Exhibit 10.2

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT (this “Agreement”), dated as of July 21st, 2005, by and
among:

 

The Domestic Borrowers identified on the signature pages hereto and each other
Domestic Borrower that hereafter becomes a party hereto (each such Person,
individually, a “Domestic Borrower” and, collectively, the “Domestic
Borrowers”); and

 

The Facility Guarantors identified on the signature pages hereto and each other
Facility Guarantor that hereafter becomes a party hereto (each such Person,
individually, a “Facility Guarantor” and, collectively, the “Facility
Guarantors”) (each Domestic Borrower and Facility Guarantor is hereinafter
referred to individually as a “Grantor” and the Domestic Borrowers and the
Facility Guarantors are hereinafter referred to collectively as the “Grantors”);
and

 

BANK OF AMERICA, N.A., a national banking association, having a place of
business at 40 Broad Street, Boston, Massachusetts 02109, as administrative
agent for its own benefit and the benefit of the other Secured Parties (in such
capacity, the “Administrative Agent”).

 

WITNESSETH:

 

WHEREAS, reference is made to that certain Credit Agreement, dated as of July
21, 2005 (as modified, amended, supplemented or restated and in effect from time
to time, the “Credit Agreement”), by and among (i) Toys “R” Us, Inc., as the
Initial Borrower, (ii) Toys “R” Us-Delaware, Inc., as a Domestic Borrower and as
agent (in such capacity, the “Lead Borrower”) for the other Domestic Borrowers
party thereto, (iii) the Domestic Borrowers, (iv) Toys “R” Us (Canada) Ltd. Toys
“R” Us (Canada) Ltee (the “Canadian Borrower” and, collectively with the
Domestic Borrowers, the “Borrowers”), (v) the Administrative Agent, (vi) Bank of
America, N.A. (acting through its Canada branch), as Canadian Administrative
Agent for its own benefit and the benefit of the other Secured Parties, (vii)
Deutsche Bank Trust Company Americas, as Collateral Agent for its own benefit
and the benefit of the other Secured Parties, (viii) the Lenders party thereto
(the “Lenders”), (ix) Deutsche Bank Securities Inc. and Citigroup Global
Markets, Inc., as Co-Syndication Agents, and (x) Credit Suisse First Boston LLC
and General Electric Capital Corporation, as Co-Documentation Agents, pursuant
to which the Lenders have agreed to make Loans to the Borrowers, and the Issuing
Banks have agreed to issue Letters of Credit for the account of the Borrowers,
upon the terms and subject to the conditions specified therein; and

 

WHEREAS, reference is made to that certain Facility Guarantee, dated as of July
21, 2005, in favor of the Administrative Agent and the other Secured Parties (as
modified, amended, supplemented or restated and in effect from time to time, the
“Facility Guarantee”), pursuant to which each Facility Guarantor guarantees the
Guaranteed Obligations (as defined in the Facility Guarantee); and

 

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WHEREAS, the obligations of the Lenders to make Loans and of the Issuing Banks
to issue Letters of Credit are each conditioned on, among other things, the
execution and delivery by the Grantors of an agreement in the form hereof to
secure the Obligations (as defined herein).

 

NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth in this Agreement, and for good and valuable consideration, the receipt of
which is hereby acknowledged, the Grantors and the Administrative Agent hereby
agree as follows:

 

SECTION 1

 

Definitions

 

1.1 Generally. All references herein to the UCC shall mean the Uniform
Commercial Code as in effect from time to time in the State of New York;
provided, however, that if a term is defined in Article 9 of the UCC differently
that in another Article thereof, the term shall have the meaning set forth in
Article 9, and provided further that if by reason of mandatory provisions of
law, perfection, or the effect of perfection or non-perfection, of the Security
Interest in any Collateral or the availability of any remedy hereunder is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, “UCC” means the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection or availability of such
remedy, as the case may be.

 

1.2 Definition of Certain Terms Used Herein. Unless the context otherwise
requires, all capitalized terms used but not defined herein shall have the
meanings set forth in the Credit Agreement. In addition, the following terms
shall have the following meanings:

 

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

 

“Account Debtor” shall have the meaning given that term in the UCC and shall
include any Person who is or who may become obligated to any Grantor under, with
respect to or on account of an Account.

 

“Accounts” shall mean “accounts” as defined in the UCC, and also means a right
to payment of a monetary obligation, whether or not earned by performance, (a)
for property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of, (b) for services rendered or to be rendered, or (c)
arising out of the use of a credit or charge card or information contained on or
for use with the card.

 

“Agent’s Rights and Remedies” shall have the meaning provided in Section 8.9.

 

“Blue Sky Laws” shall have the meaning provided in Section 6.1.

 

“Borrowers” shall have the meaning provided in the preliminary statement of this
Agreement.

 

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

 

“Collateral” shall mean all of the following personal property of each Grantor:
(a) Accounts, (b) Chattel Paper, (c) Commercial Tort Claims, (d) Deposit
Accounts, (e) Documents, (f) Equipment, (g) General Intangibles (including
Payment Intangibles), (h) Goods, (i) Instruments, (j) Inventory, (k) Investment
Property, (l) Letter-of-Credit Rights, (m) Software, (n) Supporting Obligations,
(o) money, policies and certificates of insurance, deposits, cash or other
property, (p) all books, records, and information relating to any of the
foregoing and/or to the operation of any Grantor’s business, and all rights of
access to such books, records, and information, and all property in which such
books, records, and information are stored, recorded and maintained, (q) all
insurance proceeds, refunds, and premium rebates, including, without limitation,
proceeds of fire and credit insurance, whether any of such proceeds, refunds,
and premium rebates arise out of any of the foregoing ((a) through (p)) or
otherwise, (r) all liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing ((a) through (q)), including the right of
stoppage in transit, (s) all other personal property of every kind and nature of
each Grantor, and (t) any of the foregoing whether now owned or now due, or in
which any Grantor has an interest, or hereafter acquired, arising, or to become
due, or in which any Grantor obtains an interest, and all products, Proceeds,
substitutions, and Accessions of or to any of the foregoing; provided, however,
that the Collateral shall not include (a) any rights or property acquired under
a lease, contract, property rights agreement or license, the grant of a security
interest in which shall constitute or result in (i) the abandonment,
invalidation or unenforceability of any right, title or interest of any Grantor
therein or (ii) a breach or termination pursuant to the terms of, or a default
under, any lease, contract, property rights agreement or license (other than to
the extent that any restriction on such assignment would be rendered ineffective
pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction or any other Applicable
Law or principles of equity), provided that the proceeds therefrom shall not be
excluded from the definition of Collateral to the extent that the assignment of
such proceeds is not prohibited, (b) any governmental permit or franchise that
prohibits Liens on or collateral assignments of such permit or franchise, (c)
any Instrument evidencing indebtedness (defined consistently with such term as
used in the Indentures) of any Domestic Subsidiary, (d) any Security or other
equity interest representing more than 65% of the outstanding voting stock of
any Foreign Subsidiary, (e) any Security or other equity interest representing
any ownership interest in any Domestic Subsidiary, (f) any Security or other
equity interest representing any ownership interest in TRU of Puerto Rico, Inc.
or SALTRU Associates JV, (g) Fixtures, (h) the Designated Account and any and
all deposits, cash or other property in such account (but not excluding, after
and during the continuance of a Cash Dominion Event, such deposits, cash or
other property to the extent such cash, deposits or other property exceed the
maximum amount permitted to be on deposit in the Designated Account pursuant to
Sections 2.18 (e) and (f) of the Credit Agreement, it being understood that the
Administrative Agent shall not take any action to take Control of such
Designated Account and that the Debtor shall not enter into any agreement
granting Control over such Designated Account (other than Control in favor of
the depositary bank at which such Designated Account is maintained), or (i) any
rights any Grantor has pursuant to, or rights any Grantor has in, any Residual
Interest Instrument (as defined in the agreements evidencing the Bridge
Financing Facility).

 

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

 

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

 

“Credit Agreement” shall have the meaning provided in the preliminary statement
of this Agreement.

 

“Credit Party” means (a) the Lenders, (b) the Agents and the Canadian Agent and
their respective Affiliates and branches, (c) the Issuing Banks, (d) the
Arrangers, and (e) the successors and, subject to any limitations contained in
the Credit Agreement, assigns of each of the foregoing.

 

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

 

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

 

“Domestic Subsidiary” shall mean, any Subsidiary of Toys “R” US, Inc. that is
organized under the laws of the United States of America or any state thereof or
the District of Columbia.

 

“Equipment” shall mean “equipment” as defined in the UCC, and any and all
Accessions or additions thereto or substitutions therefor. The term “Equipment”
shall not include Fixtures.

 

“Facility Guarantee” shall have the meaning provided in the preliminary
statement of this Agreement.

 

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

 

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

 

“Foreign Subsidiary” shall mean, as to any Grantor, a Subsidiary that is
organized under the laws of any jurisdiction other than the United States of
America or any state thereof or the District of Columbia.

 

“General Intangibles” shall have the meaning given that term in the UCC, and
shall also include, without limitation, all: Intellectual Property; Payment
Intangibles; rights to payment for credit extended; deposits; amounts due to any
Grantor; credit memoranda in favor of any Grantor; warranty claims; tax refunds
and abatements; insurance refunds and premium rebates; all means and vehicles of
investment or hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers; goodwill; causes
of action; judgments; payments under any settlement or other agreement; literary
rights; rights to performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license agreements, including all rights of
any Grantor to enforce same; permits, certificates of convenience and necessity,
and similar rights granted by any governmental authority; internet addresses and
domain names; developmental ideas and concepts; proprietary processes;
blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs;
technical data; computer software programs (including the source and object
codes therefor), computer records,

 

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computer software, rights of access to computer record service bureaus, service
bureau computer contracts, and computer data; tapes, disks, semi-conductors
chips and printouts; user, technical reference, and other manuals and materials;
proposals; cost estimates, and reproductions on paper, or otherwise, of any and
all concepts or ideas, and any matter related to, or connected with, the design,
development, manufacture, sale, marketing, leasing, or use of any or all
property produced, sold, or leased, by or credit extended or services performed,
by any Grantor, whether intended for an individual customer or the general
business of any Grantor, or used or useful in connection with research by any
Grantor; provided, that “General Intangibles” shall not include any indebtedness
(defined consistently with such term as used in the Indentures) of any Domestic
Subsidiary.

 

“Geoffrey” shall mean Geoffrey, Inc., a Delaware corporation.

 

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

 

“Guaranteed Obligations” shall have the meaning given that term in the Facility
Guarantee.

 

“Indemnitee” shall have the meaning provided in Section 8.6.

 

“Instruments” shall have the meaning given that term in the UCC, provided, that
“Instruments” shall not include any Instrument evidencing indebtedness of any
Domestic Subsidiary.

 

“Intellectual Property” shall mean (a) the Intercompany Licenses and (b) all of
the following owned by any Grantor: (i) all patents, patent applications and
patents pending; (ii) trade secret rights; (iii) copyrights and copyright
applications, including mask work rights and derivative works; (iv) trade names,
trademarks, trademark applications, service marks, and service mark applications
and (v) all other general intangible property in the nature of intellectual
property recognized by the laws of the United States or Canada.

 

“Intercompany Licenses” shall mean the license agreements described on Exhibit A
hereto between certain of the Domestic Borrowers and Geoffrey, pursuant to which
Geoffrey has granted to such Domestic Borrowers licenses of the Proprietary
Marks.

 

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

 

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“Investment Property” shall have the meaning given that term in the UCC;
provided, that, “Investment Property” (a) shall not include any Security
representing more than 65% of the outstanding voting stock of any Foreign
Subsidiary, (b) shall not include any Security representing any ownership
interest in any Domestic Subsidiary and (c) shall not include any Security or
other equity interest representing any ownership interest in TRU of Puerto Rico,
Inc. or SALTRU Associates JV.

 

“Lead Borrower” shall have the meaning provided in the preliminary statement of
this Agreement.

 

“Lenders” shall have the meaning provided in the preliminary statement of this
Agreement.

 

“Letter-of-Credit Right” shall have the meaning given that term in the UCC.

 

“Obligations” shall mean collectively, the “Obligations” (as defined in the
Credit Agreement), the Other Liabilities (as defined in the Credit Agreement)
and the Guaranteed Obligations.

 

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

 

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

 

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

 

“Proprietary Marks” shall mean any and all United States trademarks (including
any copyrights that exist in such trademarks, but excluding all other
copyrights), service marks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, trade styles, designs,
logos and other source or business identifiers, whether registered or
unregistered, which are owned or licensed, now or in the future, by Geoffrey,
including, but not limited to, as of the date hereof, the United States
Proprietary Marks set forth on Exhibit B annexed hereto.

 

“Secured Party” means (a) each Credit Party, (b) any Lender or any Affiliate of
a Lender providing Cash Management Services or entering into or furnishing any
Hedge Agreements to or with any Loan Party, (c) the beneficiaries of each
indemnification obligation undertaken by any Loan Party, and (d) the successors
and, subject to any limitations contained in the Credit Agreement, assigns of
each of the foregoing.

 

“Securities Act” shall have the meaning provided in Section 6.1.

 

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

 

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“Security Interest” shall have the meaning provided in Section 2.1.

 

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

 

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

 

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

 

SECTION 2

 

Security Interest

 

2.1 Security Interest. As security for the payment or performance, as the case
may be, in full of their respective Obligations, each Grantor hereby grants to
the Administrative Agent, its successors and assigns, for the benefit of the
Secured Parties, a security interest in all of such Grantor’s right, title and
interest in, to and under the Collateral, wherever located, whether now owned or
hereafter acquired or arising (the “Security Interest”); provided that, the
security interest granted to the Administrative Agent in, to and under
Intercompany Licenses shall be limited to the non-exclusive right to use the
Proprietary Marks in exercising the Agent’s Rights and Remedies in connection
with a Liquidation. Without limiting the foregoing, each Grantor hereby
designates the Administrative Agent as such Grantor’s true and lawful attorney,
exercisable by the Administrative Agent whether or not an Event of Default
exists, with full power of substitution, at the Administrative Agent’s option,
to file one or more Financing Statements, continuation statements, or to sign
other documents for the purpose of perfecting, confirming or continuing the
Security Interest granted by each Grantor, without the signature of any Grantor
(each Grantor hereby appointing the Administrative Agent as such Person’s
attorney to sign such Person’s name to any such instrument or document, whether
or not an Event of Default exists), and naming any Grantor or the Grantors as
debtors and the Administrative Agent as secured party.

 

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

 

SECTION 3

 

Representations and Warranties

 

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

 

3.1 Filings. The Perfection Certificate has been duly prepared, completed and
executed, and the information set forth therein is correct and complete in all
material respects as of the date hereof. UCC Financing Statements or other
appropriate filings, recordings or

 

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registrations containing a description of the Collateral (including, without
limitation, the UCC Financing Statements identified on Schedule 3.2 hereto) have
been or will be timely filed in each governmental, municipal or other office as
is necessary to publish notice of and protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Administrative
Agent (for the benefit of the Secured Parties) in respect of all Collateral in
which the Security Interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and no
further or subsequent filing, refiling, recording, rerecording, registration or
re-registration is necessary in any such jurisdiction, except as provided under
Applicable Law with respect to the filing of continuation statements or as a
result of any change in a Grantor’s name or jurisdiction of incorporation or
formation or under any other circumstances under which, pursuant to the UCC,
filings previously made have become misleading or ineffective in whole or in
part.

 

3.2 Validity and Priority of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all of the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described on Schedule 3.2 or other requisite filings or registrations
described in Section 3.2, a perfected security interest in all of the Collateral
(to the extent perfection in the Collateral can be accomplished by such filing)
and (c) subject to the obtaining of Control, a perfected security interest in
all of the Collateral (to the extent perfection in the Collateral can be
accomplished by Control and perfection of the Security Interest in such
Collateral is required by the terms hereof). The Security Interest is and shall
be prior to any other Lien on any of the Collateral, subject only to Permitted
Encumbrances having priority by operation of Applicable Law.

 

3.3 Absence of Other Liens. The Collateral is owned by the Grantors free and
clear of any Lien, except for (i) Permitted Encumbrances or (ii) Liens for which
termination statements have been delivered to the Administrative Agent. Except
as provided in the Loan Documents, the Grantors have not filed or consented to
the filing of (a) any Financing Statement or analogous document under the UCC or
any other Applicable Law covering any Collateral, or (b) any assignment in which
any Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with any foreign governmental, municipal or
other office, which Financing Statement or analogous document, assignment,
security agreement or similar instrument is still in effect, except, in each
case, for Permitted Encumbrances.

 

3.4 Bailees, Warehousemen, Etc. Schedule 3.5 hereto sets forth a list, as of the
Closing Date, of each bailee, warehouseman and other third party in possession
or control of any Inventory of any Loan Party and specifies as to each bailee,
warehouseman or other third party whether the value of the Inventory, at Cost,
possessed or controlled by such bailee, warehouseman or other third party
exceeds $20,000,000.

 

3.5 Consignments. No Grantor has, and none shall have, possession of any
property on consignment from any consignor having a value greater than
$10,000,000 unless a lien waiver or other agreement in favor of the
Administrative Agent reasonably satisfactory to the Administrative Agent is
delivered to the Administrative Agent by such consignor.

 

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3.6 Intercompany Licenses. The Intercompany Licenses have not been terminated
and, to each Grantor’s knowledge, no breach, default or other circumstances
exist in respect thereof which would reasonably likely materially impair or
restrict the ability of the Administrative Agent to utilize the Proprietary
Marks in exercising the Agent’s Rights and Remedies in connection with any
Liquidation.

 

3.7 Commercial Tort Claims. Except as set forth on Schedule 3.7 hereof, as of
the Closing Date, no Grantor owns any rights in, to or under any Commercial Tort
Claim having a value in excess of $1,000,000.

 

SECTION 4

 

Covenants

 

The Grantors jointly and severally covenant and agree with the Administrative
Agent and the Secured Parties as follows:

 

4.1 Change of Name; Location of Collateral; Records; Place of Business.

 

(a) Each Grantor agrees to furnish to the Administrative Agent prompt written
notice of any change in: (i) any Loan Party’s name; (ii) the location of any
Loan Party’s chief executive office or, its principal place of business; (iii)
any Loan Party’s organizational legal entity designation or jurisdiction of
incorporation or formation; (iv) any Loan Party’s Federal Taxpayer
Identification Number or organizational identification number assigned to it by
its jurisdiction of incorporation or formation; or (v) the acquisition by any
Grantor of any material property for which additional filings or recordings are
necessary to perfect and maintain the Administrative Agent’s Security Interest
therein (to the extent perfection of the Security Interest in such property is
required by the terms hereof). Each Grantor agrees not to effect or permit any
change referred to in the preceding sentence unless all filings have been made
under the UCC or other Applicable Law that are required in order for the
Administrative Agent to continue at all times following such change to have a
valid, legal and perfected (to the extent perfection of the Security Interest in
such property is required by the terms hereof), first priority security interest
(subject only to Permitted Encumbrances having priority by operation of
Applicable Law) in the Collateral for its benefit and the benefit of the other
Secured Parties.

 

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

 

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in form and detail reasonably satisfactory to the Administrative Agent showing
the identity, amount and location of any and all Collateral.

 

4.2 Protection of Security. Each Grantor shall, at its own cost and expense,
take any and all actions reasonably necessary to defend the Security Interest of
the Administrative Agent in the Collateral against any Lien (other than
Permitted Encumbrances) and the priority thereof (except for Permitted
Encumbrances having priority by operation of Applicable Law).

 

4.3 Further Assurances. Each Grantor agrees, at its own expense, to execute,
acknowledge, deliver and cause to be duly filed all such further documents,
financing statements, agreements and instruments and take all such further
actions as the Administrative Agent may from time to time reasonably request to
better assure, preserve, protect and perfect the Security Interest and the
rights and remedies created or intended to be created hereby or the validity or
priority of such Security Interest, including the payment of any fees and taxes
required in connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any Financing Statements or
other documents in connection herewith or therewith. Without limiting the
foregoing, each Grantor, at its own expense, shall execute, acknowledge, deliver
and cause to be duly filed all such further documents, financing statements,
agreements and instruments and take all such further actions as the
Administrative Agent may from time to time reasonably request to perfect the
Administrative Agent’s Security Interest in all Accounts, Inventory, Deposit
Accounts (to the extent required by Section 2.18 of the Credit Agreement), and
the proceeds therefrom (including causing the Administrative Agent to have
Control of any such Collateral to the extent perfection in such Collateral can
be accomplished by Control to the extent required hereunder). If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any promissory note or other instrument with an individual face
value in excess of $1,000,000, such note or instrument shall be promptly pledged
to the Administrative Agent and delivered to the Administrative Agent, duly
endorsed in a manner satisfactory to the Administrative Agent.

 

4.4 Taxes; Encumbrances. At its option, the Administrative Agent may discharge
past due taxes, assessments, charges, fees, Liens, security interests or other
encumbrances at any time levied or placed on the Collateral (other than
Permitted Encumbrances), and may take any other action which the Administrative
Agent may reasonably deem necessary or desirable to repair, maintain or preserve
any of the Collateral to the extent any Grantor fails to do so as required by
the Credit Agreement or this Agreement, and each Grantor jointly and severally
agrees to reimburse the Administrative Agent for any payment made or any
reasonable out-of-pocket expense incurred by the Administrative Agent pursuant
to the foregoing authorization within fifteen (15) Business Days after receipt
of an invoice therefore setting forth such payments or expenses in reasonable
detail; provided, however, that nothing in this Section 4.4 shall be interpreted
as excusing any Grantor from the performance of, or imposing any obligation on
the Administrative Agent or any Secured Party to cure or perform, any covenants
or other promises of any Grantor with respect to taxes, assessments, charges,
fees, Liens, security interests or other encumbrances and maintenance as set
forth herein or in the other Loan Documents; and provided, further, that the
making of any such payments or the

 

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taking of any such action by the Administrative Agent shall not be deemed to
constitute a waiver of any Default or Event of Default arising from any
Grantor’s failure to have made such payments or taken such action.

 

4.5 Assignment of Security Interest.

 

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

 

(b) To the extent that any Grantor is a beneficiary under any written letter of
credit now or hereafter issued in favor of such Grantor having a face amount in
excess of $1,000,000, such Grantor shall deliver such letter of credit to the
Administrative Agent. The Administrative Agent shall from time to time, at the
request and expense of such Grantor, promptly make such arrangements with such
Grantor as are in the Administrative Agent’s reasonable judgment necessary and
appropriate so that such Grantor may make any drawing to which such Grantor is
entitled under such letter of credit, without impairment of the Administrative
Agent’s perfected security interest in such Grantor’s rights to proceeds of such
letter of credit or in the actual proceeds of such drawing. At the
Administrative Agent’s request, such Grantor shall, for any such letter of
credit now or hereafter issued in favor of such Grantor as beneficiary, execute
and deliver to the issuer and any confirmer of such letter of credit an
assignment of proceeds form, in favor of the Administrative Agent and reasonably
satisfactory to the Administrative Agent and such issuer or (as the case may be)
such confirmer, requiring, after the occurrence of a Cash Dominion Event, the
proceeds of any drawing under such letter of credit to be paid directly to the
Administrative Agent.

 

4.6 Continuing Obligations of the Grantors. Each Grantor hereby acknowledges and
agrees that the Administrative Agent shall have no obligation or duty to perform
any obligation of any Grantor under the contracts, agreements or instruments
constituting or relating to the Collateral (including, without limitation, the
Intercompany Licenses and the payment of royalties thereunder) and that each
Grantor shall at all times remain solely and exclusively liable to observe and
perform all the conditions and obligations to be observed and performed by it
under each contract, agreement or instrument constituting or relating to the
Collateral (including, without limitation, the Intercompany Licenses and the
payment of royalties thereunder).

 

4.7 Use and Disposition of Collateral. None of the Grantors shall make or permit
to be made any collateral assignment, pledge or hypothecation of the Collateral
or shall grant any other Lien in respect of the Collateral or shall grant
Control (for purposes of security) of any Collateral to any Person, except for
Permitted Encumbrances. Except for Permitted Dispositions expressly permitted in
the Credit Agreement, none of the Grantors shall make or

 

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permit to be made any sale or transfer of the Collateral, and, except as
expressly permitted in the Credit Agreement with respect to Eligible In-Transit
Inventory and Eligible Letter of Credit Inventory, each Grantor shall remain at
all times in possession of the Collateral owned by it. The Grantors shall not
permit any expiration, termination, modification, amendment or waiver of any
Intercompany License that would reasonably likely materially impair or restrict
the ability of the Administrative Agent to utilize the Proprietary Marks in
exercising the Agent’s Rights and Remedies in connection with any Liquidation.

 

4.8 Limitation on Modification of Accounts. None of the Grantors will, without
the Administrative Agent’s prior written consent, grant any extension of the
time of payment of any of the Accounts, compromise, compound or settle the same
for less than the full amount thereof, release, wholly or partly, any Person
liable for the payment thereof or allow any credit or discount whatsoever
thereon, other than extensions, releases, credits, discounts, compromises or
settlements (a) granted or made in the ordinary course of business and
consistent with its current practices or in accordance with such prudent
business practices as determined by the Responsible Officers of the Loan Parties
acting reasonably in their business judgment or (b) constituting a Permitted
Disposition as described in clause (f) of the definition thereof.

 

4.9 Insurance.

 

(a) The Grantors shall maintain insurance on the Collateral as required by
Section 5.07 of the Credit Agreement, which insurance shall include the
endorsements and provisions required by Section 5.07 of the Credit Agreement.

 

(b) Each Grantor hereby irrevocably makes, constitutes and appoints the
Administrative Agent (and all officers, employees or agents designated by the
Administrative Agent) as such Grantor’s true and lawful agent and
attorney-in-fact, exercisable only after the occurrence and during the
continuance of an Event of Default, for the purpose of making, settling and
adjusting claims in respect of Collateral under policies of insurance, endorsing
the name of such Grantor on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect thereto. In the event that any Grantor
at any time or times shall fail to obtain or maintain any of the policies of
insurance required hereby or to pay any premium in whole or part relating
thereto, the Administrative Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Default or Event of
Default, in its sole discretion, obtain and maintain such policies of insurance
and pay such premium and take any other actions with respect thereto as the
Administrative Agent deems reasonably advisable. All sums reasonably disbursed
by the Administrative Agent in connection with this Section 4.9, including
reasonable attorneys’ fees, court costs, out-of-pocket expenses and other
charges relating thereto, shall be payable, upon demand, by the Grantors to the
Administrative Agent and shall be additional Obligations secured hereby.

 

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4.10 Commercial Tort Claims. If any Grantor shall at any time acquire a
Commercial Tort Claim having a value in excess of $1,000,000, such Grantor shall
promptly notify the Administrative Agent in writing of the details thereof and
the Grantors shall take such actions as the Administrative Agent shall
reasonably request in order to grant to the Administrative Agent, for the
benefit of the Secured Parties, a perfected and first priority security interest
therein and in the Proceeds thereof.

 

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

 

4.12 Notices and Reports Pertaining to Intercompany Licenses. In addition to any
other notice or reporting requirement imposed on the Grantors under this
Agreement and the Credit Agreement, the Grantors will promptly notify the
Administrative Agent of any breach, default or other circumstance in respect of
any Intercompany License which would reasonably likely materially impair or
restrict the ability of the Administrative Agent to utilize the Proprietary
Marks in exercising the Agent’s Rights and Remedies in connection with any
Liquidation.

 

SECTION 5

 

Collections

 

5.1 Collections.

 

(a) Each Grantor shall at all times comply with the Cash Receipts provisions of
Section 2.18 of the Credit Agreement including, without limitation, after the
occurrence and during the continuance of a Cash Dominion Event, causing the
sweep on each Business Day of all Cash Receipts into the Domestic Concentration
Account or a Blocked Account, as provided for in the Credit Agreement.

 

(b) Without the prior written consent of the Administrative Agent, no Grantor
shall modify or amend the instructions pursuant to any of the Credit Card
Notifications or the Blocked Account Agreements. So long as no Event of Default
has occurred and is continuing, each Grantor shall, and the Administrative Agent
hereby authorizes each Grantor to, enforce and collect all amounts owing on the
Inventory and Accounts, for the benefit and on behalf of the Administrative
Agent and the other Secured Parties; provided, however, that such right may, at
the direction of the Administrative Agent or the Required Lenders, be terminated
upon the occurrence and during the continuance of any Event of Default.

 

5.2 Power of Attorney. Each Grantor irrevocably makes, constitutes and appoints
the Administrative Agent (and all officers, employees or agents designated by
the

 

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Administrative Agent) as such Grantor’s true and lawful agent and
attorney-in-fact, and in such capacity the Administrative Agent shall have the
right, with power of substitution for each Grantor and in each Grantor’s name or
otherwise, for the use and benefit of the Administrative Agent and the Secured
Parties, (a) at any time, whether or not a Default or Event of Default has
occurred, to take actions required to be taken by the Grantors under Section 2.1
of this Agreement, (b) upon the occurrence and during the continuance of a Cash
Dominion Event or as otherwise permitted under the Credit Agreement, (i) to take
actions required to be taken by the Grantors under Section 5.1 of this
Agreement, and (ii) to receive, endorse, assign and/or deliver any and all
notes, acceptances, checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof; and (c) upon the occurrence and
during the continuance of an Event of Default or as otherwise permitted under
the Credit Agreement, (i) to demand, collect, receive payment of, give receipt
for and give discharges and releases of all or any of the Collateral; (ii) to
sign the name of any Grantor on any invoices, schedules of Collateral, freight
or express receipts, or bills of lading storage receipts, warehouse receipts or
other documents of title relating to any of the Collateral; (iii) to sign the
name of any Grantor on any notice to such Grantor’s Account Debtors; (iv) to
sign the name of any Grantor on any proof of claim in bankruptcy against Account
Debtors, and on notices of lien, claims of mechanic’s liens, or assignments or
releases of mechanic’s liens securing the Accounts; (v) to sign change of
address forms to change the address to which each Grantor’s mail is to be sent
to such address as the Administrative Agent shall designate; (vi) to receive and
open each Grantor’s mail, remove any Proceeds of Collateral therefrom and turn
over the balance of such mail either to the Lead Borrower or to any trustee in
bankruptcy or receiver of a Grantor, or other legal representative of a Grantor
whom the Administrative Agent reasonably determines to be the appropriate person
to whom to so turn over such mail; (vii) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral; (viii) to settle,
compromise, compound, adjust or defend any actions, suits or proceedings
relating to all or any of the Collateral; (ix) to take all such action as may be
reasonably necessary to obtain the payment of any letter of credit and/or
banker’s acceptance of which any Grantor is a beneficiary; (x) to repair,
manufacture, assemble, complete, package, deliver, alter or supply goods, if
any, necessary to fulfill in whole or in part the purchase order of any customer
of any Grantor; (xi) to use, license or transfer any or all General Intangibles
of any Grantor; and (xii) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral,
and to do all other acts and things reasonably necessary to carry out the
purposes of this Agreement, as fully and completely as though the Administrative
Agent was the absolute owner of the Collateral for all purposes; provided,
however, that nothing herein contained shall be construed as requiring or
obligating the Administrative Agent or any other Secured Party to make any
inquiry as to the nature or sufficiency of any payment received by the
Administrative Agent or any other Secured Party, or to present or file any claim
or notice. It is understood and agreed that the appointment of the
Administrative Agent as the agent and attorney-in-fact of the Grantors for the
purposes set forth above is coupled with an interest and is irrevocable. The
appointment of the Administrative Agent as the agent and attorney-in-fact of the
Grantors for the purposes set forth above shall terminate when (a) the
Commitments

 

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have expired or been terminated, (b) the principal of and interest on each Loan
and all fees and other Obligations (which for purposes of this clause shall
include the Other Liabilities only if the Obligations (as defined in the Credit
Agreement) have been accelerated and Liquidation has commenced and then only to
the extent then due and payable) (other than contingent indemnity obligations
with respect to then unasserted claims) shall have been paid in full, (c) all
Letters of Credit shall have expired or terminated (or been cash collateralized
in a manner satisfactory to the applicable Issuing Banks) and (d) all Letter of
Credit Outstandings have been reduced to zero (or cash collateralized in a
manner satisfactory to the applicable Issuing Banks).

 

5.3 No Obligation to Act. The Administrative Agent shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 5.2, but
if the Administrative Agent elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to any Grantor
for any act or omission to act except for any act or omission to act as to which
there is a determination by a court of competent jurisdiction or another
independent tribunal having jurisdiction that (i) the subject act or omission to
act by the Administrative Agent or any Affiliate of the Administrative Agent or
any officer, director, employee, advisor or agent of the Administrative Agent or
such Affiliate constituted gross negligence, was in bad faith, or constituted
willful misconduct or (ii) constituted a breach by the Administrative Agent or
any Affiliate of the Administrative Agent or any officer, director, employee,
advisor or agent of the Administrative Agent or such Affiliate of its
obligations to such Grantor. The provisions of Section 5.2 shall in no event
relieve any Grantor of any of its obligations hereunder or under any other Loan
Document with respect to the Collateral or any part thereof or impose any
obligation on the Administrative Agent or any other Secured Party to proceed in
any particular manner with respect to the Collateral or any part thereof, or in
any way limit the exercise by the Administrative Agent or any other Secured
Party of any other or further right which it may have on the date of this
Agreement or hereafter, whether hereunder, under any other Loan Document, by law
or otherwise.

 

SECTION 6

 

Remedies

 

6.1 Remedies upon Default. Upon the occurrence and during the continuance of an
Event of Default, it is agreed that the Administrative Agent shall have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the UCC or
other Applicable Law. The Agent’s Rights and Remedies shall include, without
limitation, the right to take any of or all the following actions at the same or
different times as directed by the Administrative Agent or the Required Lenders:

 

(a) With respect to any Collateral consisting of Accounts, General Intangibles
(including Payment Intangibles), Letter-of-Credit Rights, Instruments,

 

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Chattel Paper, Documents, and Investment Property, the Administrative Agent may
collect the Collateral with or without the taking of possession of any of the
Collateral.

 

(b) With respect to any Collateral consisting of Accounts, the Administrative
Agent may (i) demand, collect and receive any amounts relating thereto, as the
Administrative Agent may determine; (ii) commence and prosecute any actions in
any court for the purposes of collecting any such Accounts and enforcing any
other rights in respect thereof; (iii) defend, settle or compromise any action
brought and, in connection therewith, give such discharges or releases as the
Administrative Agent may reasonably deem appropriate; (iv) without limiting the
rights of the Administrative Agent set forth in Section 5.2 hereof, receive,
open and dispose of mail addressed to any Grantor and endorse checks, notes,
drafts, acceptances, money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or storage of the goods
giving rise to such Accounts or securing or relating to such Accounts, on behalf
of and in the name of such Grantor; and (v) sell, assign, transfer, make any
agreement in respect of, or otherwise deal with or exercise rights in respect
of, any such Accounts or the goods or services which have given rise thereto, as
fully and completely as though the Administrative Agent was the absolute owner
thereof for all purposes.

 

(c) With respect to any Collateral consisting of Investment Property, the
Administrative Agent may (i) exercise all rights of any Grantor with respect
thereto, including without limitation, the right to exercise all voting and
corporate rights at any meeting of the shareholders of the issuer of any
Investment Property and to exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any
Investment Property as if the Administrative Agent was the absolute owner
thereof, including the right to exchange, at its discretion, any and all of any
Investment Property upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, all without
liability except to account for property actually received as provided in
Section 5.3 hereof; (ii) transfer such Collateral at any time to itself, or to
its nominee, and receive the income thereon and hold the same as Collateral
hereunder or apply it to the Obligations; and (iii) demand, sue for, collect or
make any compromise or settlement it deems desirable. The Grantors recognize
that (a) the Administrative Agent may be unable to effect a public sale of all
or a part of the Investment Property by reason of certain prohibitions contained
in the Securities Act of 1933, 15 U.S.C. §77, (as amended and in effect, the
“Securities Act”) or the Securities laws of various states (the “Blue Sky
Laws”), but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire the Investment Property for their own account, for investment and not
with a view to the distribution or resale thereof, (b) that private sales so
made may be at prices and upon other terms less favorable to the seller than if
the Investment Property were sold at public sales, (c) that neither the
Administrative Agent nor any Secured Party has any obligation to delay sale of
any of the Investment Property for the period of time necessary to permit the
Investment Property to be registered for public sale under the Securities Act or
the Blue Sky Laws, and (d) that private sales made under the foregoing
circumstances shall be deemed to have been made in a

 

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commercially reasonable manner. Notwithstanding anything herein to the contrary,
no Grantor shall be required to register, or cause the registration of, any
Investment Property under the Securities Act or any or Blue Sky Laws.

 

(d) With respect to any Collateral consisting of Inventory, Goods, and
Equipment, the Administrative Agent may conduct one or more going out of
business sales, in the Administrative Agent’s own right or by one or more agents
and contractors. Such sale(s) may be conducted upon any premises owned, leased,
or occupied by any Grantor. The Administrative Agent and any such agent or
contractor, in conjunction with any such sale, may augment the Inventory with
other goods (all of which other goods shall remain the sole property of the
Administrative Agent or such agent or contractor). Any amounts realized from the
sale of such goods which constitute augmentations to the Inventory (net of an
allocable share of the costs and expenses incurred in their disposition) shall
be the sole property of the Administrative Agent or such agent or contractor and
neither any Grantor nor any Person claiming under or in right of any Grantor
shall have any interest therein. Each purchaser at any such going out of
business sale shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor.

 

(e) With respect to any Proprietary Marks, the Administrative Agent may exercise
all of the rights granted to the Grantors under the Intercompany Licenses (for
the limited purpose of allowing the Administrative Agent to utilize the
Proprietary Marks in exercising the Agent’s Rights and Remedies in connection
with any Liquidation of any Grantor’s Inventory or other Collateral).

 

(f) With or without legal process and with or without prior notice or demand for
performance, the Administrative Agent may enter upon, occupy, and use any
premises owned or occupied by each Grantor, and may exclude the Grantors from
such premises or portion thereof as may have been so entered upon, occupied, or
used by the Administrative Agent to the extent the Administrative Agent deems
such exclusion reasonably necessary to preserve and protect the Collateral. The
Administrative Agent shall not be required to remove any of the Collateral from
any such premises upon the Administrative Agent’s taking possession thereof, and
may render any Collateral unusable to the Grantors. In no event shall the
Administrative Agent be liable to any Grantor for use or occupancy by the
Administrative Agent of any premises pursuant to this Section 6.1, nor for any
royalties or any other amounts due under, or any other obligations in respect
of, the Intercompany Licenses, nor for any charge (such as wages for the
Grantors’ employees and utilities) incurred in connection with the
Administrative Agent’s exercise of the Agents’ Rights and Remedies.

 

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

 

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(h) Each Grantor agrees that the Administrative Agent shall have the right,
subject to Applicable Law, to sell or otherwise dispose of all or any part of
the Collateral, at public or private sale, for cash, upon credit or for future
delivery as the Administrative Agent shall deem appropriate. Each purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor.

 

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

 

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

 

(k) At any public (or, to the extent permitted by Applicable Law, private) sale
made pursuant to this Section 6.1, the Administrative Agent or any other Secured
Party may bid for or purchase, free (to the extent permitted by Applicable Law)
from any right of redemption, stay, valuation or appraisal on the part of any
Grantor, the Collateral or any part thereof offered for sale and may make
payment on account thereof by using any claim then due and payable to the
Administrative Agent or such other Secured Party from any Grantor on account of
the Obligations as a credit against the purchase price, and the Administrative
Agent or such other Secured Party may, upon compliance with the terms of sale,
hold, retain and dispose of such property without further accountability to any
Grantor therefor.

 

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

 

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

 

(n) To the extent permitted by Applicable Law, each Grantor hereby waives all
rights of redemption, stay, valuation and appraisal which such Grantor now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted.

 

(o) In the case of any receivership, insolvency, bankruptcy, reorganization,
arrangement, adjustment, composition or other proceedings affecting any Borrower
or the creditors or property of any Borrower, the Administrative Agent and
Secured Party, to the extent permitted by Applicable Law, shall be entitled to
file such proofs of claim and other documents as may be necessary or advisable
in order to have the claims of the Administrative Agent and the other Secured
Parties allowed in such proceedings for the entire amount of the Obligations at
the date of the institution of such proceedings and for any additional portion
of the Obligations accruing after such date.

 

6.2 Application of Proceeds. After the occurrence and during the continuance of
any Event of Default and acceleration of the Obligations pursuant to Section 7.1
of the Credit Agreement, the Administrative Agent shall promptly apply the
proceeds of any collection or sale of the Collateral, as well as any Collateral
consisting of cash, or any Collateral granted under any other of the Security
Documents, in accordance with Section 7.03 of the Credit Agreement.

 

Subject to the right of the Required Lenders to direct the exercise of the
Agent’s Rights and Remedies upon the occurrence of an Event of Default, the
Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale or other disposition of the Collateral by the
Administrative Agent (including pursuant to a power of sale granted by statute
or under a judicial proceeding), the receipt of the purchase money by the
Administrative Agent or of the officer making the sale or other disposition
shall be a sufficient discharge to the purchaser or purchasers of the Collateral
so sold or otherwise disposed of and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Administrative Agent or such officer or be answerable in any way for the
misapplication thereof.

 

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SECTION 7

 

Perfection of Security Interest

 

7.1 Perfection by Filing. This Agreement constitutes an authenticated record,
and each Grantor hereby authorizes the Administrative Agent, pursuant to the
provisions of Sections 2.1 and 5.2, to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral, in such filing offices as the Administrative Agent shall
reasonably deem appropriate, and the Grantors shall pay the Administrative
Agent’s reasonable costs and expenses incurred in connection therewith. Each
Grantor hereby further agrees that a carbon, photographic, or other reproduction
of this Agreement shall be sufficient as a Financing Statement and may be filed
as a Financing Statement in any and all jurisdictions.

 

7.2 Other Perfection, Etc. The Grantors shall at any time and from time to time
take such steps as the Administrative Agent may reasonably request for the
Administrative Agent (a) to obtain Control of any Deposit Accounts (including
the Designated Account) to the extent required by Section 2.18 of the Credit
Agreement, with any agreements establishing control to be in form and substance
reasonably satisfactory to the Administrative Agent, (b) to obtain Control of
any Investment Property, Letter-of-Credit Rights or electronic Chattel Paper,
with any agreements establishing control to be in form and substance reasonably
satisfactory to the Administrative Agent, and (b) otherwise to insure the
continued perfection of the Administrative Agent’s security interest in any of
the Collateral with the priority described in Section 3.2 and of the
preservation of its rights therein.

 

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

 

SECTION 8

 

Miscellaneous

 

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

 

8.2 Grant of Non-Exclusive License. Without limiting the rights of the
Administrative Agent under the assignment of the Intercompany Licenses provided
herein, each Grantor hereby grants to the Administrative Agent a royalty free,
non-exclusive, irrevocable license, which license shall be exercisable upon the
existence and during the continuance of an Event of Default, to use, apply, and
affix any Intellectual Property (other than Intellectual Property licensed
pursuant to the Intercompany Licenses, including the Proprietary Marks) in which
any Grantor now or hereafter has rights, such license being with respect to the
Administrative Agent’s exercise of the Agent’s Rights and Remedies hereunder

 

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including, without limitation, in connection with any Liquidation of Inventory;
provided, however, that the Administrative Agent’s exercise of the foregoing
license shall be conditioned upon the Administrative Agent not violating any
obligations (excluding the payment of royalties) or restrictions to which the
Grantor of the related Intellectual Property is subject (except those
obligations or restrictions which would reasonably likely materially impair or
restrict the ability of the Administrative Agent to utilize the Intellectual
Property in exercising the Agent’s Rights and Remedies).

 

8.3 Security Interest Absolute. All rights of the Administrative Agent
hereunder, the Security Interest and all obligations of the Grantors hereunder
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any agreement
with respect to any of the Obligations or any other agreement or instrument
relating to any of the foregoing, (b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any other Loan Document, or any other agreement or instrument, (c)
any exchange, release or non-perfection of any Lien on other collateral, or any
release or amendment or waiver of or consent under or departure from the
Facility Guarantee or any other guarantee, securing or guaranteeing all or any
of the Obligations, or (d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Grantor in respect of
the Obligations or this Agreement (other than circumstances under which (i) the
Commitments have expired or been terminated, (ii) the principal of and interest
on each Loan and all fees and other Obligations (which for purposes of this
clause shall include the Other Liabilities only if the Obligations (as defined
in the Credit Agreement) have been accelerated and Liquidation has commenced and
then only to the extent then due and payable) (other than contingent indemnity
obligations with respect to then unasserted claims) shall have been paid in
full, (iii) all Letters of Credit shall have expired or terminated (or been cash
collateralized in a manner satisfactory to the applicable Issuing Banks) and
(iv) all Letter of Credit Outstandings have been reduced to zero (or cash
collateralized in a manner satisfactory to the applicable Issuing Banks)).

 

8.4 Survival of Agreement. All covenants, agreements, representations and
warranties made by the Grantors herein and in any other Loan Document and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the Administrative Agent and the other Secured Parties and shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of any Loans and the issuance of any Letters of Credit,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Administrative Agent or any Secured Party may have
had notice or knowledge of any Default or Event of Default or incorrect
representation or warranty at the time any credit is extended under the Loan
Agreement, and shall continue in full force and effect unless terminated in
accordance with Section 8.15 hereof. In connection with the termination of this
Agreement and the release and termination of the security interests in the
Collateral, the Administrative Agent, on behalf of itself and the other Secured
Parties, may require such indemnities as it shall reasonably deem necessary or
appropriate to protect the

 

21

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Secured Parties against (x) loss on account of credits previously applied to the
Obligations that may subsequently be reversed or revoked, and (y) any
obligations that may thereafter arise with respect to the Other Liabilities.

 

8.5 Binding Effect; Several Agreement; Assignments. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party, and all covenants, promises
and agreements by or on behalf of the Grantors that are contained in this
Agreement shall bind and inure to the benefit of each Grantor and its respective
successors and assigns. This Agreement shall be binding upon each Grantor and
the Administrative Agent and its successors and permitted assigns, and shall
inure to the benefit of each Grantor, the Administrative Agent and the other
Secured Parties and their respective successors and permitted assigns, except
that no Grantor shall have the right to assign or transfer its rights or
obligations hereunder or any interest herein or in the Collateral (and any such
attempted assignment or transfer shall be void) except as expressly permitted by
this Agreement or the Credit Agreement. This Agreement shall be construed as a
separate agreement with respect to each Grantor and may be amended, modified,
supplemented, waived or released with respect to any Grantor without the
approval of any other Grantor and without affecting the obligations of any other
Grantor hereunder.

 

8.6 Fees and Expenses; Indemnification.

 

(a) Without limiting any of their obligations under the Credit Agreement or the
other Loan Documents, and without duplication of any fees, expenses or
indemnification provided for under the Credit Agreement and the other Loan
Documents, the Grantors jointly and severally shall pay all Credit Party
Expenses, within fifteen (15) Business Days after receipt of an invoice
therefore setting forth such expenses in reasonable detail, in connection with
(i) the administration of this Agreement, (ii) the custody or preservation of,
or the sale of, collection from or other realization upon any of the Collateral,
(iii) the exercise, enforcement or protection of any of the Agent’s Rights and
Remedies hereunder or (iv) the failure of any Grantor to perform or observe any
of the provisions hereof; provided, that in the event the Grantors have a bona
fide dispute with any such expenses, payment of such disputed amounts shall not
be required until the earlier of the date such dispute is resolved to the
reasonable satisfaction of the Grantors or thirty (30) days after receipt of any
such invoice (and any such disputed amount which is so paid shall be subject to
a reservation of the Grantors’ rights with respect thereto).

 

8.7 Without limiting any of their indemnification obligations under the Credit
Agreement or the other Loan Documents, and without duplication of any fees,
expenses or indemnification provided for under the Credit Agreement and the
other Loan Documents, each Grantor, shall, jointly and severally, indemnify the
Secured Parties and each of their Subsidiaries and Affiliates, and each of the
respective stockholders, directors, officers, employees, agents, attorneys, and
advisors of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold each Indemnitee harmless from, any and all
damages, actual out-of-pocket losses, claims, actions, causes of action,
settlement payments,

 

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obligations, liabilities and related expenses, including the reasonable fees,
charges and disbursements of one counsel for the Agents and one counsel for all
other Indemnitees (other than the Agents), incurred, suffered, sustained or
required to be paid by, or asserted against, any Indemnitee arising out of, in
any way connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document, the performance by any Grantor of its
obligations under this Agreement or any other Loan Document, or the consummation
of the transactions contemplated by the Loan Documents or any other transactions
contemplated hereby, or (ii) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing or to the
Collateral, whether based on contract, tort or any other theory and regardless
of whether any Indemnitee is a party thereto; provided, however, that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (w) are determined by a
court of competent jurisdiction or another independent tribunal having
jurisdiction to have resulted from the gross negligence, bad faith or willful
misconduct of any Agent or such Indemnitee or any Affiliate of such Indemnitee
(or any officer, director, employee, advisor or agent of such Indemnitee or any
such Indemnitee’s Affiliates), (x) are relating to disputes among Indemnitees,
(y) are determined by a court of competent jurisdiction or another independent
tribunal having jurisdiction to have resulted from a breach by such Indemnitee
of its obligations to a Loan Party, or (z) which constitute indirect,
consequential, special or punitive damages. In connection with any indemnified
claim hereunder, the Indemnitee shall be entitled to select its own counsel and
the Grantors shall promptly pay the reasonable fees and expenses of such
counsel.

 

(a) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8.6 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby or thereby, the repayment
of the Loans, the expiration or termination of the Letters of Credit and the
Commitments, the payment of all fees and other Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of any Secured Party. All
amounts due under this Section 8.6 shall be payable promptly after written
demand therefor.

 

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

 

8.9 Waivers; Amendment.

 

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

 

23

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

 

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

 

8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY); AND WAIVES DUE DILIGENCE,
DEMAND, PRESENTMENT AND PROTEST AND ANY NOTICES THEREOF AS WELL AS NOTICE OF
NONPAYMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 8.9.

 

8.11 Severability. Any provision of this Agreement held to be invalid, illegal
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and

 

24

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enforceability of the remaining provisions hereof, and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

 

8.12 Counterparts. This Agreement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy or e-mail shall be effective as delivery of a manually
executed counterpart of this Agreement.

 

8.13 Headings. Section headings used herein are for convenience of reference
only, are not part of this Agreement and shall not affect the construction of,
or be taken into consideration in interpreting, this Agreement.

 

8.14 Jurisdiction; Consent to Service of Process. The Grantors agree that any
suit for the enforcement of this Agreement or any other Loan Document may be
brought in the courts of the State of New York sitting in the Borough of
Manhattan or any federal court sitting therein as the Administrative Agent may
elect in its sole discretion and consent to the non-exclusive jurisdiction of
such courts. The Grantors hereby waive any objection which they may now or
hereafter have to the venue of any such suit or any such court or that such suit
is brought in an inconvenient forum and agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent
may otherwise have to bring any action or proceeding relating to this Agreement
against a Grantor or its properties in the courts of any jurisdiction. The
Grantors agree that any action commenced by any Grantor asserting any claim or
counterclaim arising under or in connection with this Agreement or any other
Loan Document shall be brought solely in a court sitting in the Borough of
Manhattan or any federal court sitting therein as the Administrative Agent may
elect in its sole discretion and consent to the exclusive jurisdiction of such
courts with respect to any such action. Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in Section
8.1. Nothing in this Agreement or any other Loan Document will affect the right
of any party to this Agreement to serve process in any other manner permitted by
law.

 

8.15 Joinder to Security Agreement. As contemplated in the Credit Agreement,
additional Subsidiaries may from time to time become parties hereto and
additional Grantors hereunder by execution and delivery of a Joinder to Security
Agreement. Such Joinder to Security Agreement shall be effective upon delivery
by such additional Grantor, without further action or consent or notice to any
party hereto. Upon delivery of such Joinder to Security Agreement, all
obligations of each Grantor hereunder shall be joint and several with the
obligations of each other Grantor hereunder.

 

8.16 Joinder to Credit Agreement. Each Grantor hereby agrees to be bound by the
terms and provisions of Articles III, V and VI of the Credit Agreement as a
“Loan Party” thereunder.

 

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8.17 Termination; Release of Collateral.

 

(a) Any Lien upon any Collateral will be released (i) automatically, if the
Collateral constitutes property being sold, transferred or disposed of in a
Permitted Disposition upon receipt by the Administrative Agent of the Net
Proceeds thereof to the extent required by the Credit Agreement; or (ii) upon
request of the Lead Borrower, constituting DDA or Blocked Accounts closed by the
Loan Parties pursuant to Section 2.18(f) of the Credit Agreement subject to
compliance by the Loan Parties with all of the terms and conditions of Section
2.18 of the Credit Agreement.

 

(b) Upon at least two (2) Business Days’ prior written request by the Lead
Borrower, the Administrative Agent shall execute such documents as may be
necessary to evidence the release of the Liens upon any Collateral described in
Section 8.17(a); provided, however, that (i) the Administrative Agent shall not
be required to execute any such document on terms which, in its reasonable
opinion, would, under Applicable Law, expose the Administrative Agent to
liability or create any obligation or entail any adverse consequence other than
the release of such Liens without recourse or warranty, and (ii) such release
shall not in any manner discharge, affect or impair the Obligations or any Liens
(other than those expressly being released) upon (or obligations of any Loan
Party in respect of) all interests retained by any Loan Party, including
(without limitation) the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.

 

(c) Except for those provisions which expressly survive the termination thereof,
this Agreement and the Security Interest granted herein shall terminate when (i)
the Commitments have expired or been terminated, (ii) the principal of and
interest on each Loan and all fees and other Obligations (which for purposes of
this clause shall include the Other Liabilities only if the Obligations (as
defined in the Credit Agreement) have been accelerated and Liquidation has
commenced and then only to the extent then due and payable) (other than
contingent indemnity obligations with respect to then unasserted claims) shall
have been paid in full, (iii) all Letters of Credit shall have expired or
terminated (or been cash collateralized in a manner satisfactory to the
applicable Issuing Banks) and (iv) all Letter of Credit Outstandings have been
reduced to zero (or cash collateralized in a manner satisfactory to the
applicable Issuing Banks), at which time the Administrative Agent shall execute
and deliver to the Grantors, at the Grantors’ expense, all UCC termination
statements and similar documents that the Grantors shall reasonably request to
evidence such termination; provided, however, that the Credit Agreement, this
Agreement, and the Security Interest granted herein shall be reinstated if at
any time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Secured Party upon the bankruptcy or reorganization
of any Borrower, Grantor or other Loan Party. Any execution and delivery of
termination statements or documents pursuant to this Section 8.17 shall be
without recourse to, or warranty by, the Administrative Agent or any other
Secured Party.

 

8.18 Supremacy of Credit Agreement and Security Agreement. Notwithstanding any
provisions contained in any Mortgage (including for the purposes of this Section
8.18 any

 

26

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Hypotec of Immovable Property only to the extent that the provisions therein
relate to Real Estate or immovable property) to the contrary, in the event that
there is a conflict between the terms of any representation, warranty or
covenant contained in the Mortgage and an express representation, warranty or
covenant contained in the Credit Agreement or the Security Agreement, the terms
of the Credit Agreement and Security Agreement shall control to the end that the
(A) failure of any Loan Party to comply with the covenants contained in any
Mortgage or (B) the inaccuracy of any representations or warranties of any Loan
Party contained in any Mortgage, shall not constitute a Default or Event of
Default unless it would constitute an Event of Default under the similar
provision of the Credit Agreement or Security Agreement, as applicable. Nothing
contained in this Section 8.18 shall (i) limit or restrict the ability of the
Agents to establish any Reserve relating to any Real Property, (ii) modify or
qualify the definition of Eligible Real Estate or (iii) limit or restrict the
ability of the Administrative Agent or the Canadian Agent, as applicable, to
exercise the rights and remedies available to them under and with respect to any
Mortgage upon the occurrence and during the continuance of an Event of Default
under the Credit Agreement.

 

[SIGNATURE PAGES FOLLOW]

 

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

 

GRANTORS:

 

TOYS “R” US-DELAWARE, INC.

as a Domestic Borrower

By:   /s/ Raymond L. Arthur Name:  

Raymond L. Arthur

Title:   Executive Vice President and Chief Financial Officer

 

S-1

--------------------------------------------------------------------------------

TOYSRUS.COM, LLC

as a Domestic Borrower

By:   /s/ Raymond L. Arthur Name:  

Raymond L. Arthur

Title:   President, Chief Financial Officer and Treasurer

 

S-2

--------------------------------------------------------------------------------

BABIESRUS.COM, LLC

as a Domestic Borrower

By:   /s/ Raymond L. Arthur Name:  

Raymond L. Arthur

Title:   Chief Financial Officer and Treasurer

 

S-3

--------------------------------------------------------------------------------

   

GEOFFREY HOLDINGS, LLC,

as a Facility Guarantor,

By:   TOYS “R” US-DELAWARE, INC., its sole member By:   /s/ Raymond L. Arthur
Name:  

Raymond L. Arthur

Title:   Executive Vice President and Chief Financial Officer

 

S-4

--------------------------------------------------------------------------------

TOYSRUS.COM, INC.

as a Facility Guarantor

By:   /s/ Raymond L. Arthur Name:  

Raymond L. Arthur

Title:   President, Chief Financial Officer and Treasurer

 

S-5

--------------------------------------------------------------------------------

TRU INVESTMENTS, INC.

as a Facility Guarantor

By:   /s/ Raymond L. Arthur Name:  

Raymond L. Arthur

Title:   President and Chief Financial Officer

 

S-6

--------------------------------------------------------------------------------

TRU-SVC, LLC

as a Facility Guarantor

By:   /s/ Raymond L. Arthur Name:  

Raymond L. Arthur

Title:   Assistant Treasurer and Assistant Secretary

 

S-7

--------------------------------------------------------------------------------

ADMINISTRATIVE AGENT:       BANK OF AMERICA, N.A.             By:   /s/ Betsy
Ratto             Name:  

Betsy Ratto

            Title:    

 

S-8