



" Applicable Lending Office " means with respect to any Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan in such Lender92s Administrative Questionnaire or in any applicable Assignment and Assumption pursuant to which such Lender became a Lender hereunder or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.



" Applicable Margin " means (i) for purposes of calculating the applicable interest rate for Eurodollar Loans, 3.25% and (ii) for purpose of calculating the applicable interest rate for Base Rate Loans, 2.25%.



" Approved Fund " has the meaning set forth in Section 10.07(g) .



" Asset Disposition " means any sale, lease, transfer or other disposition (including any such transaction effected by way of merger or consolidation and including any sale or other disposition of Equity Interests of a Subsidiary, but excluding any Equity Issuance or any sale or other disposition by way of Casualty or Condemnation) by any Group Company of any asset; provided , however , that the following shall not constitute Asset Dispositions:



(i) sales of inventory and/or pharmacy files in the ordinary course of business for fair value;



(ii) any sale, lease, transfer or other disposition of any asset by a Borrower to another Borrower or to any Subsidiary Guarantor if the Loan Parties shall be in compliance with the terms of Section 6.12 after giving effect to such disposition;



(iii) liquidations or sales of Cash Equivalents and Foreign Cash Equivalents;



(iv) any single transaction or series of related transactions that involves assets having a fair market value of less than $1,000,000;



(v) dispositions of obsolete, `damaged, worn-out or surplus tangible assets in the ordinary course of business and in a commercially reasonable manner;



(vi) any sale, lease or other transfer by a Subsidiary of the Company of all or substantially all or any part of its assets (including any such transaction effected by way of merger or consolidation) to the Company or any Wholly-Owned Domestic Subsidiary of the Company, so long as the security interests granted to the Collateral Agent for the benefit of the Finance Parties pursuant to the Collateral Documents in such assets shall remain in full force and



3






effect and perfected (to at least the same extent as in effect immediately prior to such sale, lease or other transfer);



(vii) any sale, lease or other transfer by any non-Wholly-Owned Domestic Subsidiary or Foreign Subsidiary of the Company of all or any part of its assets (including any such transaction effected by way of merger or consolidation) to any other non-Wholly-Owned Domestic Subsidiary or Foreign Subsidiary of the Company, so long as the security interests granted to the Collateral Agent for the benefit of the Finance Parties pursuant to the Collateral Documents in such assets shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such sale, lease or other transfer);



(viii) sales or dispositions by Holdings or any Subsidiary of the Company of Equity Interests in Holdings or such Subsidiary to qualify directors where required by applicable Law or to satisfy other requirements of applicable Law with respect to the ownership of Equity Interests in Foreign Subsidiaries;



(ix) any lease, as lessor or sublessor, or license, as licensor or sublicensor, by any Group Company of real or personal property in the ordinary course of business;



(x) dispositions of defaulted receivables and similar obligations in the ordinary course of business and not as part of an accounts receivable financing transaction; and



(xi) assignments of store leases in the ordinary course of business; provided that no more than 20 store leases are assigned per year pursuant to this clause (xi) .



" Assignment and Assumption " means an Assignment and Assumption, substantially in the form of Exhibit C hereto.



" Attorney Costs " means and includes all fees, expenses and disbursements of any law firm or other external counsel and, without duplication, the allocated cost of internal legal services and all expenses and disbursements of internal counsel.



" Attributable Indebtedness " means at any date, without duplication, (i) in respect of any Capital Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (ii) in respect of any Synthetic Lease Obligation of any Person, the capitalized or principal amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement were accounted for as a Capital Lease and (iii) in respect of any Sale/Leaseback Transaction, the lesser of (A) the present value, discounted in accordance with GAAP at the debt rate implicit in the related lease, of the obligations of the lessee for rental payments over the remaining term of such lease (including any period for which such lease has been extended or may, at the option of the lessor be extended) and (B) the fair market value of the assets subject to such transaction.



" Audited Financial Statements " means the audited consolidated balance sheet of the Company and its Consolidated Subsidiaries for each of the fiscal years ended December 29, 2001, December 28, 2002 and December 27, 2003, and the related consolidated statements of income or operations, shareholders92 equity and cash flows for the fiscal year of the Company and its Consolidated Subsidiaries then ended, including the notes thereto.



" Bank of America " means Bank of America, N.A., a national banking association, and its successors.



4






" Bank Secrecy Act " means the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970, 31 U.S.C. 1051, et seq., as the same may be amended, supplemented, modified, replaced or otherwise in effect from time to time.



" Base Rate " means, for any day, a rate per annum equal to the higher of (i) the Federal Funds Rate plus bd of 1% and (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate". The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America92s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.



" Base Rate Loan " means a Loan that bears interest based on the Base Rate.



" Borrower " means (i) the Company, (ii) Duane Reade and (iii) any additional Co-Borrower party hereto from time to time, and " Borrowers " means any two or more of them.



" Borrower Materials " has the meaning set forth in Section 6.02 .



" Business Acquisition " means the acquisition by the Company or one or more of its Wholly-Owned Subsidiaries of all of the Equity Interests of, or all (or any division, line of business or any substantial part) of the assets or property of, another Person.



" Business Day " means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent92s Office is located, except that if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, or the Interest Period for, a Eurodollar Loan, or a notice by a Borrower with respect to any such borrowing, payment, prepayment or Interest Period, such day shall also be a day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.



" Capital Lease " of any Person means any
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