1279172--3/25/2009--DUANE_READE_HOLDINGS

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{debt, indebtedness, cash}

{regulation, government, change}

{product, liability, claim}

{personnel, key, retain}

{product, market, service}

{condition, economic, financial}

{capital, credit, financial}

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{cost, operation, labor}

{financial, litigation, operation}

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Risks Related to Our Business We face a high level of competition in our markets. We operate in a concentrated region and, as a result, our business is significantly influenced by the economic conditions and other characteristics of the New York greater metropolitan area. Continued volatility and disruption to the global capital and credit markets may adversely affect our results of operations and financial condition, as well as our ability to access credit and the financial soundness of our customers, third party providers and vendors. We require a significant amount of cash flow from operations and third party financing to pay our indebtedness, to execute our business plan and to fund our other liquidity needs. Our operations are subject to trends in the healthcare industry. Changes in reimbursement levels for certain prescription drugs continue to reduce our margins on pharmacy sales and could have a material adverse effect on our overall performance. If we fail to comply with all of the government regulations that apply to our business, we could incur substantial reimbursement obligations, damages, penalties, injunctive relief and/or exclusion from participation in federal or state healthcare programs. Budgetary pressures may cause various governmental agencies to reduce health care expenditures or change the terms of their payments to us. Any such reductions could negatively impact our business. We could be materially and adversely affected if either of our distribution centers is shut down. We rely on a primary supplier of pharmaceutical products to sell products to us on satisfactory terms. A disruption in our relationship with this supplier could have a material adverse effect on our business. We may be unable to attract, hire and retain qualified pharmacists, which could harm our business. Most of our employees are covered by collective bargaining agreements. A failure to negotiate new agreements when the existing agreements terminate could disrupt our business. We may be subject to significant liability should the consumption of any of our products cause injury, illness or death. We depend on our management team, and the loss of their services could have a material adverse effect on our business. Continued volatility in insurance related expenses and the markets for insurance coverage could have a material adverse effect on us. Certain risks are inherent in providing pharmacy services, and our insurance may not be adequate to cover any claims against us. We are subject to trends in the retail industry and changes in consumer preferences, and a failure to anticipate such changes or react to such changes in a timely manner may have a material adverse effect on our business. The outcome of current and future litigations and other proceedings in which we are involved may have a material adverse effect on our results of operations and cash flow. Risks Related to Our Capital Structure Our substantial indebtedness could prevent us from fulfilling our obligations under our indebtedness and may otherwise restrict our activities. Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantial additional indebtedness. This could further exacerbate the risks associated with our existing substantial indebtedness. The agreements governing our indebtedness include restrictive and financial covenants that may limit our operating and financial flexibility. Issues affecting financial institutions could adversely affect financial markets generally as well as our ability to raise capital or access liquidity. We are a company whose equity is not publicly traded and which is effectively controlled by a single stockholder. That stockholder may effect changes to our board of directors, management and business plan, and interests of that stockholder may conflict with the interests of our noteholders.

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1279172--3/25/2009--DUANE_READE_HOLDINGS_INC